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Oil & Gas Financial Journal® (ISSN: 1555-4082) is published 12 times per year, monthly by PennWell, 1421 S. Sheridan Rd., Tulsa, OK 74112. Periodicals Postage Paid at Tulsa, OK, and addi-tional mailing offices. POSTMASTER: Send address changes to Oil & Gas Financial Journal, 1421 S. Sheridan Rd., Tulsa, OK 74112. Change of address notices should be sent promptly with old as well as new address and with ZIP or postal code. Allow 30 days for change of address. Copyright 2013 by PennWell. (Registered in US Patent & Trademark Office.) All rights reserved. Permission, however, is granted for libraries and others registered with the Copyright Clearance Center Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, Phone (508) 750-8400, Fax (508) 750-4744, to photocopy articles for a base fee of $1 per copy of the article, plus 35 cents per page. Payment should be sent directly to the CCC. Federal copyright law prohibits unau-thorized reproduction by any means and imposes fines up to $25,000 for violations. Requests for bulk orders should be sent directly to the Editor. Back issues are available upon request.
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CONTENTS
2 www.ogfj.com • Oil & Gas Financial Journal July 2013
5 Editor’s Comment
6 Capital Perspectives
10 Upstream News
12 Midstream News
32 Deal Monitor
34 OGFJ100P
42 Industry Briefs
45 Energy Players
64 Beyond the Well ➤
20 Forecasting shale oilTo forecast shale oil production, look
at the detailed geology of the forma-
tions, the empirical production data at
well level, and company budgets and
spending plans.
23 UAE MinisterSuhail Mohamed Faraj Al Mazrouei
talks about the rapid growth of the
UAE and its diversifying energy port-
folio.
26 Fraud protectionWith every oil boom, comes fraud.
Most of the attention centers on
fraudulent stock scams. What doesn’t
garner as much notice is fraud against
oil and gas companies themselves.
29 Legacy lawsuits Louisiana legacy lawsuits create
unknown risks for some E&P compa-
nies.
31 Canadian shaleCanada is in the early stages of devel-
oping its unconventional resources. A
large portion of the nation’s produc-
tion potential has yet to be unlocked.
48 Special Report: Denmark
14COVER STORY: In an interview with OGFJ, Crédit
Agricole managing director David
Havens talks oil markets and invest-
ment indicators.
ON THE COVER: Crédit Agricole managing director
David S. Havens.
1307ogfj_2 2 7/2/13 10:47 AM
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Michael A. Cinelli, Baker Botts LLP
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Maynard Holt, Tudor, Pickering, Holt & Co.
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Jaryl Strong, BHP Billiton
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NEWSLETTERS
OGFJ has four monthly electronic newsletters to keep you informed. In addition to our long-standing Shale Monitor and Global Shale Monitor, The Regulatory Monitor shines a light on key federal, state, and local regulatory issues that impact the oil and gas industry. The OGFJ Midstream Report focuses on the financing, construction, and implementation of facilities needed to transport and process greater volumes of crude oil, natural gas, and NGLs. Sign up to receive OGFJ’s newsletters today at ogfj.com/subscribe/enewsletter-subscribe.
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Find OGFJ on Twitter (@OGFJ) and join the Oil & Gas Financial Journal group on LinkedIn. Follow along with other petroleum industry executives, managers, analysts, and investors looking for credible, useful information about oil and gas industry develop-
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FEATURED STORIES ▼Find featured content and up-to-date news on OGFJ.com. Read about trends in physical US natural gas trading volumes, get analysis on Marathon Oil’s $1.5B sale of Angolan assets, and learn more about Crosstex’s terminal facilities to export Utica Shale production. Get all this, and more, on OGFJ.com, every day.
1307ogfj_4 4 7/2/13 10:48 AM
July 2013 Oil & Gas Financial Journal • www.ogfj.com 5
Editor’s Comment
Don Stowers
Editor-OGFJ
Cheap domestic energy is driving US economy
Guess what? The US manufac-turing industry that has been proclaimed dead by econo-
mists, analysts, and editorial writers for decades is making a comeback. And the domestic energy industry can claim par-tial credit for this amazing turnaround.
The BoyarMiller law firm recently held a conference in Houston that examined this dramatic reversal and the impact that abundant, low-priced natural gas has had on the manufac-turing sector. One takeaway from the event is that while investors are inject-ing more capital into energy, particu-larly the oil and gas business, the lack of a sensible long-term energy policy and fragile global economies elsewhere continue to have an effect on investor confidence.
“The energy industry is a signifi-cant driver for Houston’s growth and an important part of our practice,” said Bill Boyar, the law firm’s founder and former chairman. “We host the energy forum each year providing current trends and developments to help our clients stay ahead of the curve and make smart, informed business decisions.”
One of the speakers, David Pursell of Tudor, Pickering, Holt & Co., called for the administration to approve con-struction of the Keystone XL pipeline. “Reversing the flow in segments of existing pipeline rather than building new pipe according to specifications is insufficient,” he said. “A signifi-cant amount of the heavy crude from Canada is already being transported to the Gulf Coast by rail and will continue to do so for the next decade.”
Carbon emissions actually reached a 20-year low in 2012, according to Pursell, managing director and head of securities at TPH. He says this is a long-term trend that is due in part to less expensive natural gas replacing dirtier coal for power generation.
“We are producing more natural gas, and we are doing it with fewer rigs,” said Pursell. “For years we couldn’t grow natural gas production, and now we are doing it with fewer and fewer rigs. This is the best thing that has hap-pened to the US economy, especially in the manufacturing sector driven by natural gas and electricity, making it cheaper and globally competitive.”
US law prohibits the export of domestic crude, but increased supply, combined with the export ban, means there will be a disconnect between the pricing of oil in the US and everywhere else. As US crude becomes less expen-sive, refiners can export refined prod-uct, which is good for refineries and for the areas where they are located.
“Producers are becoming victims of their own success, making less money due to the increased supply of oil and natural gas,” Pursell said. “The people who will profit are companies that transport and refine it.”
Tom Hargrove, managing director with GulfStar Group, discussed capital markets and their impact on the energy industry.
“An estimated 80% of wells are now non-vertical, and from a capital standpoint, horizontal drilling requires more equipment, services, and people than vertical drilling,” he said. “The Gulf of Mexico has recovered from the Deepwater Horizon spill with increased activity in deepwater exploration. We see new rigs moving into the market and once-rare deepwater production platform orders are now on backlog.”
Hargrove noted that there is a huge demand for capital from pipeline ser-vice companies.
“New pipelines are needed to transport product from the unconven-tional oil and gas fields to processing facilities,” he said. “Pipeline construc-tion miles are projected to increase to approximately 41,000 in 2013, up from 36,000 in 2012, and total pipeline con-struction expenditures are expected to reach $41 billion in 2013 – a $7 billion increase from 2012.”
In addition, an estimated $95 billion worth of processing plants are planned domestically, according to a Dow Chemical executive.
James Wallis, a vice president at Lime Rock Partners, talked about private equity and noted that a “renaissance” in the US oil and gas industry is underway.
“We’ve all heard the news,” he said. “The industry has reversed a decades-long trend of declining crude oil production, and natural gas production continues to grow despite a significant drop in its pricing and the number of rigs drilling for it.”
Recent advancements such as simul-taneous fracking, real-time microseis-mic monitoring, nanoscale reservoir analysis, and pad drilling individually are evolutionary rather than revolution-ary, but combined have made a big impact on the industry’s understand-ing of tight reservoirs and its ability to develop “bad rock” more efficiently, Wallis added. The end result is a dramatic increase in the amount of oil and gas resources that can be profitably developed today.
Decreased dependence on energy imports will lower our foreign trade deficit, strengthen the US dollar, and will have implications on foreign policy, he added. “The US is becoming more self-reliant. Our technologies and techniques will be exported, and tight oil will fill a really big gap in future global supplies that existed previously. It is turning into a big solution for the US and the world and that’s good for everybody.” OGFJ
1307ogfj_5 5 7/2/13 10:48 AM
Capital Perspectives
6 www.ogfj.com • Oil & Gas Financial Journal July 2013
Imre SzilágyiExploration geologist and petroleum economist
Budapest, Hungary
In economic evaluations, cash-flow forecasts are normally based on the Mean values of the variables determin-ing future revenues, expenditures, and costs, while the
associated investment risk is taken into account in the cost of capital. To assist investors in assessing their cash-flow and risk expectations, oil and gas companies disclose all the informa-tion related to the fundamentals on what the actual asset pricing is taking place. In this view, the Reserves are the most important fundamentals of upstream business ventures.
Questions on resource evaluationsThe disclosure of reserves is meticulously elaborated in the regulations and guidelines of the Securities and Exchange Commission (SEC) and SPE with the outspoken objective of the protection of investors’ security interests. Led by this rationale, the listed oil companies are obliged to report those portions of undeveloped and developed resource volumes for what the commerciality is thought unquestionable. However, volumes of discovered resources subject to appraisal are not reported as reserves despite the fact that the positive NPV of the appraisal projects should obviously add to the com-pany’s value. How much value can investors attribute to the appraisal projects if they have no information on the discov-ered volumes to be appraised?
On the other hand, the reported reserves are always based on a technically recoverable volume that is less than the Mean value of the estimate. Presuming the proportionality of the recoverable resources and the cash-flow expectations of the field development projects, we can conclude that the cash-flows based on the Mean would be more than those based on a less recoverable volume.
The current practice seems like a precautionary measure that serves to diminish investor risk that arise from the fact
that estimation of recoverable volumes is uncertain. How-ever, is that the best way to manage such risks?
Evaluation of the uncertainty of resource estimates is one of the most important issues affecting the petroleum indus-try, but interestingly it does not have any effect on resource valuation. Nevertheless, it is the conclusion to be drawn from the fact that recoverable resource volumes, regardless of the uncertainty, are discounted at the same rate. Is it really true that appraisal, green and brown field development projects, are characterized by the very same investment risk? To have the answers, we have to see the details.
Probability-driven reserve reporting and the expected valueMost publicly-traded oil companies follow the Petroleum Resources Management System (PRMS) guidelines for petroleum resources categorization. The PRMS defines the technically recoverable volume of a discovered petroleum accumulation as a random variable with lognormal distribu-tion (See Figure 1).
Under the terminology used by the PRMS, the P50 is the estimated quantity of petroleum for what there should be at least 50% probability that the quantities actually recovered
The value of petroleum resources:analyses of cash-flows and uncertainties
NOTE FROM THE AUTHOR: Following guidelines from the Society of Petroleum Engineers (SPE), most oil companies disclose 1P and/or 2P Reserves. It is, however, ascertain-able that cash-flow forecasts based on these reported volumes are less than what investors can expect on the grounds of the probability theory. Furthermore, the uncer-tainty of the estimations is apparently ignored as an invest-ment risk due to the fact that resources, regardless of their uncertainties, are discounted by the same rates. This article analyses the consequences of these two oddities on the valuation of petroleum resources.
Fig. 1: Probalistic Resources CategorizationModel of the Petroleum ResourceManagement System
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%10 30 50 70 90 110 130 150 170
P ; p
Probability density function
Cumulative probability function
Quantity of recoverableresources
Mean
MIN P90
P90
P50
P50
P10
P10
MAX
1307ogfj_6 6 7/2/13 10:48 AM
Capital Perspectives
July 2013 Oil & Gas Financial Journal • www.ogfj.com 7
will equal or exceed the estimate. P90 and P10 are the minimum quanti-ties with at least 90% and 10% prob-abilities, respectively. Deterministically approached, the probabilistic P90, P50 and P10 are replaced by the Low, Best and High Estimates (LE, BE and HE).
The Reserves are the commercial (economic and marketable) subsets of the resources. The Proved (1P) Reserves are derived from the P90/LE volumes, the Proved and Probable (2P) Reserves are subsets of the P50/BE estimates, while the Proved, Probable and Possible (3P) are given based on the P10/HE resource category. Annual reports most often present the 2P Reserves and some companies disclose the 1P, too.
That is fine, but….once we start thinking about the lognormal behavior of the random variable recoverable resource volumes (Figure 1) the obvi-ousness of taking the P50/BE estimate for the base of economic evaluation is questioned. It is found that the Expected Value (Mean) of the recover-able volumes differs from the P50/BE. The separation of the P50/BE and the Mean is attributed to the right-hand side skewness of the lognormal Probability Density Function.
From one point it seems correct to consider the P50/BE because this is the volume that is most likely forecasted to pro-duce. However, that may not be correct because the Mean is the quantity of petroleum that is in fact expected to recover. An argument on behalf of using the Mean instead of the BE/P50 could be that in future predictions usually the statistical Mean is relied upon if the distribution of the random variable is other than normal (e.g. Poisson, binomial or exponential).
In the case of probabilistic analyses, the Mean is auto-matically calculated. In deterministic estimations, it can well be assessed using the Swanson formula where it is given as the weighted average of the Low, Best and High Estimates (Mean ≈ 0.3xLE + 0.4xBE + 0.3HE).
As shown in Figure 1, due to the lognormality the Mean, it is always more than the BE/P50. Is the difference relevant? It depends on the “flatness” and the “skewness” of the Prob-ability Density Function of the distribution. (“Flatness” can be given as the ratio of the Minimum and the Best Estimate; while “Skewness” is the ratio of the Maximum minus Best Estimate and the Best Estimate minus Minimum differences).
Figure 2 presents that the difference of the Mean and the BE/P50 ranges between 2-15% in a flatness and skewness domains being typical of recoverable resources. I think a
2-15% difference is relevant.Logically, if the Mean of the recoverable resource is more
than the BE/P50 estimate the Reserve based on the Mean would be more than the 2P. Assuming the proportional-ity between resource volumes, reserves, and cash generation estimations, we can conclude that the Mean-based cash-flows might be 2-15% more than those of the 2P-based. The conclusion suggests that the prevailing (2P) reserve reporting practice may devaluate the investors’ cash-flows at the NPV calculations. The devaluation is even more if cash-flow expec-tations are set based on the 1P reports.
In special circumstances, there may be logic behind relying upon a value that is less than “normally” expected. The rationale behind this consideration might obviously be a kind of risk aversion. Cash-flow is usually cut back if the investor perceives extra risk over the market risk. I think in our case the logic is false. The uncertainty of the resource volume estimations is as “natural” as it is for example the uncertainty of estimates made on prices, revenues, or costs. Therefore it seems a bit of unneces-sary precaution to devaluate cash-flows just because the estimations of resource volumes are uncertain.
Resources subject to appraisalSo far we have been talking about recoverable resources that are ready for field development. Are the assumptions above
Rela
tive d
evia
tio
n o
f M
ean a
nd
Best
Est
imate
Fig. 2: Relative deviation of the Mean and the BestEstimate of the recoverable resources in the functionskewness and fatness of the Probability Density Function
35%
30%
25%
20%
15%
10%
5%
0%
1,0 1,2 1,4 1,6 1,8 2,0 2,2 2,4 2,6 2,8 3,0
Skewness [(MAX-BE)/(BE-MIN)]
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Fla
tness
(M
IN/B
E)
1307ogfj_7 7 7/2/13 10:48 AM
Capital Perspectives
8 www.ogfj.com • Oil & Gas Financial Journal July 2013
extendable for those resources that have been discovered but still require appraisal? As these volumes also have a lognor-mal behavior the P90/LE, P50/BE and P10/HE recoverable quantities, as well as the Mean can be given.
The PRMS characterizes these resources that are immature for field development and therefore suggests categorizing them as contingent resources. The approach is apparently correct, but… the appraisal project targeting these resources must have a positive NPV, otherwise management would not approve them. If the NPV is there, it adds to the com-pany value. Should we want the investors to valuate these NPV during the asset pricing, exercising the disclosure of the recoverable resources subject to appraisal seems to be justified.
Resources subject to appraisal are attributed with relevant uncertainties and risks, including but not limited to their com-merciality, but I doubt those uncertainties should block the disclosure. I think the inves-tors will be able decide whether and how the risks and uncertain-ties should be treated.
Correlation of uncer-tainty and investment riskWhen talking about risks I want to clearly separate project and investments risks. Technical, economic, and commercial risks are project risks that are managed by well-known evalua-tion methodologies and are quantifiable with a standard sen-sitivity analyses resulting in several types of thresholds. Under the scope of this study, I am dealing with the investment risk that is interpreted in the investor’s portfolio context. The proper question is whether the uncertainty of the resource estimations represents an investment risk or not.
Regarding the uncertainty of the resources, the PRMS advises companies to determine the P90/P50/P10 or the LE/BE/HE. In fact, it is a genuine categorization of the recover-able resource volume of an accumulation, but it may not be a proper answer for the question as to how much risk, based on the volume estimation’s uncertainty we face against our investments.
Considering the uncertainty, it may be better to use the term “randomness” that we humans in general feel some-thing the more uncertain the greater deviations we can perceive from the “average.” In financing and engineering, as well as in the natural and social sciences, the measure of the uncertainty (randomness) is always the variance (or its square root, the standard deviation). Why is it not like that in the field of petroleum resources management?
The variance could easily be determined, but unfortu-nately it would not be very informative on the uncertainty of the actual recoverable volume. If we had a global database of petroleum accumulations populated with the variances, it would be very easy to set up an “objective” uncertainty categorization guideline. However, no such database is available, and therefore a variance figure alone tells us little
about the overall uncertainty of a resource volume.
Although we can quantify that, in fact we are relying on our perceptions when we “classify” the uncertainty. In the case of recov-erable volumes of discovered petroleum accu-mulations, our perception on the uncertainty is connected to the quantity and quality (reliability and relevancy)
of the available information on the reservoir and the flu-ids. Once a discovery is made by a wildcat well, the actual purpose of the resource evaluation is to decide what the next step reasonably should be.
If we perceive that the available data in terms of quantity and/or quality are insufficient to start the field development, we propose to capture additional data and information in hopes that our uncertainty will lessen. The project to start at this point is the appraisal. Once the uncertainty of the resource estimation is perceived “low enough” to launch the field development, we propose that.
Upon completion of the field development after a certain period of production with a careful onward monitoring, we may try to perform a new resource evaluation by reservoir simulation or by a non-volumetric estimation method (mate-rial balance, decline curve analyses). Obviously the uncer-tainty of these estimations is much lower than it is prior to or
Unce
rtain
ty
Maturity
Appraisal Field Early Mature Appraisal Field Early Mature production productiondevelopment
High uncertainty
resources
Medium uncertainty
resources
Low uncertainty
resources
Fig. 3: Maturity driven resource uncertainty categorization
1307ogfj_8 8 7/2/13 10:48 AM
Capital Perspectives
July 2013 Oil & Gas Financial Journal • www.ogfj.com 9
in the course of the early production. In light of the above assumptions, I conclude that the
uncertainty categorization of the recoverable resources is in fact based on a perception of the uncertainty. Our perception relies on the quality and quantity of the available information, with other words on the maturity. In this regard, three uncer-tainty categories may be proposed as follows (Figure 3): High Uncertainty Resources are those discovered volumes that are subject to further appraisal before the field develop-ment may commence.Medium Uncertainty Resources are volumes subject to field development and/or are under early (immature) production. The term “early” refers to the judgment that the captured production information may not result in considerably lower uncertainty than that perceived prior to the field develop-ment phase.Low Uncertainty Resources are volumes estimated on the ground of a non-volumetric production forecast method in the mature production stage. The term “mature” refers to the judgment that the captured production data allows the relevant reduction of uncertainty compared to the earlier “immature” production phase.
In line with the antecedents above, the quantities of the High, Medium, and Low Uncertainty Resources are the respective Mean values. In my approach the Means are subject to economic analyses, and the cash-flows of the given projects represent the investors’ expectations.
Now we have arrived at the question as to whether the resource estimation uncertainty has any effect on the risk of upstream project investment. Currently, in a company with the same weighted average cost of capital (WACC), this estimation is applied to the NPV calculations regardless of the project maturity status (appraisal, field development, or mature production). It suggests that investors may find all three upstream project types equally risky. Is it an agreement based on common sense, or is it just a slap-dash routine?
Some arguments may be aligned to challenge the approach above. We should consider that the exposure of the appraisal projects might be much higher to economic cycles or to oil price expectations than that of the field development projects (and, accordingly, field development projects might be more sensitive to market variations than the mature production projects are). In other words, investments made into apprais-als seem riskier than the field development projects, which are riskier than the investments in mature production. If that be the case, higher risks should see higher costs of capital.
The cost of capital is the function of the beta being the indicator of the investment’s relevant risk (the higher the beta is the more sensitive the investment is to market variations). Should we accept that the uncertainty of resources estima-tions triggers a kind of relevant risk, we might conclude that it is be reasonable to introduce different “project betas” for the different uncertainty categories. The project betas may
increase with the growth of resource uncertainty. The other option to modify the cost of capital might
be the introduction of a risk premium. Should we accept that the currently applied discount rate matches the risk of “normal” field developments targeting Medium Uncer-tainty Resources, the High Uncertainty Resources (subject to appraisal) might be discounted by a rate with a positive pre-mium while in case of the Low Uncertainty Resources (sub-ject to mature production) the premium could be negative.
I must admit here that at the moment I can quantify nei-ther the “project betas” nor the magnitudes of risk premium. My assumptions are merely theoretical. Empirical evidences would be of a great importance. Unfortunately, if companies continue reporting their 1P and/or 2P Reserves only, and the Mean values of the Low, Medium and High Resources remains shadowed the evidences shall never be surfaced.
Summary and conclusionsMost publicly-traded oil companies report reserves according to the guidelines laid down in the SPE’s Petroleum Resources Management System. In the study above, I demonstrated that – besides Reserves – the disclosure of the Mean value of the technically recoverable resources may better assist investors in setting cash-flow expectations.
Discussing the uncertainty of resource estimations I con-clude that in fact it is connected to the maturity status of the actual project. Under this categorization approach, resources subject to appraisal are named as High Uncertainty Resources. Accordingly, recoverable volumes subject to field develop-ment and early production are referred as Medium Uncer-tainty Resources while the category name for the quantities of mature production could be Low Uncertainty Resources.
The correlation between the resource estimations’ uncer-tainty and the investment risk of the appraisal, field develop-ment, and mature production projects is still questionable. The dissimilar sensitivity of the different project types to eco-nomic cycles suggests that the correlation exists. However, empirical evidence would be gained if oil companies would disclose the High, Medium, and Low Uncertainty resource volumes, allowing the investment community to properly valuate them. OGFJ
About the author
Imre Szilágyi is an exploration geologist and pe-troleum economist based in Budapest, Hungary. He currently works as an independent advisor and lecturer. Szilágyi recently completed a study dealing with petroleum resources’ valuations. He holds an MS degree in geology from Eötvös Loránd University of Budapest and an MBA from Budapest University of Technology and Economics. He can be reached at [email protected].
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10 www.ogfj.com • Oil & Gas Financial Journal July 2013
Upstream News
Chesapeake, foreign partners set for big US shale spend in 2013
Analyzing Evaluate Energy’s recently released 2013 capital expenditure and
average well cost data for the major US shale plays, it becomes clear that foreign companies will have a huge infuence on how the industry develops over the coming year. Joint ventures involving foreign investors, which have been entered into over the past few years, have budgeted to spend big this year, and will be amongst the biggest spenders in the country for the second year in a row. It will be a big year in particu-lar for Chesapeake Energy (CHK), a company with foreign joint ven-ture partners in fve US plays. The company and its various partners are estimated to be the biggest spend-ers among companies with available drilling plan data in three of those fve plays in 2013.
MarcellusThis play is still very much a US stronghold in terms of ownership, and this year’s drilling CAPEX bud-get graph (Fig. 1) still shows this. However, Chesapeake’s arrange-ment with Norwegian Major Statoil (STO) is estimated by Evaluate Energy to the biggest budgeted spender in the play for the second year in a row, and to be drilling the most wells.
These, and especially Chesa-peake’s, may seem high spends in the current climate for what is primarily a gas play, but the Marcel-lus has seen lots of drilling com-pleted and data collected in the past 5 years, meaning the play has become a very low-risk environ-ment close to a crucial demand center, with reasonably low average well costs. Range Resources Corp. (RRC), despite being the lowest of the “big-spenders” on the above
chart, are drilling at an average cost of $5 million per completed well, $2.7 million cheaper than the average for the play, as estimated by Evalu-ate Energy.
Eagle FordThe Eagle Ford has seen far more foreign activity in the M&A market over the last few years than the Marcellus, and these investors are clearly not set to sit back for a gentle ride over the next year. Chesapeake again have the highest spend budget (Fig. 2), along with Chinese state-owned CNOOC this time, and fellow Asian companies Reliance Industries (RIL) and GAIL also have signifcant plans for the year ahead with their respective partners. Joint venture agreements with foreign companies make up almost half of the top 10 estimated/reported budgets for the play in 2013.
Big spends here are to be expected, as they were last year, due to the high oil content in large areas of the formation. Chesapeake’s joint ven-ture CAPEX budget with CNOOC is the big change from last year in the play, and the outstanding statistic, being almost three times larger than the estimated budget in 2012. Carrizo’s (CRZO) new agreement with Indian NOC, GAIL, is also noteworthy as it has enabled an increase of around
Fig. 1: Marcellus 2013 Capex budgets
Source: Evaluate Energy
0 200 400 600 800 1000 1200 1400
US$ Millions
Chesapeake/Statoil
EQT Corp.
Antero Resources
Noble Energy
Southwestern
Cabot Oil & Gas
Range Resources
US/foreign JV
US company
Fig. 2: Eagle Ford 2013 CAPEX budgets
Source: Evaluate Energy
0 500 1000 1500 2000 2500 3000 3500
US$ Millions
Chesapeake/CNOOC
EOG Resources
Marathon
Anadarko
Talisman/Statoil
Pioneer/Reliance
ConocoPhillips
SM Energy
Rosetta Resources
Carrizo/GAIL
US/foreign JV
US company
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July 2013 Oil & Gas Financial Journal • www.ogfj.com 11
Upstream News
$200 million on the company’s spend last year, squeezing the joint ven-ture into the top 10 budgets for the year, from available data.
UticaThe Utica in Ohio is another play where Chesapeake and its foreign joint venture partner are planning a big year. The data here is even more strik-ing (Fig. 3), with Chesapeake and French major Total (TOT) estimated to be spending over four times more than the second highest reported budget in 2013.
Chesapeake will maybe feel they have a point to prove in this play. In 2011, the company sparked a rush for land in Ohio after initial well results from Chesapeake predicted large oil content in the play, however well data from the Ohio Department of Natural Resources has since shown that, in the main, the play has been producing gas. This is probably the main rea-son behind the low CAPEX budgets set by other companies in the play, as new gas wells, especially at the relatively high average well cost for 2013 in the Utica of around $10 million, are not something many companies will be drilling in the current climate of low prices and already abundant sup-ply. But Chesapeake and its partner Total will defnitely be leading the way in trying to turn the fortunes of this play around, if it is at all possible.
Following the disappointing results in the Utica, this year could well turn out to be pivotal for Chesapeake’s future. The joint venture’s budget in the Utica of around $2.2 billion is a large estimated outlay for Chesa-peake, even if the 60% drilling carry from Total is taken into account, for wells that will be primarily gas prone. The company, and of course its partners, will be hoping that large spends in the lower cost environments of the Marcellus and the Eagle Ford – the plays have an average completed well cost for 2013 of around $7.7 million and $7.5 million respectively – will reap enough reward to cover potential hardship should the data from Ohio continue in this disappointing trend.
This report was created using Evaluate Energy’s collection of approxi-mately 200 estimated and reported US and Canadian shale play capital expenditure budget fgures, drilling plans and average well costs for 2013. The data covers 11 plays: Bakken, Barnett, Duvernay, Eagle Ford, Fayette-ville, Haynesville, Marcellus, Montney, Niobrara, Tuscaloosa Marine and the Utica. All fgures correct as of May 1st, 2013.
— Mark Young, Evaluate Energy
Noble Energy makes new offshore discoveries
Noble Energy Inc. has discovered natural gas at the Karish pros-pect offshore Israel and oil at
Gunfint in the Gulf of Mexico (GoM).The discovery well offshore Israel
was drilled to a total depth of 15,783 feet and encountered 184 feet of net natural gas pay in lower Miocene sands. The Karish well, located in the Alon C license approximately 20 miles north-east of the Tamar feld, is in 5,700 feet of water. Discovered gross resources, combined with the de-risked resources in an adjacent fault block on the license, are estimated to range between 1.6 and 2.0 trillion cubic feet (Tcf) with a gross mean of 1.8 Tcf.
The Karish discovery is the ffth discovered feld with an estimated gross mean resource size over 1 Tcf. It is also the seventh consecutive feld discovery for Noble Energy and its partners in the Levant Basin. With the addition of Kar-ish and the recent increase in resource estimates at Tamar and Leviathan, total discovered gross mean resources in the Levant Basin are now estimated to be approximately 38 Tcf.
Noble Energy is the operator of the Alon C license with a 47.06% interest. Co-owners are Avner Oil and Delek Drilling each with a 26.47% interest.
The company also confrmed deepwater oil at Gunfint in GoM on June 25. The second appraisal well at the Gunfint feld found 109 ft of net oil pay. The Mississippi Canyon 992 No. 1 well, 1 mile west of the original discovery well, was drilled to a total depth of 32,800 ft in a water depth of 6,100 ft. Results of drilling, wireline logs, and reservoir data have confrmed an estimated gross resource range of 65 to 90 MMboe in the primary struc-ture. Noble Energy operates Gunfint with a 31.14% working interest. Other partners in the project are Ecopetrol America Inc. (31.5%), Marathon Oil (18.23%), and Samson Offshore LLC (19.13%).
Fig. 3: Utica 2013 CAPEX budgets
Source: Evaluate Energy
0 500 1000 1500 2000 2500
US$ Millions
Chesapeake/Total
Hess/CONSOL
Gulfport
Halcon
Antero Resources
PDC Energy
US/foreign JV
US company
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12 July 2013 Oil & Gas Financial Journal • www.ogfj.com
Midstream News
Crosstex offers additional solutions to Utica producers, expands Riverside
Crosstex Energy LP has re-activated its Black Run rail loading terminal and completed the Phase II expansion of its Riverside facility, offering addi-
tional midstream solutions to producers. Located in Frazeysburg, Ohio, on the Ohio Central
Railroad (OHCR), the Black Run rail loading termi-nal allow the export of Utica Shale light oil condensate production. The Black Run facility is a state-of-the-art 20-car rail rack with tracking gangways designed to top load multiple products, including light oil condensate and various grades of crude oil, at a rate of 24,000 barrels per day. The Black Run rail terminal is the first facility to move light oil condensate out of the region to premium-priced refinery and petrochemical markets.
“The re-activation of our Black Run rail facility enables us to offer producer customers in the Utica Shale an im-mediate midstream solution to export their products to out-of-region markets to maximize value for our custom-ers,” said Barry E. Davis, Crosstex president and CEO.
The OHCR is a 70-mile short line freight railroad that interchanges with the Columbus and Ohio River Railroad, CSX Transportation, Norfolk Southern, Ohio Southern Railroad and Wheeling and Lake Erie Railway. The Black Run terminal, adjacent to the partnership’s oil gathering pipeline, will leverage the partnership’s existing tankage and piping, as well as the capabilities of its truck fleet in the Ohio River Valley.
Additionally, the company has recently increased its Riverside’s crude oil transloading capacity with the completion of the southern Louisiana facility’s Phase II expansion. The Riverside facility’s capacity to transload crude oil from railcars to the partnership’s barge facility has increased to approximately 15,000 barrels of crude oil per day.
Phase II additions to the Riverside facility include a 100,000 barrel-per day above-ground crude oil storage tank, a rail spur with a 26-spot crude railcar unload-ing rack, and a crude offloading facility with pumps and metering as well as a truck unloading bay. As part of the Phase II expansion, Riverside also was modified so that sour crude can be unloaded in addition to sweet crude.
Devon Energy to form midstream MLP
Devon Energy Corp. has approved a plan to form a publicly traded midstream master limited partner-ship (MLP). The MLP is expected to initially own
a minority interest in Devon’s US midstream business. This business includes natural gas gathering and process-ing assets located in Texas, Oklahoma, and Wyoming.
Devon expects the MLP to file a registration statement with the Securities and Exchange Commission (SEC) in the third quarter of 2013. Subject to market conditions, an offering of partnership units in the MLP would follow registration with the SEC. Devon will own the general partner of the MLP, all of its incentive distribution rights, and a majority of its common units following comple-tion of the initial public offering. Devon expects to utilize proceeds from the sale of MLP common units to fund its continuing operations.
Enterprise, Western Gas form JV for ownership of NGL fractionation trains
Enterprise Products Partners LP announced June 12 that it has entered into a joint venture (JV) with Western Gas Partners LP, to own natural gas liquid
(NGL) fractionation trains 7 and 8, which are currently under construction at Enterprise’s complex in Mont Belvieu, Texas. Western Gas has acquired a 25% minority ownership interest in the JV, and Enterprise retains the remaining 75% ownership interest. Trains 7 and 8 have a design capacity to fractionate approximately 170,000 barrels per day (BPD) of NGL, and are expected to begin commercial operations in the fourth quarter of 2013.
Enterprise Products Partners LP is a North American provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined prod-ucts and petrochemicals. Western Gas Partners LP, is a Delaware master limited partnership formed by Anadarko Petroleum Corp. to own, operate, acquire and develop midstream energy assets.
Constitution Pipeline seeks FERC approval to construct Marcellus connection
Constitution Pipeline Company LLC, a limited li-ability company owned by subsidiaries of Williams Partners LP, Cabot Oil & Gas Corp., Piedmont
Natural Gas Co. Inc., and WGP Holdings Inc., has filed an application with the Federal Energy Regulatory Com-mission (FERC) seeking approval to construct a 122-mile pipeline connecting domestic natural gas production in northeastern Pennsylvania with northeastern markets by spring 2015. The Constitution Pipeline has been de-signed to transport up to 650,000 dekatherms of natural gas per day (enough natural gas to serve approximately 3 million homes) from Williams Partners’ gathering system in Susquehanna County, Pa., to the Iroquois Gas Trans-mission and Tennessee Gas Pipeline systems in Schoharie County, N.Y. The capital cost of the project is estimated to be $683 million. Since last spring Constitution Pipe-line Company has been involved in the FERC pre-filing
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July 2013 Oil & Gas Financial Journal • www.ogfj.com 13
Midstream News
process, soliciting input from citizens, governmental enti-ties and numerous other interested parties to identify and address issues with the proposed pipeline alignment. The pipeline route filed with the FERC this month reflects changes to more than 50% of the original pipeline align-ment – most as a direct result of stakeholder input. The 30-inch underground transmission pipeline would stretch from Susquehanna County, PA, into Broome County, NY, Chenango County, NY, Delaware County, NY, and terminate in Schoharie County, NY. Williams Partners owns a 41% share of Constitution Pipeline and, through its affiliates, will provide construction, operation and maintenance services for the new pipeline. Through their subsidiaries, Cabot owns a 25% share, Piedmont Natural Gas owns a 24% share and WGL owns a 10% share of the company.
First Reserve helps establish Century Midstream with investment up to $500M
Energy private equity firm First Reserve and a veteran management team have formally launched Century Midstream LLC, a new energy company
focused on the development, acquisition and expansion of midstream assets across North America, with an emphasis on emerging liquids and liquids-rich shale plays. First Re-serve will support Century with up to US$500 million of equity capital to co-found the company. The new Hous-ton, TX-based company will be led by Joseph A. Blount, Jr. as CEO with John Howard serving as president and COO. Blount and Howard are joined by Jim Avioli, Jr. as senior vice president of business development and Brian Raber as senior vice president of engineering. Blount previously served as president and COO of NiSource Midstream & Minerals Group.
Chevron confirms first cargo from Angola LNG
Chevron Corp.’s subsidiary Cabinda Gulf Oil Company Ltd. confirmed that initial production of liquefied natural gas (LNG) has commenced
at the Angola LNG project. Angola LNG is one of the largest energy projects on the African continent. The $10 billion project will collect and transport natural gas from offshore Angola to an onshore liquefaction plant on the coast near the Congo River. The project has the capac-ity to produce 5.2 million metric tons per year of LNG, 63,000 barrels per day of natural gas liquids for export and 125 million cubic feet per day of natural gas for domestic consumption. “The project represents the first LNG project in Angola, and it is expected to contribute to the development of Angola’s natural gas industry,” said
Ali Moshiri, president of Chevron Africa and Latin Ameri-ca Exploration and Production Company. Angola LNG plans to use associated natural gas produced from exist-ing crude oil operations operated by Chevron and other partners as well as new non-associated gas from other offshore fields. The project is expected to reduce natural gas flaring and greenhouse gas emissions from offshore producing areas, and support continued offshore oil field development. Chevron’s subsidiary, Cabinda Gulf Oil Co. Ltd., has a 36.4% interest in the joint-venture, along with Sonangol with a 22.8% interest and subsidiaries of Total, BP and ENI, each with a 13.6% interest.
Second phase of Sadara integrated chemicals project financing signed
The second phase of the financing for the construc-tion of Sadara Chemical Company’s integrated pet-rochemicals production complex in Jubail Industrial
City II, Saudi Arabia was signed on June 16, raising an aggregate of US$12.5 billion. Sadara is a joint venture between The Dow Chemical Company and Saudi Arabian Oil Company. This financing is the largest ever multi-sourced project financing in the petrochemicals sector and among the largest project financings undertaken in the EMEA region. This integrated hydrocarbon and chlorine-based production complex will include 26 manufacturing units (notably a mixed feed steam cracker and an aromat-ics plant) as well as three on-site third party process units, and extensive supporting infrastructure. This phase of the financing involved the participation of seven export credit agencies, including COFACE (of France), Euler Hermes (of Germany), FIEM (of Spain), K-Exim and K-sure (both of Korea), UK Export Finance (of the United Kingdom) and US Ex-Im Bank (of the US). The lenders included Saudi Arabia’s Public Investment Fund, as well as Saudi and international commercial banks and Islamic institutions participating in Wakala and Procure-ment facilities. Located in the Eastern Province of Saudi Arabia, the complex is projected to be the world’s largest integrated chemical compound ever built in a single phase with a capital cost of around US$19 billion. First produc-tion units are expected to come on line in the second half of 2015, with all production units coming on line in 2016. Milbank acted as international counsel to all of the lenders as well as to the joint lead managers of Sadara’s earlier US$2 billion Sukuk issuance. Dow Chemical is advised by Shearman & Sterling LLP, and Saudi Aramco by White & Case LLP. The Law Office of Abdulaziz H. Al Fahad are Saudi Arabian counsel to the lenders, and Hatem Abbas Ghazzawi & Co. are Saudi Arabian counsel to Dow Chemical. OGFJ
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14 www.ogfj.com • Oil & Gas Financial Journal July 2013
OIL & GAS FINANCIAL JOURNAL: How did you get into the business of being a research analyst? Would you tell our readers a little about your background?
DAVID S. HAVENS: I started in the business in 1999 at Morgan Stanley in their equity research group down in Houston. I was with them a little more than eight years. While there, I spent five years on the sell side covering oilfield services as an associate analyst, and then I went over to the proprietary trading desk for three years, and I traded the energy book there until we all got clobbered [in the recession]. More recently, I was over at Citadel on the buy side covering oilfield services and equipment. And I came to Crédit Agricole in July of 2012 covering the sell side.
OGFJ: What about your education?
HAVENS: I went to Vanderbilt and graduated from their engineering school. At that time, going into finance with an engineering background was pretty simple. There were a lot of opportunities. Today, I think it’s a differ-ent landscape if you’re straight out of college. You might want to consider getting a master’s or MBA to improve your chances [of landing a job].
OGFJ: Are you from Tennessee? You don’t have a Southern accent.
HAVENS: No, I’m from Philly [laughs]. It was a bit of a cultural shock going down to Nashville for four years,
INTERVIEW WITH DAVID S. HAVENS, MANAGING DIRECTOR, Crédit Agricole
Crédit Agricole analyst discusses
oil markets, investment indicatorsDon Stowers, Editor – OGFJ
Drilling operations in PCD’s Wattenberg FieldPhoto courtesy of PCD Energy
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July 2013 Oil & Gas Financial Journal • www.ogfj.com 15
but I thoroughly enjoyed it. Vandy is a wonderful school, a great institution.
OGFJ: Would you tell our readers what an analyst does? Can you describe a typical day for us?
HAVENS: That will differ greatly among analysts. To me, what I spend a great deal of time on, particularly in the morning, is just trying to figure how where the mar-ket’s head is at. What’s the set-up for the stocks? What is the consensus? What are the key catalysts that should either disprove the consensus or support it? And then we spend a great deal of time talking about management teams to make sure we keep our pulse on the company. Each week we try to touch at least two management teams, whether we cover them or not, just to make sure we have a consistent overview of what’s being said out there. The afternoon will get a little bit quieter, and we run through the models a lot. To me, if you don’t have a very good pulse of what’s in your models and understand really what the financials and the sensitivities are – the sensitivities being more from a cash-flow perspective and a balance sheet perspective – it’s very tough to be an effec-tive analyst. I think that’s generally where people tend to fall short on the sell side versus the buy side. On the sell side, your models can get very stale very quickly. No fault to the analysts themselves because their schedules gener-ally have a lot more marketing and things of that nature. On the buy side, you don’t have the same issues, and I think that’s a big difference between the two.
So, to sum it up, I spend a lot of my day figuring out where the market’s head is at, what’s the consensus, what are the key variables, making sure I’m in touch with the management teams, and fine-tuning the models to keep them current.
OGFJ: You specialize in the oilfield services sector, right?
HAVENS: Yes, since 1999.
OGFJ: Don’t you have to keep up with trends and what’s happening on the E&P side, too, in order to make forecasts about companies that serve that sector?
HAVENS: I find that to be an effective oil services ana-lyst, you really have to have an almost equal if not greater pulse on the E&P companies because that’s our bread and butter. We need to know about things such as shifts in capital expenditures. We have to be in tune so we know about any major strategic shifts or capital outlay changes among the E&Ps because that will move our stocks signif-icantly. So you almost need to cover two sectors in order to do your job effectively.
OGFJ: Let’s move on to the impact that shale devel-opment has had on North America. I know people who say that you cannot overestimate the impact that this dramatic increase in production has had on the energy sector. First in gas and now in oil and liquids. It has truly been a game-changer. How long do you think we can sustain this level of production? Is this a long-term trend?
HAVENS: Oil or gas?
OGFJ: Oil.
HAVENS: The way I look at the group, I tend to rank the major global markets around the world by the oppor-tunities present. If you look at the US and the opportuni-ties in crude production, I think it is going to be longer term. I think it’s probably one of the better opportunities because of its size of the reserve and because of the pace of the cash conversion among E&Ps. That is, the pace at which they spend money, recollect cash, and reinvest it in capital expenditures to my guys. So, to answer your question, I think this is going to be a long-term phenom-enon. It has the appeal, first, of being in the US, second, of having the highest rate of return on invested capital, three, one of the fastest cash-conversion cycles, and, four, one of the biggest reserves in the world. Ultimately, that generates a higher degree of certainty and a higher degree of probability of success, which attracts capital. So, yes, I think we are going to spend a great deal of money in this country for the next decade-plus. And I think it will prove ultimately to be one of the highest return markets within the entire energy complex worldwide.
OGFJ: Are investors eager to invest in the United States because it is less risky than other countries?
HAVENS: In part, but let’s not forget the [drilling] moratorium in the Gulf of Mexico in 2010. That was unexpected and was a blow to many companies operating there, especially the smaller ones. We may think that geo-political risk is the only concern, but in the US we have to take into account regulatory risk, whether it’s new regula-tions for hydraulic fracturing or constraints on offshore drilling and production. Still there is more consistency or transparency of law in the US. To answer your question from an engineering perspective, which is where I come from, what’s the biggest pivot in the US for the last 10 years? It’s the fact that the inertia of supply has dramati-cally reversed. It’s re-set how non-OPEC production can be viewed.
OGFJ: Another thing that has changed is drilling efficiency. The US has achieved this record produc-tion using fewer rigs. How has that impacted the service industry?
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16 www.ogfj.com • Oil & Gas Financial Journal July 2013
HAVENS: Oilfield services has become a polynomial, meaning that there used to be a very tight correlation of revenue versus rig count. Now there are several other data points that influence revenue. So as opposed to a linear relationship with the rig count, you have rig count plus how many horizontal wells you’re drilling plus the length of the lateral, which all comes down to the intensity of the well. A higher intensity well means higher revenue intensity.
Efficiencies are going up. We increased rig efficiency by more than 15% last year, and we’ll probably see a similar increase this year. So we’re drilling more wells with the same number of rigs, which creates more opportunities for service companies. We have more wellbores being drilled, plus you have a higher revenue content per well. Margins can be a bit of a different story. Given the returns we were earning back in the 2010-2011 time frame, we attracted a lot of capital for land rigs and frack equipment, so profitability will probably be a little more measured. But the revenue opportunities will be continu-ally increasing.
OGFJ: Crude oil prices are sufficiently high right now to sustain development. What happens if we cre-ate an oversupply and prices fall, say, to below $80 a barrel? What is the breakeven point for crude prices in some of the major shale plays, like the Bakken and the Eagle Ford?
HAVENS: I don’t have a great breakeven for the Bak-ken or some of the other shale plays. The consensus among
operators I’ve talked to is that prices breaking below $80 won’t crush the opportunities. However, once you get down to that $65 level, then we have to remember what happened to gas. A lot of these shales wouldn’t have been drilled if it weren’t for higher oil prices. Frankly, the technology that had to be deployed demands a much higher return.
OGFJ: Sustained low gas prices seem to have caught the industry by surprise. Even the CEO of Exxon-Mobil said recently that he didn’t expect gas prices to stay this low this long. That’s quite an admission coming from someone of his stature. How likely is it that crude prices will plummet due to oversupply and stay down for some time?
HAVENS: I think the difference between gas and oil is that when you clip the pace of drilling in gas – the key word there being the “pace” of drilling because it has become more of a manufacturing process – it was aug-mented by oil. When you cut the pace of drilling in oil, it’s not augmented by anything. It’ll drop like a brick. Obvi-ously there will be a lag time because there are wells that haven’t been completed and that are being brought online, but that’s the biggest difference between oil and natural gas. Natural gas got the double-whammy, if you will.
OGFJ: Several people have told me that the cost of completing a well today equals or exceeds the drilling cost. Is that an accurate statement?
HAVENS: Ten years ago, the average cost of a well was about $2 million, although this varied somewhat from region to region. The actual drilling rig and mobilization would have been between 40% and 50% of the total cost of the well. Today it’s about 10% to 13% of the cost of the well. Total well costs have gone up to about $6 million to $8 million, and the primary delta in that number is largely frack related. If you look at a Bakken well, the drilling cost has come down from about $8 million to close to $6 million, but the frack cost of drilling that well can be upwards of $2 million to $3 million. You’re looking at 30- to 36-stages and even up to about 40.
Back in the day, about 10 years ago, we were drilling mostly vertical wells. If you fracked, you fracked it once, maybe twice. The multi-stage fracking that is widely used today is mainly what has driven up costs. I’d say that the completions component of drilling a well has increased to a par with the drilling costs, if not above. The major cost of drilling a well today is not the drilling rig. So if you’re going to cut a drilling program, you’re going to go out there and just slash the rig. You don’t care because the penalty is fairly insignificant relative to the overall cost of drilling that well.
OGFJ: What is happening in the oil services sector today? Are we seeing much M&A activity, industry consolidation, or new companies being created?
Enerplus operations in the Marcellus shale.Photo courtesy of Enerplus.
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July 2013 Oil & Gas Financial Journal • www.ogfj.com 17
HAVENS: One of the trends is public offerings from private equity firms. Private equity is investing in oil ser-vices for one major reason – the amount of capital needed is generally smaller than what is needed by E&P compa-nies. For E&Ps, you’re buying a lot of acreage and it has to occur over a long period of time. So the fund’s inves-tors are going to be out a lot of money for a considerable time. With oilfield services, you’re basically investing in fracking, which has a payback period of less than a year in many cases. You’re tying up significantly less capital. And you’re able to get into and out of the investment much faster. I believe you’re going to see a lot more private oil service companies go public. I don’t think M&A will be as big as public offerings from PE firms over the next year or two. Any M&A will involve relatively small companies getting acquired. I don’t expect to see any major $10 billion-type transactions.
OGFJ: Water is a major factor in hydraulic fractur-ing. Talk a little about how this oil services sector has grown in recent years.
HAVENS: It has turned into a pretty major business segment. It’s really ballooned in the past five years. Whether it’s transportation or disposal or filtering, the opportuni-ties are quite big. Frankly, I’m a little surprised we haven’t seen even more participants in that business. Water management is one of the larger growth opportunities, but it has yet to reach its full potential. It looks to me as if a lot of potential market participants are still looking to see exactly what the right market oppor-tunity is for them.
OGFJ: It looks as if the current administration in Washington is starting to approve LNG export facili-ties on a case-by-case basis. These are capital-intensive projects, but they may finally give US gas producers access to foreign markets and help revitalize a strug-gling industry segment. Given that our gas reserves in North America are huge, is this another game-changer for the energy industry?
HAVENS: It is certainly incrementally important because if you look at the US natural gas market, the inertia of supply was quickly reversed with the develop-ment of shale. We have come to the position where we can add significant capacity that’s behind pipe within about a six- to eight-month time frame. However, the demand for natural gas in the US really hasn’t changed. Low prices do impact demand, but it takes a while. Indus-
trial users of gas don’t go out and build $500 million plants based on one or two years of low gas prices. And increased usage of natural gas for electric power genera-tion is so slow, it’s glacial. I believe the first LNG export facility is scheduled to start up in 2016-2017. That may actually occur simultaneously with additional industrial demand and transportation demand. I wouldn’t call it a game-changer, but every incremental source of demand for US natural gas is extremely important.
OGFJ: We’ve talked a lot about shale development, but how important is offshore to America’s energy future? Companies are spending billions to develop the deepwater Gulf of Mexico, and there has been a revival of sorts in the shallow waters of the shelf as well.
HAVENS: It’s hugely important. I think we’re going to see multiple trends that were all born from one simple
fact – that is, the probability of suc-cess in the deepwater has increased by over 1,000 basis points in the last 10 years. If you looked at any ultra-deepwater well in the Gulf of Mexico 10 years ago, those engineers would have applied somewhere between a 27% and 30% probability of success. Now you are talking about upwards of a $1 billion project. Look at the advancements we’ve made in seismic, largely 3D; directional drilling, which significantly improved the placement
of wells for better production efficiency; completion technology; production technology, which also includes seismic with 4D – all in the last 10 years. If you look at all of these in aggregate, it has increased the probability of success by about 10 percentage points. So when that same engineer comes forward with a $1 billion project with a 40% chance of success rather than 30%, it tends to get a little more traction. This has translated into a mushroom-ing of deepwater opportunities, which are now playing
“I tend to rank the major global
markets around the world by
the opportunities present. If you
look at the US and the oppor-
tunities in crude production, I think it is going
to be longer term. It’s one of the better oppor-
tunities because of the size of the reserve and
because of the pace of the cash conversion
among E&Ps – the pace at which they spend
money, recollect cash, and reinvest it in capital
expenditures.”
1307ogfj_17 17 7/2/13 10:48 AM
G u l f
o f
M e x i c o
Edna
Brady
Llano
Bryan
Cuero
Mason
Alice
Hondo
Conroe
Burnet
Leakey
Boerne
Sinton
Uvalde
Laredo
Goliad
Belton
Tilden
Menard
Seguin
Wharton
Brenham
Bastrop
Refugio
Cotulla
Cameron
Houston
Bandera
Liberty
Richmond
Anderson
Rockport
Gonzales
Pearsall
Bay City
Angleton
Groveton
Columbus
Lampasas
Beeville
Junction
Franklin
Caldwell
Lockhart
Victoria
Giddings
Kerrville
San Diego
Galveston
Bellville
La Grange
Hempstead
Huntsville
Jourdanton
Coldspring
San Marcos
Livingston
Eagle Pass
Georgetown
Kingsville
San Antonio
George West
Floresville
Karnes City
Rocksprings
Port Lavaca
Crystal City
Johnson City
Brackettville
Hallettsville
New Braunfels
Fredericksburg
Corpus Christi
Carrizo
Springs
Austin
T E X A S
WEBB
DUVAL
FRIO
HARRIS
BELL
BEE
EDWARDS
POLK
KERR
UVALDE
DIMMIT
BEXAR
KINNEY
SUTTON
ZAVALA
MEDINA
KIMBLE
LEE
LA SALLE
MILAM
LLANO
TRAVIS
LIBERTY
BRAZORIA
REAL
FALLS
HAYS
LAVACA
TOM GREEN
MASON
MAVERICK
BURNET
DEWITT
LIVE OAK
ATASCOSA
SAN SABA
GOLIAD
CORYELL
CONCHO
FAYETTE
WHARTON
MENARD
GILLESPIE
WILSON
MCMULLEN
SCHLEICHER
GRIMES
KLEBERG
GONZALES
WALKER
VICTORIA
BASTROP
MATAGORDA
TRINITY
KARNES
WILLIAMSON
JACKSON
AUSTIN
REFUGIO
BLANCO
COLORADO
MCCULLOCH
BANDERA
JIM WELLS
COMAL
FORT BEND
MONTGOMERY
KENDALL
ROBERTSON
LAMPASAS
WALLER
BURLESON
GUADALUPE
SAN
PATRICIO
CALDWELL
MADISON
SAN JACINTO
WASHINGTON
CALHOUN
GALVESTON
NUECES
ARANSASMCMULLEN
(ETC)
SHILLING
(ENTPP)
DEWITT
(SPECTRA)
FASHING
(REGENCY)PEARSALL
(JLDAVI)
KARNES COUNTY
(ETC)
SILVER OAK(CHEVCORP)
TILDEN
(REGENCY)
BRYAN HICKS(ETC)
THREE RIVERS
(SPECTRA)
NIXON
(BDE)
THREE RIVERS
(VEC)
BRYAN HICKS(ETC)
PAWNEE(PNRI)
PETTUS(SPECTRA)
BRASADA(APC)
REVEILLE(CRSTEX)
BRASADA(APC)
BRASADA(APC)
YOAKUMCRYO
(ENTPP)
ARMSTRONG(ENTPP)
ARMSTRONG(ENTPP)
LAGRANGE(ETC)
GIDDINGS(SPECTRA)
A ANDM (ETC)
BRYAN HICKS(ETC)
Mexico
0 6 12 18 243Miles
© Copyright 2013 PennWell's MAPSearch800.823.6277 | mapsearch.com
Supplement to PennWell Co. Publications
This map includes information copyrighted by PennWell's
MAPSearch. This information is provided on a best efforts basis
and PennWell Corporation does not guarantee its accuracy, nor
warrant its fitness for any particular purpose. Such information has
been reprinted with the permission of PennWell Corporation. Data
used to create this map are available in GIS
as well as other digital formats from PennWell MAPSearch.
Data Sources:Energy Industry GIS data - PennWell MAPSearch
ESRI: Terrain Service
ABBREVIATIONS
Cities
Railroads
PIPELINES
Crude Oil
LPG/NGL
Natural Gas
Refined Products
Other
TrunklinesGathering
ACTIVE ACTIVE
PROPOSED / UNDER CONSTRUCTION Pump Stations
Compressor Stations
Truck Unloading Facilities
Distribution/Receiving Terminals
Underground Storage Facilities
Storage/Tank Farm/Terminals
OTHER FACILITIESFacilities Color - Coded by Commodity
MAJOR FACILITIES
Eagle Ford Shale2013 | Natural Gas & Petroleum
Facilities & Infrastructure
Refineries
LPG Fractionators
Gas Processing
APCBDECHEVCORP
CRSTEXENTPPETC
JLDAVIPNRIREGENCY
SPECTRA
Anadarko Petroleum CorporationBlue Dolphin Energy CompanyChevron Corporation
Crosstex Energy Inc.Enterprise Products Partners LPEnergy Transfer Partners LP
J.L. DavisPioneer Natural Resources Inc.Regency Energy Partners LP
Spectra Energy Corporation
ShaleDry GasWet GasOil
www.tgs.com/welldata
amec.com
Acting personally...
thinking globally...
delivering locally.
Consistent Quality and
Proven Results!SM
rainbowproppants.com
Field to
FinancialsTo learn more Visit
www.enertia-software.com
Enertia
Software!
One Vendor. One Solution.
Oil & Gas | Environmental | Water & Wastewater | Transportation
www.ch2mhill.com
TO LEAD THE INDUSTRY IN
WE’VE UNDERGONE A MASSIVE
TO LEAD THE INDUSTRY IN
COMPRESSIONSIVEWE’VE UNDERGONE A MASS
EXPANSION
At SEC Energy, we’re serious about our
commitment to be the one company you
can count on for all your compression
needs. That is why we have expanded our
capacity, our services and our scope.
www.sec-ep.com PRODUCTS & SERV ICES
SEC Energy
San Antonio • Houston
tbsmith.com • 1.866.357.1050
ENGINEERING • SURVEYING
ENVIRONMENTAL
OIL & GAS [email protected]
RLIlogistics.com
[email protected] | 800.259.7445
Eagle Ford/South Texas
Leaders in Selling
Private Businesses
upstream and
midstream services
infrastructure
construction www.bmpenterprises.com
• Completion Services
• Downhole Monitoring Solutions
• Pipeline Leak Detection
Better Monitoring. Period
1307ogfj_EagleFordmap_1 1 7/2/13 11:45 AM
G u l f
o f
M e x i c o
Edna
Brady
Llano
Bryan
Cuero
Mason
Alice
Hondo
Conroe
Burnet
Leakey
Boerne
Sinton
Uvalde
Laredo
Goliad
Belton
Tilden
Menard
Seguin
Wharton
Brenham
Bastrop
Refugio
Cotulla
Cameron
Houston
Bandera
Liberty
Richmond
Anderson
Rockport
Gonzales
Pearsall
Bay City
Angleton
Groveton
Columbus
Lampasas
Beeville
Junction
Franklin
Caldwell
Lockhart
Victoria
Giddings
Kerrville
San Diego
Galveston
Bellville
La Grange
Hempstead
Huntsville
Jourdanton
Coldspring
San Marcos
Livingston
Eagle Pass
Georgetown
Kingsville
San Antonio
George West
Floresville
Karnes City
Rocksprings
Port Lavaca
Crystal City
Johnson City
Brackettville
Hallettsville
New Braunfels
Fredericksburg
Corpus Christi
Carrizo
Springs
Austin
T E X A S
WEBB
DUVAL
FRIO
HARRIS
BELL
BEE
EDWARDS
POLK
KERR
UVALDE
DIMMIT
BEXAR
KINNEY
SUTTON
ZAVALA
MEDINA
KIMBLE
LEE
LA SALLE
MILAM
LLANO
TRAVIS
LIBERTY
BRAZORIA
REAL
FALLS
HAYS
LAVACA
TOM GREEN
MASON
MAVERICK
BURNET
DEWITT
LIVE OAK
ATASCOSA
SAN SABA
GOLIAD
CORYELL
CONCHO
FAYETTE
WHARTON
MENARD
GILLESPIE
WILSON
MCMULLEN
SCHLEICHER
GRIMES
KLEBERG
GONZALES
WALKER
VICTORIA
BASTROP
MATAGORDA
TRINITY
KARNES
WILLIAMSON
JACKSON
AUSTIN
REFUGIO
BLANCO
COLORADO
MCCULLOCH
BANDERA
JIM WELLS
COMAL
FORT BEND
MONTGOMERY
KENDALL
ROBERTSON
LAMPASAS
WALLER
BURLESON
GUADALUPE
SAN
PATRICIO
CALDWELL
MADISON
SAN JACINTO
WASHINGTON
CALHOUN
GALVESTON
NUECES
ARANSASMCMULLEN
(ETC)
SHILLING
(ENTPP)
DEWITT
(SPECTRA)
FASHING
(REGENCY)PEARSALL
(JLDAVI)
KARNES COUNTY
(ETC)
SILVER OAK(CHEVCORP)
TILDEN
(REGENCY)
BRYAN HICKS(ETC)
THREE RIVERS
(SPECTRA)
NIXON
(BDE)
THREE RIVERS
(VEC)
BRYAN HICKS(ETC)
PAWNEE(PNRI)
PETTUS(SPECTRA)
BRASADA(APC)
REVEILLE(CRSTEX)
BRASADA(APC)
BRASADA(APC)
YOAKUMCRYO
(ENTPP)
ARMSTRONG(ENTPP)
ARMSTRONG(ENTPP)
LAGRANGE(ETC)
GIDDINGS(SPECTRA)
A ANDM (ETC)
BRYAN HICKS(ETC)
Mexico
0 6 12 18 243Miles
© Copyright 2013 PennWell's MAPSearch800.823.6277 | mapsearch.com
Supplement to PennWell Co. Publications
This map includes information copyrighted by PennWell's
MAPSearch. This information is provided on a best efforts basis
and PennWell Corporation does not guarantee its accuracy, nor
warrant its fitness for any particular purpose. Such information has
been reprinted with the permission of PennWell Corporation. Data
used to create this map are available in GIS
as well as other digital formats from PennWell MAPSearch.
Data Sources:Energy Industry GIS data - PennWell MAPSearch
ESRI: Terrain Service
ABBREVIATIONS
Cities
Railroads
PIPELINES
Crude Oil
LPG/NGL
Natural Gas
Refined Products
Other
TrunklinesGathering
ACTIVE ACTIVE
PROPOSED / UNDER CONSTRUCTION Pump Stations
Compressor Stations
Truck Unloading Facilities
Distribution/Receiving Terminals
Underground Storage Facilities
Storage/Tank Farm/Terminals
OTHER FACILITIESFacilities Color - Coded by Commodity
MAJOR FACILITIES
Eagle Ford Shale2013 | Natural Gas & Petroleum
Facilities & Infrastructure
Refineries
LPG Fractionators
Gas Processing
APCBDECHEVCORP
CRSTEXENTPPETC
JLDAVIPNRIREGENCY
SPECTRA
Anadarko Petroleum CorporationBlue Dolphin Energy CompanyChevron Corporation
Crosstex Energy Inc.Enterprise Products Partners LPEnergy Transfer Partners LP
J.L. DavisPioneer Natural Resources Inc.Regency Energy Partners LP
Spectra Energy Corporation
ShaleDry GasWet GasOil
www.tgs.com/welldata
amec.com
Acting personally...
thinking globally...
delivering locally.
Consistent Quality and
Proven Results!SM
rainbowproppants.com
Field to
FinancialsTo learn more Visit
www.enertia-software.com
Enertia
Software!
One Vendor. One Solution.
Oil & Gas | Environmental | Water & Wastewater | Transportation
www.ch2mhill.com
TO LEAD THE INDUSTRY IN
WE’VE UNDERGONE A MASSIVE
TO LEAD THE INDUSTRY IN
COMPRESSIONSIVEWE’VE UNDERGONE A MASS
EXPANSION
At SEC Energy, we’re serious about our
commitment to be the one company you
can count on for all your compression
needs. That is why we have expanded our
capacity, our services and our scope.
www.sec-ep.com PRO DUCTS & SE RV IC ES
SEC Energy
San Antonio • Houston
tbsmith.com • 1.866.357.1050
ENGINEERING • SURVEYING
ENVIRONMENTAL
OIL & GAS [email protected]
RLIlogistics.com
[email protected] | 800.259.7445
Eagle Ford/South Texas
Leaders in Selling
Private Businesses
upstream and
midstream services
infrastructure
construction www.bmpenterprises.com
• Completion Services
• Downhole Monitoring Solutions
• Pipeline Leak Detection
Better Monitoring. Period
1307ogfj_EagleFordmap_1 1 7/2/13 11:45 AM
18 www.ogfj.com • Oil & Gas Financial Journal July 2013
out. Obviously this has been a boon for the oil services sector as well, including the rig construction business.
OGFJ: How do these trends apply outside the US and the Gulf of Mexico?
HAVENS: Given that we’ve had sustained high oil prices and broad geopolitical support, meaning that we actually have access to these reserves, I think we’re going to see significant growth outside the traditional “Golden Triangle,” which is the Gulf of Mexico, West Africa, and Brazil. We’re going to see lots more activity from East Africa, the Red Sea, more intensity in Norway, more intensity in Southeast Asia. These areas are going to become an inte-gral part of the energy complex over the next 20 years, and it is all a result of the improved probabil-ity of success, which has in turn attracted more capital.
OGFJ: Most of the areas you just named are offshore oppor-tunities. Since three-quarters of the earth’s surface is water, it seems obvious that there would be more hydrocarbons beneath the sea than on the 25% of the globe that is land. On the other hand, it’s a lot more expensive to drill in the ocean.
HAVENS: Let’s look at the Gulf of Mexico back in 2001. There were 155 jackups in the Gulf of Mexico, 80% of which were directed towards natural gas. Look at the Gulf of Mexico today – it’s less than 15%. It’s largely a function of low gas prices, but also the opportunities on onshore land. The risk and cost that you bear to drill offshore relative to the opportunities onshore, which has a much higher prob-ability of success with a lower capital commitment, it’s far more appealing to go for the onshore. But if you look at the international markets, you don’t have the same choices. Security is also a problem in some areas, such as the Middle East, West Africa, and even Mexico. However, given the new technology and the increased probability of success, the risk is tolerable even in places that are less secure than the US or Canada. And the industry responds to this. We’ve built 200 new deepwater rigs in the last decade. That’s a major expansion.
OGFJ: We’ve run several stories in OGFJ in recent months about the capital flow from outside the US into the US. It’s coming from Europe, from China,
from Japan, from India, from all over. Why do you think this is happening?
HAVENS: Same answer as before – probability of suc-cess. The shale plays in North America offer as much as a 90% degree of success, so this is a fairly safe investment with a healthy return on capital. Capital tends to flow to lower risk, higher return assets, and the US has been de-risked a lot more than most international markets.
Look at the biggest incremental investors – ExxonMo-bil, for example. We can all debate their timing [in acquir-ing XTO Energy in a $41 billion deal back in late 2009] and entrance into the domestic natural gas market, but
at the end of the day they did it because it was a lower risk, higher return opportunity. If you look at the crude oil side of the busi-ness, where else but the US are you going to get (1) this type of access; (2) service infrastructure, which is the best in the world; (3) capital conversion at the pace in which it is done; and (4) the returns. We knew the reserves were there all along, it was just a matter of developing the tech-nology to recover them. Bottom line: we’re going to continue to see outside oil and gas companies coming to the US because the best opportunities are here.
OGFJ: Final question: Is there anything in particular we should watch for to indicate there is trouble ahead for the oil and gas industry in North America?
HAVENS: One of the things I look at pretty intensely is reinvestment. If you see rein-vestment increase, it tells you there is a high degree of conviction among the operators. Good, right? But on the flip side in the US, there is the possibility of overbuild-ing. Right now, incremental investment in the US may provide some near-term confidence, but we have to be concerned about longer-term profitability. We also need to keep an eye on oil prices and the pace of production in the US, although I think for the next few years we’re still going to be hampered by lack of takeaway capacity for pipelines. To my way of thinking, reinvestment is the main indicator, particularly if companies are trying to grab market share. Generally that tends to bring growth, but I’m not convinced the US market is going to take another leg up in the absence of gas price recovery.
OGFJ: Thanks very much for your time. OGFJ
Statoil Carkuff drilling operations in the Bakken preparing to run surface casing.
1307ogfj_18 18 7/2/13 10:48 AM
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1307ogfj_19 19 7/2/13 10:48 AM
20 www.ogfj.com • Oil & Gas Financial Journal July 2013
Shale oil production in the US and Canada added one million barrels to domestic production over the last year. Current activity may bring North American
shale oil supply from 3.5 million to 8 million barrels per day before 2020 (see OGFJ, May 2013). Such rapid growth from new oil wells has not been seen since Saudi Arabia increased its oil production capacity in the early 1970s.
The timing for the world economy is ideal: the global oil supply balance was stretched to its limits in 2007-2008; Saudi expansion since then has mostly been to balance decline from northern Ghawar, and BRIC demand and Iraq supply now appear increasingly fragile. We believe the world would be headed into an oil-driven recession without the North American shale oil revolution.
In order to make an accurate forecast for shale oil pro-duction, we need to assess the profitability of every existing well and future well location, and to make forecasts of the industrial capacity to drill and complete new wells on the prospective acreages. Three different types of information are needed: detailed geology of the target formations; empir-
ical production data at well level; and company budgets and spending plans.
Play analysisThe key subsurface parameters determining profitability for shale oil plays are: hydrocarbon content (total organic content, thermal maturity, gas/oil/water saturation), forma-tion structure (folds, faults, natural fractures), “frackability” (silica/calcite, minimum stress planes), formation pressure (depth, gas expulsion, pressure gradient) and “drillability” (hardness/integrity/pressure of the target formation and shallower packs). Some parameters have large variability over the acreage area (thickness, depth, thermal maturity, struc-tures), other parameters vary more vertically (TOC, silica/calcite), and some parameters are more formation-specific with less local variations (kerogen type, depositional environ-ment).
Figure 1 shows the horizontal distribution of two key parameters for the Bakken: thickness and depth of the Middle Bakken. Combined thickness of the Bakken/Three
Per Magnus Nysveen, Rystad Energy, Oslo, Norway
Forecasting shale oil production
Saskatchewan Manitoba
Fig. 1: Map of Statoil/Brigham and Continental’s acreage inBakken with Middle Bakken isopach and depth curves
Continental Resources Statoil Depth Thickness
Source: NASMaps by Rystad Energy
0 40
MilesBakken
Saskatchewan Manitoba
1307ogfj_20 20 7/2/13 10:48 AM
Forks is also a key factor. Sweet spots in the northern and eastern parts of the play (Mountrail County) are primarily driven by thickness, whereas depth and pressure (high ther-mal maturity, gas expulsion) contributes to a larger extent to the high production rates observed in the western part of the play,
Well curves
Shale oil wells typically decline 10% to 15% faster than shale gas wells over the first year (Fig 2). In the high-pressure zone of the Bakken, decline rates above 90% over the first year of production are common. But since the decline is also highly hyperbolic, the ultimate reserves can still correspond to more than 500 days of the initial production rate. Artifi-cial lift by using pump-jacks also contributes to long flat tails as the downhole pressure falls. Hyperbolic decline curves, with IP from 400-2,000 boe/d, Di from 2-5% per day and b values of 1.5-2.5 fits nicely with most normalized curves from wells within one specific area, and the fit improves when adjusting for the number of stages. The discounted net present value for the wells and the acreage is highly sensitive to small variations in these parameters. The shape parameters are also strongly correlated; a high IP typically implies a high initial decline and also a higher hyperbolic b value. A detailed analysis of “heat maps” and empiric well production rates are crucial to achieve accurate forecasts.
Rystad works bottom-up from individual wells for all shale analysis and pays close attention to individual subsurface characteristics and official production data.
In our analysis, we truncate the hyperbolic curves when the reserves reach a limit we feel confident about. This usually occurs after 10 to 30 years of production, depend-ing on the maturity of the play and confidence provided by
Fig. 2: Estimated well curve based ongiven IP, Di and b value for Statoil acreagein the Rough Rider area Bakken. The typecurve is compared with state data.
1,400
1,200
1,000
800
600
400
200
0
Pro
duct
ion, kb
oe/d
0 10 20 30 40
Month
Source: NASWellData by Rystad Energy
Estimated well curve
Production from state data
* Equity for Producing Properties
* Exploration, Financing for Leases
* Funding for New Technologies
1255 Treat Blvd, Suite 300
Walnut Creek, CA 94597
(510) 658-6398
www.harwoodcapital.com
HARWOOD CAPITAL INCORPORATED
1307ogfj_21 21 7/2/13 10:48 AM
22 www.ogfj.com • Oil & Gas Financial Journal July 2013
and forecast models should allow adjustments for this in the tail-end phase.
IP learning curveBakken statistics show an average increase of 24-hour initial production rates from 600 to 800 boed/d over 2009-2012 as the completion techniques were fine-tuned (Fig 3). The average number of stages increased from 19 to 27 over the same period, while the average rate of production per stage decreased from 36 to 25. Also, the frack intensity for each stage and the fracking pressure increased, proppants and fluids were improved, and accurate microseismics provided better understanding of the fracture dynamics. The IP learning curve has now apparently peaked, the technol-ogy is optimized, and some of the sweetest locations have already been drilled. Over 2012 and 2013, the average IP rate has decreased from 800 to 700 boe/d. The decreasing IP comes from down-spacing wells in the Mountrail (EOG), drilling on the shallower Bakken in the west (Continental), experimental wells in the deeper and high-permeability/low-pressure wells in the southern part of the play (Whiting). We expect IP rates to fall by 5% p.a. after the drilling activity peaks on the acreages.
Drilling scheduleOnce the various well-curves are established for the different portions of the acreage, we need to estimate the expected/risked well locations and a realistic drilling schedule (Fig 4). To determine the risking factor, we take into account average well spacing, acreage quality and diversity, share of proved to unproved well locations, absolute size of the undeveloped acreage, and overall development maturity of the play.
Base decline is determined from official data and in-house estimates. Company guiding and activity outlooks are con-sidered for the estimate of well count for 2013, whereas from 2014 our own independent assessment takes precedence. Our consistent assessment on long-term drilling and completion activity on individual acreages depends on oil price assumptions, infrastructure constraints, financial capacity, and availability of rigs and of fracking fleets. Efficiency gains are considered to estimate well count and well costs for 2013, but not beyond. In the Bakken the average spuds per rig-year have increased from 9 to 15 wells per year as operators move from exploratory drilling and HBP drilling into pad-based development drilling. Also increased use of open-hole completions and sliding sleeves in the Middle Bakken has reduced time to completion to a few days, whereas the traditional “plug & perf” operations typically last for a week on cemented long laterals. OGFJ
About the author
Per Magnus Nysveen is senior partner and head of data analysis at Rystad Energy. He has 20 years of experience within risk management and financial analysis. He holds an master’s degree from the Norwegian University of Science and Technology and an MBA from INSEAD.
the empirical well data. The industry commonly applies a terminal constant decline rate of 5% to 10% per year. The time of transition between the initial hyperbolic shape and terminal exponential decline is a topic for debate. Also the fit of alternative curves, i.e. various versions of quasi-linear log-log curves, is also argued by academics (Duong method). It is worthwhile to note the physical justification for the two different regimes (hyperbolic, exponential), i.e. transient dominated flow (pre bubble point) and boundary domi-nated flow (post bubble point) in oil plays, corresponding to free gas versus absorbed gas in gas wells. Both in the Bakken and Marcellus, the transient phase is considered to last more than five years, thanks to overpressure and gas saturation in the Bakken and the presence of a matrix of natural micro-fractures in the Marcellus. In reality, the flow pattern will be a combination of both regimes, and the transition will happen gradually; also the physical effect of artificial lift is poorly documented by shale oil decline analysis. However, a constant b value over the life cycle is an over-simplification
Fig. 4: Drilling profle for typical acreage inBakken (125,000 net acres, well-spacing320 acres, 312 risked net wells)
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
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19
20
20
Nu
mb
er
of
we
lls
70
60
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40
30
20
10
0
Source: NASReport by Rystad Energy
Fig. 3: Average initial Bakken productionby year of completion.
Williams
2008 2009 2010 2011 2012 2013
Ave
rag
e in
itial
pro
duc
tion
(bo
e/d
)
1,200
1,000
800
600
400
200
0
Divide
Dunn
McKenzie
Mountrail
Source: NASWellData by Rystad Energy
1307ogfj_22 22 7/2/13 10:48 AM
July 2013 Oil & Gas Financial Journal • www.ogfj.com 23
OIL & GAS FINANCIAL JOURNAL: As the young-est and only Arab OPEC minister to have experience at a foreign company, could you please introduce yourself to the readers of OGFJ?
SUHAIL MOHAMED FARAJ AL MAZROUEI: I earned my Bachelor of Science degree in petroleum engineering in 1996 from Tulsa University in the United States. I gained a technical and management background in reservoir engineering, production operations, and project management from managing the production and facilities engineering for five operating companies of the Abu Dhabi National Oil Company (ADNOC). Within that period, I was seconded to Shell EP in the Netherlands where I focused on diversifying my portfolio from an international point of view working on a number of projects in Nigeria, the North Sea, Brunei, and the Netherlands.
Subsequently, I returned to the UAE and was given the responsibility of looking after all of Abu Dhabi’s five offshore companies. In my capacity as a manager of production and facilities engineering, I managed and coordinated a collective daily production of more than one million barrels; almost half of the country’s total production at that time. I was involved in major upgrades of Abu Dhabi’s Marine Operation Company (ADMA OPCO) and Zakum Development Company (ZADCO) that amounted to multi-billion dollar projects.
Moving away from these technical aspects, I joined Mubadala in 2007 where together with a small team I contrib-uted to establishing what is now known as Mubadala Petro-leum. I was responsible for the growth and business develop-ment of the company that is now present in 12 countries. Through my six-year practice at Mubadala, I was exposed to a commercial perspective of the industry until I was eventually appointed as Minister of Energy in March of 2013.
OGFJ: The modernization and economic development of the UAE has been a double-edged sword. Progress is obviously good for the nation and its people, but it means energy usage has soared, and greater energy consumption means less to sell overseas. How are you dealing with this issue?
AL MAZROUEI: This depends on the strategies we devise to balance and tackle the future of the country’s energy considerations. At this given moment, I believe we have made good progress towards diversifying our energy
portfolio to ensure that we strike that balance. Take the example of the introduction of nuclear energy, a key milestone that will contribute up to 25% of Abu Dhabi’s electricity consumption. Without that, we would be more dependent on our natural resources and burning more of it. The gradual elimination of the consumption of liquid fuel for energy is also an initiative to maximize the UAE’s benefit and reduce our environmental footprint.
Almost all of our electricity today is generated by gas and we only tap into insignificant amounts of fuel oil or diesel sources when required. The challenge lies in linking this with what is facing us in the future. One of my aims is to devise a new strategy that will tackle all of these chal-lenges relating to the growth of local demand as well as our role as an OPEC member supplying the world with oil and gas. We intend to continue that critical role. I recently highlighted the need to revamp and increase our export capacity to 3.5 million bpd. There are a number of on-going projects aimed at realizing this ambition and we are on track to realizing this capacity production by 2017, as noted by ADNOC’s managing director.
OGFJ: Despite the country’s vast proven gas reserves, rapid growth in domestic energy demand over the past few years has caused the UAE to become a net-importer of natural gas prompting the country to renew its focus on exploiting its gas reserves. What challenges are you facing in exploiting the reserves and what role can for-eign partners play in addressing these?
AL MAZROUEI: I believe we are well developed within that space. Even in the more challenging areas, you can see that we welcome the introduction of the latest technolo-gies. Al Hosn, the relatively new joint venture in Abu Dhabi working on the Shah sour gas project, is a good illustration of that readiness to work with the providers of technology who can help us to enhance the development of our gas resources. The underlying issue here is not the abundance of the resource. Instead, the challenge is one of technology and of forward thinking and planning before demand spikes which lead to dramatic actions such as the importation of more expensive options such as LNG.
In any case, if you must choose between burning fuel and the more expensive option, I believe the latter would be more favorable. This is especially true if you are faced with a cyclical demand for energy as we do in the UAE between the summer and winter.
AN INTERVIEW WITH SUHAIL MOHAMED FARAJ AL MAZROUEI, MINISTER OF ENERGY, UNITED ARAB EMIRATES
Rapidly growing UAE modernizingand diversifying its energy portfolio
Crystelle Coury, Focus Reports for OGFJ
1307ogfj_23 23 7/2/13 10:48 AM
24 www.ogfj.com • Oil & Gas Financial Journal July 2013
OGFJ: Abu Dhabi has embarked on an ambitious growth plan in terms of oil production capacity, which is set to increase to 3.5 million bpd by 2017. Specifically what investments does this entail and what opportunities do they create for existing and prospective partners?
AL MAZROUEI: A lion’s share of that capacity growth will stem from the major operating companies within Abu Dhabi. ADCO, along with its partners, is steadily progressing towards achieving its new capacity targets, as are the ADMA OPCO and ZADCO joint ventures. There is a difference between capacity and actual production which is interrelated with our role as an OPEC member in supplying the market with equi-librium amounts of oil. Of course, as a member of OPEC, we are committed to ensuring a good balance between price and supply.
Broadly speaking, the investments we are observing today demonstrate that there is a need for those countries endowed with the major resources to have that addi-tional capacity and flexibility to respond to the changing environment. No one, for instance, anticipated that the turbu-lence in the Middle East would evolve so rapidly. That had a significant impact on supply conditions. Moreover, despite the economic slowdown in Europe, the price of oil remained at record high levels. Under normal circumstances, we would have expected to see a different price reaction. Key suppliers must have the capacity and flexibility to respond to such developments.
OGFJ: The UAE is one of the OPEC members that realized a record oil income in 2012. However, recently, some industry observers have said that OPEC is increas-ingly “irrelevant.” How would you respond to that statement?
AL MAZROUEI: I do not believe that is a fair statement and must disagree. OPEC has played, and will continue to play, a key role in the balancing of the market. Just as with any other organization, there are challenges, but they will certainly not make OPEC an obsolete or inactive body.
What we need to focus on moving forward as an orga-nization is maintaining our unity and strategizing around the original goal of OPEC. We need to develop a common strategy on how we tackle the evolving market dynam-
ics and how we can continue to best balance the market to both protect the consumers and the interests of its member countries. History has taught us that every spike in the price of oil is subsequently followed by a decrease. That instabil-ity is not our ultimate interest regardless of whether member countries realize a short-term benefit. We are more interested in stabilizing the market to enjoy a degree of predictability in growth so that we can respond to it more effectively. The aforementioned flexibility in production capacity is one of the measures that will allow the OPEC members to manage on-going market dynamics.
OGFJ: American oil production has risen to its highest level in decades due to technological developments that have enabled economic production from shale and other tight oil formations. Canada is rapidly developing its oil sands, a long-term resource for that country. Both coun-tries are developing LNG export facilities. How is the
UAE responding to the shale gas and oil “revolution” in North America? Do you see any of this as a threat to your country?
AL MAZROUEI: On the contrary, I see an opportunity there. As a net importer of gas, I think the fair price of gas will be dictated by market forces. How much of the gas can or will be exported from the United States is a question for the indus-try to answer, rather than the regulators. Similarly, another question and challenge relates to the investments required in Canada to export their gas to the market and determining the price that will be deemed as reasonable by investors. As you can see, gas has three key prices depending on where that gas is discovered.
In my view this is not entirely a negative considering the industry’s responsiveness to the pull and push of technology. The evolution of technology and infrastructure in the US is something that would help securing the gas to accommodate the rapid growth of certain countries as in China, for instance. We know that the resources exist, however at what cost will they be extracted and supplied to the consumers? Is that technology barrier or infrastructure barrier reasonable enough to encourage investment despite the knowledge of future gas prices? I believe these are the major challenges investors are facing today.
OGFJ: It is fair to say that today the UAE is an “oil and gas” nation. However, a few points lead us to believe the energy mix of your country is evolving. As you have just pointed out, nuclear energy is expected to account for up to 25% of power generation by 2021. In addition, the UAE recently inaugurated the world’s largest solar plant, Shams 1, and you also recently publicly stated that “we
“The challenge is one of technology and of for-
ward thinking and planning before demand spikes
which lead to dramatic action such as the impor-
tation of more expensive options, such as LNG.”
1307ogfj_24 24 7/2/13 10:48 AM
July 2013 Oil & Gas Financial Journal • www.ogfj.com 25
want to seize the opportunities presented by clean energy technologies.” Could you elaborate as to which energies will form the core of the UAE’s future mix, and which energies will play a more complementary role?
AL MAZROUEI: For the time being, gas will continue to be the core source of energy for the UAE. Looking ahead, we are working on a communicated percentage increase in terms of the contribution of alternative and more sustainable sources of energy. We are in the initial chapter of developing and implementing renewable sources but we do have the aspira-tion to attain reasonable percentages in the future.
The challenge in the use of renewables relates to regula-tions. That is, sustainable energy sources are rather well devel-oped in Europe and a number of other countries due to the lack of oil subsidies. The issue we are facing locally is the heavy subsidy of some forms of energy as opposed to renewables, which may be unfair.
You need to look at this issue from the future perspective. If you are a net importer of energy, would you choose to import gas? Or do you develop a renewable source? Which one is more cost effective given the given gas price? This is what we are working towards here at the Ministry to devise a strategy and guideline around that. In addition, we are aiming to develop principle regulations that will take into consid-eration all forms of energy in an unbiased manner. From a regulatory point of view, these topics are well developed in Europe and we are using them as a benchmark to be ready to adapt to the future.
We do not yet have a clear answer on the UAE’s future energy mix beyond what has already been announced by Abu Dhabi and Dubai but that is precisely what we are working towards. For the time being, Dubai for instance has com-mitted to having a 5% contribution of renewables by 2030, or 1,000MW, while Abu Dhabi is working towards a 7% contribution by 2020. Ultimately, what we lack is a holistic strategy on a federal level to tackle those issues that could lead to stronger commitments.
On the other hand, looking at the technological aspect, I recently visited the Masdar Institute of Technology and was proud of the renewable R&D technologies being developed there. These efforts are aimed at making all forms of such energies a reality, from the lab all the way up to the implemen-tation stage through collaboration with commercial organiza-tions. I believe this initiative that the Abu Dhabi government sanctioned is undoubtedly a step in the right direction and if we continue gaining the local governments’ support then we can achieve significant milestones in developing these technol-ogies. Although realistically gas will continue to be the central energy source for the time being, I am very optimistic about the future of the advancements being made in the renewable sphere. As we move to the future, renewables will play a more complementary role while increasingly gaining a share of the UAE’s energy mix. OGFJ: How do you foresee the Emirates in 10 years and
where will the country fit in this rapidly evolving world energy map?
AL MAZROUEI: This goes back to the UAE’s founder, the late Sheikh Zayed bin Sultan Al Nahayan, who during the country’s early history cared tremendously about its environ-ment. The Supreme Petroleum Council - the highest author-ity responsible for the petroleum affairs in the Emirate of Abu Dhabi - was encouraging ADNOC and its partners to adopt a zero flaring policy and the reduction of emissions. From an environment perspective, I think the UAE is demonstrating an international level of awareness and care that lead to our leading role in hosting the headquarters of the International Renewable Energy Agency (IRENA) in Abu Dhabi. The for-mation of IRENA heralds a new era of international coopera-tion to address the pressing issues of climate change, global warming and energy security. In addition to this, the agency is tasked with facilitating access to all relevant information on the potentials for renewable energy, best practices, effec-tive financial mechanism and state-of-the-art technological expertise. In this context, we are trying to support most of the initiatives that make sense in that space.
Simultaneously, we are balancing this goal with our role as a major supplier of hydrocarbons. Both are of the utmost importance to us and I think it is difficult to find many exam-ples of countries that are trying to achieve both at the same time. Some are more focused on the production of hydrocar-bons, while other are more focused on developing alterna-tive sources of energy. We are trying to strike that balance in between these two poles which is no easy feat. These charac-teristics of the UAE serve as a differentiator for our country. Norway is an excellent example of both a significant hydrocar-bons producer and a front runner in sustainable energies.
The major challenges we are therefore facing is the lack of awareness on the importance of energy conservation and its proper use as well as the related high level of subsidies the government is providing. This is a common challenge for the GCC countries where the energy is heavily subsidized result-ing in a very high per capita usage. If we succeed in reducing that, I believe we will be conserving our environment while helping the government to better serve its people by channel-ling the subsidies to more beneficial initiatives and projects.
OGFJ: What is your final message for our readers?
AL MAZROUEI: The UAE is opening up. We are an open economy and continue to encourage the sort of partnerships that make sense. From this prospective, we need all the help we can get to tackle the challenges related to the development of our gas resources. I believe that the SPC and ADNOC in Abu Dhabi are approaching this with an open mind. The UAE government is also highly supportive of initiatives designed to improve the technologies to advance other ener-gies. In order to support these ambitions, it is important that we tackle these issues from a number of fronts including the regulatory, R&D, and investment perspective. OGFJ
1307ogfj_25 25 7/2/13 10:48 AM
26 www.ogfj.com • Oil & Gas Financial Journal July 2013
With every oil boom, comes fraud. Most of the attention centers on fraudulent stock scams, which hit the courts regularly in every state,
especially those home to the big energy plays. What doesn’t garner as much notice is fraud against oil and gas companies themselves.
It’s not a small problem. Although we are unaware of statistics particular to the oil and gas industry, the Association of Certified Fraud Examiners estimates in its annual survey that a typical business loses five percent of its revenues to fraud each year. In the oil and gas business, reporting rules require safeguards on corporate reporting and audit of financial statements, but what about operations? For oil and gas companies, field operations are likely more vulnerable to fraud than any other part of the business.
There are enough varieties of field-level fraud that we have either heard about or experienced in our prac-tices that could easily inspire song lyrics to dozens of “She done me bad; I done her worse,” country western songs. First I’ll look at some various types, and then give a typical — but mythical — example of the most prevalent types of field fraud. Finally, there are some steps companies can take to fight field-level fraud in the oil and gas business.
Two main types of field fraudField fraud varies significantly, but you can divide it into two main categories. The first is vendor fraud. Examples include: phony invoicing for unperformed or under-delivered goods and services; billing for undeliv-ered rental equipment; billing ghost hours or even fab-
Protect your company from field-level fraud in the oil patch
Megan McFarland, CPA, Hein & Associates LLP, Dallas
1307ogfj_26 26 7/2/13 10:48 AM
July 2013 Oil & Gas Financial Journal • www.ogfj.com 27
ricating ghost employees; billing more than the going rate; and getting companies to commit to a high rate when there is no competition and then not re-bidding the job when more competitors come in.
The second type of fraud is more expensive because it involves collusion from employees at the oil com-pany. Most of these frauds involve kickback schemes. The employee responsible for bidding a service or sup-ply has the vendor charge a fictitious amount, siphon off a portion of the profit, and pay the employee. The kickback can come in different ways, and may not be in the form of cash. Gift cards are a popular way to pay a kickback, as is extravagant entertaining. Some of the craftier fraudsters set up a business and have the vendor write a check to their company. They may pay wives or girlfriends as if they had worked for them. There are even numerous instances of vendors charging the energy company for used oilfield pipe, and using that pipe to build fencing for a ranch or lot. With today’s prices for pipe, those fences aren’t cheap.
According to a presentation by John F. Lipka, USA security advisor for Encana Oil & Gas Inc., there are other types of non-cash kickbacks. The vendor arranges to provide services to the employee, such as pouring driveways, road work, or other heavy equipment ser-vices. It could involve home repairs or improvements
such as landscaping, patios or patio covers, barbecue pits and roping arenas. Some vendors buy the employee boats, cars, trucks, airplanes, motorcycles, golf carts, travel trailers, motor homes or horse trailers. They may even buy the employee or a spouse a personal item such as jewelry, furs, clothing, liquor, golf clubs, firearms or customized cowboy boots.
In the travel and entertainment arena, kickbacks can include gambling trips; excessive or frequent restaurant and night club bills; transportation and expenses for the employee’s vacation; unusual hunting, fishing, golf, or ski trips not offered by the vendor to other compa-nies as a normal course of business; and finally it can mean the purchase of sexual favors for the employee, Lipka says.
Commonly, field fraud takes up to 18 months for companies to discover. Usually these types of thefts, once discovered, are not reported by companies to the authorities. Company officials almost always just fire the employee. They may be embarrassed by the theft or believe that it would cost more to prosecute than they would recover. The company can try and recoup losses from the vendor, but that can produce mixed results. More often than not, companies take it in the teeth and walk away. The amount of money stolen is not usually material enough to report to shareholders.
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28 www.ogfj.com • Oil & Gas Financial Journal July 2013
wife finds out what’s going on and turns him in to his company via its fraud hotline. The fraud isn’t pros-ecuted; Good ol’ Boy is fired, but has since found new employment in Louisiana.
Steps to take to prevent field fraudIf you want to avoid the Harry Hustlers and Good ol’ Boys of the world, consider the following steps: • Separate the bid and approval process. Be sure the
person who is responsible for bidding is not also responsible for approving invoices. The purchasing department should solicit and select bids while the field supervisor approves invoices.
•Check references when hiring. Normal job reference checks are not typically performed in this industry. Make the call, do a little homework and you might get lucky with some solid information.
• Rotate vendors and use a disci-plined, competitive bid process. Rotat-ing vendors can be a logistical hassle, but companies should know that when you become too dependent on one vendor, relationships become too close. Going through the bidding process for each job insures you’ll avoid being overcharged. • Compare field tickets to invoices received. This step is skipped too often. A representative of the operating company gets together with the field supervisor to compare field tickets to invoices. Don’t pay invoices that aren’t supported with signed field tickets.• Create an approved vendor list.
Use a vendor application process, check the vendors with other operators to learn of their experiences, and ensure your field personnel only use vendors from this list.
•Perform analytical reviews from a financial perspec-tive. Internal audit staff or outside consultants com-pare what you are paying versus the industry norm. Additionally, perform vendor audits after the work was completed, taking into consideration price and performance.Field fraud in the oil and gas industry is widespread
and not talked about. Is it happening to you? OGFJ
About the author
Megan McFarland is the National Energy Practice Leader for Hein & Associates LLP, a full-service public accounting and advisory firm with offices in Denver, Houston, Dallas and Orange County. She specializes in SEC and other complex reporting requirements and has significant experience assisting companies with the imple-mentation and reporting of internal controls.
However, over time, if you add all of the field fraud up, it can be significant to the company.
Field fraud continues to be a problem because find-ing qualified workers is tough, which leads to short-cuts in hiring. Many times, companies may not check references or call the fraudster’s past employer, and if they do, that employer might be reluctant to divulge information for fear of legal trouble. The fraudulent field employee usually knows many people in the indus-try and can find work, because as we said, qualified employees are tough to find.
Field fraud: An exampleLet’s look at a typical oil and gas field fraud. Although fictional, our tale is influenced by real events we have learned of as accountants and consultants. We focus our story on Good ol’ Boy, the field supervisor at a $300-million exploration company operating in the Barnett Shale.
Water used in the drilling process has to be recovered and taken to a processing site for cleaning and re-use. One day, Good ol’ Boy notices that his water hauler, a guy by the name of Harry Hustler, is charging him ten loads a day, about $10,000, when Harry is really only hauling eight loads a day. This has been going on for six months. Good ol’ Boy calls Harry on his cell phone, and asks him about the
discrepancy. Harry immediately offers Good ol’ Boy in on the action, and promises him that no one will notice such a small amount of money.
After thinking about it and justifying it — because Good ol’ Boy thinks he should be making more money — he agrees to set up a limited partnership as a water disposal company. They create two separate invoices for the water hauling contract; one from Harry that is legit and another to Good ol’ Boy Water Hauling Ltd. Now Good ol’ Boy is married, but he also happens to have a girlfriend, Norma Rae. He lists Norma as the prin-cipal of the partnership and sets her up in a trailer not far from the oil fields, all at the company’s expense, of course. This goes on for two years, amounting to more than $350,000 stolen from Good ol’ Boy’s employer. The scheme only gets discovered after Good ol’ Boy’s
In the oil and gas business, reporting rules
require safeguards on corporate reporting and
audit of financial statements, but what about
operations? For oil and gas companies, field
operations are likely more vulnerable to fraud
than any other part of the business.
1307ogfj_28 28 7/2/13 10:48 AM
July 2013 Oil & Gas Financial Journal • www.ogfj.com 29
Louisiana “legacy litigation” involves hundreds of lawsuits claiming environmental harm caused by oil and gas exploration and production activities. For
landowners, these lawsuits have been likened to winning the lottery. In some instances, plaintiffs have sought hundreds of millions or, even billions, of dollars in damages when their property is valued at a fraction of those amounts. They generally posit that the property should be restored beyond regulatory standards to its “original” condition. Oftentimes, the cost of original condition restoration is exponentially higher than restoration to regulatory standards, and land-owners aver they get to pocket the difference. Moreover, they argue that the market value of the property is irrelevant to the cost of the restoration.
For oil and gas companies, “legacy litigation” often represents a potential substantial liability that, until they are served with a lawsuit, was previously unknown. This is, in part, because the lawsuits often allege successor liability for operations that occurred decades ago by predecessors. Moreover, the assets at issue were often divested years prior to the litigation, leaving an oil and gas company uncertain as to the activity that took place on an oil and gas lease after it was sold or assigned. Compounding the problem for oil and gas companies, and consistent with historic industry practice, operators likely will have transferred their operational files to subsequent operators, further creating a gap in knowledge about pertinent operations.
Historically, oil and gas companies have attempted to mitigate risk, in part, by including various defense and indemnify provisions in an asset purchase agreements or other transfer documents. In legacy lawsuits, defense and indemnity provisions can be enforceable; however, regard-less of how ironclad they seem, such provisions may end up being of little value because of the financial status of the buyer years after the deal is closed, or because the parties to the agreements litigate their meaning until the bitter end, creating a great deal of uncertainty when headed into a trial where a plaintiff is seeking substantial sums.
More recently, some oil and gas companies have begun mitigating risk by creating site specific trust accounts (SSTAs) when divesting property. SSTAs are authorized pursuant to the Louisiana Oilfield Site Restoration Law, La.R.S. 30:88. In sum, SSTAs are a statutory mechanism by which oil and gas properties being transferred are inspected by State-approved contractors prior to the transfer. The pur-pose of the inspection is “to determine the site restoration requirements existing at the time of the transfer.” La.R.S. 30:88(B). Based upon the site restoration requirements, a
funding proposal is reviewed, and, if satisfactory, approved by the Louisiana Department of Natural Resources (the “DNR”), Office of Conservation. La.R.S. 30:88(D). Fund-ing of the site-specific trust account includes a contribution to the account at the time of transfer. La.R.S. 30:88(C). Importantly, after the SSTA is funded, “[t]he party acquiring the oilfield site shall thereafter be the responsible party for the purposes of this Part.” La.R.S. 30:88(F). Thus, to the extent permitted under the law, once established and fully funded, an SSTA will generally release a transferor and prior responsible parties for regulatory liability for site restoration costs, and make the transferee the responsible party in the eyes of regulators. Landowners, however, generally argue that, regardless of whether an SSTA was created, oil and gas companies remain liable for their leasehold obligations, which they aver include restoration to original condition.
The scope of potential liabilities discussed above were not necessarily readily apparent in Louisiana until at least 2003, when the Louisiana Supreme Court handed down its ruling in Corbello v. Iowa Production, 850 So. 2d 686 (La. 2003). In Corbello, landowners were permitted to recover substantial damages for remediation that were not tethered to the value of the land, and were not required to use the damages to actually restore the property. Id. Legacy litigation increased significantly after the Corbello decision, with hundreds of such suits now pending.
In 2006, the Louisiana legislature responded to Cor-bello, and enacted “legacy legislation” commonly known as “Act 312.” See M.J. Farms, Ltd. v. Exxon Mobil Corp., 998 So. 2d 16, 36 (La. 2008); see La. R.S. 30:29. Act 312, in practice, provided little relief to the oil and gas industry. Among other things, Act 312 did not streamline litigation or expressly curtail the amount of damages a plaintiff could recover for environmental damage, and it has been interpreted to allow a trial before the DNR can opine on an appropriate standard of remediation.
In 2012, additional legislation was enacted that pur-ports to resolve some of the issues not resolved by Act 312. One of the more significant changes to Act 312 opens the door to DNR involvement in creating a remediation plan before the parties go to trial if limited admissions of liability for all or part of the environmental damage at issue are made. In such cases, the matter should be referred to the DNR to determine an appropriate remediation plan. Each party that files a limited admission is responsible for certain costs incurred by the DNR. A minimum $100,000 deposit is required by an admitting party.
Adam B. Zuckerman, Baker Donelson, New Orleans
Louisiana legacy lawsuits create unknown risks for some E&P companies
1307ogfj_29 29 7/2/13 10:48 AM
30 www.ogfj.com • Oil & Gas Financial Journal July 2013
Ostensibly, a DNR-approved remediation plan coupled with evidence of the cost to implement the plan could help a finder of fact determine an appropriate measure of damages, assuming liability. However, a judge or jury may be deprived of this information unless the parties admit regulatory liability, which admission plaintiffs may attempt to use at trial to argue liability for exponentially greater damages to restore property to its “original condition.” Moreover, even after the 2012 amendments to Act 312, the landowners’ position generally remains that a trial should proceed simultaneously with the DNR proceed-ings, potentially creating a rush to verdict without the benefit of the DNR’s recommendation for remediation.
In a closely watched decision, on January 30, 2013, the Louisiana Supreme Court issued its opinion in State of Louisiana, et al. v. The Louisiana Land & Exploration Co., et al., 2012-0884 (La. Jan. 30, 2013); 2013 WL 360329, interpreting Act 312 on the issue of a landowner’s right to be awarded damages beyond the cost of the regula-tory remediation plan. The Court affirmed the appellate court’s ruling denying partial summary judgment to the defendants, who argued that plaintiffs had no right to seek remediation damages in excess of those found necessary to fund the plan for remediation mandated by Act 312 absent an express provision in the lease. Finding that the statute was procedural in nature and did not affect the
substantive rights of landowners, the Court concluded that, by its clear language, Act 312 allowed recovery of damages by a landowner in excess of the cost of the approved feasible remediation plan. It remains to be seen if there will be a significant increase in legacy litigation fol-lowing this ruling.
In sum, legacy lawsuits continue to remain a potentially substantial liability for companies that own or previously owned or operated oil and gas assets in Louisiana. OGFJ
About the author
Adam Zuckerman is a shareholder at Baker Donelson. He represents clients in a variety of commercial litigation matters, including contract and business tort litigation, oil and gas litigation, environmental litigation arising out of oil and gas exploration and production activities, natural gas pipeline expropriation proceedings, and construc-tion litigation. He represents creditors in bankruptcy and other collection proceedings, and represents clients throughout the federal and state appellate process. Zuckerman served as Bankruptcy Law Clerk to the United States Trustee for the Eastern District of Louisiana, and also served as Judicial Law Clerk to Chief Justice Pascal F. Calogero, Louisiana Supreme Court. He earned a BS from the University of Georgia and earned his JD from Loyola University School of Law.
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insight into the top 5 US shale plays and the 7 factors driving
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E&P companies are shifting budgets to high-BTU, liquid-
rich plays. Bentek’s Rusty Braziel provides expert analysis.
Find shale rankings, top producers, the latest shale news,
and YES, we have maps!
C A N A D A
MEX ICO
Avalon, Bone Spring
Bakken
Niobrara
Granite Wash
Eagle Ford
Marcellus SW Penn.
Where are the high BTU plays?
Shale resource plays, lower 48 states
MontanaThrust Belt
Cody
Greater GreenRiver Basin
HilliardBaxter-Mancos
Uinta Basin
Williston Basin
Mancos
Hermosa
Piceance Basin
Paradox Basin Lewis
San JuanBasin
MarfaBasin
Pierre
RatonBasin
Palo Duro Basin
PermianBasin
Bend
Gammon
Excello-Mulky
Cherokee Platform
Woodford
AnadarkoBasin
Ardmore Basin
Barnett
Barnett-Woodford
Ft. Worth BasinMavericksub-basin
Forest CityBasin
Fayetteville
Arkoma BasinArkoma Basin
Haynesville-Bossier
MichiganBasin
MichiganBasin
Antrim
IllinoisBasin
NewAlbany
Rio GrandeEmbayment
Black WarriorBasin
Texas-Louisiana-Mississippi Salt Basin
AppalachianBasin
Chattanooga
Conasauga
Valley and RidgeProvince
Floyd-Neal
Devonian (Ohio)
Marcellus
Utica
Pearsall-EagleFord Eagle
Ford
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1307ogfj_30 30 7/2/13 10:48 AM
July 2013 Oil & Gas Financial Journal • www.ogfj.com 31
Compared to its neighbor to the south, Canada is in the early stages of developing its unconven-tional resources, especially tight oil. For Canadian
producers, this means that a large portion of that nation’s production potential has yet to be unlocked. In watching the development of these emerging shale plays, it is gen-erally acknowledged that it is crucial that only the most lucrative liquids-rich plays be developed.
Tight oil is expected to play an increasing role in Canada’s overall production mix. The identified liquids-rich plays in the Western Canada Sedimentary Basin have become increasingly relevant due to new horizontal drill-ing and hydraulic fracturing and completion technologies employed in the development of these unconventional plays, which has made production economic – at least as long as oil prices remain high.
The Duvernay formation in Alberta, which has been compared to the Eagle Ford shale play in South Texas, has drawn the most intense focus to date. In evaluating well results in the Duvernay, Wood Mackenzie’s research analysts noted the play has the potential to become one of North America’s most attractive liquids-rich shale plays. Still in its infancy in terms of development, the Duvernay is a large play that covers much of west-central Alberta. Because of its potential, it has attracted companies like Encana, Talisman, Chevron, and ExxonMobil that already hold large acreage positions.
Here is a brief description of several other prominent and emerging plays in Canada and the latest news from each:
Liard Basin (British Columbia) – Apache has called the Liard the “best and highest quality shale gas reser-voir in North America.” It is located in a remote and largely unexplored part of northeastern British Columbia. Apache says its Laird Basin wells are the most prolific in the world, based on the volume of gas three test wells are producing. Based on the production from those wells, Apache announced it has 48 tcf of marketable gas within its Liard Basin properties. By way of comparison, all com-panies active in the Horn River Basin, one of three other major shale gas basins in the province, have marketable gas of 78 tcf, giving one company alone a natural gas find that is two-thirds the size of the entire Horn Basin. One well alone produced 21 million cubic feet of gas a day over a 30-day test period.
Horn River Basin (British Columbia) – Gas is pro-duced from the siliceous shale of the Horn River forma-tion in the Greater Sierra field, north of Fort Nelson. Horizontal drilling and fracturing techniques are used
to extract the gas from the low-permeability shales. The original gas-in-place volumes are estimated to be up to 500 tcf, making it the third-largest North American natural gas accumulation discovered prior to 2010. Com-panies operating in the region include Encana, Apache, EOG, Stone Mountain Resources, ExxonMobil, Quicksil-ver Resources, Nexen, and Devon Energy.
Montney (Alberta and British Columbia) – Gas is produced from the Montney formation in the Peace River country in British Columbia and Alberta, and oil is pro-duced from the formation in northern Alberta. Gas rich silty shales occur in the northern and western fringes of the deposit. Investor interest in the Montney has surged due in part to a reduction in royalty rates by the provin-cial government of Alberta. More than 25 E&P compa-nies are operating in the area, and strong developmental growth in the shale has rewarded leading producers such as Encana with high-quality natural gas. South Africa’s Sasol Ltd. owns a 50% stake in Talisman Energy’s Mont-ney assets in the Farrell Creek project that Talisman oper-ates. Other participants in the play include Royal Dutch Shell and PetroChina.
Utica (Quebec) –The Utica shale is a black calcareous shale, from 150 to 700 feet (210 m) thick, with from 3.5% to 5% by weight total organic carbon. The Utica Shale play focuses on an area south of the St. Lawrence River between Montreal and Quebec City. Interest has grown in the region since Denver-based Forest Oil Corp. announced a significant discovery there after testing two vertical wells. However, there is significant opposition to hydraulic fracturing in the province, which may discour-age operators due to concern about a fracking ban.
Frederick Brook (New Brunswick) – An emerging play in the maritime province of New Brunswick in east-ern Canada, the Frederick Brook shale is located near Sus-sex in the province. Apache Canada was one of the first companies (in 2010) that began drilling horizontal wells to tap the Lower Carboniferous shale deposit.
Muskwa (British Columbia – The Devonian Muskwa shale of the Horn River Basin is said to contain 6×1012
cu ft (170×109 m3) of recoverable gas. Major leasehold-ers in the play are EOG Resources, Encana, and Apache. The government of British Columbia has already received billions of dollars in lease proceeds, with the majority of the proceeds coming from shale gas prospects. The Brit-ish Columbia government has granted royalty credits to companies for drilling and infrastructure development in the area. OGFJ
Canadian shale update
1307ogfj_31 31 7/2/13 10:48 AM
Deal Monitor
32 www.ogfj.com • Oil & Gas Financial Journal July 2013
PLS reports that from May 17 to June 16, 2013, the pace of US oil and gas deal activity slowed to just 27 deals for $2.5 billion (versus 45 deals for $2.1 billion
last month). Canada has stalled with only 10 deals for $35 million, yet international markets are improving having struck 39 deals for $5.5 billion compared to 12 deals for $1.6 billion last month.
At press time as of June 20, global deal markets in Q2 totaled just $17.6 billion (169 deals) putting the markets within range of eclipsing the low-water mark (since 2007) of quarter deal value of $20.9 billion (188 deals) struck in Q1 2013. The US total is $6.5 billion, Canada $1.8 billion and international is $9.3 billion.
This month EP Energy takes center stage in the US deal markets where it sold $1.3 billion of assets in a series
of deals. For perspective, EP Energy was born out of the transaction that occurred back in October 2011 when Kinder Morgan paid $37.8 billion to buy El Paso Corpora-tion. Subsequently, Kinder Morgan sold off the upstream assets of El Paso to a private equity led consortium of Apollo, Riverstone, Korea National Oil Corporation and Access Industries for $7.15 billion just a little over a year ago in February 2012. At the time of the private-equity purchase, EP Energy had 2.8 Tcf of gas reserves and 201 MMbbls of oil reserves producing 746 MMcfpd and 22,300 bopd respectively. The current series of deals rep-resent roughly 18% of the original purchase price, 23% of original reserves and 24% of original production. Accord-ing to EP Energy, the sales represent an important step toward transforming and concentrating the portfolio to
EP Energy takes center stageas deal markets remain on the slow side
Brian Lidsky, PLS Inc., Houston
PLS Inc., Monthly Deal Monitor – Select transactions 05/17/13 - 06/16/13
US Transactions
Date Announced Buyer Seller Asset Location
9-Jun-13 Atlas Resource Partners EP Energy Coalbed Methane
9-Jun-13 Atlas Energy EP Energy Coalbed Methane
2-Jun-13 Kodiak Oil & Gas Liberty Resources Bakken
31-May-13 Wapiti Energy Layline Petroleum Multi Region
28-May-13 NorthWestern Energy Devon Energy Rockies
20-May-13 EnerVest Management Partners Laredo Petroleum Mid-Continent
Total Transaction value
Number of Transactions
International Transactions
Date Announced Buyer Seller Asset Location
14-Jun-13 Banco BTG Pactual SA Petrobras Nigeria
13-Jun-13 Centrica Cuadrilla, AJ Lucas Group United Kingdom
11-Jun-13 Surge Energy Inc Cenovus Energy Saskatchewan
27-May-13 Pine Cliff Energy Undisclosed Seller Alberta
23-May-13 Osaka Gas Horizon Oil Papua New Guinea
23-May-13 Parkmead Group Plc Lochard Energy Group Plc UK North Sea
17-May-13 Tuscany Energy Diaz Resources Multi Canada
Total Transaction value
Number of Transactions
PLS Inc. Validity of data is not guaranteed and is based on information available at time of publication.
Prepared by PLS Inc. For more information, email [email protected].
+ =
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Deal Monitor
July 2013 Oil & Gas Financial Journal • www.ogfj.com 33
focus on high-margin oil plays while retaining the largest gas asset in the Haynesville shale.
In the largest deal of the EP Energy deals, Atlas Resource Partners (ARP) picked up 119 MMcfpd of coal-bed methane production and 466 Bcf of reserves for $733 million. The assets (93% PDP) nearly double ARP’s exist-ing production and are split between New Mexico’s Raton basin (320 Bcf), Alabama’s Black Warrior basin (141 Bcf), and Wyoming’s County Line region (6 Bcf). The met-rics for this 100% gas deal are $1.57 per proved Mcf and $6,160 per daily Mcf. Deemed to be “transformative” by ARP’s CEO Edward Cohen, the deal will immediately be accretive to cash fow and ARP increased its 2014 distribu-tion guidance up by 27% to $2.60 per unit.
The second buyer, by way of agreement with ARP, is ARP’s parent, Atlas Energy, L.P. (ATLS) who picked up 45 Bcf of EP Energy’s coalbed methane assets in the Arkoma basin in southeastern Oklahoma for $67 million. These assets are 100% natural gas, 100% proved developed, 97% operated and have current annualized EBITDA of ~$10 million. Production is 13 MMcfpd from over 550 wells and the metrics on this deal are $1.53 per proved Mcf and $5,150 per daily Mcf.
On June 17 (one day after the timeframe in the Table below), EP Energy announced two more deals totaling $500 million. Privately-owned Wildhorse Resources II bought conventional Ark-La-Tex and North Louisiana assets while an undisclosed buyer purchased EP Energy’s
legacy conventional South Texas gas package. These two deals were struck at a combined $1.26 per proved Mcf (398 Bcf of reserves) and $6,024 per daily Mcf (total of 83 MMcfpd of net production).
In total, EP Energy sold 909 Bcf of conventional and CBM gas reserves and 215 MMcfpd of production at valua-tions of $1.43 per Mcf and $6,050 per daily Mcf. These metrics provide a good valuation market data point for today’s natural gas PDP-oriented deals.
Elsewhere in the US markets, Kodiak struck a $660 million deal to buy out Liberty Resources’ Bakken position adding 42,000 net acres and 6,000 boepd of production. Privately-held Wapiti Energy paid $375 million, with fund-ing from Wells Fargo and Carlyle, for producing assets in Texas, Louisiana and North Dakota from Layline Petro-leum.
In other deals, Petrobras sold a 50% interest in its African assets to BTG Pactual for $1.5 billion and in Canada, Surge Energy bought Shaunavon tight oil assets in Saskatchewan from Cenovus for $235 million.
New large deals hitting the markets include a $1.5 billion asset sales target from Freeport McMoRan Copper & Gold following the completion of its acquisition of Plains E&P and McMoRan Exploration and Halcon Resources sell-ing four conventional US packages totaling 4,500 boepd. Occidental is reportedly looking to sell Middle East assets and in Canada, Penn West has started a process to review all strategic alternatives. OGFJ
Note: Canada transactions assume 20% royalty, unless disclosed.
Proved Reserve
Value ($MM)
Non Proved
Reserve Value
($MM)
Reserves
(MMBoe)
Production
(Boe/D)
Reserves
($/Boe)
Production
($/Boe/d)
Reserves
($/Mcfe)
Production
($/Mcfe/d)
$733.0 - 77.7 19,833 $9.44 $36,959 $1.57 $6,160
$67.0 - 7.5 2,167 $8.93 $30,918 $1.49 $5,153
$526.1 $133.9 - 5,700 - $92,300 - $15,383
$375.0 - 23.2 - $16.16 - $2.69 -
$70.2 - 10.8 2,557 $6.52 $27,454 $1.09 $4,576
$438.0 - 28.5 9,625 $15.37 $45,506 $2.56 $7,584
$2,209.36
$133.9 MedianMean
$9.44$11.28
$36,959$46,627
$1.57$1.88
$6,160$7,771
2P Reserve Value
($MM)
Non 2P Reserve
Value ($MM)
2P Reserves
(MMBoe)
Production
(Boe/D)
2P Reserves
($/Boe)
Production
($/Boe/d)
2P Reserves
($/Mcfe)
Production
($/Mcfe/d)
$1,525.0 - - 26,300 - $57,985 - $9,664
- $133.1 - - - - - -
$228.3 $7.1 8.5 2,880 $26.87 $79,264 $4.48 $13,211
$33.0 - 3.3 689 $9.98 $47,866 $1.66 $7,978
$22.8 $51.2 2.3 - $10.00 - $1.67 -
$31.0 - 2.3 1,090 $13.48 $28,450 $2.25 $4,742
$6.0 - 1.0 287 $6.24 $20,732 $1.04 $3,455
$1,846.07
$191.5 MedianMean
$10.00$13.31
$47,866$46,859
$1.67$2.22
$7,978$7,810
1307ogfj_33 33 7/2/13 10:48 AM
34 www.ogfj.com • Oil & Gas Financial Journal July 2013
OGFJ100P
Independent research frm IHS Herold Inc. has provided OGFJ with updated production data for our periodic rank-ing of US-based private E&P companies. The rankings are
based on operated production only within the United States.Here, we take a look at some of the transactions in the
private company space since the April 2013 issue and the last installment of the OGFJ100P.
Top 10In this, the last data set for 2012, there were a few notable changes in the Top 10 listing. Dropping out of the overall Top 10 by BOE were Citation Oil & Gas Corp. and Petro-Hunt Group. Citation dropped from its previous position at No. 9 to its current No. 11 spot, and Petro-Hunt Group dropped from No. 8 in the April issue to No. 16 in this installment. Breaking into the Top 10 is LLOG Exploration Co. LLC. The company jumped two spots from its previous No. 11 spot to enter the Top 10 at No. 9. The largest jump was that of Sheridan Pro-duction Co. LLC. The company landed in the Top 10 at No. 7 in this issue, up ten spots from its previous position at No. 17.
Not only did Sheridan break into the overall Top 10, but the Permian Basin-focused company fnds itself as a Top 10 liquids producer, jumping into the group at No. 5, and rounding out the gas producers list at No. 10.
WildHorse Resources also moved itself into a Top 10. With a focused presence in the Terryville Field in Lincoln and Claiborne Parishes, Louisiana, overall No. 18 Wild-Horse comes in at No. 8 in the list of Top 10 private gas producers. The addition of Sheridan and WildHorse to the Top 10 gas producers list displaced Chief Oil & Gas LLC and Citrus Energy Corp. in this installment.
Another change to the Top 10 private gas producers list is the removal of Dynamic Offshore Resources. The company was acquired by SandRidge Energy Inc. for $680 million in cash and approximately 74 million shares of SandRidge common stock in April 2012. Based on the closing price of SandRidge common stock of $7.11 per share on April 16, 2012, the acquisition’s aggregate con-sideration is valued at approximately $1.206 billion.
CapitalUnranked Maverick Brothers Energy LLC recently received a commitment of $35 million in equity capital from investment partnerships managed by Post Oak Energy.
Funding will be used for Enid, Oklahoma-based Maverick’s drilling program and acreage acquisitions. Post Oak funded $12 million at closing, with the remain-ing $23 million available to support future develop-
OGFJ100P company update
Top 10 private gas producers
Rank100P Rank Company Gas (Mcf)
1 2 Samson Investment Co. 230,672,097
2 1 Merit Energy Co. 186,594,085
3 3 Hilcorp Energy Co. 158,102,146
4 5 Yates Petroleum Corp. 98,445,107
5 6 Mewbourne Oil Co. 76,545,286
6 4 GeoSouthern Energy Corp. 74,180,750
7 15 J-W Operating Co. 59,267,373
8 18 WildHorse Resources LLC 43,531,267
9 10 Walter Oil & Gas Corp. 42,368,015
10 7 Sheridan Production Co. LLC 39,852,824
Source: IHS Herold
Top 10 private liquids producers
Rank100P Rank Company Liquid (bbl)
1 4 GeoSouthern Energy Corp. 16,619,925
2 3 Hilcorp Energy Co. 14,090,613
3 1 Merit Energy Co. 13,137,475
4 11 Citation Oil & Gas Corp. 12,055,936
5 7 Sheridan Production Co. LLC 10,927,227
6 13 Slawson Exploration Co. Inc. 9,798,994
7 8 Endeavor Energy Resources LP 9,796,443
8 9 LLOG Exploration Co. LLC 8,388,240
9 10 Walter Oil & Gas Corp. 7,471,878
10 6 Mewbourne Oil Co. 6,889,620
Source: IHS Herold
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Commercial OperationsSoftware for Oil & Gas
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July 2013 Oil & Gas Financial Journal • www.ogfj.com 35
OGFJ100P
ment activities on leasehold acreage and other growth initiatives.
Maverick has accumulated a contiguous acreage posi-tion of more than 10,000 gross acres in Dewey County, Oklahoma and has completed four horizontal gas wells in the Mississippian Osage formation. Maverick’s leadership team includes Bret Brickman, president and CEO, and Bart Brickman, vice president.
SaleWildHorse Resources puts yet another stamp on this issue of the OGFJ100P as the buyer of certain Ark-La-Tex assets from EP Energy LLC. As noted in Deal Monitor, p. 33 of this issue, EP Energy LLC agreed to sell conventional gas assets in East Texas and North Louisiana to WildHorse Resources II LLC.
Offering up its non-operated Eagle Ford properties is privately-held Kirkpatrick Oil & Gas LLC. The Oklahoma City-based company is looking to sell certain non-operated oil and gas interests located in La Salla and Frio Counties, TX with the help of E-Spectrum Advisors LLC as its exclusive agent.
The assets up for sale include total net proved reserves of
1.18 MMboe (~88% oil/liquids) with a PV-10 of $15.9 mil-lion, PDP net reserves of 178 Mboe with a PV-10 of $6.9 million, and a multi-year development program with 96 Eagle Ford horizontal PUDs.
The assets hold current production of 6,000 gross/135 net boe/d (84% oil/liquids), average net operating cash fow of $223,337/month (for the trailing three-months ending March 2013), and 41 horizontal producing wells (36 Eagle Ford and 5 Pearsall wells).
GrowthNo. 4-ranked GeoSouthern Energy Corp. has set its sights on a new offce building in The Woodlands, TX. The company, specializing in production of Austin Chalk and Eagle Ford unconventional formations with large acreage positions in Gon-zales and Lavaca counties, TX, plans to relocate to Wildwood Corporate Centre, a three-story building slated for completion in January 2014. According to The Houston Business Journal, the company will lease roughly half of the 127,794-square-foot building. OGFJ
Rank Company BOE Total wells Largest feld
1 Merit Energy Co. 44,236,489 5,641 Painter Reservoir East
2 Samson Investment Co. 44,197,043 4,020 Ignacio-Blanco
3 Hilcorp Energy Co. 40,440,971 2,657 Judge Digby
4 GeoSouthern Energy Corp. 28,983,383 287 De Witt
5 Yates Petroleum Corp. 20,535,153 3,590 Powder River Basin Coal Bed
6 Mewbourne Oil Co. 19,647,168 1,495 Lipscomb
7 Sheridan Production Co. LLC 17,569,364 3,918 Fuhrman-Mascho
8 Endeavor Energy Resources LP 15,481,128 5,282 Sprayberry
9 LLOG Exploration Co. LLC 14,885,848 39 Mississippi Canyon Block 0503
10 Walter Oil & Gas Corp. 14,533,214 76 West Delta Block 0112
11 Citation Oil & Gas Corp. 14,274,985 2,616 Sho-Vel-Tum
12 Bass Companies 11,729,616 986 Quahada Ridge Southeast
13 Slawson Exploration Co. Inc. 11,100,068 323 Van Hook
14 Hunt Oil Co. 10,544,504 644 Eagleville
2012 Year-to-date production ranked by BOE
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Quorum Production & Revenue Accounting™
1307ogfj_35 35 7/2/13 10:49 AM
36 www.ogfj.com • Oil & Gas Financial Journal July 2013
OGFJ100P
Rank Company BOE Total wells Largest feld
15 J-W Operating Co. 10,015,170 809 Elm Grove
16 Petro-Hunt Group 8,835,212 400 Charlson
17 Fasken Oil and Ranch Ltd. 8,364,605 913 Sprayberry
18 WildHorse Resources LLC 7,928,446 722 Terryville
19 Texas Petroleum Investment Co. 7,257,519 1,381 Luling-Branyon
20 Kaiser-Francis Oil Co. 7,038,597 1,342 Ashland
21 Chief Oil & Gas LLC 6,554,756 54 Dimock
22 Citrus Energy Corp. 6,505,731 26 Mehoopany
23 Red Willow Production Co. 6,484,259 400 Ignacio-Blanco
24 Valence Operating Co. 5,959,695 560 Carthage
25 Indigo Minerals LLC 5,674,665 312 Caspiana
26 Ankor Energy LLC 5,541,631 114 South Marsh Island Block 0073
27 Black Elk Energy LLC 5,296,507 202 Galveston Block 0389
28 Ballard Exploration Co. Inc. 5,263,256 66 Yellow Rose
29 Castex Energy Inc. 5,026,664 48 Atchafalaya Bay
30 Stephens Production Co. 4,800,756 800 Gragg
31 Zenergy Inc. 4,450,425 226 Banks
32 BASA Resources Inc. 4,317,554 2,981 East Texas
33 Alta Mesa Holdings LP 4,234,979 202 Weeks Island
34 Pruet Production Co. 4,087,313 217 Brooklyn
35 Sanguine Gas Exploration LLC 4,086,007 126 Mills Ranch
36 New Dominion LLC 3,928,171 326 Oklahoma City
37 MacPherson Oil Co. 3,804,164 427 Round Mountain
38 DCOR LLC 3,740,295 258 Dos Cuadras
39 FIML Natural Resources LLC 3,723,440 919 Sprayberry
40 Reliance Energy Inc. 3,711,986 153 Sprayberry
41 Laredo Energy IV 3,690,876 91 Owen
42 Killam Oil Co. Ltd. 3,646,181 459 Cuba Libre
43 Pisces Holding Co. 3,628,703 36 West Cameron Block 0076
44 Venture Oil & Gas Inc. 3,591,773 96 Winchester South
45 Burnett Oil Co. Inc. 3,516,918 324 Loco Hills
46 Tana Exploration Co. 3,494,576 85 Timbalier Bay
47 Jones Energy Holdings LLC 3,471,617 244 Centrahoma
48 Murex Petroleum Corp. 3,459,069 183 Sanish
49 CML Exploration LLC 3,428,597 252 Madisonville West
50 Milagro Oil & Gas Inc. 3,373,338 535 Magnet Withers
51 Summit Petroleum LLC 3,302,998 292 Sprayberry
52 Henry Resources LLC 3,148,785 207 Sprayberry
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Financial & Cost Accounting
Quorum Accounting / ERP ™
1307ogfj_36 36 7/2/13 10:49 AM
July 2013 Oil & Gas Financial Journal • www.ogfj.com 37
OGFJ100P
Rank Company BOE Total wells Largest feld
53 Jetta Operating Co. Inc. 3,130,732 412 Big Mineral Creek
54 J. Cleo Thompson & James Cleo Thompson, Jr. 3,112,357 953 Wolfbone
55 Antero Resources LLC 3,029,717 134 Reams Southeast
56 Legend Natural Gas LP 2,982,596 358 Garcias Ridge
57 Tellus Operating Group LLC 2,921,635 403 Baxterville
58 Vantage Energy LLC 2,909,594 214 Newark East
59 Berexco Inc. 2,853,706 1,651 Cushing
60 CrownQuest Operating LLC 2,834,617 177 Sprayberry
61 Deep Gulf Energy LP 2,759,543 2 Green Canyon Block 0448
62 Square Mile Energy 2,698,874 35 Leleux
63 Petro Harvester Oil & Gas LLC 2,688,628 429 Laurel
64 Texland Petroleum LP 2,674,129 641 Fullerton
65 Parsley Energy Co. 2,666,276 233 Sprayberry
66 Battalion Resources Holdings LLC 2,645,319 1,584 Powder River Basin Coal Bed
67 Tidelands Oil Production Co. 2,616,466 486 Wilmington
68 Border To Border Exploration LLC 2,613,280 46 Magnolia Springs
69 Stephens & Johnson Operating Co. 2,567,610 752 Oklahoma City
70 Manti Resources Inc. 2,501,394 47 Hospital Bayou
71 Vernon E. Faulconer Inc. 2,440,208 584 Watonga-Chickasha Trend
72 Finley Resources Inc. 2,428,251 654 Ford West
73 West Bay Exploration Co. 2,405,326 96 Napoleon
74 Eagle Oil & Gas Co. 2,299,952 78 Converse
75 Gary, Samuel Jr & Associates Inc. 2,295,861 141 Marceaux Island
76 Wolverine Gas and Oil Corp. 2,219,376 23 Covenant
77 Davis Petroleum Corp. 2,219,006 81 Lac Blanc
78 E&B Natural Resources Management Corp. 2,207,316 1,102 Poso Creek
79 Vess Oil Corp. 2,167,523 1,314 Kurten
80 Wagner Oil Co. 2,145,719 241 La Sal Vieja Dist 4
81 White Oak Energy, LP 2,112,406 429 Belle Isle Southwest
82 Choice Exploration Inc. 2,102,196 22 Cottonwood North
83 Sklar Exploration Co. LLC 2,059,962 70 Brooklyn
84 R. Lacy Inc. 1,938,669 257 Carthage
85 Le Norman Operating LLC 1,931,443 39 Lard Ranch
86 Cobra Oil & Gas Corp. 1,894,626 159 Sprayberry
87 Ward Petroleum Corp. 1,857,106 212 Talihina Northwest
88 Crawley Petroleum Corp. 1,819,363 458 Strong City District
89 Rosewood Resources Inc. 1,792,674 1,105 Waverly
90 Sanchez Oil & Gas Corp. 1,788,008 189 Hargill
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Quorum Land Management / GIS™ ™
1307ogfj_37 37 7/2/13 10:49 AM
38 www.ogfj.com • Oil & Gas Financial Journal July 2013
OGFJ100P
Rank Company BOE Total wells Largest feld
91 Augustus Energy partners 1,742,598 981 Vernon
92 Muskegon Development Co. 1,734,269 1,323 Antrim
93 Rice Energy LLC 1,695,176 13 Amity
94 Strat Land Exploration Co. 1,672,738 328 Lipscomb
95 McGowan Working Partners 1,664,504 320 Shuler
96 Ricochet Energy Inc. 1,634,944 105 Roleta
97 Helis Oil & Gas Co. LLC 1,622,676 8 Galveston Block 0350
98 JM Cox Resources LP 1,619,458 817 Sprayberry
99 Dan A. Hughes Co. 1,551,076 122 Pearsall
100 Murfn Drilling Co. 1,547,885 946 Williamson
Source: IHS Herold; For more information about IHS Herold’s Private Company Database, visit herold.com/research.herold.contact_us
Production totals based on latest fgures as reported to and recorded by individual state agencies and tabulated by IHS at time of publication. Some agencies are delayed by as many as several months in
releasing data which may impact rankings.
2012 Year-to-date production – alphabetical listing
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Quorum Division of Interest ™
Rank Company BOE City State Top executive offcials
33 Alta Mesa Holdings LP 4,234,979 Houston TX Michael McCabe, VP, CFO; Mike Ellis, chair, COO; Hal Chappelle, pres, CEO
26 Ankor Energy LLC 5,541,631 New Orleans LA Denton Copeland, pres, CEO; Michael Anderson, exp mgr; W. Folsom, ops mgr
55 Antero Resources LLC 3,029,717 Denver COPaul Rady, chair, CEO; Glen Warren, pres, CFO; Kevin Kilstrom, VP, prod; Steven Woodward,
VP, bus dev
91 Augustus Energy partners 1,742,598 Billings MT Steve Durrett, pres, CEO; Robert Fisher, VP exp; Duane Zimmerman, VP ops
28 Ballard Exploration Co. Inc. 5,263,256 Houston TX A. Ballard, pres, CEO, owner
32 BASA Resources Inc. 4,317,554 Dallas TXRobert Marshall, VP ops; Sandra Wallace, CFO; Lary Knowlton, co-founder, exec VP; Michael
Foster, pres, co-founder
12 Bass Companies 11,729,616 Fort Worth TX Mitchell Roper, pres; W. McCreight, VP land; H. Muncy, VP exp; John Smitherman, VP prod
66Battalion Resources Holdings
LLC2,645,319 Denver CO Keith Knapstad, pres, COO
59 Berexco Inc. 2,853,706 Wichita KS Adam Beren, pres, chair
27 Black Elk Energy LLC 5,296,507 New Orleans LA John Hoffman, pres, CEO; James Hagemeier, CFO
68Border To Border Exploration
LLC2,613,280 Austin TX John Gaines, CFO; Sam Allen, exp mgr; Matthew Telfer, CEO
45 Burnett Oil Co. Inc. 3,516,918 Fort Worth TX Philip Boschetti, VP, CFO; Anne Marion, chair, owner; William Pollaru, pres
29 Castex Energy Inc. 5,026,664 Houston TX Kevin Ikel, bus dev mgr; John Stoika, pres
21 Chief Oil & Gas LLC 6,554,756 Dallas TXJohn Hinton, sr VP, CFO; Sam Fragale, sr VP ops; Logan Magruder, pres, CEO; Trevor Rees-
Jones, founder, chair
82 Choice Exploration Inc. 2,102,196 Arlington TX Jon Martin, pres; David Brooks, founder, COO, VP ops
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July 2013 Oil & Gas Financial Journal • www.ogfj.com 39
OGFJ100P
Rank Company BOE City State Top executive offcials
11 Citation Oil & Gas Corp. 14,274,985 Houston TXCurtis Harrell, pres, CEO; Robert Kennedy, sr VP bus dev, land; Christopher Phelps, sr VP, CFO;
Steven Pearson, sr VP ops
22 Citrus Energy Corp. 6,505,731 Castle Rock CO David Oberbrockling, VP; Lance Peterson, pres
49 CML Exploration LLC 3,428,597 Kingwood TX William Temple, prod mgr; Lee Staiger, ops mgr; Kenneth Nelson, mgr
86 Cobra Oil & Gas Corp. 1,894,626 Wichita Falls TX Jeff Dillard, pres; Robert Osborne, VP, co-owner; Richard Haskin, CFO
88 Crawley Petroleum Corp. 1,819,363Oklahoma
CityOK Stephen Hatfeld, pres; James Crawley, chair, founder; James Drennen, VP
60 CrownQuest Operating LLC 2,834,617 Midland TX Robert Floyd, pres; David Crass, VP exp dev; Timothy Dunn, principal, CEO
99 Dan A. Hughes Co. 1,551,076 Beeville TX Dan Hughes, pres, partner; Dan Hughes, VP
77 Davis Petroleum Corp. 2,219,006 Houston TX Thomas Hardisty, VP land, bus dev; Daniel Hawk, exec VP, CFO; Michael Reddin, pres, CEO
38 DCOR LLC 3,740,295 Ventura CA Jeffrey Warren, VP; William Templeton, pres, managing member, principal
61 Deep Gulf Energy LP 2,759,543 Houston TX Dave Huber, co-founder; Tom Young, VP bus dev
78E&B Natural Resources
Management Corp.2,207,316 Bakersfeld CA Francesco Galesi, chair; James Tague, VP fnance, planning; Stephen Layton, pres
74 Eagle Oil & Gas Co. 2,299,952 Dallas TXWarren Ayres, exec VP, CFO, dir; Pat Bolin, chair, CEO; Darrell Lohoefer, pres, COO; Bill
Fairhurst, VP exp, land
8 Endeavor Energy Resources LP 15,481,128 Midland TX Autry Stephens, CEO, founder, partner
17 Fasken Oil and Ranch Ltd. 8,364,605 Midland TXNorbert Dickman, VP, gen mgr; Dexter Harmon, exp mgr; Jimmy Davis, ops mgr; Mark Merritt,
oil gas mgr
39 FIML Natural Resources LLC 3,723,440 Denver CO Mark Bingham, dir
72 Finley Resources Inc. 2,428,251 Fort Worth TX Clinton Koerth, VP acq, land; James Finley, CEO, owner; Stephen Clark, CFO; Brent Talbot, pres
75Gary, Samuel Jr & Associates
Inc.2,295,861 Denver CO
Samuel Gary, pres, treas, founder; Jeff Lang, VP ops; Craig Ambler, COO, partner; Lonnie
Brock, CFO
4 GeoSouthern Energy Corp. 28,983,383The
Woodlands TX George Bishop, pres, owner
97 Helis Oil & Gas Co. LLC 1,622,676 New Orleans LA Michael Schott, VP, CFO; David Kerstein, pres
52 Henry Resources LLC 3,148,785 Midland TX Lindsay Solis, mgr; Jim Henry, CEO
3 Hilcorp Energy Co. 40,440,971 Houston TXJeffery Hildebrand, CEO, chair; Greg Lalicker, pres; Jason Rebrook, exec VP, A&D; Lee
Beckelman, exec VP, CFO
14 Hunt Oil Co. 10,544,504 Dallas TXSteve Suellentrop, pres; Thomas Cwikla, exec VP exp; Paul Habenicht, exec VP ops, dev;
Travis Armayor, VP corp dev; Dennis Grindinger, CFO; Jess Nunnelee, VP prod
25 Indigo Minerals LLC 5,674,665 Houston TX Becky Bayless, CFO, exec VP; Keith Jordan, pres; William Pritchard, chair, CEO
54J. Cleo Thompson & James Cleo
Thompson, Jr.3,112,357 Dallas TX James Thompson, pres, CEO, managing partner
53 Jetta Operating Co. Inc. 3,130,732 Fort Worth TX
Greg Bird, pres, owner; Jeanette Clark, VP, controller, treas; Rick Cornelius, VP contracts;
John Jarrett, CFO, VP; Shannon Nichols, VP land; Mike Richardson, exec VP; Gordon
Roberts,VP bus dev
98 JM Cox Resources LP 1,619,458 Midland TX Ben Stickling, ops mgr; John Cox, pres, CEO
47 Jones Energy Holdings LLC 3,471,617 Austin TXHal Hawthorne, VP exp; Mike McConnell, pres, COO; Craig Fleming, exec VP, CFO; Jonny
Jones, CEO, chair
15 J-W Operating Co. 10,015,170 Addison TX Tony Meyer, pres
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Processing / Gathering Management
Quorum TIPS ®
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40 www.ogfj.com • Oil & Gas Financial Journal July 2013
OGFJ100P
Rank Company BOE City State Top executive offcials
20 Kaiser-Francis Oil Co. 7,038,597 Tulsa OK Henry Kleemeier, exec VP, COO; Don Millican, CFO, VP; George Kaiser, pres, CEO
42 Killam Oil Co. Ltd. 3,646,181 Laredo TX David Killam, partner, mgr; Radcliffe Killam, CEO
41 Laredo Energy IV 3,690,876 Houston TXGlenn Hart, pres, CEO; Jim Flowers, VP drilling, completion; Ken Cravens, VP land; Paul
Thompson, chief geo; Scott Stevenson, VP acq; Jerry Holditch, VP geo; Jaime Casas, CFO
85 Le Norman Operating LLC 1,931,443Oklahoma
CityOK David Le Norman, pres, owner
56 Legend Natural Gas LP 2,982,596 Katy TX Mark Tantillo, VP geo; Michael Becci, VP, CFO; James Winne, pres, CEO, chair
9 LLOG Exploration Co. LLC 14,885,848 Houston TXScott Gutterman, pres, CEO; Mitch Ackal, VP, bus dev; Tim Lindsey, sr VP, prod/ops; John
Newman, CFO, treas; Randy Pick, managing dir, A&D
37 MacPherson Oil Co. 3,804,164 Santa Monica CA Donald MacPherson, pres, CEO; Scott MacPherson, sr VP, COO; Bradford Williams, CFO
70 Manti Resources Inc. 2,501,394 Corpus Christi TXChris Douglas, VP exp; Barry Clark, COO; Ben McCrackin, VP ops; Lee Barberito, pres; Robert
Helm, CFO
95 McGowan Working Partners 1,664,504 Jackson MSJoseph McGowan, VP; James Phyler, VP; David McGowan, partner; John McGowan,
managing gen partner; David Russell, pres, CEO
1 Merit Energy Co. 44,236,489 Dallas TX Meghan Cuddihy, dir IR; Kevin Ryan, sr VP, CFO; William Gayden, chair, founder
6 Mewbourne Oil Co. 19,647,168 Tyler TXMonty Whetstone, VP prod; Kenneth Waits, COO, exec VP; J. Roe Buckley, CFO, exec VP;
Bruce Insalaco, VP exp; Curtis Mewbourne, pres, CEO, owner
50 Milagro Oil & Gas Inc. 3,373,338 Houston TXGary Mabie, COO; Marshall Munsell, sr VP bus dev; James Ivey, pres, CEO; Robert LaRocque,
VP fnance, treas
48 Murex Petroleum Corp. 3,459,069 Houston TX Waldo Ackerman, founder, pres; Donald Kessel, VP
100 Murfn Drilling Co. 1,547,885 Wichita KSRobert Young, CFO, sec, treas; William Murfn, chair; David Murfn, pres; David Doyel, exec
VP; Leon Rodak, VP prod
92 Muskegon Development Co. 1,734,269Mount
PleasantMI William Myler, pres, CEO
36 New Dominion LLC 3,928,171 Tulsa OK Jean Antonides, VP, exp; Susan Keary, CFO; Kevin Easley, pres, CEO
65 Parsley Energy Co. 2,666,276 Midland TX Bryan Sheffeld, pres
63 Petro Harvester Oil & Gas LLC 2,688,628 Plano TXDennis Justus, CFO; Gareth Roberts, chair; Scott King, VP exp dev; Randy Holt, VP ops;
William Griffn, pres, CEO
16 Petro-Hunt Group 8,835,212 Denver CO Tom Nelson, VP fnance; Douglas Hunt, dir acq; Charles Rigdon, VP ops; Bruce Hunt, pres
43 Pisces Holding Co. 3,628,703 Metairie LA Bill Gray, co-founder, principal; John Barrett, co-founder, principal
34 Pruet Production Co. 4,087,313 Jackson MS J. Hilton, VP prod; Randy James, pres; Rick Calhoon, VP, sec
84 R. Lacy Inc. 1,938,669 Longview TX Bluford Crain, VP; Rogers Crain, VP; Ann Crain, pres
23 Red Willow Production Co. 6,484,259 Ignacio CO Robert Voorhees, pres, COO; Bill McFie, VP ops; Stephen Goff, CFO
40 Reliance Energy Inc. 3,711,986 Midland TX B. Jack Reed, CFO; Gary McKinney, pres, CEO, owner; Julie Edgerton, controller
93 Rice Energy LLC 1,695,176 Cannonsburg PA Daniel Rice, founder, owner; Daniel Rice IV, COO; Toby Rice, CEO
96 Ricochet Energy Inc. 1,634,944 San Antonio TX Jerry Hamblin, pres; Chris Maier, VP; Raymond Gallaway, VP
89 Rosewood Resources Inc. 1,792,674 Dallas TX Linda Tucker, VP admin, fnance; Gary Conrad, pres; Geoff Ice, VP exp
2 Samson Investment Co. 44,197,043 Tulsa OKDavid Adams, COO; Steve Trujillo, bus dev int'l; Scott Rowland, bus dev US, Can; Stacy
Schusterman, chair, CEO
90 Sanchez Oil & Gas Corp. 1,788,008 Houston TX Tony Sanchez III, founder, pres, CEO; Joseph R. DeDominic, sr VP, COO
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Gas & Liquids Flow Measurement
Quorum PGAS®
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July 2013 Oil & Gas Financial Journal • www.ogfj.com 41
OGFJ100P
Rank Company BOE City State Top executive offcials
35 Sanguine Gas Exploration LLC 4,086,007 Tulsa OK Randolph Nelson, pres; Thomas Fuller, VP fnance, treas
7 Sheridan Production Co. LLC 17,569,364 Houston TX Matt Assiff, exec VP, CFO; Jim Bass, exec VP, COO; Lisa Stewart, CEO
83 Sklar Exploration Co. LLC 2,059,962 Shreveport LA Howard Sklar, owner, CEO; David Barlow, VP, COO; Chris Farrell, VP, CFO; Cory Ezelle, VP exp
13 Slawson Exploration Co. Inc. 11,100,068 Wichita KS Donald Slawson, pres, CEO; Kathy Atkins, controller
62 Square Mile Energy 2,698,874 Houston TX Gary Loveless, chair, CEO
69Stephens & Johnson Operating
Co.2,567,610 Wichita Falls TX Fred Stephens, pres
30 Stephens Production Co. 4,800,756 Fort Smith AR WR Stephens, pres, CEO
94 Strat Land Exploration Co. 1,672,738 Tulsa OK Larry Darden, pres, CEO, owner; Russell McGhee, CFO
51 Summit Petroleum LLC 3,302,998 Midland TX Matthew Johnson, exec VP ops, fnance; Dennis Johnson, pres, CEO; Thomas Fago, VP exp
46 Tana Exploration Co. 3,494,576The
Woodlands TX Kevin Talley, pres; Carl Comstock, VP land, bus dev
57 Tellus Operating Group LLC 2,921,635 Ridgeland MS Richard Mills, pres, mgr; Thomas Wofford, CFO
19 Texas Petroleum Investment Co. 7,257,519 Houston TX H Sallee, pres, co-founder; Wiliam Crawford, co-owner, principal
64 Texland Petroleum LP 2,674,129 Fort Worth TXFrank Kyle, CFO; Gregory Mendenhall, VP ops; Jerry Namy, co-owner; James Wilkes, pres,
co-owner; Bryan Lee, VP exp
67 Tidelands Oil Production Co. 2,616,466 Long Beach CADon Foster, controller; Michael Domanski, pres, CEO, gen mgr; Mark Kapelke, VP ops,
engineering
24 Valence Operating Co. 5,959,695 Kingwood TX Steve Manning, pres; Douglas Scherr, CFO, sec; Walter Scherr, CEO
58 Vantage Energy LLC 2,909,594 Englewood CORoger Biemans, co-founder, chair, CEO; Thomas Tyree, co-founder, pres, CFO; Mike Kennedy,
exec VP, COO
44 Venture Oil & Gas Inc. 3,591,773 Laurel MS Jay Fenton, pres; Jarvis Hensley, VP ops
71 Vernon E. Faulconer Inc. 2,440,208 Tyler TXTom Markel, VP, acct, CFO; Vernon Faulconer, CEO; Jean Crawley, VP land, admin; David
Enright, pres
79 Vess Oil Corp. 2,167,523 Wichita KSBarry Hill, CEO; Ronnie Nutt, sr VP, ops, eng, bus dev; J. Michael Vess, chair; Brian Gaudreau,
VP land, acq
80 Wagner Oil Co. 2,145,719 Fort Worth TX Bryan Wagner, pres, owner; William Lesikar, VP, CFO; HE Patterson, COO, sr VP
10 Walter Oil & Gas Corp. 14,533,214 Houston TX Joseph Walter, pres, chair, CEO
87 Ward Petroleum Corp. 1,857,106 Enid OKRichard Tozzi, exec VP, CFO; Lew Ward, chair; Gilbert Tompson, VP land; William Ward, pres,
CEO
73 West Bay Exploration Co. 2,405,326 Traverse City MI Harry Graham, VP exp; Robert Tucker, pres, owner; David Rataj, VP fnance, treas
81 White Oak Energy, LP 2,112,406 Houston TXScott Nonhof, VP bus dev; Mark Etheredge, VP exploitation; Mike Rayburn, exec VP; Thomas
Isler, pres
18 WildHorse Resources LLC 7,928,446 Houston TX Jay Graham, pres; Anthony Bahr, CEO
76 Wolverine Gas and Oil Corp. 2,219,376 Grand Rapids MI Gary Bleeker, VP; Sidney Jansma, pres, CEO
5 Yates Petroleum Corp. 20,535,153 Artesia NMJohn Yates Sr., chair, emeritus; John Yates Jr., pres, chair; John Perini, exec VP, CFO; James
Brown, COO
31 Zenergy Inc. 4,450,425 Tulsa OK Robert Zinke, pres, chair
Source: IHS Herold; For more information about IHS Herold’s Private Company Database, visit herold.com/research.herold.contact_us
Production totals based on latest fgures as reported to and recorded by individual state agencies and tabulated by IHS at time of publication. Some agencies are delayed by as many
as several months in releasing data which may impact rankings.
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Gas, NGLs, Crude Oil
Quorum Marketing
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Industry Briefs
42 www.ogfj.com • Oil & Gas Financial Journal July 2013
Riverstone Holdings closes $7.7B energy and power fundNew York, NY-based energy invest-ment firm Riverstone Holdings LLC closed its latest conventional en-ergy private equity fund, Riverstone Global Energy and Power Fund V LP (Fund V), with total commitments of $7.7 billion. The fund’s original tar-get was $6 billion. Fund V will make investments in energy and power business around the world. To date, Fund V has invested $2.3 billion in 19 companies, including eight repeat management teams.
Marathon Oil to sell Angolan assets for $1.5BMarathon Oil Corp. subsidiary, Mara-thon International Oil Angola Block 31 Limited, agreed to sell its 10% working interest in the Production Sharing Contract and Joint Operat-ing Agreement in Block 31 offshore Angola to SSI Thirty-One Limited (Sonangol Sinopec International), the company said June 25. The transac-tion has a total value of approximately $1.5 billion. SSI Thirty-One Limited currently holds a 5% working inter-est in the block. Production from the PSVM development on Block 31 commenced in the fourth quarter of 2012. The concessionaire of Block 31 is Sonangol, Angola’s state-owned oil company. The operator is BP Exploration Angola with a 26.67% working interest. Sonangol EP holds 25%; Sonangol P&P holds 20%; Statoil Angola A.S. holds 13.33%; and SSI Thirty-One Limited currently holds 5%. With this transaction, the company has agreed upon or closed on nearly $2.9 billion in divestitures since 2011, at the upper end of its targeted $1.5 billion to $3 billion of divestitures over the period of 2011 through 2013. Scotia Waterous served as Marathon Oil’s financial advisor on the transaction. Closing is anticipated in the fourth quarter of 2013.
Natural Resource Partners enters Bakken as Abraxas shifts focus with sale Natural Resource Partners LP has entered the Bakken Shale/Three Forks play with an agreement to pur-chase non-operated working interests in producing oil and gas proper-ties in the Williston Basin of North Dakota and Montana from Abraxas Petroleum Corp. for approximately $35.3 million in cash. The acquisi-tion consists of approximately 13,500 net acres that are held by production with an estimated average working interest of 11% in the Bakken/Three Forks play. The acquisition includes approximately 120 producing wells in addition to interests in 22 wells that are in various stages of development. NRP anticipates funding $8.1 million in additional capital expenditures associated with these new wells in 2013, a portion of which will be paid at closing. NRP expects the acquisi-tion to close in the third quarter of 2013 and to be immediately accretive to NRP’s unitholders. By selling the majority of its non-operated Bakken Shale properties, San Antonio, TX-based Abraxas Petroleum is shifting its focus to a core operated portfolio. Inclusive of the non-operated Bakken sale, Abraxas has divested approxi-mately 502 boepd for gross proceeds of $47.3 million since the beginning of 2013. These asset sales have also removed approximately $10 million of budgeted CAPEX commitments for Abraxas. E-Spectrum Advisors LLC acted as divestiture agent for Abraxas on the sale.
FMC Technologies wins $1.2B subsea equipment order from TotalFMC Technologies Inc. has received an order from Total Upstream Ni-geria Ltd. for subsea equipment for the Egina field. The award has an estimated value of $1.2 billion. The Egina field is located in Block OML 130 offshore Nigeria. FMC Tech-
nologies’ scope of supply includes subsea trees and wellheads, manifolds, installation tooling, flowline connec-tion systems, and associated control systems. The equipment is scheduled for delivery commencing in 2015.
Whiting sells OK assets to Breitburn for $860MBreitBurn Energy Partners LP (BBEP) has agreed to purchase interests in the Postle and North East Hardesty oil fields, along with associated midstream assets, from Whiting Oil and Gas Corp., a wholly-owned subsidiary of Whiting Petro-leum Corp., for approximately $860 million. Whiting had been looking to monetize the mature Oklahoma Panhandle assets “for some time,” noted Wunderlich Securities analysts, and the deal is viewed favorably as it lowers debt and shows the “hidden value within Whiting’s portfolio of assets.” Net proceeds from the sale are expected to reduce the company’s outstanding balance on its $2 billion credit facility from $1.5 billion to roughly $650 million, putting it at a strong debt-to-capitalization ratio of just over 20%, noted Wunderlich Securities. With its balance sheet in check, look for the company to in-crease its push into the Niobrara, the analysts noted. As for Breitburn, risk and opportunity await, said Global Hunter Securities analysts. “These assets are integral in allowing BBEP to rebuild the distribution coverage cushion that has been eroded by ex-piring natural gas hedges and contin-ue its steady distribution growth. Risk and opportunity exist in the acquired assets, being CO2 EOR wells. While there will be a learning curve, best practices can hopefully be applied to other BBEP properties, driving additional production from existing wells,” they noted. The company paid $116,000/flowing boe ( $19.46/bbl of proved reserves) versus a historical average of $98,000/flow-ing boe and $15.50/bbl of reserves,
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Industry Briefs
July 2013 Oil & Gas Financial Journal • www.ogfj.com 43
financing for Isramco’s share of the development of the Tamar offshore gas field since 2011.
Schlumberger acquires Alberta-based GushorSchlumberger has acquired Gushor Inc., a petroleum geochemistry and fluid analysis company based in Cal-gary, Alberta, Canada, that provides exploration and production (E&P) solutions in the heavy oil and oil sand industry. A University of Calgary spin-off formed in 2006, Gushor specializes in the integration of geology, fluid properties, petroleum geochemistry and reservoir engineer-ing information.
CIT lead arranger in $60M financing for Independence Contract Drilling CIT Group Inc. arranged a $60 million senior secured credit facility for Independence Contract Drilling (ICD), a vertically integrated premi-um land drilling services provider, to build a fleet of fast moving land-based oil and gas programmable AC drilling rigs. CIT Corporate Finance served as Sole Lead Arranger and Sole Lead Administrative Agent in the transac-tion. Financing was provided by CIT Bank, the US commercial bank sub-sidiary of CIT. Terms of the transac-tion were not disclosed.
PetroFrontier, Statoil amend agreement in Southern Georgina BasinPetroFrontier Corp. has agreed to amend the existing farmin agree-ment with Statoil Australia Oil & Gas AS whereby Statoil has commit-ted to spend the next US$50 mil-lion throughout the remainder of 2013 and 2014 to fully fund up to a 385 km 2D seismic program and the drilling and stimulation of four to six vertical test wells. Through-out 2012 and the first half of 2013, PetroFrontier and Statoil jointly spent approximately US$30 million on
of coal or other natural resources, but will lease properties it acquires to various operators in exchange for royalty payments. The lessees of the properties will manage any com-modity price risk associated with the operations, not KMP.
Holland Services gets investment from HIG Capital An affiliate of HIG Capital LLC, a global private equity firm, has invested in Holland Services. Hol-land, a large land services provider serving multi-national and domestic energy firms, has assisted oil and gas companies with all aspects of acquir-ing, selling and developing land and mineral rights since 1985. Financ-ing for the transaction was provided by THL Credit. The investment in Holland is the second time THL and HIG have partnered to invest in the oilfield services sector.
Isramco gets US$500M financing for Tamar fieldMilbank, Tweed, Hadley & McCloy LLP has advised the lenders and hedge counterparties on a further US$500 million term loan financing for Isramco Negev 2 LP (Isramco) in support of its share of the develop-ment of the Tamargas field located of the coast of Israel. The loan proceeds partially refinance the US$750 mil-lion bridge and term loans extended to Isramco in 2011 and also support future development and expansion of the field which became operational in March 2013. Isramco is the larg-est local partner in the Project and owns a 28.5% stake in the Tamar gas field. The other investors are Noble Energy, Delek Drilling, Avner Oil and Gas and Alon Gas Exploration. Financing was arranged by Deutsche Bank, who also led the 2011 financ-ings, and Natixis and was success-fully syndicated to a large number of onshore and offshore financial institutions. Deutsche Bank has now arranged US$1.25 billion in debt
respectively, noted the analysts, but highlighted the “liquids-rich nature of the transaction (98%) vs. histori-cal transactions.” BBEP is acquiring additional interests in certain of the acquired assets from other sellers for an additional $30.2 million.
Warburg Pincus affiliate invests up to $600M in new African E&PDelonex Energy Ltd., a new explora-tion and production company (E&P) focused on Central and East Africa, has received an investment of up to $600 million from an affiliate of pri-vate equity firm Warburg Pincus.Delonex Energy is led by CEO Rahul Dhir, the former CEO of Cairn India Ltd. Dhir was also recently an executive-in-residence at Warburg Pincus, where he worked in close collaboration with the firm over the past several months to formulate Delonex’s business plan. Delonex Energy’s strategic areas include the East African Continental Rift System, the Central African Rift System, and the coastal margins of East Africa. Delonex Energy plans on accessing opportunities in these areas through farm-in and direct awards from host governments. Delonex Energy is headquartered in London, with sub-sidiaries in UK, India and Kenya.
Kinder Morgan initiates new business Kinder Morgan Energy Partners LP is initiating a new business of owning, leasing and acquiring natural resource reserves within its Terminals business segment to pursue non-operating investments in coal and other mineral reserve properties and infrastruc-ture. Richard M. Whiting, a senior executive with more than 35 years of experience in the coal industry, has joined KMP as president of Kinder Morgan Resources LLC, which will own mineral reserve properties and other assets in North America. KMP will not actively engage in the mining
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Industry Briefs
44 www.ogfj.com • Oil & Gas Financial Journal July 2013
Dejour names auditor At its Annual and Special Meeting of Shareholders held June 14 in Vancou-ver, Dejour Energy Inc. appointed BDO Canada LLP as the company’s auditors for the ensuing year.
DrillingInfo acquires TransformDrillinginfo Inc., a provider of SaaS-based decision-support technology for the upstream oil and gas industry, has acquired Denver-based Transform Software & Services Inc., a provider of analytic interpretation and model-ing. Details of the transaction were not disclosed. Austin, TX-based Drillinginfo will retain Transform’s Denver-based office and all of its employees. Transform’s CEO and co-founder, Dean Witte, PhD, an industry veteran and geophysicist, has been named senior vice president of research for Drillinginfo and CEO of the Transform division. Murray Roth, Transform’s president and co-founder, is now vice president of worldwide consulting for Drillinginfo and president of the Transform divi-sion. Vaquero Capital served as the mergers and acquisitions advisor to Drillinginfo on the transaction.
ARKeX raises $15M in new investmentARKeX, a provider of non-seismic geophysical imaging services, has raised US$15 million in new equity from 4D Global Energy Investments, an investment vehicle managed by 4D Global Energy Advisors, a Paris-based growth capital investor that specialises in the energy sector. The new invest-ment will enable ARKeX to expand its full tensor gravity gradiometry (FTG) multi-client data library and propri-etary services. Founding Partner of 4D Global Energy Advisors Jérôme Halbout has joined the ARKeX board as a non-executive director alongside the existing investors Energy Ven-tures, Ferd, and SEP.
of all of its coal bed methane proper-ties located in the state of Alabama. The sale resulted in net proceeds of approximately $62 million after normal and customary purchase price adjustments of $1.2 million to account for net cash flows from the effective date to the closing date. Simultaneously with the close of the property sale, approximately $57 million was used to repay outstand-ing borrowings under the company’s credit agreement and $5 million was held in reserve to pay transaction related costs and expenses, including the liquidation of certain natural gas hedge positions. After this repayment, borrowings outstanding under the credit agreement totaled $77 million and such amount has been established as the new borrowing base. In con-nection with this repayment the non-conforming “Tranche B” portion of total outstanding borrowings, which has existed since August 2012, has been eliminated and the company no longer has a borrowing base deficien-cy under the credit agreement. Lan-tana Oil & Gas Partners, a Houston based divestiture firm, represented GeoMet in this transaction.
Kabe to form exploration JV with Canadian firm Kabe Exploration Inc. has entered into a letter of intent to form a joint venture partnership with Canadian oil and gas holding company Inter-national Equity Partners Oil & Gas Inc. for the exploration and develop-ment of 7,300 acres of oil leases in the Mississippian field of southern Kansas. International Equity Partners Oil & Gas will contribute capital and expertise toward developing the as-sets for production. Kabe’s five year operational plan is expected to bring 24 new oil wells into production. Each well in the area is estimated to yield 400,000 barrels of oil, or a potential 9.6 million total barrels for the project.
exploration in the Southern Georgina Basin. Under the Amended Farmin Agreement, Statoil could spend a total of up to US$175 million by the end of 2016 before PetroFrontier will be required to contribute further. Statoil will also become the operator effective September 1, 2013. Under the terms of the Amended Farmin Agreement, up to the next US$160 million of exploration costs will be fully funded by Statoil over three phases to the end of 2016, in return for 80% of PetroFrontier’s working interest in EP 103/EP 104 (100% WI), EP 127/EP 128 (75% WI) and EPA 213/EPA 252 (100% WI) in the Southern Georgina Basin, Northern Territory, Australia.
Warren Resources increases 2013 CapexWarren Resources Inc. is increasing its 2013 capital expenditure budget by $15 million to $73 million. The increase in planned capital expen-ditures is due to a decision to drill 25 new coalbed methane (CBM) wells in the Spyglass Hill Unit in the Washakie Basin, which is a sub-basin of the Greater Green River Basin, Wyoming. The additional wells are expected to be placed into sales in the latter part of 2013; therefore, Warren is not updating its full-year gas production guidance at this time. The Spyglass Hill Unit comprises ap-proximately 113,000 gross acres and holds all of the leases within the Unit to all depths, including those depths and formations below the CBM Mesa Verde coal formation. Warren holds approximately 88,000 net acres in the Unit. In order to maintain and perpetuate the Unit, the Company and the other working interest own-ers are required to drill 25 CBM wells each year.
GeoMet closes Alabama producing properties saleOn June 14, 2013, GeoMet Inc. closed the previously announced sale
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Energy Players
July 2013 Oil & Gas Financial Journal • www.ogfj.com 45
Marathon execs plan retirement Two Marathon Oil Corp. executives with decades of company service between them, have elected to retire from the company. Clarence P. Cazalot, Jr., chairman, president and CEO of Marathon Oil Corp. has elected to retire on Dec. 31, 2013, after almost 14 years leading Marathon Oil and 41 years in the oil and gas industry. Cazalot will continue as executive chairman through Dec. 31, 2013. Cazalot joined Marathon in March 2000. He became chairman oil Marathon Oil Corp. (NYSE: MRO) following the spin-off of Marathon Petroleum Corp. (NYSE: MPC) in mid-2011. Prior to Marathon, Cazalot served as vice president of Texaco Inc. and president of Texaco’s worldwide production operations. News of Cazalot’s retirement comes one week after Thomas K. Sneed, Marathon Oil Corp.’s vice president and chief infor-mation officer announced his retire-ment plan set for Sept. 1, 2013 fol-lowing more than 32 years of service. The Marathon Oil board of directors has elected Lee M. Tillman to the board of directors and to succeed Ca-zalot as president and CEO effective Aug. 1, 2013. Tillman most recently served as vice president of Engineer-ing for ExxonMobil Development Company where he was responsible for all global engineering staff en-gaged in major project concept selec-tion, front end design and engineer-ing. He holds a Bachelor of Science degree in chemical engineering with honors from Texas A&M University and a PhD in chemical engineering from Auburn University. The board of directors intends to nominate Den-nis H. Reilley, currently Marathon Oil lead director, as non-executive chairman upon Cazalot’s retirement. Bruce A. McCullough will succeed
Sneed as vice president and CIO. Sneed will serve as vice president of IT Services until Sept. 1 to facilitate an orderly transition. McCullough joins Marathon Oil from Anadarko Petroleum Corp. where he most recently served as director, Global Business Systems. McCullough has worked in the information technol-ogy field, primarily in the oil and gas sector, since graduating from Baylor University with a bachelor’s degree in computer science.
Encana names Suttles as president, CEOEncana has appointed Doug Suttles as its president and CEO and a director of the Calgary-based com-pany. Doug Suttles has 30 years of oil and gas leadership experience. Most recently, Suttles has served as COO, BP Exploration & Production. He is a mechanical engineer and a 2008 recipient of the University of Texas Mechanical Engi-neering Distinguished Alumni Award. Randall D. Eresman, the company’s previous president and CEO, retired from the company in January after nearly 35 years with the company and its predecessor, Alberta Energy Co. Ltd. Clayton Woitas, an Encana director, took over as interim presi-dent and CEO while the company conducted its search for Eresman’s successor. Woitas, who remains as a director of the company, is the desig-nated future chairman of the board.
Luquette to retire after 35-year career at ChevronChevron Corp. has named Jeff Shel-lebarger president of Chevron North America Exploration and Produc-tion Company, effective August 1, 2013. Shellebarger succeeds Gary Luquette, who will retire from Chevron after 35 years of service. Shellebarger is currently managing
director of Chevron’s IndoAsia Busi-ness Unit. Since joining Chevron in 1980, Shellebarger has held a variety of upstream positions in the US, An-gola and Indonesia. Luquette has led Chevron’s North America Upstream business since 2006. He previously held key exploration and production positions in Louisiana, California, United Kingdom and Indone-sia. As the head of the company’s North America upstream business, Luquette opened new frontiers by advancing Chevron’s presence in the Deepwater Gulf of Mexico and acquiring significant shale gas posi-tions in Pennsylvania and Canada. Luquette will stay with the company until September 1, 2013 to transi-tion his responsibilities.
SandRidge continues leadership transition After nearly a year of scrutiny focused on SandRidge Energy Inc. founder and now-former CEO Tom Ward, the Oklahoma City-based oil and natu-ral gas company is transitioning its leadership team. Ward, who founded the company in 2006, had, until June 19, served as chairman and CEO, has departed the company based on the Board of Directors’ decision that “despite Ward’s many contributions to SandRidge, new leadership is in the best interests of the company and its shareholders at this time.” James Bennett, who has served as CFO of SandRidge Energy since January 2011 and was promoted to president in March 2013, will retain his title as president and will replace Ward as CEO of the company. Lead indepen-dent director Jeffrey Serota will serve as interim non-executive chairman. Prior to joining SandRidge, Bennett was managing director for White Deer Energy, a private equity fund focused on the oil and gas industry. Bennett graduated with a bachelor’s degree from Texas Tech University. Additionally, the company has ap-pointed Eddie LeBlanc to the role of
Cazalot
Suttles
1307ogfj_45 45 7/2/13 10:49 AM
Energy Players
46 www.ogfj.com • Oil & Gas Financial Journal July 2013
executive vice president and CFO. He fills the role of CFO vacated when Bennett was named CEO and presi-dent. LeBlanc brings to SandRidge broad financial experience in the ex-ploration and production industry, at both private and publicly held compa-nies, including having served as CFO at East Resources Inc., PostRock Energy Corp., Ascent Energy Co., Range Resources Corp., and Coho Energy Inc. He holds a bachelor’s de-gree from the University of Louisiana at Lafayette (formerly the University of Southwestern Louisiana) and is a certified public accountant and a chartered financial analyst.
Former Anadarko CEO joins Riverstone HoldingsEnergy and power-focused private invest-ment firm Riverstone Holdings LLC has added former Anadarko Petroleum executive James T. Hackett to the firm as a partner and co-head of the Houston office. From 2003 to 2012, Hackett was CEO of Anadarko Petroleum, where he served as chairman of the board of directors from 2006 to 2013. Hackett stepped down from Anadarko on June 4, 2013 as part of a long-planned succession process. Earlier in his career, he was chairman and CEO of Ocean Energy and, after that, president and COO of Devon Energy. He holds a bachelor’s degree from the University of Illinois and an MBA from Harvard University.
Subsea service firm DeepOcean hires new CFODennis de Vreede will join Deep-Ocean Group Holding BV as its CFO on August 1, 2013. He will succeed Frank Eggink who will left firm on June 30, 2013. Dennis de Vreede joins from industrial real estate firm Prologis where he served as senior vice president, European finance
director. Previously de Vreede was at Redevco, where he held the position of CFO. de Vreede earned a bache-lor’s degree from The Hague Univer-sity of Applied Sciences. He received a master’s degree and graduated as a registered accountant from Nyenrode Business University in The Nether-lands. He is an alumnus of Harvard Business School after completing sev-eral Executive Education programs.
Senergy appoints new VPs Senergy has appointed two new vice presi-dents. Ian Williamson and Dave Reed have been named to the respective VP roles in Contracts & Commer-cial, and Business Ef-ficiency. Williamson will be based in the com-pany’s Queen’s Terrace office in Aberdeen and Reed will operate from Kuala Lumpur. Wil-liamson and Reed have been part of Senergy since the company’s inception in 2005. Both were em-ployees of Xcavo – a well engineering and performance management com-pany – which merged with subsurface consultancy RML (Reservoir Man-agement Ltd.) to become Senergy.
Chesapeake Energy names Craine as CCOPatrick K. Craine, a partner with the law firm Bracewell & Giuliani LLP, is joining Chesapeake Energy Corp. as chief compliance officer (CCO). In this capacity, he will report to Chesa-peake General Counsel Jim Webb and the Audit Committee of the compa-ny’s board of directors. At Bracewell & Giuliani, Craine was a partner in the firm’s White Collar Defense, In-ternal Investigations and Regulatory Enforcement practice, and counseled companies, boards, committees, of-ficers, and directors in regulatory and
compliance matters. Craine has also led numerous independent investiga-tions for publicly traded companies. Before entering private practice, he served as an enforcement attorney with the US Securities and Exchange Commission (SEC) and the Finan-cial Industry Regulatory Authority (FINRA). Craine was also actively involved in the SEC’s and FINRA’s oil and gas task forces. Craine holds a bachelor’s degree from Wabash Col-lege, and a Juris Doctor from South-ern Methodist University’s Dedman School of Law.
Express Energy Services names Brunnert COOExpress Energy Services has named David Brun-nert as executive vice president and COO. He will be based in Express’ headquarters in Houston. Prior to joining Express, Brun-nert, a 20-year industry veteran, served in various operational management positions with Weath-erford International from 1997 through 2013, including vice presi-dent of drilling tools and intervention services, global general manager of drilling tools, global business unit manager of performance drilling tools and other engineering management roles. While at Weatherford, Brun-nert created more than 25 patented technologies that are used in the oil and gas industry. His background also includes four years with the US Army Corps of Engineers where he was a paratrooper and combat engineer. Brunnert received his bachelor’s de-gree from the United States Military Academy at West Point and his Mas-ter of Mechanical Engineering from the University of Houston.
Devon makes senior man-agement appointmentsDevon Energy Corp. has appointed David A. Hager to the position of
Brunnert
Reed
Williamson
Hackett
1307ogfj_46 46 7/2/13 10:49 AM
Energy Players
July 2013 Oil & Gas Financial Journal • www.ogfj.com 47
COO. Hager has served as execu-tive vice president, exploration and production since 2009 after serv-ing on Devon’s board of directors beginning in 2007. In addition, he served as COO of Kerr-McGee prior to its 2006 merger with Anadarko Petroleum Corp. Hager has over 30 years of oil and gas exploration and production experience. He holds a bachelor’s degree from Purdue Uni-versity and an MBA from Southern Methodist University. Tony Vaughn has been promoted to the position of executive vice president, explora-tion and production. Vaughn previ-ously served as Devon’s senior vice president, exploration and strategic services. Prior to joining Devon in 1999, Vaughn spent 12 years with Kerr-McGee. He holds a bachelor’s degree from the University of Tulsa and a bachelor’s degree from Oral Roberts University.
Archer joins TPH specializing in midstream Tudor, Pickering, Holt & Co. (TPH) has hired Scott W. Archer as managing director in investment banking. Archer will specialize in midstream and MLPs at the energy investment banking firm. He will be based in Houston. Archer joins TPH after 13 years with Bank of America Merrill Lynch’s Global Energy & Power Group, where he focused primarily on Midstream and MLP energy companies. Archer received an MBA with honors from The University of Texas and re-ceived a BBA degree with dual majors in Honors Business and Finance also from The University of Texas.
Wells Fargo adds to Calgary energy practicePerry Englot, Peter Borsos, and Dennis DaSilva have been added to the Calgary-based Energy practice in Wells Fargo’s Corporate Bank-
ing Group. They have joined to lead the expansion of the bank’s lending capabilities to the energy services and equipment sector, as well as support the company’s growth strategy in Canada. Englot, Borsos and DaSilva are reporting to Bret West, head of Energy Services and Equipment. Englot has nearly 30 years of Cana-dian banking experience in the energy industry. Prior to joining Wells Fargo, he led a commercial banking team, focused on oilfield services. Borsos joins with nearly 16 years of banking experience, having recently managed a commercial banking group focused on middle market energy customers. DaSilva joins with nearly 12 years of banking experience, eight of which has been devoted to the energy ser-vices sector in Canada.
Doyle appointed chairman at Equal Energy Equal Energy Ltd. has appointed Michael Doyle as chairman. Dan Bot-terill, the company’s previous chairman did not stand for re-election. Two other directors, Roger Giovanetto and Peter Carpenter, also did not stand for re-election. Doyle also serves on the company’s Compensation Commit-tee and is chair of the Governance and Nominating Committee.
Buckeye Partners makes organizational changesBuckeye Partners LP has appointed Khalid A. Muslih as president of Buckeye’s International Pipelines and Terminals business unit. Muslih has been an integral member of the Buckeye executive team since 2007, having served most recently as Buck-eye’s senior vice president, corporate development and strategic planning. Muslih succeeds Mary F. Morgan, who retired from Buckeye at the end of June. In addition, Chris S. Pine has been promoted to vice president, corporate development and strate-gic planning. Pine joined Buckeye in 2009 and has served in various
corporate development and business analysis functions during his tenure.
Lloyd’s Register board appointments support energy business Lloyd’s Register has appointed Chris Fin-layson, chief execu-tive of BG Group plc, and Ellis Armstrong, ex-CFO of E&P at BP plc, as non-executive directors on the board of Lloyd’s Register Group Ltd. Before joining BG Group, Finlayson gained over 33 years’ technical and commercial experience in the oil and gas indus-try with Royal Dutch Shell plc where he was a member of the exploration and production leadership team, serving in Russia, Nigeria, Brunei and the North Sea. Armstrong joined BP in 1983, and has had an extensive career in offshore operational roles, com-mercial and planning roles, and lead-ership functions, ending his career with BP as CFO of exploration and production. He holds a BSc and PhD from Imperial College, and an MBA from Stanford Business School.
Greene’s Energy Group names Yuille CFO of Testing and ServicesGreene’s Energy Group (GEG), a provider of integrated testing, rentals and specialty services, has promoted Mark Yuille to CFO of the Testing and Services business unit based in Houston. Prior to his new role, Yuille was CFO for GEG and earlier, served in various roles with GE. Yuille has a Bachelor of Science in Business Admin-istration with a specialization in Finance and Economics.
Archer
Yuille
Finlayson
Armstrong
1307ogfj_47 47 7/2/13 10:49 AM
www.dongenergy.com
OIL AND NATURAL GAS
IN EVERYDAY LIFE
DONG Energy is one of the leading
energy groups in Northern Europe.
Our business is based on procuring,
producing, distributing and trading in
energy and related products in Northern
Europe. DONG Energy has nearly 7,000
employees and is headquartered in
Denmark. The Group generated DKK
67 billion (EUR 9.0 billion) in revenue
in 2012. For further information,
see www.dongenergy.com
In addition to being essential for transportation
and heating, oil and natural gas are important
ingredients in many of the products, we
use in everyday life. Clothes, PCs, mobile
phones, glasses and bottles are no exceptions.
DONG Energy has more than 30 years of
experience in exploration and production
of oil and natural gas in the North Sea. We are
experts in terms of getting the most out of our
oil and natural gas felds in a safe and
environmentally responsible way.
We have a fast growing E&P business, and
we plan to double our production by 2020,
thus strengthening our regional position.
MO
VIN
G E
NE
RG
Y F
OR
WA
RD
1307ogfj_48 48 7/2/13 10:49 AM
This sponsored supplement was
produced by Focus Reports.
Publisher: Ines Nandin; Project
Coordinator: Kirsty Avril Jane Walker;
Editorial Coordinator: Herbert Mosmuller;
For exclusive interviews and more info,
plus log onto energy.focusreports.net or
write to [email protected]
TwistDanishThe
Those who lead a quiet life, lead a good life.” That
has been the historically resounding proverb for
the Danes when it comes to business – and its
oil and gas industry is no exception. Upon arriving
in Copenhagen, one senses that everyone abides by
the same rules: you do not shout about what you do,
you do not boast to your neighbors, and you should
never ever assume you are better than the next per-
son. Even commuting to work is a humble affair: from
politicians to CEOs to delivery boys, 50% of Copenha-
geners commute by bicycle, each one hidden amongst
the rush of other cyclists on the town’s busy streets.
"
www.ogfj.com • Oil & Gas Financial Journal July 2013 energy.focusreports.net 49
advertisement
1307ogfj_49 49 7/2/13 10:49 AM
50 energy.focusreports.net July 2013 Oil & Gas Financial Journal • www.ogfj.com
This modest approach could also be used to describe the country’s attitude towards its energy
industry. Few people know that Denmark is the only country in the European Union that supplies
all of its own energy. For the last few years, Denmark’s energy production has been about 20%
higher than its energy consumption.
Denmark is still one of Europe’s biggest oil and gas producers. Figures from 2012 show that
a proven 870 million barrels of oil equivalent (BOE) lurk under the extremely tight chalk of the
Danish Continental Shelf (DCS). This means a supply of black energy for roughly the next 10 years
at current rates of consumption. While Denmark’s reserves may not be the largest, the country
nonetheless is producing 0.3% of the world’s oil. That’s good news for govern-
ment, too, as just last year the industry generated $5.2 billion in tax revenues.
So a change in the traditionally reserved attitude appears to be creeping in: it
seems both the public and the private sector are taking notice of their neigh-
bors’ backyards and wondering just what lies in their own.
The Danish Energy Agency (DEA) forecasts that oil production will drop 30%
by 2014, but this has not overshadowed the country’s remaining potential.
Denmark has made some substantial technological contributions to the global
oil and gas industry, such as the horizontal drilling techniques developed by
the Danish Underground Consortium (DUC). The challenge lies now in that
even more innovation will be needed to increase extraction rates from the
country’s mature chalk felds. Each percentage increase in the extraction rate
means more than $8 billion gross value at today’s rates.
Innovation requires talent and investment. But investment requires Denmark
to communicate its stability and potential more forcefully.
Over the frst months of 2013, the government announced a change in tax
regime on oil and gas revenues for companies producing in the Danish North
Sea, proposing “a level playing feld” for them. “We believe it will provide us
with a more modern and neutral tax system in the North Sea than we have
right now,” said Bjarne Corydon, Denmark’s Minster of Finance. As such, the
DEA – together with Martin Lidegaard, the Minister of Climate, Energy and
Building – will organize the 7th licensing round for felds in the DCS, attracting
more attention and brining more investment to the Danish North Sea strong-
hold. The ambition is to organize the round before the end of 2013.
On May 1, 2012 the industry’s new voice, Oil Gas Denmark (OGD), opened
its doors to make the country more visible on the world energy map. Copenha-
gen is now a candidate to host the next World
Petroleum Congress, which would bring the
country an extra boost and more recognition.
Martin Næsby, managing director for OGD,
said, “A key focus of the association is on the
continued development of the service compa-
nies that supply the oil industry. International-
ization is also part of this: Danish service com-
panies that have matured in the Danish sector
of the North Sea are now applying for projects
in Brazil or Norway.”
Indeed, many companies that have contrib-
uted to Denmark’s status on the international
scene learned from the highly challenging con-
ditions in the Danish North Sea and took that
expertise abroad.
Yet despite these advancements in the oil
and gas sector, there is a twist in the coun-
try’s energy focus. In addition to its expertise
in black energy, Denmark has set perhaps the
most ambitious targets for green energy the
world has seen so far. The government has
established the goal of being 100% powered
by renewable energy as of 2050. Lidegaard
reiterates, “We want to be self-suffcient and
prove that it is possible for a modern welfare
state to become independent of fossil fuels in
30-40 years’ time.”
This growing political focus on renewable
energy prioritizes offshore wind and that is
drawing resources and top talent away from
the oil and gas industry. Lidegaard offers assur-
ances that this way of dealing with Denmark’s
energy future is not intended as an aggressive
opposition to the oil industry; rather they go
hand-in-hand. “The Danish parliament is com-
pletely green when it comes to the Danish
demand, but we are also in complete agree-
ment that we should be a part of the fossil fuel
supply system, as long as international demand
remains,” said Lidegaard.
Despite this assurance, the spotlight is cer-
tainly cast on green, with black in the support-
ing role. That raises questions: Is the oil and
gas industry merely an instrument to pay for
Denmark’s ‘green transition’? Or can the two
offshore industries work together to create the
right energy mix for Denmark?
Oil -4.6% 1.7%
Gas 10.6% -3.7%
Coal -21.8% -3.4%
Renewables 15.8% 5.5%
Fig. 1: Energy consumption in Denmark (1990-2022)Share of total energy consumption in Denmark (%)
100
90
80
70
60
50
40
30
20
10
0
43.3%
10.0%
39.9%
6.8%
38.7%
20.6%
18.1%
22.5%
40.4%
16.9%
14.7%
28.0%
Source: The Danish Energy Agency: “Danmarks olie-og gasproducktion 2010”
% Change
1990 - 2010% Change
2010 - 2022
Perc
ent
’90 ’92 ’94 ’96 ’98 ’0 ’2 ’4 ’6 ’8 ’10 ’12 ’14 ’16 ’18 ’20 ’22
Bjarne Corydon,
Minister of
Finance
Martin Lidegaard,
Minister of
Climate, Energy
and Building
Martin Næsby,
Managing
Director, Oil Gas
Denmark
1307ogfj_50 50 7/2/13 10:49 AM
Welltec® enables operators to perform heavy
duty well interventions with much less equip-
ment and manpower, leading to tangible results
such as increased production and inherently safer
interventions.
WWW.WELLTEC.COMEL
DO MOREWITH LESS
200
150
1992
1993
1994
1996
1995
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
100
50
0 0
5
10
15
20
25
35
40
30
45
55
50
Number of interventions(bars)
Personal injury rate – Drilling and Workover
RLWI (Subsea)
Tractor (E-line)CoilSnubbing
Recovery rate % for large fields (>50 mil Scm oil)
Injury frequency*(dark line) Recovery rate %(green line)
55
*Injury frequency is calculated as number of injuries per 1000000 work hours.Sources: Norwegian Petroleum Safety Authority: Statoil, Norwegian Ministry of Petroleum and Energy
PROVIDES TANGIBLE RESULTS
1307ogfj_51 51 7/2/13 10:49 AM
Adding value
to the Danish
North Sea
52 energy.focusreports.net July 2013 Oil & Gas Financial Journal • www.ogfj.com
After all one must not forget, as Næsby states, that the Danish oil and
gas industry “represents 15,000 work places; $8.4 billion; 9% of Danish
exports, and a great deal of innovation.”
E&P on the DCS: a never-ending story?Never before has the Danish oil and gas industry seen its three opera-
tors so active at the same time: with Maersk Oil and its partners Shell
and Chevron responsible for 85% of production, DONG E&P 10% and
Hess 5%. All three have new building projects going on, as well as exten-
sive modifcations of existing installations due to changing environmen-
tal and reservoir conditions, ageing of the installations and technical
development.
Denmark’s current oil and gas production comes exclusively from
mature chalk felds, an area the country has developed great expertise
in. “The techniques used globally in the production from tight reser-
voirs have for an important part been developed in Denmark,” said
Peter Helmer Steen, CEO of national oil company North Sea Fund (NSF)
which has been the state participant since 2005 and holds a 20% stake
in all licenses as a commercial partner. Indeed, many of the techniques
Steen refers to have been developed or improved by the DUC, which
traditionally has dominated exploration and production on the Danish
continental shelf. DUC is comprised of Maersk Oil (operator) along with
Shell, Chevron, and since July 2012, NSF.
Another example is Welltec. “Welltec has looked
at great new ways to decrease the costs of wells,”
said Steen. “If we wish to produce more than the
current percentage, we need to keep costs low in all
aspects of drilling, and the completion techniques
that Welltec is working with could be a possible cost
reduction in the completion of these wells.”
Interestingly, Welltec, which has developed from a start-up to generat-
ing $300 million annual revenue in under 20 years, did not develop from
a focus on Denmark, but on northern neighbor Norway. “We decided
from day one to be an international company,” Welltec founder and
CEO Jorgen Hallundbæk told Focus Reports. “Even on our website, you
have to look carefully before you will fnd anything Danish and that is
fully intentional; why consider to be tied to one market when you have
the entire world to play with?”
Today, the rest of the world should look up and take notice of what
is happening in Norway when it comes to enhanced oil recovery, Hal-
lundbæk explained. “Norway has been focusing on enhancing recovery
rates for more than 20 years and still today is the global benchmark
for enhanced oil recovery,” said Hallundbæk, adding that, “The rest of
Oil reserves in 2011MMboe (percent of total)
Gas reserves in 2011MMboe (percent of total)
~11 years remainingreserves with 2011
production level
2,271
(52%)
899
(21%)
264
(6%)
629
(15%)
283
(6%)
4,346
(100%)
Possible resources
Proved resources
Reserves as per 1.1.2011. Gas reserves and gas production is sales gas *Based on 2010 average exchange
rate and oil price (USD/DKK exchange rate of 5.5 and Brent oil price of USD 110
Source: The Danish Energy Agency
Produced Commercial
reserves
Contingent
resources
Techn.
resources
Exploration
resourcesTotal
Produced Commercial
reserves
Contingent
resources
Techn.
resources
Exploration
resourcesTotal
Production value of the remaining proved oil resources and possible oil resources are
estimated to be worth DKK 700B = USD123B and DKK 550B = 97B respectively*
~9 years remainingreserves with 2011
production level
198
(11%)
964
(53%)
343
(19%)
205
(11%)
99
(5%)
1,808
(100%)
Fig. 2: Majority of the Danish oil andgas reserves have been produced –increasing recovery requires substantialtechnological leap
Peter Helmer
Steen, CEO, North
Sea Fund
1307ogfj_52 52 7/2/13 10:49 AM
-World class know-how about energy at sea
»Most importantly Port of
Esbjerg has considerable
experiences in working
with the demands from
the ofshore industry and
simultaneously Esbjerg
already has great wind-mill
experience.«
CEO John Westwood, Douglas-Westwood
www.ogfj.com • Oil & Gas Financial Journal July 2013 energy.focusreports.net 53
The Hejre-feld that Hansen refers to is one of the most signifcant
developments that the DCS has seen in a long time. DONG estimates
probable reserves at 44,000 boe/day, most of it oil. More signifcantly,
the world and the other North Sea countries are not
there yet.” According to Hallundbæk, “Denmark is
still at an average point in terms of recovery factors,
and the UK is nowhere near the levels of Norway.”
Denmark could take Hallundbæk’s comments as
clear advice. Nonetheless, the Danish industry takes
pride in the signifcant rise of its extraction rates
over the past decades. “The current recovery rate is
around 26-27%, which is low in comparison with other producers such
as Norway,” said Martin Næsby, OGD managing director. “We should
consider, however, that it went up from 5-6% on the outset, and seen in
that light it actually is a great achievement.”
Indeed the phrase ‘vacuum-cleaning the Danish
Continental Shelf’ recurred several times throughout
our interviews with Denmark’s operators. “At the
outset, DONG focused on small feld development,
or ‘vacuum cleaning’ as we like to call our activities
on the DCS,” said Soren Gath Hansen, vice president
DONG E&P. “Our Siri-feld is a success story as we
have actually been able to keep the area alive by
vacuum cleaning.”
That is one kind of strategy and it takes a particular kind of company,
but Hansen realized that he would not be able to develop the com-
pany and the portfolio on the long term only focusing on late-life felds
and vacuum cleaning. “Although one of our largest developments, the
Hejre-feld, is in Denmark, almost 70% of our production actually comes
from Norway today, while we are also investing heavily west of Shetland.
DONG is the biggest holder of acreage in that area,” Hansen said.
Corporate tax contributing industries in 2010DKK billions
Fig. 3: Oil and gas government’s top revenue source
The Danish Energy Agency
estimates the total direct
corporate tax contribution*
from the oil and gas sector
to be DKK 23.7 billion8.2
23.7
16.4
7.4
5.23.8
2.5 2.0 1.4 1.2
Additional tax* not
included in DST data
Financial
and insurance
Extraction of
oil and gas
Wholesale and
retail tradeTransportation Pharmaceuticals Manufacture of
furniture and
other manufacturing
Knowledge-
based services
Tele-
communications
17.0% 15.3% 10.8% 7.9% 5.3% 4.1% 2.9% 2.5%
Share of total (percent)
*In addition to ordinary corporate taxes, government revenues from the oil and gas sector includes carbon tax and proft-sharing Source: Statistics Denmark; the Danish Energy Agency
In 2010, for every 1 million barrels of oil equivalent produced, government revenues of DKK ~170 million were generated
DKK USD
8.2 1.4 23.7 4.2 16.4 2.9 7.4 1.3 5.2 0.9 3.8 0.7 2.5 0.4 2.0 0.3 1.4 0.2 1.2 0.2
Søren Gath
Hansen, Vice
President, DONG
E&P
Jørgen
Hallundbæk, CEO,
Welltec
1307ogfj_53 53 7/2/13 10:49 AM
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Hejre is the frst feld coming into production that is not situated in the
low-temperature and low-pressure chalk felds in the southern part of
the Danish North Sea.
The water-depth at 60/65 meters is slightly deeper than existing pro-
ducing felds, but some of the reservoirs are also more challenging than
the traditional mature chalk felds. “The Hejre-feld is the frst High Pres-
sure, High Temperature (HPHT) feld put in production in Denmark, and
a good example of the not-so-low hanging fruit on the DCS,” said Flem-
ming Horn Nielsen, country manager Denmark, DONG E&P.
The question, however, is how much of this not-so-low hanging fruit
will be harvested. While a recent fnd by Wintershall of potentially 100
million barrels of recoverable oil in the Hibonite exploration well inspired
hope, the number of appraisal drillings in the past three years averages
close to zero for Denmark. Furthermore, oil produc-
tion is declining rapidly and a mid-size player in the
Danish context, Bayerngas, recently announced
it might pull out of Denmark, citing far-reaching
changes in the tax regime and consequent devalua-
tion of its assets. “Denmark no longer appears attrac-
tive,” Bayerngas’ country director Denmark, Trond
Bjerkan, said. “We have stopped all preparations for
bidding in the next licensing round because it no lon-
ger makes sense.”
Bayerngas responded to government efforts to harmonize the differ-
ent tax arrangements under which oil companies currently operate on
the DCS. The amendments follow a 12-month investigation into the pos-
sibility to change a deal, the North Sea Agreement, which the former
government made with the DUC in 2003. When the current government
realized that it could not change taxes for the DUC without setting off
costly compensation clauses in the contract, it instead took the tax rules
that the DUC operates under and applied them to the rest of the oil
companies operating in the Danish North Sea.
Whether this is the right strategy to optimize exploration and produc-
tion is hotly debated by key stakeholders of Denmark’s energy industry.
“It is extremely important for the Danish government to realize that the
country is a net exporter of oil and gas and that the oil and gas industry
generates around $30 billion in tax revenues, but also that the extrac-
tion rate stands at a mere 27% for the current felds while the world
is screaming for more energy,” said Steen Brødbæk, CEO of Semco
Maritime, a project engineering company and one of Denmark’s fastest
growing energy companies of the past decade. “We cannot produce
enough energy to substitute the growth rate for countries outside of the
Organization for Economic Co-operation and Development (OECD),”
Brødbæk added. “Therefore, Denmark has to continue exploring as the
UK and Norway are doing. We need the government to support that
strategy. If they do not, the outcome is easy to predict. This is an inter-
Flemming Horn
Nielsen, Vice
President and
Country Manager,
DONG E&P
Denmark
1307ogfj_54 54 7/2/13 10:49 AM
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Before the end of this year the DEA hopes to orga-
nize the 7th licensing round. “My expectations are
high. A lot of good, new data has been developed
in the last years,” said Peter Helmer Steen of NSF.
“Denmark has been known for many years as a chalk
reservoir. Therefore much of the seismic investigation
has been targeted to chalk. The other layers have
not been targeted that much, which perhaps has
led some opportunities to stay below the radar until
now.”
“Data collected since the 6th licensing round in 2006 indicates that
there is a lot of oil left in the Danish subsoil,” Steen said. “It is not easy
oil, but very interesting nonetheless.”
Esbjerg: the Missing Link?The board of the World Energy Cities Partnership (WECP), a non-proft
organization comprised of the mayors of the different member cities, will
soon welcome Johnny Søtrup as its 20th member. Søtrup is the mayor
of Esbjerg, a city of 70,000 on the Danish west coast, 709 km south of
fellow member city, Stavanger.
It might come as a surprise to some to see the name of Esbjerg among
the likes of Aberdeen, Houston, Stavanger, Port Harcourt, Perth, Luanda,
and Villahermosa. But to Søtrup it is logical. “We bring a new dimension
national business and international oil companies are
putting their money where they can get most back.”
In a response to industry criticism, Finance Minister
Bjarne Corydon told Focus Reports that, “The rules
that apply to new concessions for the DUC partners
under the North Sea Agreement should also apply to
the concessions handed out before 2004. We are cre-
ating a level playing feld, more neutral taxation, and
we are enhancing revenues for a nation that has to invest in growth.”
Corydon can put forward that Maersk Oil announced its plan to invest
$800 million in the development of Tyra South East, the largest invest-
ment by the DUC partners since the approval of Halfdan Phase 4 in
2007, only weeks after the proposal came out, a decision taken on the
basis of the new tax rules. However, critics would say that this again
is not an example of the type of forward-looking activity that the DCS
needs in order to avoid becoming a sunset production area.
Asked about the signifcance of the DCS for Maersk Oil, VP of Explora-
tion Lars Nydahl Jørgensen, Vice President, Head of Exploration, Maersk
Oil said: “It is clear that the Danish Continental Shelf is a mature area
where exploration has been going on for many years. I would like to
point out Johan Sverdrup in Norway. Forty years and four generations
of exploration had been going on with companies coming in and trying
their best, and still Johan Sverdrup was not found.”
Lars Nydahl
Jørgensen, Vice
President, Head
of Exploration,
Maersk Oil
Steen Brødbæk,
President and
CEO, Semco
Maritime
1307ogfj_55 55 7/2/13 10:49 AM
56 energy.focusreports.net July 2013 Oil & Gas Financial Journal • www.ogfj.com
to the table among these 19 members,” Søtrup said.
“We are undoubtedly the member with the biggest
offshore wind industry. On top of that, we are a front-
runner in uniting that offshore wind industry with our
offshore oil and gas industry.”
For Esbjerg, joining this organization is an acknowl-
edgment of its contributions to the global energy
industry. But the title of ‘Member City’ brings more. The WECP is not
just a way to share experiences, but to actually capitalize on mem-
ber’s expertise and set up partnerships between organizations and
companies.
Esbjerg’s success can be seen as proof that the green profle of Den-
mark’s energy policy actually has positive effects on the country’s oil and
gas industry. “The city of Esbjerg is the best illustration that we do not
see our green energy industry as a substitute for an economically eff-
cient and progressive way of using our oil resources: its offshore industry
mixes both green and black, and many local companies have a foot in
both,” Minister of Finance Bjarne Corydon said. “It is the same compa-
nies and decision makers, successfully harnessing both sectors.”
Indeed, many of Esbjerg’s key oil and gas players have been quick
to grasp opportunities resulting from the national government’s push
for a greener energy mix. Their expertise was happily welcomed by a
wind industry that desperately needed to build up offshore expertise.
“The frst offshore wind park was constructed by a company that had
experience building these parks onshore,” said Steen Brødbæk, CEO of
Semco Maritime. “They ran into serious trouble dealing with the harsh
environment and weather conditions. Now they are using competences
from the oil and gas industry and leaning heavily on
the oil and gas industry’s supply chain.”
Still, the marriage between te city's oil and gas and
wind industry is not perfect. “Just two years back,
most Danes thought that the oil and gas industry
would close down within a couple of years and that
the industry would be fully replaced by renewables,
mainly offshore wind,” said Henrik Hansen, CEO and
founder of Q-Star Energy, a provider of multi-skilled manpower to the
oil and gas and renewables industry. “This made it very hard to attract
new people to the oil and gas industry; they simply did not believe there
was a future and would prefer to work in wind energy.” Hansen knows
the challenge all too well, with around 300 of his people active on North
Sea platforms.
Although it remains a serious challenge, the shortage of human
resources for Esbjerg’s oil and gas industry seems to be changing, and
in the right direction. “I am confdent that, in a couple of years, young
people will start looking at the oil and gas business again and realize that
it is a viable and even attractive alternative,” Hansen said. “Also, in Esb-
jerg we clearly show that it is possible to swap between the oil and gas
and the renewables industry and that it is possible to
apply expertise and experience from the oil and gas
industry in the renewables industry.”
People familiar with the city’s business community
maintain that it is more than a good geographic loca-
tion that has led to Esbjerg’s success. “Many cities in
Denmark have seen industries crucial to their econ-
omy leave, and they have to do something different
now,” said Anders Eldrup, the chairman of Offshore
Center Denmark and former CEO of DONG Energy. “Many are waiting
for something to happen; in Esbjerg they do not wait, they just start
Esbjerg's Fishing Harbour in the 1950s.
Courtesy of the Fisheries and Maritime Museum, Esbjerg
Johnny Søtrup,
Mayor of Esbjerg
DENMARK
Main oil and gas employee distribution
areas in Denmark (avg. 2008 - 2010) %
Copenhagen
-680
Esberg
-1,020
(60%)
Source: Statistics Denmark – “Registerbaseret arbejdsstyrkestatik”
(40%)
Fig. 4: Most People in the sector work in Esbjerg
Henrik Hansen,
CEO, Q-Star
Energy
Anders Eldrup,
Chairman,
Offshore Center
Denmark.
1307ogfj_56 56 7/2/13 10:49 AM
www.dongenergy.com
ANOTHER 900,000HOUSEHOLDS THIS SUMMER
DONG Energy is one of the leading
energy groups in Northern Europe.
Our business is based on procuring,
producing, distributing and trading in
energy and related products in Northern
Europe. DONG Energy has nearly 7,000
employees and is headquartered in
Denmark. The Group generated DKK
67 billion (EUR 9.0 billion) in revenue
in 2012. For further information,
see www.dongenergy.com
DONG Energy has built more offshore wind
farms than any other company in the world.
We possess unique knowledge and skills, which
we use in every step of an offshore wind project,
from early development, during construction
and through to operation and maintenance.
Driven by the powerful wind at sea, no CO2
emissions and an ambitious target to reduce
the cost of energy, we believe that offshore
wind energy will be an important part of
the future energy system. Towards 2020, we
aim to quadruple our installed offshore wind
capacity and lead the industry in driving down
cost, to make offshore wind competitive with
traditional energy sources.
This summer, DONG Energy and our partners
put the London Array and the Anholt offshore
wind farms on stream. With a capacity of 630
MW, London Array is by far the world’s largest
offshore wind farm. Anholt Offshore Wind Farm
of 400 MW is the largest offshore wind farm in
Denmark. Together, these two offshore wind
farms can produce electricity equivalent to the
annual consumption of 900,000 households.
DONG Energy is one of the leading
energy groups in Northern Europe.
Our business is based on procuring,
producing, distributing and trading in
energy and related products in Northern
Europe. DONG Energy has nearly 7,000
employees and is headquartered in
Denmark. The Group generated DKK
67 billion (EUR 9.0 billion) in revenue
in 2012. For further information,
see www.dongenergy.com
DONG Energy has built more offshore wind
farms than any other company in the world.
We possess unique knowledge and skills, which
we use in every step of an offshore wind project,
from early development, during construction
and through to operation and maintenance.
Driven by the powerful wind at sea, no CO2
emissions and an ambitious target to reduce
the cost of energy, we believe that offshore
wind energy will be an important part of
the future energy system. Towards 2020, weTT
aim to quadruple our installed offshore wind
capacity and lead the industry in driving down
cost, to make offshore wind competitive with
traditional energy sources.
This summer, DONG Energy and our partners
put the London Array and the Anholt offshore
wind farms on stream. With a capacity of 630
MW, London Array is by far the world’s largest
offshore wind farm. Anholt Offshore Wind Farm
of 400 MW is the largest offshore wind farm in
Denmark. Together, these two offshore wind TT
farms can produce electricity equivalent to the
annual consumption of 900,000 households.
MO
VIN
G E
NE
RG
Y F
OR
WA
RD
1307ogfj_57 57 7/2/13 10:49 AM
ESVAGT delivers safety and support to theofshore oil & gas and wind industry
Our most important tasks are emergency and oilspill preparedness in and around the oil fields as well as services for the ofshore wind farms where our specialized vessels and crew are an important part of safety.
Our fleet comprises of 36 units – anchor handling/tug/supply/tanker assist/oil recovery/survey/ERRV vessels.
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������������ !��������"""#����$#�%���+&�'(��)���$��'�*����$#�%
something new. It would be great if we could make
the spirit of Esbjerg spread to the rest of the country.”
Blue Water Shipping, a provider of freight solu-
tions, seems to be an exponent of this praised Esb-
jerg mentality, transporting oil rigs to every corner
of the planet. Thomas Bek, global manager of the
company’s oil and gas division said: “Since the early
years of the Danish oil and gas industry, Blue Water
has supplied drilling equipment to the industry, with
shipments ranging from small courier parcels containing o-rings to proj-
ect transport of complete oil rigs to the Middle East, the North Sea,
Irish Sea and West of Shetland, Atlantic Frontier, the Faroe Islands and
Greenland, and the Far East. Also, we have a particularly strong position
in Central Asia.”
Asked how on earth an Esbjerg-based company developed a particu-
lar expertise in dealing with freight in one of the former Soviet Union’s
most remote areas, Bek explained: “One of the biggest customers we
have in the industry is Keppel, the world’s largest rig manufacturer, and
it was through this relationship that we went into the Caspian. We move
around with our customers. That also means that, when we are entering
a new market, it is not necessarily part of a long term strategic decision
that took years to develop; it can also be an opportunity that shows up.”
Still, parts of the virtues ascribed to Esbjerg are
born out of necessity. “The willingness to do some-
thing else is crucial,” said Søren Fløe Knudsen, CEO
of Danbor, Esbjerg’s largest offshore base with opera-
tions in Australia, Brazil, Venezuela, Italy, Norway, and
the UK, when asked what enables Esbjerg’s business
community to box above its weight internationally.
“Denmark is a small country but has to be global. We
cannot just sit here in Esbjerg and wait for things to happen,” he said.
“This does not just go for the biggest companies like Ramboll and
Maersk Oil, but also for the smaller and mid-sized companies,” Knudsen
continued. “Around the North Sea, in Brazil, the Middle East, Asia; many
companies have shown that they are capable of capitalizing on opportu-
nities in the oil and gas industry around the world.”
Esbjerg is also home to Dancopter, Europe’s fast-
est growing helicopter company between 2009 and
2012. Just ten years ago, Dancopter performed its
frst fight in Esbjerg. Today, the offshore operation has
expanded to 16 helicopters on two continents with
the world’s most respected oil and gas companies.
“Dancopter has indeed been through a fantastic
growth period,” said Jens Jensen, managing director.
Jens Anders
Jensen, CEO,
Dancopter
Thomas Bek,
Global Manager
Oil & Gas Division,
Blue Water
Shipping
Søren Fløe
Knudsen, CEO,
Danbor
1307ogfj_58 58 7/2/13 10:49 AM
Expertise in Subsea CableInstallation
Repair
Maintenance
Survey
1,000 turbines of experience on boardrd
Visit A2SEA.com and learn how we ofer integrated installation and service solutions to the of shore wind industry.
when it comes to connecting windpower offshore
www.ctoffshore.dk
CT Offshore is part of A2SEA A/S
lated deep know-how all along the value chain, satisfying demand is not
a problem… we have the portfolio and all the skills to bring this to life.”
But Leupold also notes: “Suppliers need to understand that if offshore
wind wants to maintain a long-term perspective, we need to make sure
that it remains within the cost frame acceptable for society in the long
term. We must be able to compete with other alternatives for power
generation, and that is why I say that our suppliers must understand
that it is in their best interest that they help us be creative, come up with
new concepts, industrialize those concepts, develop the value and sup-
ply chain to such a degree that the cost really come down to the level
we have indicated.”
His comments are echoed by Thomas Gellert,
COO of CT Offshore, an offshore cable laying com-
pany, part of the installation vessel company A2SEA,
partly owned by DONG Energy. Gellert feels that
“where this industry might be in the verge of taking
a wrong turn is in terms of the lack of cooperation
between parties especially at early project stages.
Otherwise, it might be very diffcult to bring down
cost to a sustainable level for the industry.” He adds, “We can do some-
thing as a single entity… We can always strive to complete projects more
effciently, perform early commissioning by using the experience we
“In 2011, we won the biggest contract in the Danish North Sea, servicing
Maersk Oil and the 15 felds of the DUC. A year earlier, in 2010, we had
established ourselves in Nigeria through a fve-year contract with Shell.
We also started to work with Shell from Den Helder in the Netherlands
and Norwich in the UK.”
Offshore Wind: Causing a StirIn 1991 Denmark erected its frst offshore wind park, and now the coun-
try’s 2012 Energy Agreement prescribes that Denmark’s energy sup-
ply must consist of 100% renewables by 2050. Further to this, DONG
recently announced that, by 2020, the cost of offshore wind needs to fall
to 100 euro per megawatt hour for parks constructed from 2020. Samuel
Leupold, DONG Energy Wind Power’s new vice president puts it simply,
“If it does not happen, we jeopardize our industrial future”.
DONG Energy Wind Power, the world’s market leader in offshore
wind, and responsible for building 38% of European capacity, is fully
aware of this responsibility and the challenge of bringing the cost of
offshore wind down in order to make it a competitive source of energy.
This would enable the wind industry to sit side by side with Denmark’s
oil and gas industry in keeping the country energy self-suffcient in the
years to come.
Leupold is not concerned about delivery, “given that we have accumu-
Thomas Gellert,
COO, CT Offshore
1307ogfj_59 59 7/2/13 10:49 AM
www.dancopter.dk
Serving the world withsafety, fl exibility, and precision
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OIL & GAS
LOGISTICSBlue Water Shipping is a strong, worldwide team
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www.bws.dkContact: [email protected]
60 energy.focusreports.net July 2013 Oil & Gas Financial Journal • www.ogfj.com
have. But to really lower the cost of energy is a joint
task… it is a matter of joining forces and managing
the interfaces.”
Michael Hannibal, CEO Offshore E W EMEA OF,
Siemens Wind Power remarks on his optimism about
bringing down the cost of offshore wind. “Since
1991, we have been able to reduce costs by 40% per
decade. These cost reductions have for a very large
part been caused by turbine design and turbine innovation. The turbines
have grown; they have become more effcient with larger rotors, larger
generators and other features resulting in increased production.” Hanni-
bal has his work cut out for him, saying that “the answer to the future
solution will require companies like Siemens to continue to innovate on
the turbines.” He concludes that it is not the oil and gas industry they
need to look to as a cost example, but the commodities sector to learn
how to industrialize and mass produce offshore wind.
So, if offshore wind does not look to the oil and gas industry for cost
reduction capabilities, what can green learn from black? Hannibal sug-
gests that harmonized legislation across Europe, as the oil and gas
industry has managed to secure, could help. A2SEA CEO Jens Frederik
Hansen notes that, “Ultimately, harmonization would drive costs down,
and increase visibility on every country’s specifc
procedures.”
Leupold, on the other hand, believes that as the
wind industry has grown so fast, there are many
challenges faced from a managerial, procedural
and best-practice point of view. There is still almost
a ‘start-up’ environment in the industry that would
beneft greatly by being more stable and industrial
like Denmark’s oil and gas industry.
There is one threat that faces the oil and gas
industry from offshore wind in Denmark: the ‘brain
drain’, or migration of talent from the black energy
industry to the green one. A2SEA has installed more
than 50% of the world’s total offshore wind turbine
capacity, and although Hansen admitted that “fnd-
ing highly skilled engineers and professional project
managers is always a challenge”, he also pointed out
that, “Denmark is well recognized for clean energy and wind power and
for that reason we receive a large community of international engineers
wanting to be part of our unique ability to promote and develop green
energy.” Moreover, “the growth we have achieved over the last years
Samuel Leupold,
Executive Vice
President Wind
Power, DONG
Energy
Jens Frederik
Hansen, CEO,
A2SEA
Michael Hannibal,
CEO Offshore E W
EMEA OF, Siemens
Wind Power
1307ogfj_60 60 7/2/13 10:49 AM
Q-STAR ENERGY A/SStormgade 99DK-6700 Esbjerg
Tel.: +45 75 45 63 [email protected]
Q-STAR ENERGY is a solid Danish company supplying competent people for theoil, gas and wind industryin Europe.
COMPETENT
PEOPLE
WHEN EXPERIENCE
IS A FACT…
WWW.DANBOR.COM
www.ogfj.com • Oil & Gas Financial Journal July 2013 energy.focusreports.net 61
as service ships, where we have technicians on board
with a workshop and a warehouse for spare parts.”
If companies like Esvagt can successfully leverage
capabilities to their advantage both ways in offshore,
then perhaps this is where green and black can see
eye to eye. The key for Denmark’s offshore energy
success may lie in making a ‘black and green’ industry
prosper under a stable government framework.
Denmark has, over the decades, been progressive in developing its
energy industry. The Danes were pioneers in exploration and production
of oil and gas in the North Sea. They were the frst country to develop
a district heating system, and now they are driving the development of
offshore wind energy.
When asked about the offshore industry from an external perspective,
Morten Mønster, partner with Deloitte, summed it up: “I would say that
it is black and green. The best way of advancing the development of
renewables is to work with the oil industry and integrate the two from a
competence perspective. Denmark is a small country, and its unique trait
is that we are good at working together. We can apply that in black and
green, too. It is not either or, or even transitioning from black to green;
it is about offshore together, and combining our different initiatives.”
has given our company a worldwide reputation, and
this factor has really improved our capacity to meet
and retain the best talent available on the market.
Also, we have been working closely with universi-
ties, by promoting discussion and debates on wind
energy.”
Surely this does not sound like the “quiet life” we
expect Danes to lead.
Some companies have made the jump into offshore wind from the
oil and gas industry where they so comfortably sat, having seen the
opportunities and having the ability to leverage their capabilities. One
example is Esvagt, a company that operates a fast-growing feet of
Emergency Response and Rescue Vessels (ERRVs) and Anchor Handling
Tug Supply (AHTS) vessels in the North Sea from its base in Esbjerg.
The company’s business was frmly anchored in the oil and gas industry
from the start, but talking offshore in Denmark is not just about offshore
oil and gas anymore. It is also offshore wind. “Wind energy is decisively
moving offshore and there is a requirement for maintenance,” Esvagt’s
managing director Søren Nørgaard Thomsen said. “As the wind turbines
are placed further from shore, travelling from shore to the turbines for
maintenance takes too much time. We can provide vessels that can act
Morten Mønster,
Partner, Deloitte
Søren Nørgaard
Thomsen,
Managing
Director, Esvagt
1307ogfj_61 61 7/2/13 10:49 AM
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Company/Advertiser IndexCompanies mentioned in this issue of Oil & Gas Financial Journal are listed in
alphabetical order with advertisers in boldface type. The index is provided as a service. The publisher does not assume any liability for errors or omission.
COMPANY PAGE COMPANY PAGE COMPANY PAGE COMPANY PAGE
July 2013 Oil & Gas Financial Journal • www.ogfj.com 63
4D Global Energy Advisors 44
A2SEA 59
Abdulaziz H. Al Fahad 13
Abraxas Petroleum Corp. 42
Abu Dhabi National Oil Company 23
Abu Dhabi’s Marine Operation Company 23
Access Industries 32
Alberta Energy Co. Ltd. 45
Alon Gas Exploration 43
Anadarko Petroleum Corp. 12,45
Apache 31
Apollo 32
ARKeX 44
Ascent Energy Co. 46
Atlas Resource Partners 33
Avner Oil and Gas 11,43
Baker Donelson 29
Bank of America Merrill Lynch 47
BDO Canada LLP 44
Blue Water Shipping 60
BoyarMiller 5
BP 13,45,47
Bracewell & Giuliani LLP 46
BreitBurn Energy Partners LP 42
BTG Pactual 33
Buckeye Partners LP 47
Cabinda Gulf Oil Co. 13
Cabot Oil & Gas Corp. 12
Carlyle 33
Carrizo 10
Cenovus Energy Inc. 33,64
Century Midstream LLC 13
Chesapeake Energy Corp. 10,46
Chevron Corp. 13,31,45
Chief Oil & Gas LLC 34
CIT Group Inc. 43
Citadel 14
Citation Oil & Gas Corp. 34
Citrus Energy Corp. 34
CNOOC 10
COFACE 13
Coho Energy Inc. 46
ConocoPhillips 64
Constitution Pipeline Co. LLC 12
Continental Resources 22
Crédit Agricole 14
Crosstex Energy LP 12
Danbor 61
DanCopter 60
DeepOcean Group Holdings BV 46
Dejour Energy Inc. 44
Delek Drilling 11,43
Delonex Energy Ltd. 43
Deutsche Bank 43
Devon Energy 12,31,46
DONG Energy 48,57
Dow Chemical Co. 5,13
DrillingInfo Energy Services Group 19,44
Dynamic Offshore Resources 34
East Resources Inc. 46
Ecopetrol America Inc. 11
El Paso Corp. 32
Encana 27,31,45,64
Energy Ventures 44
Enerplus 16
Enertia Software IFC
ENI 13
Enterprise Products Partners LP 12
EOG Resources 22,31
EP Energy 32,35
Equal Energy Ltd. 47
E-Spectrum Advisors LLC 35,42
ESVAGT 58
Euler Hermes 13
Evaluate Energy 10
Express Energy Services 46
ExxonMobil 16,29,31,45
FERC 12
Ferd 44
FIEM 13
FIRNA 46
First Reserve 13
FMC Technologies Inc. 42
Forest Oil Corp. 31
Freeport McMoRan Copper & Gold 33
GAIL 10
GeoMet Inc. 44
GeoSouthern Energy Corp. 35
Global Hunter Securities 42
Greene’s Energy Group 47
GulfStar Group 5
Gushor Inc. 43
Halcon Resources 33
Harwood Capital Inc. 21
Hatem Abbas Ghazzawi & Co. 13
Hein & Associates LLP 26
HIG Capital LLC 43
Holland Services 43
Husky Energy Inc. 64
IHS Herold Inc. 34
Imperial Oil 64
Independence Contract Drilling 43
International Equity Partners Oil & Gas Inc. 44
International Renewable Energy Agency 25
Isramco 43
Kabe Exploration Inc. 44
Kerr-McGee 47
K-Exim 13
Kinder Morgan 32,43
Kirkpatrick Oil & Gas LLC 35
Kodiak 33
Korea National Oil Corp. 32
K-sure 13
Lantana Oil & Gas Partners 44
Liberty Resources 33
Lime Rock Partners 5
LLOG Exploration Co. LLC 34
Lloyd’s Register 47
Louisiana Department of Natural Resources 29
Marathon Oil Corp. 11,42,45
Marcus Evans 27
Masdar Institute of Technology 25
Maverick Brothers Energy LLC 34
McMoRan Exploration 33
Milbank, Tweed, Hadley & McCloy LLP 13,43
Morgan Stanley 14
Mubadala Petroleum 23
Municipality of Esbjerg
Energy Metropolis 53
Natixis 43
Natural Resource Partners LP 42
Netherland Sewell & Associates Inc. BC
Nexen 31
NGP Energy Capital Management 1
NiSOurce 13
Noble Energy Inc. 11,43
Norsofonden 52
Occidental 33
Ocean Energy 46
Ohio Department of Natural Resources 11
OPEC 23
Opportune 3
PCD Energy 14
Penn West 33
Petrobras 33
PetroChina 31
PetroFrontier Corp. 43
Petro-Hunt Group 34
Piedmont Natural Gas Co. Inc. 12
PLS Inc. 32
Post Oak Energy 34
PostRock Energy Corp. 46
Q-STAR ENERGY 61
Quicksilver Resources 31
Quorum Business Solutions Inc. 34-41
Qv21 Technologies IBC
Range Resources Corp. 10
Red Cross 64
Reliance Industries 10
Reservoir Management Ltd. 46
Riverstone Holdings LLC 32,42,46
Royal Dutch Shell plc 31,47
Rystad Energy 20
Sadara Chemical Co. 13
Samson Offshore LLC 11
SandRidge Energy Inc. 34,45
Saudi Arabian Oil Co. 13
Schlumberger 43
Scotia Waterous 42
SEC 12,28,46
Semco Maritime 54,55
Senergy 46
SEP 44
Shearman & Sterling LLP 13
Shell 23
Sheridan Production Co. LLC 34
Society of Petroleum Engineers 6
Sonangol 13
SSI Thirty-One Ltd. 42
Statoil 10,18,42
Stone Mountain Resources 31
Surge Energy 33
Talisman 31
Texaco Inc. 45
The Louisiana Land & Exploration Co 30
THL Credit 43
Total 11,13
Transform Software & Services Inc. 44
Tudor, Pickering, Holt & Co. 5,47
UK Export Finance 13
US Ex-Im Bank 13
Vaquero Capital 44
Wapiti Energy 33
Warburg Pincus 43
Warren Resources Inc. 44
Weatherford International 46
Wells Fargo 33,47
Welltec 51
Western Gas Partners LP 12
WGP Holdings Inc. 12
White & Case LLP 13
White Deer Energy 45
Whiting Oil and Gas Corp. 42
Whiting Petroleum 22
WildHorse Resources 34
Williams Partners LP 12
Wunderlich Securities 42
Xcavo 46
XTO Energy 18
Zakum Development Company 23
1307ogfj_63 63 7/2/13 10:49 AM
Beyond the Well
64 www.ogfj.com • Oil & Gas Financial Journal July 2013
After more than a day of extreme rainfall caused the Bow and Elbow rivers to surge from
their banks, record-breaking floods have wreaked havoc on Calgary and surrounding neighborhoods. Three people were killed and over 100,000 residents were forced to evacuate parts of southern Alberta that authorities say could remain without power for weeks, or even months.
The floods are Calgary’s worst in nearly a century, stripping the record from June 2005 when, according to the city’s website, surging waters forced the evacuation of 1,500 people, dam-aged 40,000 homes, and ultimately caused C$400 million (US$383 mil-lion) in damages.
Alberta Premier Alison Redford told reporters at a June 21 press conference that water on the Elbow River was flowing more than three times faster late June 20 than during the 2005 flood, reported Bloomberg.
As the water recedes, cleanup begins, and already, oil and gas companies rooted in Calgary are pitching in to help.
Calgary-based Encana Corp. has donated $500,000 to assist with flood relief efforts. The number includes an initial donation of $250,000 to the Red Cross to assist in immediate relief work in impacted communities, as well as $250,000 to be allocated to a number of Encana’s partners which are actively engaged in the effort in both the Calgary area and elsewhere in south-
ern Alberta. In addition, employee donations to registered charities will be matched by Encana up to $25,000 per employee as part of the company’s matching gifts program.
“The hard work being done by relief agencies and emergency services personnel, as well as the many volun-teer citizens who have pitched in to help their neighbours, truly reflects the strong sense of community in Calgary and throughout southern Alberta,” said Bill Oliver, Encana’s executive vice president and chief corporate offer.
The company pledged its commit-ment to work with city officials and industry associations to coordinate a collective industry volunteer response to aid those communities impacted by flooding.
Active in Canada for over 100 years, ConocoPhillips contributed US$1 million to support relief efforts. One half of the donation will be presented to the Red Cross and the other half allocated to local non-profit organiza-tions supporting the recovery efforts. The company will also match donations from ConocoPhillips Canada employ-ees and US employees and retirees.
“So many people in southern Alberta have been impacted by this disaster, and we want to support the outstanding
work that emergency responders and organizations like the Red Cross have been doing, and will be doing over the coming days and weeks,” said Ken Lueers, president of ConocoPhillips Canada. “Our thoughts are with all of those who are dealing with the impact of this flood, and our sincere thanks to the volunteers who have been working to help their neighbours.”
Another $1 million will come from Cenovus Energy Inc. An initial dona-tion of $250,000 will go to the Red Cross for immediate relief efforts. The company will then work with its community partners to determine how best to allocate the remainder of the donation.
Husky Energy Inc. has also stepped up with $1 million. “We have witnessed the devastating impact of flooding, but also the resilience of those impacted and the dedication of first respond-ers,” CEO Asim Ghosh said in a press release. “Recovery will be a long process, with many lending a help-ing hand. We are pleased to join that effort.”
Additionally, Canada-based Impe-rial Oil, through its main philanthropic arm, the Imperial Oil Foundation, has committed $100,000 to the Canadian Red Cross to support emergency assis-tance efforts.
“Our thoughts are with Albertans who need assistance at this time. We applaud the Red Cross and other emer-gency organizations for their immediate response and believe it is important to provide the practical assistance needed,” said Rich Kruger, Imperial chairman, president, and CEO.
Anyone wishing to support the ongoing Red Cross response to this disaster may do so by donating to the Canadian Red Cross Alberta Floods Response. OGFJ
Companies rooted in Canada contribute to flood relief efforts
Mikaila Adams
Senior Associate Editor –
OGFJ
Flooding in Blairmore, Alberta, June 20.Photo courtesy of Government of Alberta
1307ogfj_64 64 7/2/13 10:49 AM
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