Company News: BG to sell North Caspian PSA stake for $1.23 billion

March 17, 2003
BG International Ltd., a unit of UK-based BG Group, reported that it would divest itself of its interest in the North Caspian Sea production-sharing agreement project in two transactions totaling a combined $1.23 billion.

BG International Ltd., a unit of UK-based BG Group, reported that it would divest itself of its interest in the North Caspian Sea production-sharing agreement project in two transactions totaling a combined $1.23 billion.

CNOOC North Caspian Sea Ltd., a wholly owned subsidiary of CNOOC Ltd. of China, and Sinopec International Petroleum Exploration & Production Corp., a unit of China Petrochemical Corp. (Sinopec Group), said in separate statements earlier this month that they each would acquire from the BG subsidiary an 8.33% interest in the PSA project for $615 million each.

In other recent company news:

  • Calgary-based Talisman Energy Inc. expects to complete the sale of its 25% stake in a Sudan oil field to New Delhi-based ONGC Videsh Ltd. (OVL) by the end of March.
  • El Paso Corp., Houston, has completed two transactions that total $1.35 billion in assets sales since Jan. 1, the company reported.
  • Chesapeake Energy Corp. reported it will acquire natural gas reserves in the US Midcontinent, in two separate transactions, from El Paso Corp. and Vintage Petroleum Inc., for a total of $530 million.
  • BP PLC said it has agreed to transfer to European independent Perenco its interests in two Venezuelan production assets in a $160 million cash transaction. Separately, BP agreed to sell a package of its UK Southern North Sea gas production assets to Perenco unit Perenco UK Ltd. for $162 million.
  • Sunoco Inc. of Philadelphia signed a definitive agreement with a unit of Marathon Ashland Petroleum LLC (MAP) to acquire 193 of its US Southeast retail outlets for $140 million plus store inventory.
  • BG Group PLC and partners ONGC and Reliance Industries Ltd. have agreed to form an integrated joint operating framework to oversee operations of Panna-Mukta oil and natural gas fields and Tapti gas field off the west coast of India.
  • Black Hills Corp., Rapid City, SD, has completed the $53 million acquisition of Mallon Resources Corp., Denver, saying it will soon launch a drilling and workover program and expects to recover more gas from Mallon's leasehold in northwestern New Mexico.
  • Sempra LNG Corp., a unit of San Diego-based Sempra Energy, entered into an agreement to acquire all of Houston-based Dynegy Inc.'s interest in the company's proposed LNG terminal project at Hackberry, La., for $20 million
  • New Orleans-based Tidewater Inc. signed Thursday a definitive agreement to acquire all 27 of the oil field support vessels owned by Ensco Marine Co., a unit of Ensco International Inc. of Dallas for $79 million.
  • Plains All American LP, Houston, has acquired a West Texas crude oil gathering system in the Permian basin in West Texas from Navajo Refining Co. LP for $24 million.

CNOOC, Sinopec deals

The North Caspian Sea PSA project covers more than 5,600 sq km of the Caspian Sea. The project includes Kashagan field, which was announced as a commercial field in June 2002. Kashagan field holds gross reserves under a natural depletion mode of 7-9 billion boe, said BG. Secondary recovery methods, such as gas injection, could increase this range to 9-13 billion boe, the company said.

The field also holds the Kalamkas discovery and three exploration prospects: Kairan, Aktote, and Kashagan SW. Production has not yet commenced within the project.

"This acquisition allows the company to gain a firm foothold in one of the world's most prolific oil and gas basins and provides the potential for significant reserve growth and visibility in long-dated production growth," said Wei Liucheng, CNOOC Ltd. chairman and CEO.

The PSA is operated by Italy's ENI SPA unit Agip SPA. ENI holds 16.67% interest; other partners are ExxonMobil Corp., Royal Dutch/Shell Group, and TotalFinaElf SA, each with 16.67% interest; and ConocoPhillips and Inpex Corp., each with 8.33% interest.

The deal, BG said, would help the company better maintain its natural gas-focused strategy. "This disposal arises from BG's regular process of portfolio review, and the proceeds will be utilized to further our aims of growing the business and strengthening returns," said BG Chief Executive Frank Chapman. "BG remains strongly committed to Kazakhstan, one of the most important countries in our portfolio," he added. "In addition to our remaining interest in the North Caspian, we will continue to contribute through our involvement in the giant gas condensate field at Karachaganak and in the Caspian Pipeline Consortium," he added.

The transaction with CNOOC will be retroactive to Jan. 1, but its completion "is subject to satisfaction of a number of conditions, including the waiver of certain preemptive rights and receipt of governmental approvals," CNOOC said. The sale is expected to be finalized this year, BG said.

Sinopec's deal with BG is contingent upon agreement from both China and Kazakhstan as well as the waiving of any pre-exemption rights of other existing PSA partners.

OVL buys into Sudan

"The government of Sudan supports Talisman's sale to OVL, and we are working towards that objective," a company spokesman said. "We continue to expect sale completion within March."

OVL could not complete its earlier $720 million deal to buy Talisman's stake, as partners in the Greater Nile Oil Project (GNOP) blocked it. Those partners—Malaysia's Petronas (30%), Chinese National Petroleum Co. (40%), and state-owned Sudanese company Sudapet (5%)—hold first right of refusal if any member decides to exit the project.

"Although there have been delays, completion of the Sudan sale is progressing," the spokesperson said. "Discussions have progressed between the government of Sudan and the other owners of the GNOP, and consent documentation is being finalized."

The deal was referred to the Sudan government after Petronas and CNPC exercised their contractual rights of purchase, sources said. They said India would get 3 million tonnes/year of crude oil from the stake in the producing field.

Sources said OVL expects to retain all 80-odd local Talisman employees to manage the 1,500 km pipeline connecting the producing fields to Port Sudan on the Red Sea.

Meanwhile, Cairn Energy PLC, Scotland, rejected a $200 million bid by the Indian government-owned Oil & Natural Gas Corp. (ONGC) for all of its oil and gas properties on the east and west coasts of India.

El Paso Corp. raises cash

Through some recent transactions, El Paso has been able to reach some of its asset goals. "This total (of $1.35 billion in asset sales) representsU40% of the company's recently expanded asset sales goal of $3.4 billion for calendar year 2003," El Paso said.

San Antonio-based Valero Energy Corp. exercised an option to purchase El Paso's Corpus Christi refinery and South Texas refined petroleum product pipeline system and terminal assets for $289 million. Valero's purchase option was part of a June 2001 lease agreement.

"The exercise of the purchase option was no surprise as Valero had been operating El Paso's refinery since June 2001 and had completed numerous integration projects with Valero's own Corpus Christi refinery located less than 1 mile away," noted Andrew F. Rosenfeld, analyst with Prudential Securities Inc., New York.

El Paso also closed the previously announced sale of its Florida petroleum terminals and tug and barge operations to TransMontaigne Inc., Denver, for $155 million (OGJ Online, Jan. 14, 2003). El Paso acquired these assets through its merger with Coastal Corp. in 2001.

Chesapeake buys Midcontinent assets

From El Paso of Houston, Chesapeake, an Oklahoma City-based independent, will acquire an estimated 328 bcfe of proved gas reserves, 70 bcfe of probable and possible gas reserves, 293,000 leasehold acres, and current production of 67 MMcfed for $500 million. The El Paso proved reserves have a reserves-to-production index of 13 years, are 96% natural gas (or natural gas liquids), and are 71% proved developed, Chesapeake reported.

From Tulsa-based Vintage Petroleum, Chesapeake will acquire an estimated 22 bcfe of proved gas reserves, 8 bcfe of probable and possible gas reserves, and current gas production of 3.5 MMcfed for $30 million. The Vintage proved reserves have a R/P index of 17 years, are 97% natural gas, and are 56% proved developed, Chesapeake said.

Both acquisitions are expected to close before the end of the first quarter and will have an effective date of Apr. 1.

Late last year, Chesapeake signed a deal to acquire gas assets in the Midcontinent from Tulsa-based Oneok Inc. for $300 million (OGJ Online, Dec. 9, 2002). The acquisition increased the company's proved reserves to nearly 2.5 tcfe of gas and its production to more than 565 MMcfed of gas.

Chesapeake said that its capital expenditures are budgeted at $475-525 million for 2003, compared with $403 million spent in 2002.

BP's Venezuela, N. Sea divestitures

Perenco's acquired Venezuelan assets from BP include a 60% stake in Boqueron field in eastern Venezuela and 100% interest in Desarrollo Zulia Occidental field (DZO field) in the western part of that country. BP serves as operator for both fields.

During 2002, BP's share of production from these fields averaged 26,100 b/d of oil. The deal is subject to approval by Venezuelan state oil firm Petroleos de Venezuela SA.

This deal, once completed, would boost Perenco's oil and gas production to 275,000 boe/d and its net production to 185,000 boe/d, the company said.

Meanwhile, as part of its North Sea deal, Perenco said it will acquire BP's share in 14 operated gas fields including Indefatigable, East Leman, Davy, Trent, Tyne, Pickerill, and Waveney. These assets also include associated pipelines and onshore processing facilities including the Bacton terminal. Prerenco has expressed interest in operating these assets, subject to certain approvals from the government.

These fields—net to BP—hold combined proved reserves of 274 bcf of gas and production of 150 MMcfd of gas.

BP said that the sale "would improve returns on its upstream portfolio by reducing operating costs and freeing up capital for investment in other projects offering better profit margins."

Sunoco-MAP downstream deal

MAP, though its wholly owned retail unit Speedway SuperAmerica LLC (SSA), Enon, Ohio, inked the deal to sell all of its outlets in Florida, South Carolina, North Carolina, and Georgia.

Sunoco said it "has committed to offer employment to substantially all current SSA employees related to these units."

SSA currently owns more than 1,960 retail outlets in 13 states, most of which operate under the Speedway and SuperAmerica brand names.

The companies expect the deal to close by the second quarter.

Following Sunoco's announced acquisition, Moody's Investors Service confirmed the company's Baa2 senior unsecured debt rating with a stable outlook. Moody's confirmed Sunoco's ratings "based on the strategic benefits of the acquisition, which include opportunities for the company to add high-return assets to its retail and convenience store network and to establish a greater retail presence in the southeastern United States," it said.

"The rating confirmation also reflects Moody's view that the financial leverage implications of the transaction are not unduly onerous. The outlook for Sunoco's ratings is stable and assumes management will continue to maintain conservative financial policies as it pursues its growth strategies," Moody's noted. "However," the agency noted, "Uthe outlook for refining and chemical margins is uncertain andU management remains interested in acquiring additional refining, marketing, and chemical assets."

BG-ONGC India agreement

The agreement between BG and ONGC ends a nearly year-long standoff between BG and India's state-owned ONGC over the operatorship of the fields (OGJ Online, Jan. 16, 2003). BG completed purchase of the entire share capital of Enron Oil & Gas India Ltd. for $350 million from Enron Corp. in February 2002. These assets included 30% interests in the fields.

Under the proposed framework, operations of the fields will be conducted through a 3-member operator board comprised of a representative from each company. The board's chairmanship will rotate every 2 years, the companies said.

The partners said they plan to invest $700 million over the next few years to develop the fields with "a priority" being to maintain field production and expand output from Tapti gas field.

"We look forward to working closely with our joint venture partners to continue the successful operation of these producing fields," said Nigel Shaw, vice-president, BG India.

ONGC holds 40% share in the fields and Reliance holds 30%.

Black Hills-Mallon deal

Mallon had 53.3 bcf of reserves as of yearend 2001 on Jicarilla Apache Nation lands, mostly gas in shallow sands (OGJ Online, Oct. 21, 2002). The 56,000 net acres are mostly on a contiguous block in early development stages.

Black Hills believes the shallow sands could yield additional reserves and that gas could be recoverable from deeper unexplored horizons that produce elsewhere in the San Juan basin.

The properties produce 12 MMcfed, and Mallon operated 152 of the 174 gas and oil wells with 90-100% average working interests.

Sempra to acquire LNG terminal from Dynegy

In addition to acquiring the LNG terminal from Dynegy, Sempra will acquire "additional contingent payments based upon project development milestones and performance," Dynegy said in a statement.

The terminal, Hackberry LNG Terminal LLC, will be capable of processing enough LNG to send out 1.5 bcfd of natural gas. The terminal will have tow docks and a storage capacity of 10.4 bcfe. Commercial operation is slated for early 2007.

"This agreement is yet another example of the new Dynegy executing on a self-restructuring plan designed to keep our business model focused on our core operating units and to prudently manage our capital expenditure commitments," said Bruce A. William- son, Dynegy president and CEO.

Tidewater buys support vessels

Ensco said it will record a one-time pretax gain of $5 million for the sale of its support vessels to Tidewater.

"Given our focus on expanding the size and capability of our offshore rig fleet," said Carl F. Thorne, Ensco chairman and CEO, "we determined that this capital would best be deployed in that arena where we have a stronger presence and greater investment return opportunities."

Ensco's fleet comprises five anchor-handling towing-supply vessels, six 220-ft "stretched" platform supply vessels, 13 standard towing supply vessels, and three utility vessels, according to Lehman Bros. Inc. analyst James D. Crandell. "This acquisition reduces the need for Tidewater to build new vessels for the Gulf of Mexico to replace its 'bread-and-butter' fleet," he noted.

The average age of the fleet is 19 years, according to a research note released by Jefferies & Co. Inc., New York.

Seventeen of the 27 vessels being acquired are working now, or a 63% utilization rate, said Lehman Bros. analyst Angeline M. Sedita. "Peak utilization of 91% for the fleet occurred in 1997 before falling to the mid 60% range by 2000," she said. "Given the overall soft boat market, it would not have been economic for Ensco to upgrade additional vessels in order to find work," Sedita added.

The transaction is expected to close early in the second quarter.

Plains acquires oil gathering system

The system being acquired by Plains comprises 367 miles of gathering lines that transport 24,000 b/d of oil—most of which is sour crude. The system complements Plains's existing West Texas assets, said Greg L. Armstrong, Plains chairman and CEO.

During the first quarter, Plains acquired a 347 mile crude oil pipeline that originates at Sabine Station in East Texas and terminates near Cushing, Okla. The transaction also included storage capacity of 700,000 bbl of oil. Plains said it would upgrade certain sections of this pipeline and construct a 12 mile extension of the system to connect it to its Cushing terminal.

Plains said it plans to spend about $15 million on the assets acquired in the two transactions, half being spent this yearand the other half in 2004.