For US independent exploration and production companies, this year largely has been about trying to increase production, especially to take advantage of recently high oil and gas prices.
Independents also have been lobbying to open up restricted areas in the US, both on and offshore, to exploration and development.
Last year at this time, US producers struggled to gain access to new areas to drill for oil and gas (OGJ, Oct. 25, 2004, p. 18). This issue, despite enactment of comprehensive energy legislation in August, continues to be thrashed out today.
In addition, this year’s hurricane season wreaked havoc on independents’ operations in the Gulf of Mexico. Facilities damaged and production lost to Hurricanes Katrina and Rita encouraged E&P firms to open discussions with government officials about bolstering domestic supplies, particularly natural gas, ahead of the heating season, with the gas market already tight.
Mergers and acquisitions-particularly among the larger independents-also played a large role in reshaping and further shrinking the number of producers. Companies that acquired or merged with other firms increased oil and gas reserves while expanding into different core areas of operation.
Access to oil, gas
Headway was made on the issue of increasing US oil and gas supplies earlier this month when two US House committees reported separate bills that would open up new areas to exploration.
The Energy and Commerce Committee’s measure passed along party lines, with support from Republicans and opposition from Democrats. The Resource Committee’s bill had bipartisan support, passing 27-16, with four Democrats voting for it (OGJ Online, Oct. 10, 2005).
The Resource Committee’s bill would authorize leasing on the Arctic National Wildlife Refuge coastal plain in Alaska and expand some leasing in the Gulf of Mexico. And last week, the Senate Energy and Natural Resources Committee, in a budget authorization bill, voted 13-9 to approve ANWR leasing (OGJ Online, Oct. 19, 2005).
John B. Walker, chairman of the Independent Petroleum Association of America and president and chief executive officer of EnerVest Management Partners Ltd., Houston, recently noted the damage to US supply that comes from deterioration in per-well gas production rates. “Effectively, we are losing a Gulf of Mexico every year,” Walker said Oct. 11 during an Ernst & Young energy conference in Houston. “Frankly, all of this could be turned around.”
Walker added, “We probably have over 100 years of supply of natural gas in our country. We continue to have to drill in the same old areas. We’re not allowed to go into new locations.”
IPAA represents thousands of US independents supplying more than 80% of the nation’s natural gas. Its members hold 90% of OCS leases. The IPAA chairman noted that access to land remains one of the biggest problems for E&P firms and that he continues to urge the federal government to open more areas offshore and in Alaska to exploration and development.
Other issues
Regarding the recent energy bill, Walker said, “Some in our industry would call it a farm bill,” noting that the new legislation included some key IPAA issues, but that the measures are incremental. “It wasn’t a major boost for the upstream industry,” he said.
Among the issues still needing attention, according to Walker, are:
• Full funding for federal research and development.
• Proper funding of all federal agencies to meet the requirements of the energy bill.
• Opening the offshore and Alaska to development.
• Improving tax policies.
• Improving amortization of delay rental payments.
• Supporting new drilling incentives (i.e., change to nonconventional fuels incentives as well as deep gas).
Hurricane aftermath
IPAA remains fervently involved with the aftermath of the hurricanes that damaged so much of its member companies’ drilling and production assets and its effects on gas supply this winter.
In an open letter to Congress dated Oct. 17, Walker, on behalf of IPAA, addressed key industry issues surrounding restoration efforts and gas markets.
“Since the damage created by Hurricanes Katrina and Rita, serious concerns and confusion exist regarding the recovery of Gulf of Mexico natural gas production shut down during the storms,” the letter said.
Predicting the pace of recovery of the gulf’s gas production, Walker said, “is impossible at this time.” He added, “Too many issues must be resolved. The natural gas production, processing, and transportation chain has several elements-all of which are recovering at different rates from the storm damage.”
Walker said, “These issues and circumstances create serious concerns regarding natural gas supply capabilities this winter with attendant price implications.”
He continued: “Most important, the United States-unlike any other country in the world-has made policy decisions to exclude the vast majority of federally controlled onshore and offshore lands from oil and natural gas development. Well over 50% of future US oil and natural gas reserves underlie these lands. According to studies by the Department of Energy’s National Petroleum Council, the US is estimated to have over 100 years of natural gas supplies-if they can be accessed.”
Walker said past government policies-particularly long-term price controls on natural gas and the Windfall Profits Tax on oil-served as a major factor in the underinvestment in oil and gas wells and facilities that led to this pending crisis.
Noting that “no one has the ability to accurately judge what the winter natural gas market will be,” Walker said, “IPAA’s members are aggressively trying to restart their Gulf Coast offshore and onshore facilities, maintain their active development programs, and seek to speed this development.”
Mergers, acquisitions
Over the last year, mergers and acquisition activity among US E&P firms has been brisk. While many of these deals took place between US companies, some deals transpired between US and non-US firms. In either case, through their purchases, many of the acquiring companies gained access to new areas of exploration and development.
Some of the most recent, and largest deals included:
• Noble Energy Inc. acquired Patina Oil & Gas Corp. for $3.4 billion, including the assumption of Patina’s debt (OGJ Online, Dec. 17, 2004).
• XTO Energy Inc., Fort Worth, purchased privately held Antero Resources Corp., Denver, a Barnett shale gas producer, for $685 million (OGJ Online, Jan. 12, 2005).
• Petrohawk Energy Corp., Houston, acquired Mission Resources Corp., Houston, for a combination of $135 million and 19.2 million Petrohawk common shares plus assumption of Petrohawk’s debt (OGJ Online, Apr. 6, 2005).
• Pogo Producing Co., Houston, acquired Northrock Resources Ltd., a wholly owned Canadian subsidiary of Unocal Corp., for $1.8 billion in a move that gave Pogo a new core area in western Canada (OGJ Online, July 11, 2005).
• Whiting Petroleum Corp., Denver, acquired the oil and gas assets of Celero Energy LP, Midland, Tex., in two separate agreements worth a total combined cash-stock value of $802 million (OGJ Online, July 27, 2005).
• Occidental Petroleum Corp. agreed to acquire Tulsa independent Vintage Petroleum Inc. for $3.8 billion and the assumption of $550 million of Vintage debt (OGJ Online, Oct. 14, 2005).✦
