Company News: E&P firms continue to report higher capital budgets

March 13, 2006
Oil and gas companies are still reporting increased capital spending plans for 2006.

Oil and gas companies are still reporting increased capital spending plans for 2006. Among the most recent announcements:

• Noble Energy Inc. budgeted capital expenditures of $1.26 billion for 2006, an increase of 40% from last year.

• Brigham Exploration Co., Austin, plans capital expenditures in 2006 of $156.9 million, a 32% increase over 2005.

• Geocan Energy Inc., Calgary, has approved a 2006 capital program that includes $30 million for the drilling of 34 gross wells (30.33 net), land acquisition, 3D and 2D seismic programs, and facilities projects.

In other recent company news:

• EnCana Corp. plans to sell its gas storage business interests to the Carlyle-Riverstone Global Energy & Power Fund, a private equity fund managed by Riverstone Holdings LLC and The Carlyle Group, for $1.5 billion after adjustments.

• Connacher Oil & Gas Ltd., Calgary, has agreed to buy the 8,000 b/d Montana Refining Co. refinery and other assets in Great Falls, Mont., from Holly Corp., Dallas.

• Esso SAF has concluded the sale of its Esso Rep shares to Vermilion Rep, the Calgary affiliate of Vermilion Energy Trust, for $161 million, based on the share value at June 30, 2005 (OGJ Online, Oct. 21, 2005). The deal will be final before the end of the second quarter.

• Newmex Minerals Inc., Calgary, changed its name to Pearl Exploration & Production Ltd., reflecting its transition to an oil and gas exploration and development company from a mining company.

• Zion Oil & Gas Inc., Dallas, filed an initial public offering in late January to raise as much as $14 million to attempt to complete an exploratory well in Israel.

Noble Energy

Noble’s 2006 figure does not include capital investments for the acquisition of United States Exploration Inc., announced Feb. 9 (OGJ Online, Feb. 13, 2006). About 23% of the 2006 budget has been allocated to exploration and 77% to production, development, and other projects. Noble plans to spend $860 million in the US and $380 million elsewhere.

In the US, about 30% of Noble’s spending will be for projects on the Gulf Coast and in the Gulf of Mexico, 40% in the Rocky Mountains, and 30% in the Midcontinent.

About 85% of the non-US budget is for production and development.

Noble budgeted $240 million for Europe and the Middle East, $105 million for West Africa, and $35 million for the Far East and Latin America.

Brigham Exploration

A major portion of the budget, $120.4 million, will fund drilling. This is a 33% increase over 2005 drilling expenditures. The company expects to spud 43 wells this year. Of the 2006 drilling budget, 39% is earmarked for exploration and 61% for development. Last year’s percentages were 48% exploration wells and 52% development.

On the US Gulf Coast, it will spend about $78.5 million, mainly to drill and operate 20 wells. The independent will spend $12.8 million on land and seismic activities in the region.

In the Anadarko basin, it will spend $44 million, primarily for the drilling of 15 wells but including $11.3 million for land and seismic work.

In the Williston basin in northwestern North Dakota, Brigham will spend $20.8 million to drill four pilot wells that will target the Mississippian Middle Bakken formation. About 15% of this amount will be used for land acquisition. Brigham plans to spud its first pilot well in this province during the second quarter of 2006.

The company has allocated about $5.7 million for West Texas, most for drilling and about $1.4 million for land and seismic activity. The company plans to drill three exploration wells and one development well in this region this year.

Geocan Energy

Geocan plans to spend $5 million in British Columbia, $17.5 million in west-central Alberta, and $7.5 million in the Lloydminster area of Alberta and Saskatchewan.

Plans include 10 exploratory and 24 development wells, most targeting natural gas and light oil. In 2005 Geocan drilled 23 wells, resulting in 9 gas wells and 11 oil wells. The company hopes to produce 4,000-4,500 boe/d by the end of 2006. Production at the end of 2005 was 3,414 boe/d, up 70% from a year earlier.

In addition to $22 million allocated to drilling, Geocan’s 2006 capital program includes $6.5 million for land acquisitions and seismic programs in core areas, which currently involve about 103,000 acres of net undeveloped land.

At North Tomahawk, in west-central Alberta, where Geocan last year made two gas discoveries in which it holds 100% interests, the company plans to spend $1.5 million on pipeline and facilities projects.

EnCana sells storage

EnCana’s sale of its gas storage business interests is part of a divestment program enabling it to concentrate on natural gas and in situ oil sands projects in North America, the company said.

Being sold are the AECO Hub, the 85 bcf Suffield facility and 40 bcf Countess facilities in Alberta, the 24 bcf Wild Goose facility in California, the 15 bcf Salt Plains facility in Oklahoma, and the 27 bcf Starks facility under development in Louisiana.

EnCana will retain the 10 bcf Hythe facility in northwestern Alberta, which is integrated with its upstream operations.

Meanwhile, EnCana is concluding the $350 million sale of the Chinook oil discovery off Brazil to Norsk Hydro AS. It has sold its Entrega Pipeline in Colorado to Kinder Morgan Energy Partners LP and Sempra Pipelines & Storage for $240 million. It recently sold its Ecuador interests for $1.42 billion. EnCana plans to use proceeds to pay down debt and buy back stock.

Connacher buys refinery

Connacher will pay $55 million and 1 million shares of its common stock valued at $4.6 million for the facility. The companies expect to close the deal by Apr. 1.

Connacher’s main asset is a 100% interest in 68,480 acres of oil sands leases near Fort McMurray, Alta., which it calls the Great Divide project. It is seeking regulatory approval for development via steam-assisted gravity drainage (SAGD).

It also has producing interests in Saskatchewan and retains a 35% interest in Petrolifera Petroleum Ltd., a Latin American producer it took public in an initial public offering last year.

Last Month, Connacher signed an agreement to acquire Luke Energy Ltd., an Alberta gas producer, for cash and stock. It said the acquisition, which is to close Mar. 16, will “hedge its anticipated initial requirements for natural gas to create steam for its proposed SAGD operations at Great Divide.”

The company will buy the Montana refinery through a subsidiary, Montana Refining Co. Inc. It said the purchase will provide “protection against the wider and more volatile crude oil price differential swings which have become increasingly frequent in a higher oil price environment for heavy oil such as would be produced at Great Divide.”

Holly subsidiaries operate a 75,000 b/d refinery in Artesia, NM, and a 26,000 b/d refinery in Woods Cross, Utah.

Vermilion closes deal

Vermilion acquired seven fields in the Paris and Aquitaine basins, including the new Mimosa acreage discovered in Aquitaine. It also acquired shares in two Paris basin fields. Together with its own acreage, Vermilion now accounts for 45% of France’s oil production, or about 9,700 b/d, and has increased its reserves by 15.5 million boe.

Since 2005, Vermilion has been France’s leading liquid hydrocarbon producer. General Manager Daniel Goulet told OGJ that “interesting results” of 3D and 2D seismic surveys shot on its Aquitaine Maritime offshore acreage in mid-2005 might lead to drilling of a well in 2007.

For the acreage acquired from Esso Rep, he said, a “vast program of development and optimization” is planned.

Newmex becomes Pearl

Pearl’s holdings include a 50% working interest in the San Miguel heavy oil development project in South Texas, a 45% working interest in the Palo Duro basin gas resource exploration project in North Texas, and varying interests in other US oil and gas production and exploration projects.

The holdings also include a plan of arrangement to acquire all outstanding shares of Pan-Global Energy Ltd., an oil and gas company holding a 95% interest in the Onion Lake production and development project along the Saskatchewan-Alberta border near Lloydminster.

Zion’s IPO

Zion will use the funds to attempt completion of the Ma’anit-1 well, TD 15,842 ft, and possibly to drill an appraisal well (OGJ Online, Oct. 7, 2005).

Zion also applied to list its common stock on the American Stock Exchange if the IPO is successfully completed.