Denbury Resources Inc. has signed an agreement with a Venoco Inc. subsidiary for an option to purchase Venoco’s interest in Hastings field, a potential tertiary flood property near Houston.
In other recent company news:
- Dana Petroleum PLC agreed to acquire from Gaz de France a 25% additional interest in Cavendish gas field in the UK North Sea’s Southern Gas basin. The $55 million transaction will double Dana’s existing 25% interest in the field.
- Abu Dhabi National Energy Co. is buying from BP Netherlands its exploration and production and gas infrastructure business, including various production assets and the Piek Gas Installatie gas supply plant near Alkmaar.
- Riata Energy Inc., Oklahoma City, closed its $1.5 billion acquisition of NEG Oil & Gas LLC from American Real Estate Partners, a conglomerate owned by investor Carl Icahn.
- El Paso Corp.’s wholly owned subsidiary El Paso Exploration & Production Co. agreed to acquire producing properties and undeveloped acreage in Zapata County, Tex., for $255 million.
- Swift Energy Co. agreed to pay $20.4 million for wells and acreage in Lake Washington field in Plaquemines Parish, La. The seller’s identity was not disclosed.
- GE Energy Financial Services and Sunland Resources LLC agreed to buy natural gas and oil reserves in northern Louisiana for $101 million from a consortium led by Caruthers Producing Co. Inc.
- PetroHunter Energy Corp., Denver, plans to buy Galaxy Energy Corp.’s Powder River basin assets for $45 million in a cash-equity deal. Galaxy is terminating previously announced plans to sell 25% of its Piceance basin assets to Exxel Energy (USA) Inc.
Denbury-Venoco deal
Denbury’s agreement with Venoco requires an upfront payment of $37.5 million to be paid at closing of the option agreement, with additional payments totaling $12.5 million over the next 2 years.
If approved, the option period will run from Nov. 1, 2008, through Nov. 1, 2009. Denbury may extend the option beyond the primary term for as many as 7 additional years at an incremental cost of $30 million/year. None of the option payment amounts are to be credited against the purchase price, which is to be agreed upon at the time the option is exercised and may be paid in cash or through a volumetric production payment.
If the parties fail to agree to a price, a price will be determined by a predesignated independent petroleum engineering firm using specified criteria for calculation of the discounted present value of proved reserves at that time.
The purchase deal would include Venoco’s interest in Hastings field, less a 2% override and a 25% reversionary interest following payout, as defined.
Hastings field currently produces about 2,400 b/d. Venoco owns about 89% interest in the West Hastings Unit and nearly 100% in East Hastings field. Based on preliminary engineering data, the West Hastings Unit (the most likely initial area to be developed as a tertiary flood) has an estimated net reserves potential from CO2 tertiary floods of 50-90 MMboe, depending on the ultimate recovery factor, net of the projected reversionary interest, based on a $60/bbl oil price, Denbury said.
Initially, Denbury had expected to transport CO2 from its natural source at Jackson Dome, but ultimately plans to use manufactured (anthropogenic) sources of CO2 for this tertiary operation. It is initiating studies for construction of a 280-mile pipeline to transport CO2 to Hastings from the southern end of its existing CO2 pipeline which terminates near Donaldsonville, La. The pipeline, with a target for installation and operation within the next few years, is expected to cost $225-250 million.
Preliminary estimates indicate that it will cost $400-600 million (net) to develop the West Hastings Unit as a tertiary flood, excluding the cost of the CO2 pipeline.
If the option is exercised, Denbury will be committed to make aggregate net capital expenditures of about $175 million over the subsequent 5-year period to develop the field for tertiary operations, and to begin CO2 injections in the field within 3 years after exercising the option.
Meanwhile, Denbury has committed to buy all the CO2 produced as a byproduct by a planned petroleum coke gasification project in Louisiana, scheduled to start up in 2010, and is engaged in ongoing discussions with other potential sources of manufactured CO2. The plant, if completed, is expected to produce 190-225 MMcfd of CO2. The purchase price of the CO2 will vary, depending on oil price and the level of compression provided by the seller.
Denbury plans to connect this manufactured source of CO2 to its natural source of CO2, which will allow the company to allocate production as required between the two sources.
Dana’s Cavendish share
Production from Cavendish field, scheduled to begin in first quarter 2007, is expected to flow initially at 100 MMcfd and to continue until 2016. Dana said its pending transaction remains subject to government and third-party approvals.
Dana estimates that the additional 25% interest will add 29 bcf of North Sea proven and probable gas reserves and a production gain of 17 MMscfd. After closing, Dana’s overall production from its total stake in Cavendish is expected to be 34 MMscfd.
Cavendish field lies in 18.5 m of water on Block 43/19a, about 140 km northeast of Easington on the Lincolnshire coast and 180 km north of Bacton on the Norfolk coast.
Development involves three production wells and a minimum facilities platform tied back to ConocoPhillips (UK) Ltd.’s Caister Murdoch System (OGJ, Aug. 24, 2005, Newsletter).
The platform was installed in June (OGJ Online, Sept. 1, 2006).
Plans call for gas to be exported from Murdoch through the Caister Murdoch System trunk pipeline to the Theddlethorpe gas terminal in Lincolnshire, where it will be sold into the UK gas market.
ADNEC’s acquisition
ADNEC, indirectly owned by the UAE government, was established in 2005 to manage water, electric, mining, and oil and gas projects worldwide. It expects to complete its acquisition from BP by Jan. 31. Value of the transaction was not disclosed.
BP operates assets, both onshore and offshore, in multiple mature gas fields in the Netherlands, associated production facilities, and the suspended Rijn oil field. The London-based parent company previously announced plans to sell these assets, which produced 62 MMcfd net to BP during 2005 (OGJ Online, May 10, 2006).
This sale does not affect BP’s other business activities in the Netherlands, including energy trading, refining and marketing, and renewables energy.
Riata closes NEG deal
Riata does business as SandRidge Energy Inc. Riata signed a letter of intent on Sept. 7 and announced plans to change its name to SandRidge Energy on Sept. 29.
NEG’s holdings include oil and gas properties throughout Texas and in the Gulf of Mexico. The acquisition involved essentially all of American Real Estate’s oil and gas interests and all the properties previously managed by National Energy Group Inc., which was acquired by NEG Inc., another Icahn business, earlier this year.
SandRidge issued 12.8 million shares to an American Real Estate subsidiary, paid $1.03 billion in cash, and assumed $250 million in NEG Oil & Gas debt.
Tom L. Ward, SandRidge’s chairman and chief executive officer, said the acquisition boosts his company’s holdings in Pinon gas field in the West Texas thrust belt to 245,000 net acres with an average working interest of 83%.
“We are moving forward with plans to expand our drilling program to 20 rigs in the Pinon field by yearend 2007,” Ward said.
El Paso E&P’s acquisition
El Paso E&P agreed to acquire Laredo Energy III LP, operator and majority owner of the properties, and separate working interests in some other properties. The acquisitions are expected to close in January 2007 and will mark El Paso’s return to the Lobo trend.
The assets being acquired have current net production of 19 MMcfd of gas equivalent. El Paso estimates proved reserves to be 84 bcf, and 73% of that is undeveloped. The 27,000 gross acres to be acquired are near El Paso’s existing operations in Bob West field in Zapata County.
Swift buys wells
Swift’s acquisition, expected to close before Dec. 31, involves assets northeast and southeast of Swift’s existing acreage in Lake Washington field.
The purchased interests consist of 4,400 gross acres, or 2,800 net acres. Current production is 275 boe/d net to the purchased interests and consists of 86% oil.
Swift Energy says total reserves of the purchased properties are 1 million boe of proved reserves and 1.7 million boe of probable and possible reserves. About 36% of the proved reserves are proved developed.
Future development costs for the proved, probable, and possible reserves are estimated at $25.3 million for an all-in acquisition cost of $17.23/boe (or $2.87/MMcfe).
GE, Sunland acquisition
The assets being acquired by GE Energy and Sunland include 26 producing wells, 2 proved, developed nonproducing wells, and 11 proved, undeveloped drilling locations in Caspiana and Black Creek fields. Production is 44% oil, 55% gas, and 1% liquids.
GE Energy holds a majority limited partnership interest in Sunland Production Partners LP, a partnership with Sunland Resources for the reserve acquisition.
The operator will be Sunland Production, which already operates more than 60 oil and gas wells in eight fields in north Louisiana and Arkansas, producing 400 b/d of oil and 15 MMcfd of gas.
PetroHunter deal
Galaxy, also of Denver, intends to retain ownership of its unconventional Piceance basin gas properties in the Rifle Creek project in Garfield County, Colo. Galaxy and Exxel initially announced a $50 million transaction, but that amount was reduced to $40 million, Galaxy said Oct. 3 (OGJ Online, Aug. 1, 2006). Exxel is based in Vancouver, BC.
PetroHunter signed a nonbinding letter of intent with Galaxy to negotiate a final purchase agreement for Powder River basin oil and gas interests belonging to Galaxy subsidiary Dolphin Energy Corp. in Wyoming and Montana.
Dolphin owns an average 86% working interest in 197 oil and gas wells in the Powder River basin, of which 22 wells are selling gas at an average rate of 850 Mcfd. The other wells are in various stages of dewatering, shut in waiting on pipeline, or awaiting completion.