Williams Cos. Inc., Tulsa, will fold its natural gas pipeline and US midstream businesses into Williams Partners LP, along with its limited and general-partner interests in Williams Pipeline Partners LP, in a partnership-transforming restructuring valued at $12 billion.
In other recent company news:
• Enterra Energy Trust announced that its board unanimously approved the conversion of the trust to a corporation to be named Equal Energy Ltd. In response to changes in Canada's tax laws regards trusts, effective Jan. 1, 2011.
• Heritage Oil PLC said Eni International BV has terminated "with immediate effect" its previous agreement to buy with Heritage's interest in Blocks 1 and 3A in Uganda.
• Petroleo Brasileiro SA (Petrobras) exercised its preferential rights to acquire Devon Energy Corp.'s 50% interest in Gulf of Mexico's Cascade field.
• Callon Petroleum Co., Natchez, Miss., has added onshore and unconventional assets to its Gulf of Mexico properties and set a $61.7 million capital budget for 2010.
• Niko Resources Ltd., Calgary, will buy Voyager Energy Ltd., which has interests in Trinidad onshore blocks. Voyager's board unanimously approved, and shareholder will be polled in March.
Williams' gas pipeline assets include 100% of Transcontinental Gas Pipe Line Co., 65% of Northwest Pipeline GP, and 24.5% of Gulfstream Natural Gas System LLC. Williams also will contribute its general-partner and limited-partner interests in Williams Pipeline Partners, which owns the remaining 35% of Northwest Pipeline.
Williams will own about 80% of new, much larger Williams Partners, up from 24% of current partnership. The company said it will be able to allocate more capital to exploration and production for growth and diversification.
The midstream assets include Williams' operations in Rocky Mountains and Gulf Coast, as well as its recently added business in Pennsylvania's Marcellus shale. These assets encompass seven processing trains totaling 2.3 bcfd of capacity in the Rockies and four processing trains on the Gulf Coast.
The Gulf Coast processing trains are integrated with five major deepwater oil and gas pipeline systems and two platforms to handle production in deepwater Gulf of Mexico. The midstream assets also include various equity investments in domestic processing and fractionation assets, said the announcement.
For the asset contributions, Williams will receive from Williams Partners some $3.5 billion cash, less Williams Partners' transaction fees and expenses, plus 203 million Williams Partners limited-partner units, and will maintain its 2% general-partner interest, said the announcement. Williams Partners also will assume about $2 billion of existing debt associated with the gas pipeline assets.
The transaction will immediately add to Williams Partners' distributable cash flow/limited-partner unit. Williams expects this restructuring to increase recurring earnings and cash flow and enable the company to pursue a "greater number of investment and growth opportunities."
Upon completion of the transactions, Williams will continue to be an integrated natural gas company but with a simplified corporate structure, said the announcement. Williams will retain its full ownership and control of general partner Williams Partners. The restructuring will increase Williams' combined general-partner and limited-partner ownership interest in Williams Partners to about 84%.
Williams will continue to focus on the success of Williams Partners, given its large ownership position and preeminent exploration and production business. Williams is the tenth largest natural gas producer in the US, and its primary production areas are in the Piceance, Powder River, San Juan, and Fort Worth basins. Williams also has a growing position in the Marcellus shale in the Appalachian basin where it recently began operations.
Williams will retain the olefins and Canadian midstream businesses and will retain the remaining 25.5% interest in Gulfstream, in accordance with certain limitations in Gulfstream's governing documents. This interest would be eligible for contribution to Williams Partners in the future.
Don Klapko, Enterra president and chief executive officer, said, "We are relaunching Enterra as Equal Energy to create a new market brand with the conversion." Canada changed its tax laws regarding trusts as that all Canadian trusts must essentially pay taxes in the same manner that corporations are taxed.
The conversion would be subject to the approval of the trust's unitholders as well as customary court and regulatory approvals. The conversion is expected by May 31.
Equal Energy will continue to pursue the exploration and development of Enterra Energy Trust, which involve the Hunton natural gas and NGL play in Oklahoma. The company also wants to further develop its oil play in the west-central Alberta Cardium formation, and other Western Canadian Sedimentary Basin oil and gas prospects.
Eni ends Uganda deal
An Eni spokesman said, "Eni today revoked the sale and purchase agreement (SPA) signed on Dec. 18 for the acquisition of Heritage's 50% share in Ugandan Blocks 1 and 3A…."
Heritage said the termination followed Tullow Uganda Ltd.'s exercise of a preemption right with respect to the transaction and was allowed under the terms of the Eni SPA.
Heritage said Eni's termination should expedite completion of the SPA entered into between Heritage and Tullow on Jan. 26, which is on the same terms and conditions as the Eni SPA.
In December, Eni agreed to purchase the interests from Heritage for $1.35 billion in cash and a deferred payment of $150 million or an interest in another oil-producing field valued at the same amount.
As a result of Eni's withdrawal, Tullow stands to become the sole owner of Blocks 1, 2, and 3A, which hold reserves estimated at more than 1 billion bbl of oil.
A formal request for the Ugandan government's consent to transfer the disposed assets to Tullow was submitted Feb. 2, and the transaction is expected to close within the first quarter.
Tullow wants Heritage's 50% share of Blocks 1 and 3A to attract a partner of its own choosing without reducing its own interests too much. With Tullow ready to acquire the acreage, the stage is set for the entrance of other players.
Tullow indicated it plans to bring in a partner to help with development of the Ugandan assets and also with construction of downstream facilities, such as a refinery and an export pipeline. Tullow Chief Executive Aidan Heavey last month said the firm's new partner would entirely fund development of a 1,200-km pipeline to export Uganda's oil to Mombasa.
Heavey also said the downstream development plan is likely to include a refinery, the size to be determined by a feasibility study in late March or early April (OGJ Online, Jan. 28, 2010).
Meanwhile, there has been no confirmation of reports late last week suggesting China National Offshore Oil Corp. and Tullow are on the verge of signing a $2.3-2.5 billion deal that would pave the way for the Chinese firm's entry into the project.
Petrobras buys gulf assets
After finalizing the transaction in about 60 days, Petrobras will hold 100% interest in Cascade.
Petrobras is developing Cascade together with Chinook field. The development includes the use of the first floating production, storage, and offloading vessel in the US portion of the Gulf of Mexico.
Petrobras expects the FPSO to be in operation in mid-2010.
Petrobras has a 66.7% interest in Chinook with the remaining 33.3% held by Total SA.
Maersk Oil had planned to acquire Devon's interest in Cascade prior to Petrobras exercising its preferential rights (OGJ Online, Jan. 26, 2010).
Callon adds to assets
Callon's budget is allocated 33% to Permian basin development drilling, 24% to Haynesville shale gas development, 9% to the gulf, and 13% for more leasehold acquisitions, and 21% is reserved for capitalized costs.
The revised strategy, 18 months in planning, is to reinvest cash flow from Habanero and Medusa deepwater gulf fields into onshore conventional oil and shale gas properties acquired in fourth-quarter 2009.
Callon plans to begin drilling this month and drill as many as 16 wells in 2010 and add more rigs in 2011 and 2012 in a Permian Basin Wolfberry low permeability oil play. It acquired a property with 1.6 million boe of net proved reserves and 350 boe/d of production. The operated property has 22 producing wells and 148 locations on 40 acres.
Estimated gross ultimate recovery is 80,000-100,000 bbl/well at $1.5 million/completed well. Spacing could be halved to 20 acres.
Callon will drill two horizontal wells starting in mid-2010 on a 577-acre Haynesville shale unit in Bossier Parish, La., on which it acquired a 70% operated interest for $3 million. Offset wells have flowed at initial rates of 20 MMcfd. As many as seven horizontal wells are possible. Estimated gross ultimate gas recovery is 6.4 bcf at $9 million/completed well.
Callon has 15% working interest in Murphy Oil Corp.-operated Medusa field, where eight wells averaged 2,000 boe/d net to Callon in 2009. Most wells are producing from their primary completion and have proved reserves behind pipe. Medusa has a proved reserve life of 7 years and is 89% oil.
Callon has an 11.25% working interest in Shell Offshore-operated Habanero field, where two wells averaged 1,000 boe/d net to Callon in 2009. Callon believes important proved reserves will be accessed by sidetracking updip from the existing wells.
Callon's gulf shelf assets averaged 14 MMcfd of net gas equivalent production in 2009. The company is evaluating options for monetizing the shelf assets and may retain its shelf operations if no viable alternative exists.
The company's gulf operations will generate the majority of Callon's operating cash flow in 2010. With minimal offshore capital requirements, this cash flow will be used to fund the onshore transition.
Voyager is a partner in Niko's 2AB Block in Trinidad. Voyager also holds interests in the Shallow and Deep Horizon Central Range blocks and the Shallow and Deep Horizon Guayaguayare blocks in Trinidad.
Voyager has been successful in obtaining exploration opportunities in Trinidad, where Voyager management has active contacts and experience. Niko also noted that Trinidad provides a climate of political and fiscal stability supported by a government that promotes and encourages the development of the country's oil and gas industry.
Niko said it will benefit from the addition of Gerold Fong, Voyager president and chief executive officer, a key player in Voyager's success in the region.