COMPANY NEWS: Total, Chesapeake announce Barnett shale joint venture

Jan. 18, 2010
Chesapeake Energy Corp. announced a $2.25 billion joint venture agreement with Total E&P USA Inc. in which Total will acquire a 25% interest in Chesapeake's upstream Barnett shale assets.

Chesapeake Energy Corp. announced a $2.25 billion joint venture agreement with Total E&P USA Inc. in which Total will acquire a 25% interest in Chesapeake's upstream Barnett shale assets.

In other recent company news:

• Ultra Petroleum Corp., Houston, plans to buy 80,000 net acres prospective for Devonian Marcellus shale gas in central and northern Pennsylvania from an undisclosed private company.

• Berry Petroleum Co., Denver, entered into an agreement with an unidentified private seller to acquire interests in producing properties principally in the Wolfberry trend in West Texas for $126 million cash.

• Newfield Exploration Co., Houston, and Anadarko Petroleum Corp. plan to jointly acquire TXCO Resources Inc.'s assets in the Maverick basin for as much as $310 million. The final amount will be determined at closing, which is expected in February. The closing is subject to bankruptcy court approval. TXCO, San Antonio, filed for Chapter 11 bankruptcy protection in May 2009.

• Noble Energy Inc. agreed to pay $494 million to Suncor Energy Inc. for oil and gas properties in Colorado.

• Sun River Energy Inc., Wheat Ridge, Colo., will acquire private Raven Wing Resources Inc., which participates in four pending projects in the Sweetgrass arch of Montana, Powder River basin in Wyoming, and Utah Wasatch Plateau. Consideration is $3.5 million cash and assumption of $360,000 in liabilities. Sun River plans to arrange financing through its established lender.

• Talisman Energy Inc., Calgary, outlined a $5.2 billion (Can.) budget for 2010—an increase of more than 10% from its 2009 budget.

• St. Mary Land & Exploration Co., Denver, announced a 2010 total budget of $725 million, of which exploration and drilling is slated to receive $561 million.

Total, Chesapeake JV

The transaction between Total and Chesapeake covers 270,000 net acres of Chesapeake's Barnett shale leasehold that accounts for 700 MMcfd of gas equivalent of current net production and proved reserves of 3 tcf of gas equivalent.

Total will pay $800 million upon the transaction's closing, expected by Jan. 31 and subject to regulatory approvals. In addition, Total will pay $1.45 billion by financing 60% of Chesapeake's drilling and completion costs in the JV area. The $1.45 billion obligation is expected to be fulfilled by yearend 2012.

Chesapeake believes its JV leasehold position will support drilling 3,100 additional net locations with 6.3 tcf of gas equivalent of unproved reserves. About 60% of Chesapeake's core and Tier 1 leasehold is developed.

Total has the right to acquire a 25% share in any new acreage that Chesapeake acquires in the Barnett shale until Dec. 31, 2015. Total and Chesapeake also agreed to jointly study other Barnett shale opportunities as well as shale plays in Canada.

Currently, Chesapeake has 20 rigs working in the Barnett shale, and it expects to ramp up to about 30 rigs working there throughout much of 2010.

Christophe de Margerie, Total chief executive officer, said the agreement marks Total's entry into the US shale plays. Total currently holds assets in the Gulf of Mexico.

Aubrey K. McClendon, Chesapeake's chief executive officer, said Chesapeake is maintaining its previously announced 2010 production target of 2.6 tcf of gas equivalent.

"We plan to continue to take advantage of our large asset base by pursuing other joint ventures, including potentially our large acreage positions in the Eagle Ford shale and in several Midcontinent unconventional plays," McClendon said.

Separately, Chesapeake already has JVs with Plains Exploration & Production Co., BP America, and Statoil.

Chesapeake is drilling a well in the Eagle Ford shale play. McClendon said he expects production there in about 45 days.

Ultra's Marcellus stake

Ultra's $400 million Marcellus deal, expected to close in late February and retroactive to Oct. 1, 2009, will boost the company's holding in the play to 250,000 net acres with the potential for 1,800 net drilling locations, said Michael D. Watford, chairman.

"With this acquisition, we believe that our net recovered resource in the Marcellus alone will exceed 8.5 tcfe, an increase of 3.5 tcfe from current estimates," Watford said.

Ultra Petroleum drilled 30 Marcellus horizontal wells in 2009, 13 of which were producing in late December. Initial production rates for the producing wells average 7.5 MMcfd, and preliminary estimated ultimate recoveries range from 3.5 to 4 bcf.

The company started 2009 with 288,000 gross (152,000 net) acres in the Marcellus. Through a combination of land acquisitions and swaps, including the acquisition to close in February, it has added more than 192,000 gross acres, nearly doubling its position to 480,000 gross (250,000 net) acres.

The company's expanding core position is concentrated around Tioga, Bradford, Lycoming, Potter, Clinton, and Centre counties.

Berry in West Texas

Berry's proved reserve estimates associated with the properties are 11.2 million boe, 92% of which are in the Wolfberry, 85% are oil reserves, and 23% are proved developed reserves. In 2010, the acquisition is expected to add 1,300 boe/d to Berry's production on a 12-month annual average. Berry has identified over 130 drilling locations in the Wolfberry trend targeting the Spraberry, Dean, Wolfcamp, and Strawn formations.

Robert Heinemann, president and chief executive officer, said, "This acquisition provides Berry with the opportunity to diversify its oil resources and add a high margin, scalable oil resource to our portfolio. We believe the Wolfberry is an excellent fit with Berry's engineering and execution competencies and complements our existing stable base of low geologic risk oil assets. We will be the operator of 70% of the acquired properties and plan to transition a new West Texas focused asset team over the coming months."

Berry is increasing its 2010 capital budget by an additional $30 million to range $250-290 million. The company plans to drill 27 wells on the Permian property, funded from internally generated cash flow. One rig is currently drilling and Berry expects the acquired properties to provide self-funded production growth over the coming years.

Berry expects its 2010 production to be 32,250-33,000 boe/d, an increase of 8-10% over 2009. In addition, Berry's production from oil assets is expected to grow 20% by yearend driven by Diatomite and Wolfberry development.

The effective date of the transaction was Jan. 1. Closing is expected in March, subject to customary conditions.

Newfield, Anadarko in Maverick

Newfield and Anadarko's transaction with TXCO involves acreage in the Eagle Ford and Pearsall shale plays in southwest Texas.

Newfield will acquire more than 350,000 gross acres in Maverick basin (300,000 net acres) for $217 million.

Current net production of the assets being acquired by Newfield is 1,500 boe/d—two thirds of which is oil.

An Anadarko subsidiary plans to acquire more than 80,000 net acres from TXCO for $93 million. Anadarko already had 180,000 net acres in this area.

Lee Boothby, Newfield president and chief executive officer, said this transaction marks Newfield's entry into Maverick basin, where he expects an active drilling program this year.

US Bankruptcy Judge Ronald B. King is handling the TXCO case at the Western District's office in San Antonio.

TXCO executives said the bankruptcy filing stemmed from extreme volatility in energy prices and the economic downturn.

According to the bankruptcy filing, TXCO had assets of $431.9 million and total debts of $322.8 million.

Noble's Colorado deal

Noble's acquisition will add 10,000 boe/d, or 46 MMcfd of natural gas and 2,500 b/d of liquids to the Houston independent's production.

The transaction involves 340,000 total net acres of which nearly 200,000 acres are in the Denver-Julesburg, or DJ, basin.

The DJ basin contains Wattenberg field, which is Noble Energy's largest onshore US asset. The transaction includes 53 million bbl of proved reserves, of which 80% are in Wattenberg field.

Noble Energy has identified several thousand projects associated with the acquisition, including more than 2,000 drilling sites in Wattenberg.

The acquisition, subject to regulatory approvals, is expected to close late in the first quarter.

Noble Energy plans to add two rigs to its Wattenberg program this year as a result of the transaction, increasing its operated drilling activity in the field to eight rigs.

Suncor of Calgary is selling the properties, some of which it acquired through its acquisition of Petro-Canada. Suncor is divesting certain assets so it can focus on oil sands development in Western Canada.

Sun River-Raven Wing deal

Several of the drillable opportunities in the Raven Wing portfolio are stepouts and infill locations near existing production. Sun River said it should be able to begin drilling several locations within 6 months of closing.

First to be developed is oil at 2,500 ft on 4,200 net acres on the Sweetgrass arch. The property could accommodate as many as 210 wells if fully developed on 20-acre spacing at a cost of $300,000/completed well.

The Powder River basin project involves $1 million wells at 8,500 ft on 1,900 net acres, with as many as 24 wells possible if fully developed on 80-acre spacing.

The Wasatch Plateau project targets several potential gas reservoirs as deep as 6,000 ft on 36,000 net acres. Cost is $500,000-$1.5 million/well depending on depth and completion process, and as many as 300 wells could be drilled.

Raven Wing doesn't own land on the fourth opportunity, a field infill and extension concept in the Powder River basin.

Talisman budget

Talisman says it plans to spend $1.6 billion on North American shale plays. Within the Pennsylvania Marcellus play in the US and the Montney play in British Columbia, Talisman expects to double its development drilling as compared with 2009.

Talisman plans development spending of $780 million in Southeast Asia, primarily on oil developments in Vietnam and Australia. The company also plans to spend $800 million on UK development projects.

About $270 million was allotted for 2010 spending on conventional properties.

Talisman said it is examining "the sale of a significant amount of noncore conventional assets in North America, depending on market conditions." These assets, which were not identified, currently produce 40,000 boe/d.

John A. Manzoni, Talisman president and chief executive officer, said the company remans "vigilant" in looking for acquisitions.

"We expect returns to increase," Manzoni said, adding he expects the company will reduce its finding and development costs.

Talisman said its activity levels will be "robust" given $60/bbl oil and $3.50/MMbtu gas prices on the New York Mercantile Exchange. The company plans to issue yearend 2009 results on Feb. 10.

St. Mary's 2010 budget

The independent announced a $350 million budget for 2009 early last year, down more than 50% from the $758 million budget St. Mary initially forecast for 2008.

Tony Best, St. Mary chief executive officer and president, said the company will deploy "a meaningful amount of investment in our emerging resource plays, particularly in the Eagle Ford and Haynesville shales."

The 2010 exploration and drilling budget allocates $216 million for Eagle Ford play, $89 million for the Haynesville play, and $89 million for the Permian basin.

St. Mary will operate 75% of the exploration and development capital it deploys during the year. The company plans to operate two drilling rigs continuously on its Eagle Ford interests in the South Texas counties of Webb, Dimmitt, and La Salle.

Best said St. Mary has increased efficiencies in the Eagle Ford drilling program, allowing it to increase activity without increasing rig count. St. Mary's first operated well in Eagle Ford was drilled in 45 days while a recent well was drilled in fewer than 14 days.

The Eagle Ford play will account for 34 gross operated wells during 2010, and St. Mary plans to have 100% working interest on most of those wells.

About $24 million of the facilities budget will be deployed in the Eagle Ford play to expand infrastructure there. The facilities budget is separate from the exploration and drilling budget.

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