Company News: Pogo Producing to buy Latigo Petroleum for $750 million

April 24, 2006
Pogo Producing Co., Houston, signed a definitive agreement to acquire private Latigo Petroleum Inc.

Pogo Producing Co., Houston, signed a definitive agreement to acquire private Latigo Petroleum Inc., Tulsa, for $750 million. Closing is expected by May 31.

In other recent company news:

• Houston Exploration Co. has agreed to sell almost all of the Louisiana portion of its Gulf of Mexico assets to a private investor for $590 million in cash.

• Venoco Inc., Denver, is to acquire California and Texas producer TexCal Energy LLC for $456 million.

• Williams Partners LP, Tulsa, plans to acquire a 25.1% interest in parent Williams Cos. Inc.’s Four Corners LLC subsidiary, an integrated gas gathering and processing system.

• Chevron Corp. plans to invest $300 million for a 5% interest in Reliance Petroleum Ltd. (RPL), a Reliance Industries Ltd. subsidiary formed to own and operate a refinery under construction in Jamnagar, India.

• Bill Barrett Corp. has agreed to buy CH4 Corp., a Forth Worth independent producer, for $80 million. The transaction is expected to close in early May.

• Northern Border Partners LP, Omaha, plans to buy an additional 66.6% of Guardian Pipeline LLC from two Wisconsin companies for $77 million total, giving it 100% of the system.

• PetroWorld Corp. and NuCoastal (Thailand) Ltd. have signed a letter of intent to merge their assets in Thailand.

• Gran Tierra Energy Inc., Calgary, reached agreement to purchase Argosy Energy International in Gran Tierra’s first foray into Colombia. Consideration is $37.5 million cash, $3.5 million in Gran Tierra common shares, and $1 million in overriding and net profit interests. Closing is set for May 31 or before.

• Taghmen Energy PLC, a London independent oil and gas company focused on Latin America, agreed to buy Petroleos del Norte SA (PDN) of Colombia for $32 million.

• Harvest Vinccler, a unit of Harvest Natural Resources Inc. (HNR), signed a memorandum of understanding with Corporacion Venezolana del Petroleo SA (CVP) to form a mixed company.

• Lyondell Chemical Co. and Citgo Petroleum Corp. agreed to explore the possible sale of their Lyondell-Citgo Refining LP partnership operating a 268,000 b/d refinery in Houston.

Pogo to buy Latigo

Latigo’s assets include 275 bcf of natural gas equivalent proved reserves, 51% oil, on 404,700 net acres plus high-quality probable reserves and significant exploration potential in the Permian basin and Texas Panhandle, Pogo said.

The acquired assets will provide Pogo with a 13% hike in proved reserves to 2.317 tcf of gas equivalent.

Latigo operates more than 90% of its production of 3,300 net b/d of oil and 20 MMcfd of gas, and the assets have more than 400 development and exploratory drilling locations.

The company has been developing Collie field in Reeves and Ward counties and the Courson Ranches areas in Roberts and Ochiltree counties.

HEC sells gulf assets

Houston Exploration’s transaction, expected to close May 31, is part of the company’s plan to divest its Gulf of Mexico assets as it becomes a pure onshore US gas producer (OGJ Online, Nov. 8, 2005).

The company will retain interests in 18 leases off Louisiana for drilling, farmouts, or sales.

Its yearend 2005 proved reserves for the assets included in the Louisiana sale were estimated at 186.1 bcf of natural gas equivalent.

Venoco-TexCal deal

Venoco and TexCal were the most active drillers in the Sacramento basin in 2005. TexCal also owns and operates giant Hastings field in East Texas, where Venoco sees a significant redevelopment opportunity, and several other Texas fields.

TexCal’s 2005 yearend reserves were 31.4 million boe. TexCal drilled 18 wells in Sacramento in 2005, boosting output to 17.8 MMcfd in the fourth quarter. Its acreage is in the Grimes area.

Venoco drilled 21 wells and reworked or recompleted more than 42 wells in the basin in 2005.

Four Corners acquisition

Williams Partners’ transaction, valued at $360 million, is subject to standard closing conditions and is expected to close during the second quarter.

Assets of the Four Corners system include:

• A 3,500-mile gas gathering system in the San Juan basin of New Mexico and Colorado with 2 bcfd of capacity.

• The Ignacio gas processing plant in Colorado and the Kutz and Lybrook gas processing plants in New Mexico. The three plants combined have 760 MMcfd of processing capacity.

• The Milagro and Esperanza gas treating plants in New Mexico, which are designed to remove carbon dioxide from as much as 750 MMcfd of natural gas.

Williams Partners gathers, transports, and processes gas and fractionates and stores gas liquids. The general partner is Williams Partners GP LLC.

Chevron to buy refinery stake

The Jamnagar refinery, which is to have a 580,000 b/d capacity, is to begin operation in December 2008. RPL now operates a 660,000 b/cd refinery in Jamnagar. The new refinery will be able to process heavier crude oil.

According to Oil & Gas Journal’s 2005 Worldwide Refining Survey, the existing Jamnagar refinery is the world’s third largest. The new refinery will become the sixth largest.

The addition will move RPL to fifth place from eighth place in capacity ranking of refining companies in Asia and enable it to join the OGJ list of the world’s 25 largest refiners in 15th place (OGJ, Dec. 19, 2005, p. 60).

Chevron has an option to increase its equity ownership in RPL to 29%. RPL planned an initial public offering of 10% of the company this month.

In addition, Chevron and RPL signed agreements covering refinery crude supply, product marketing arrangements, and an intent to pursue other collaboration opportunities.

Among other Asian downstream holdings, Chevron holds a 50% interest in the LG-Caltex-Yosu 650,000 b/cd refinery in South Korea.

Other oil companies have explored investing in India’s downstream sector, sometimes unsuccessfully.

Last month, BP PLC announced it dropped plans with India’s Hindustan Petroleum Corp. Ltd. to form a strategic refining partnership. That partnership would have built a 180,000 b/d refinery at Bhatinda in Punjab, India, that would have cost $3 billion and was to be commissioned in 2009 (OGJ, Oct. 24, 2005, Newsletter).

Bill Barrett-CH4 deal

CH4 has about 85,500 gross undeveloped acres (51,900 net) in the Powder River basin coalbed methane play, including acreage in the Hartzog Draw area. It has estimated proved reserves of 11 bcf of gas and probable and possible reserves of 50.4 bcf.

The acquired properties currently produce 6 MMcfd net from 163 gross wells. Another 128 gross wells are in progress or dewatering.

Future development costs for the properties are estimated at $44.5 million, of which about $14.7 million will be spent this year.

There may be further upside potential with multiseam completions and the completion of secondary coals, Barrett said. The company already has acquired the necessary permits and approvals to begin drilling this program.

Guardian Pipeline ownership

WPS Resources Corp. and Wisconsin Energy Corp. each agreed to sell its 33.3% stake in Guardian Pipeline to Northern Border. The purchase is expected to close by Apr. 30, subject to approvals.

Guardian Pipeline is a 143-mile interstate gas pipeline system with a capacity of 750,000 dekatherms/day (dth/d) between Joliet, Ill., and Ixonia, Wis.

On Feb. 7, Guardian announced plans to expand and extend the pipeline 106 miles from Ixonia to the Green Bay area. The expansion would bring an additional 537,200 dth/d of capacity to eastern Wisconsin.

Capital costs are estimated at $200-250 million, and construction could begin after US Federal Energy Regulatory Commission approval, expected in late 2007. The project is targeted for completion in November 2008.

PetroWorld-NuCoastal deal

PetroWorld is to acquire NuCoastal’s outstanding shares in exchange for new PetroWorld shares in a deal estimated in value at $56.75 million.

PetroWorld holds a 50% equity interest in the G5/43 Block in the Gulf of Thailand, where three successful appraisal wells were drilled last year in Bua Ban oil field. NuCoastal operates and holds the remaining interest in the block.

NuCoastal assets include 8.925% interests in the EU1 and E5N Blocks, which contain Phu Horm gas field, currently under development and expected to start production later this year; a 25.5% interest each in the L15/43 and L27/43 exploration blocks; and a 15.3% interest in the L13/48 exploration block east of the Phu Horm.

Phu Horm has about 1 tcf of proved, probable, and possible gas reserves. A 15-year gas sales agreement with the Petroleum Authority of Thailand commits 500 bcf of gas for delivery to the Nam Phong Power Plant, expected to begin operation in the fourth quarter.

The L15/43 Block is believed to contain the southern extension to Phu Horm field. Based on mapping data, NuCoastal said it and the EU1 and E5N Blocks could add several trillion cubic feet of gas reserves.

The L27/43 Block has a number of identified exploration and appraisal targets mapped by 2D seismic data. A well is planned later this year to appraise an existing gas discovery.

After the merger, PetroWorld would hold 100% of the G5/43 Block. Three wells drilled by NuCoastal and PetroWorld in August 2005 in Bua Ban field confirmed oil reserves of 8-17 million bbl. An engineering development feasibility study is under way and due for completion this month.

Development feasibility work is also being undertaken on the smaller Songkhla field, which was discovered in 1989 and tested 1,500 b/d of oil. Production applications are being prepared for the Songkhla and Bua Ban areas. Plans for a 3D seismic program have been delayed for acquisition of a seismic vessel. The seismic program is expected to begin over Bua Ban field and a large portion of the western part of the Songkhla basin in the third quarter.

PetroWorld Chairman Al Whitehead and Chief Executive Frank Inouye will continue in their roles.

Gran Tierra-Argosy deal

Argosy, which has a diverse portfolio of producing properties, drill-ready prospects, and exploration acreage, has operated in Colombia since 1983. Its land position is 153,000 net acres. Its production in 2005 averaged 1,070 b/d net before royalty. Proved reserves were 2.8 million bbl at Dec. 31, 2005.

Argosy Energy produces from the Santana (four fields) and Guayuyaco (one field) contract areas, both of which it operates, in the Putumayo basin.

It has 50% participation in the Rio Magdalena contract, 20% interest in the Talora Block, and 50% participation in the Chaza Block.

Argosy Energy is finalizing drilling plans for a prospect in the Rio Magdalena area. Two drill-ready prospects have been identified in Guayuyaco and are planned for late 2006-early 2007.

Taghmen-PDN deal

PDN operates three fields in the Middle Magdalena Valley, producing 977 b/d of oil (523 b/d net). It has a net 6.9 million bbl of proved and probable reserves. The company also owns and operates the Rio Zulia-Ayucucho pipeline system.

Taghmen operates and has 70% interest in the Midas Block near producing fields in the Middle Magdalena Valley.

HNR, CVP form mixed firm

The mixed firm will jointly develop and operate South Monagas Unit oil fields in Venezuela.

Harvest Vinccler will own 40% of the mixed company, and CVP will own 60%. Previously, Harvest Vinccler operated South Monagas.

Mixed companies are being formed as Venezuela moves to change the operating arrangements with international oil companies as it increases the corporate income tax (OGJ, Apr. 25, 2005, p. 48).

After formation, the mixed company will receive a 20-year license to operate and develop the fields. Oil will be sold to state-owned Petroleos de Venezuela SA (PDVSA).

The mixed company plans to pay 33.33% royalty to the Venezuelan government. The income tax rate will be 50%.

HNR Pres. and Chief Executive Officer James A. Edmiston, said, “We expect to finalize our agreements soon and look forward to working with our partner, CVP, to increase oil and gas production in Venezuela. We will also continue our work with Seniat to resolve the tax claims.”

Seniat, the Venezuelan tax authority, said last year that HNR owed $94 million in back taxes for the 2001-04 period (OGJ, Aug. 15, 2005, p. 30).

Citgo explores refinery sale

Lyondell and Citgo also announced the settlement of all disputes between Lyondell, Citgo, and Citgo’s parent PDVSA. Lyondell-Citgo Refining was formed in 1993.

According to OGJ’s 2005 Refining survey, the Lyondell-Citgo refinery has 98,500 b/cd of delayed coking, 97,000 b/cd of fluid catalytic cracking, and 33,700 b/cd of semiregenerative catalytic reforming capacity. “The companies will move diligently and expeditiously to prepare an offering memorandum and establish a data room,” a Lyondell news release said. “Any sale would be subject to the approval of appropriate governing bodies.”