COMPANY NEWS: Linn Energy to buy Dominion’s US Midcontinent E&P assets

July 9, 2007
Linn Energy LLC agreed to buy certain natural gas and oil exploration and production operations in the US Midcontinent from Dominion for $2.05 billion.

Linn Energy LLC agreed to buy certain natural gas and oil exploration and production operations in the US Midcontinent from Dominion for $2.05 billion.

These operations, primarily in Oklahoma, include reserves of 780 bcf of proved gas equivalent as of Dec. 31, 2006. The transaction is expected to close by the end of the third quarter.

Separately, Houston independent Tammany Oil & Gas LLC has acquired the Gulf of Mexico shelf divestment package from Dominion Oklahoma Texas Exploration & Production Inc., a subsidiary of Dominion. The purchase price was not disclosed.

In other recent company news:

  • McMoRan Exploration Co. agreed to buy all of Newfield Exploration Co.’s producing properties in the shallow-water Gulf of Mexico for $1.1 billion and the assumption of liabilities associated with future abandonment of wells and platforms. The sale is expected to close this month.
  • Cal Dive International Inc. and Horizon Offshore Inc. have signed a definitive merger agreement under which Cal Dive will acquire all of the outstanding shares of Horizon in a stock and cash deal valued at $650 million. The price includes $22 million of Horizon’s net debt as of Mar. 31.
  • BP PLC and TNK-BP have signed a memorandum of understanding with Russia’s OAO Gazprom to jointly invest in major long-term energy projects or swap global assets, the companies said.
  • Oneok Partners LP has agreed to pay $300 million to buy Kinder Morgan Energy Partners LP’s North system, which comprises a 1,600-mile interstate pipeline that delivers natural gas liquids and products from Kansas to Chicago.
  • Murphy Oil Co. Ltd., a wholly owned unit of Murphy Oil Corp., has acquired the interests of Bear Ridge Resources Ltd. for $155 million (Can.). Bear Ridge’s assets lie in the Tupper area in British Columbia, an undeveloped Montney natural gas play.
  • Compton Petroleum Corp. plans to buy Stylus Energy Inc. for $91 million (Can.), or $2.70/share, including the assumption of $12 million in net debt. Both companies are based in Calgary.
  • North Peace Energy Corp. has increased its stake in certain oil sands leases in north-central Alberta’s Red Earth area through the acquisition of Peace Oil Corp.’s interest in the Red Earth leases for $20 million (Can.) in cash and stock. Peace Oil is North Peace’s joint venture development partner in the Red Earth leases.

Dominion assets sold

Last year Dominion, a Richmond, Va.-based electric and gas utility, announced plans to divest its E&P operations except for 1 tcf of estimated proved gas reserves in the Appalachian basin (OGJ, June 11, 2007, p. 32).

With the Linn transaction, Dominion now has sold or agreed to sell all the operations that it plans to divest. All other previously announced E&P sales have closed or are scheduled to close by that time.

Dominion wants to focus on its businesses in electric power generation, gas distribution, transmission, storage, and retail marketing.

Meanwhile, the asset package acquired by Tammany contained properties in state and federal waters across the gulf, both operated and nonoperated.

A Tammany spokesman called the assets “a mixed bag.” The deal was small compared with Dominion’s previously announced divestitures, he said, adding that he could not discuss details yet because of a confidentiality agreement with Dominion.

McMoRan in the gulf

McMoRan’s transaction also provides the New Orleans-based independent with interest in Newfield’s ultradeep-shelf acreage in its Treasure Island and Treasure Bay exploration program. Newfield will retain a 10-25% working interest in the Treasure Island and Treasure Bay acreage, which encompasses 85 lease blocks.

David A. Trice, Newfield chairman, president, and chief executive officer, said the sale is the first in a series of planned divestitures that also include assets in China’s Bohai Bay, the North Sea, and Texas and Oklahoma.

Newfield, Houston, will continue to focus on growing its deepwater portfolio in the gulf, Trice said. Newfield also will continue to explore and drill shelf prospects, he said.

Current net production from the properties being sold is 270 MMcfd of gas equivalent. Newfield’s net production from its shelf properties in the first half of this year is expected to be 46 bcf.

Upon closing, McMoRan will assume operatorship of the Treasure Island lease. In addition, McMoRan will join Newfield in a 50-50 joint venture on Newfield’s shelf primary-term lease acreage. This venture will cover 19 blocks, or nearly 100,000 gross acres.

Treasure Island is believed to have potential for several trillion cubic feet of recoverable gas in Miocene and older sections.

Cal Dive-Horizon deal

The combined Cal Dive and Horizon Offshore will operate a fleet of 23 diving support vessels, seven pipelay and pipebury barges, one dedicated pipebury barge, one multiservice vessel, one combination derrick-pipelay barge, and two derrick barges.

The boards of Cal Dive and Horizon unanimously approved the transaction. Closing of the deal, expected in the third quarter, is subject to regulatory approvals and other customary conditions, as well as Horizon stockholder approval.

Following the transaction, Quinn Hebert will continue to serve as president and chief executive officer of the combined company and the Cal Dive board will be expanded to include two Horizon directors for a total board of eight members.

The combined company will continue to be based in Houston.

BP, TNK-BP asset swap

BP and TNK-BP said the recent move is “designed to extend Gazprom’s access to international markets and deepen BP and TNK-BP involvement in Russian oil and gas.” The companies will establish a joint team to “identify strategic opportunities for investment both overseas and inside Russia,” they said.

Initially, the joint company team will look for projects of at least $3 billion in cost, said BP Chief Executive Tony Hayward. Hayward said the companies would immediately set up a joint steering group to look for suitable investment options “across all geographies.”

As part of the MOU agreement, TNK-BP has agreed to sell Gazprom its 62.89% stake in Rusia Petroleum OJSC, the company that holds the license for Kovykta gas field in Eastern Siberia. Kovykta field lies 450 km from Irkutsk in the north of the Irkutsk region. The field has estimated resources of 2 trillion cu m of gas in place, TNK-BP said.

Also based on the MOU, TNK-BP will sell its 50% interest in East Siberian Gas Co., which is building the regional gasification project. Gazprom has agreed to pay $700-900 million, subject to adjustments, for both sets of interests.

Gazprom and TNK-BP also agreed to a longer term “call” option for TNK-BP to purchase a 25% plus one share stake in Kovykta at an independently verified market price. This option could be exercized “once a joint investment or asset swap has been agreed under the terms of the MOU,” the companies said.

Gazprom is Russia’s largest company and the world’s largest producer of natural gas. It holds about one quarter of total world gas reserves. Gazprom exports gas to 32 countries within and beyond the former Soviet Union. In 2005 the company sold 156.1 billion cu m of gas to European countries and with 76.6 billion cu m to the Commonwealth of Independent States and Baltic states.

TNK-BP, the third largest oil company in Russia, is owned and managed jointly by BP and Alfa Access Renova Group.

Oneok buys pipeline system

Also included in Oneok’s acquisition are Kinder Morgan’s 50% ownership interest in the Heartland Pipeline Co., seven propane truck-loading terminals along the North system, and one multiproduct terminal complex in Morris, Ill.

The transaction, which is to close in the third quarter, is expected to be accretive to distributable cash flow to Kinder Morgan unitholders.

Murphy-Bear Ridge deal

In April Bear Ridge reported the successful drilling and casing of its fifth Tupper Montney test well at a-23-B/93-P-9. This well extended the Tupper Montney reservoir trend to the southwest with “increasing pay thickness,” the company said.

The a-23-B well found the thickest pay interval of the company’s five wells drilled to date in the area, reconfirming Bear Ridge’s geological and geophysical model, which supports an estimated 800 bcf of original gas in place on the company’s land block.

Compton-Stylus deal

The boards of Compton and Stylus have unanimously approved the transaction, which remains subject to certain conditions including approval by two thirds of Stylus shareholders. The acquisition is expected to be completed by Aug. 15, subject to regulatory approvals. Stylus, which has oil and natural gas operations in Alberta, will pay Compton $2 million if the deal does not close.

As of June 1, Stylus reported 2,677 million boe of proved reserves, 4,038 million boe of proved plus probable reserves, and production of 2,000 boe/d.

North Peace-Red Earth

North Peace has closed an agreement with Peace Oil and Peace Oil’s indirect parent company, Surge Global Energy Inc. This includes a commitment to issue $5 million (Can.) of common shares, which will be subject to a contractual 1-year hold period.

Upon closing, North Peace’s holdings in the Red Earth leases will increase to 100% interest from 70%.

The company recently reported that it is confident about the commercial potential of the leases in the Red Earth area, and it has confirmed that plans for a cyclic steam stimulation pilot project are advancing as scheduled, with the first steam cycle expected in late 2008 or early 2009.