Upstream outlook stable, refining under pressure

In its 2010 outlook for the oil and gas sector, Fitch Ratings says the industry is stable as the rally in crude oil prices from the lows experienced during the first quarter of 2009 continue to provide considerable support to industry activity levels and financial profiles. Credit profiles across the oil and gas sector are expected to be largely in-line with 2009 levels, with exceptions for the refining and drilling and service sectors. The key risk for upstream companies and integrateds relates to the potential for weaker oil prices during the year. Fitch sees reasons to believe the current run in crude prices may not be fully based on fundamental factors, exposing the sector to changes in monetary and fiscal policy and modified inflation expectations in 2010. As a result, should global economies and/or the appetite for oil as an inflation hedge weaken in 2010, oil prices could fall dramatically leading to further downside potential for the sector. In general, upstream, oil-focused companies should see improved cash flows and credit metrics during the year stemming from higher oil prices. Natural gas prices are expected to remain weak, which could result in weaker credit profiles for companies focused on natural gas-related drilling, says Fitch. However, the refining sector remains under the most pressure as a result of continued low utilization rates, weak margins, and continued falling end-user demand. While the drilling and services sector is expected to weaken modestly, contract backlogs and the run in oil prices are expected to continue supporting activity levels and credit profiles of these firms. M&A event risk continues to be a concern, although high oil prices and strong 2010-2011 futures prices for natural gas have mitigated activity to-date. Offshore drilling companies continue to look to the current downturn as an opportunity to expand fleets. Weak refining conditions have resulted in significantly reduced prices for refining assets leading to potential risks for bondholders across the sector.

Cobalt International Energy prices initial public offering

Houston-based Cobalt International Energy, Inc. has priced the initial public offering of 63 million shares of its common stock at $13.50 per share. The shares began trading on the New York Stock Exchange on Dec. 16 under the ticker symbol "CIE." Underwriters have the option to purchase from Cobalt up to an additional 9,450,000 shares of common stock, on the same terms and conditions, to cover over-allotments, if any. Cobalt intends to use the net proceeds from the offering and other resources available to it to fund its capital expenditures, and in particular Cobalt's drilling and exploration program through 2011, and its related operating expenses, and for general corporate purposes. Credit Suisse Securities; Goldman, Sachs & Co.; and J.P. Morgan Securities are acting as joint book-running managers of the offering. Cobalt is an independent oil and gas exploration and production company focused on the deepwater US Gulf of Mexico and offshore Angola and Gabon. Cobalt was formed in 2005.

Concho acquires Permian properties for $225M

Concho Resources Inc. has entered into an agreement with multiple private sellers to acquire interests in certain producing and non-producing assets in the Wolfberry trend in the Permian basin for $225 million in cash. The company's final ownership level in the acquired assets will be between 20% and 100%. The transaction was scheduled to close in December 2009. Transaction highlights (based on 100% working interest and 75% net revenue interest):

Over 300 identified Wolfberry drilling locations
Proved reserves of approximately 16 MMboe
2 MMboe of identified unproven reserves
2010 estimated production of 0.7 - 0.8 MMboe and 2011 estimated production of 1.5 - 2.0 MMboe, based on assumed capital spending of approximately $110 million in 2010 and approximately $125 million in 2011

Tim Leach, Concho's chairman, CEO, and president commented, "These Wolfberry assets lie in the core of the Wolfberry trend and in the middle of our active drilling area in the play. At closing, we will be able to communicate more clearly the impact of this transaction on our capital budget and guidance for 2010 and beyond, after our final ownership has been determined. This style of acquisition fits the Concho model very well with an existing production base and a multi-year drilling inventory. We expect to commence an aggressive drilling program on these assets in 2010 that should result in significant production growth over the next several years."

Range Resources reaches Marcellus production milestone

Range Resources Corp. has achieved a significant milestone in the development of the Marcellus shale formation in Pennsylvania, as its net production from that formation has reached 100 MMcfe per day. This represents nearly a four-fold increase over this time last year and represents the high end of Range's 2009 production target of 80 to 100 MMcfe net per day. Range's Marcellus Shale production target exit rate for 2010 is 180 to 200 MMcfe net per day. Given the progress made in 2009 in all phases of the development process, Range has extended its forecast to include a 2011 exit rate from the Marcellus shale of 360 to 400 MMcfe net per day. The production results and targets referred to above are net to Range's interest and exclude production attributable to landowners' royalty interests and third-party working interests. Range entered 2009 running four rigs in the Marcellus shale play and will end the year with 11 rigs, including both horizontal and vertical rigs. Range anticipates exiting 2010 with 16 rigs in the Marcellus, increasing to 24 by year-end 2011. Additionally, Range has completed the drilling of two horizontal wells in Lycoming County, Pa., in the northeastern portion of the play. Completion operations have commenced on the first of these two wells. Citing a study by Penn State University, John Pinkerton, Range's chairman and CEO, said the Marcellus shale has the potential to create 98,000 jobs and to contribute $14 billion to Pennsylvania's economy in 2010.

LINN acquires Anadarko, Permian assets for $154M

LINN Energy LLC has signed a definitive purchase agreement to acquire certain oil and natural gas properties in the Permian and Anadarko basins for a contract price of $154.5 million, subject to closing conditions. The company anticipates that the acquisition will close on or before Jan. 29, 2010, and will be financed with borrowings under LINN's existing credit facility. Significant characteristics of the assets are:

Current net production of approximately 1,700 boe per day (about 73% liquids);
Proved reserves of more than 12 million boe (about 80% liquids and 80% proved developed);
Reserve life of approximately 20 years;
Low decline rate of approximately 6%; and
Approximately 100 proved low-risk infill drilling and optimization opportunities.

"This acquisition increases our exposure to oil, which offers very attractive margins in the current commodity price environment," said Michael C. Linn, chairman and CEO. "The long-life, low-decline characteristics and geographic location of these properties make them an attractive addition to our asset portfolio in the Permian and Mid-Continent areas."

Eagle Oil obtains bridge financing for E. Texas ops

Eagle Oil Holding Co. has received sufficient bridge financing to allow EGOH to commence pumping operations in its East Texas oil field. EGOH now expects to be able to restart the pumps on the four wells that have already been reconditioned as part of its plan to return all of its wells back to production. The company is currently seeking additional funding to expedite its operating plan to test and then recondition an additional 10 to 20 wells in the upcoming months.

Weaver, Edelman Arnold sign merger agreement

Weaver, formerly Weaver and Tidwell, will merge with Edelman Arnold, effective Jan. 1, 2010. This marks the second expansion of Weaver in the San Antonio market. To accommodate the growth, Weaver is moving its San Antonio office to a larger office building on the north side of the city. Initially established in 1952 by the late Leonard Karpel, CPA, Edelman Arnold, a San Antonio-based accounting firm, is led by Barry Edelman, CPA; and J. D. and Frank Arnold, CPA, PFS. The firm provides tax, accounting, business consulting and financial planning services. This includes developing tax minimization strategies, asset protection plans, and investment strategies. Edelman will join Weaver as a senior managing director, Arnold as a partner, and Karen Vescio as a senior manager. All of the firm's employees, including six certified public accountants join as well. The combined firm will use the Weaver name.

CyrusOne secures $150M credit facility

Houston-based CyrusOne, a provider of high-availability, high-density data center services, has secured a new $150 million senior secured credit facility from a syndicate of banks led by TD Securities, RBC Capital Markets, SunTrust Robinson Humphrey, and SG Americas Securities, to accelerate its growth in Texas. The facility refinanced the company's outstanding debt as well as substantially increased its available borrowing capacity.

Grand Tierra announces $195M capital program

Canada's Gran Tierra Energy Inc., which focuses on oil exploration and production in South America, recently announced a capital spending program of US$195 million in 2010 for E&P development operations in Colombia, Peru, Argentina, and business development activities in Brazil. This budget includes the drilling of seven exploration wells in Colombia, four exploration wells in Peru, and re-entry and side-tracking of a well in Argentina. The budget also includes funds for 2-D and 3-D seismic acquisition programs in Colombia, Peru, and Argentina and facility upgrades in Colombia and Argentina. Excluding potential exploration success, production in 2010 is expected to range between 14-16,000 BOPD net after royalty. Gran Tierra Energy had US$151.6 million in cash at the end of Q3 2009 and has no debt. The 2010 work program and budget is expected to be funded from cash-flow from operations with the balance from cash on hand as necessary. The budget is based on a WTI oil price of US$70 per barrel of oil in 2010.

Devon hits oil discovery in pre-salt offshore Brazil

Oklahoma-based Devon Energy has made an oil discovery on block BM-C-32 in the Campos basin, offshore Brazil. This initial exploratory well on the Itaipu prospect was drilled to a total depth of 16,240 feet and encountered approximately 240 feet of oil column, at least 90 feet of net oil pay, and no oil/water contact. Devon operates the well with a 40% working interest. The Itaipu discovery is located 78 miles southeast of Vitoria City, Espirito Santo State, in 4,400 feet of water. It is about six miles southeast of the giant pre-salt Jubarte Field and 16 miles north of the 2008 Wahoo discovery on block BM-C-30. Devon has a 25% working interest in both the Wahoo discovery well and a successful appraisal well drilled at Wahoo earlier this year. Devon's partners in block BM-C-32 include Anadarko Petroleum with a 33.3% working interest. SK Energy Co. Ltd. holds the remaining 26.7% working interest. Block BM-C-32 is one of seven offshore exploratory blocks in Brazil held by Devon, six of which are in the pre-salt trend.

Delta Petroleum settles California offshore litigation

Delta Petroleum Corp., an independent oil and gas exploration and development company based in Denver, has settled with the federal government concerning Lease 452 located offshore of California, which was in litigation. Under the terms of the agreement, Delta will receive gross proceeds of $65 million, which will result in about $50 million net to the company after all contingent payments to third parties. The settlement concludes Delta's offshore California litigation against the federal government. John Wallace, Delta president and COO, said, "We are pleased to have reached a settlement with the federal government on this final portion of the litigation. The approximately $50 million in net proceeds to Delta substantially increases our liquidity position, and will allow us to evaluate recommencing our drilling program in the near-term or reduce our leverage. Either use of proceeds would benefit our shareholders."

Berry Petroleum offers dividend reinvestment plan

Effective Jan. 1, 2010, Berry Petroleum Co. will offer its shareholders the ability to participate in a dividend reinvestment and stock purchase plan. The plan will provide existing shareholders the option to reinvest dividends and purchase shares of Berry Petroleum Class A Common Stock, and will also provide new investors an opportunity to make an initial direct investment in Berry Petroleum Class A Common Stock. Shares issued under the plan may be newly issued shares, treasury shares, or shares purchased in the open market or private transactions. The plan will be administered by The Bank of New York Mellon, the company's transfer agent. Berry Petroleum is a publicly traded independent oil and gas production and exploitation company with operations in California, Utah, Colorado, and Texas.

Pacific Asia commences production in Oyo oilfield

New York-based Pacific Asia Petroleum Inc. has commenced production at the Oyo oilfield, according to Allied Energy Plc., a subsidiary of CAMAC, and Nigerian Agip Exploration, an affiliate of Italy's ENI S.p.A. The Oyo field is located in the deep offshore Niger Delta, about 120 kilometers off the Nigerian coast. The field has the ability to initially produce at a rate of approximately 25,000 barrels of oil per day from two subsea wells (in a water depth of 400 meters), which are connected to the Armada Perdana FPSO. The FPSO has a treatment capacity of 40,000 barrels of liquids per day, and is capable of storing up to one million barrels of crude oil. On Nov. 23, Pacific Asia Petroleum signed a purchase and sale agreement with CAMAC and certain of its affiliates to acquire all of Allied Energy and CAMAC's interest in the Oyo Oilfield. Pacific Asia Petroleum focuses on early cash flow, high return projects. The company is a strategic partner with several major energy companies in high-value oil fields in China. It was founded in 2005 by a group of senior Texaco executives and is led by president and CEO Frank C. Ingriselli. Pacific Asia Petroleum is headquartered in Hartsdale, NY, and also has offices in Beijing, China and California.

Pike Research: CCS market could reach $128B by 2030

According to a new report from Pike Research, global revenues for carbon capture and sequestration (CCS) systems could reach $128 billion by 2030. In a forecast scenario that includes more aggressive assumptions for global climate policy and industry adoption, the cleantech market intelligence firm anticipates that the worldwide CCS market could reach as high as $221 billion in the same timeframe. However, the path ahead includes many challenges and barriers for CCS proponents. Pike Research's report, "Carbon Capture and Sequestration,"examines market issues, technological factors, and opportunities for players in all phases of the CCS industry, from capture technology to transport and storage. It also provides detailed market forecasts for all the major regions of the world, including costs and revenues. An Executive Summary of the report is available for free download on the firm's website (www.pikeresearch.com).

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