BP looks to grow production offshore India with Reliance agreement

In its second major deal since the Gulf of Mexico oil spill, BP has agreed to acquire upstream assets offshore India from privately-held Reliance Industries Ltd. for US$7.2 billion.

Completion of the transaction, subject to Indian regulatory approvals and other conditions, would result in BP taking a 30% stake in 23 oil and gas production sharing contracts covering 270,000 square kilometers that Reliance operates in India, including the producing KG D6 block. This block contains the D-1 and D-3 gas fields, which contain over 13tcf of proved and probable reserves.

According to a Feb. 21 report by Jefferies & Co. Inc., these particular fields have been producing at a combined rate of 1.8 bcf/d in recent months, although production rates have fallen as reservoir complexity has restricted well deliverability. The fields were originally planned to peak at 2.8 bcf/d, and Jefferies speculates that restoring field output may be one reason Reliance agreed to partner with BP.

A 50/50 joint venture would also be created to source and market gas in India as well as to accelerate the creation of infrastructure to handle the gas.

BP will pay Reliance an aggregate consideration of US$7.2 billion, and completion adjustments, for the interests in the production sharing contracts. Jefferies & Co. translates the unit price for the proved and probable reserves near US$9.3/boe. The company is expected to pay the US$7.2 billion sequentially over 2011 out of cash reserves.

Payments of up to US$1.8 billion could be shelled out by BP depending on further exploration success.

Reliance will continue to serve as operator of the 23 oil and gas blocks that currently produce nearly 1.8 bcf of gas per day, over 30% of India's total consumption, and over 40% of India's total production.

"India is one of the fastest growing economies in the world. By allying ourselves with Reliance, we will access the most prolific gas basin in India and secure a place in the fast growing Indian gas markets, creating a genuinely distinctive BP position," said Robert Dudley, BP Group chief executive.

In an effort to rebuild after the Deepwater Horizon disaster last year, the company is looking to markets where it can grow. Last month the company was involved in an $8 billion share swap deal with Russia's Rosneft to explore the Russian Arctic region.

— Mikaila Adams

With its Orthrus-2 well, Chevron Corp. has hit gas in the Carnarvon Basin offshore Western Australia.

The Orthrus-2 well is located in the WA-24-R permit area approximately 60 miles northwest of Barrow Island. The well was drilled to a total depth of 14,098 feet.

Combining both appraisal and exploration objectives, the well encountered 243 feet of net gas pay, of which 102 feet of net gas pay was encountered in a deeper, previously unexplored target interval in the Orthrus field.

George Kirkland, vice chairman, Chevron, said, "The find at Orthrus-2 represents our tenth offshore discovery in Australia within the past 18 months."

Chevron's Australian subsidiary is the operator of WA-24-R and holds a 50% interest, while Mobil Australia Resources Co. Pty Ltd. holds 25%. Shell Development (Australia) Pty Ltd. and BP Exploration Alpha Ltd. each hold a 12.5% interest.

Two of the industry's most well-known offshore drilling companies, Ensco plc and Pride International Inc., have agreed to merge into a combined company with an estimated enterprise value of $16 billion and a revenue backlog estimated to be near $10 billion.

Ensco will combine with Pride in a cash and stock transaction valued at $41.60 per share based on Ensco's closing share price on Feb. 4. The implied offer price represents a premium of 21% to Pride's closing share price as of the same date and a premium of 25% to the one month volume weighted average closing price of Pride.

"Although Ensco is paying a healthy premium, we believe the transaction makes great strategic sense," noted Jefferies & Co. Inc. in a Feb. 7 report. "Ensco is paying a 21% premium, which we estimate is 8.4x our 2012 TEV/EBITDA, 153% of NAV and 114% of replacement value. In comparison, we estimate the deal is a 20-30% premium to the other diversified offshore drillers trading at 7.0x our 2012 TEV/EBITDA and 120% of NAV."

Under the terms of the merger agreement, Pride stockholders will receive 0.4778 newly-issued shares of Ensco plus $15.60 in cash for each share of Pride common stock. Upon closing, Pride stockholders collectively will own approximately 38% of Ensco's outstanding shares.

Total cash paid to Pride shareholders will be approximately $2.8 billion. Ensco has received commitments from Deutsche Bank Securities Inc. and Citibank NA to finance the incremental debt required for the transaction.

Ensco expects the combined company to realize annual pre-tax expense synergies of at least $50 million for full year 2012 and beyond. Jefferies & Co. Inc. believes the number could be "significantly higher" as Pride's cost infrastructure was geared towards building a larger company. A Feb. 10 report by Jefferies puts the cost saving in the $150 million to $200 million range.

Ensco plc's chairman, president, and CEO, Dan Rabun, stated, "Pride has gained valuable expertise building and operating ultra-deepwater semisubmersibles and drillships and has strong relationships with leading customers in Brazil and West Africa, two of the fastest-growing deepwater markets in the world. Ensco is a leading provider of premium jackups and ultra-deepwater semisubmersible rigs with a major presence in the North Sea, Southeast Asia, North America and the Middle East. Together, we will form an even stronger company that is ideally positioned to capitalize on growth opportunities within our industry."

Pride International's president and CEO Louis Raspino added, "I have always been an advocate of scale, believing that a company with critical mass is afforded numerous benefits, including operational efficiencies, marketing advantages and the ability to attract and retain talented individuals that will help to secure a strong future for our company."

Combined company

The transaction will create the second largest offshore driller with operations and drilling contracts in more than 25 countries on six continents in both deep and shallow water basins utilizing 74 rigs including 21 ultra-deepwater and deepwater rigs.

Within the fleet of 27 floating rigs (semisubmersibles and drillships) are 21 deepwater drilling rigs, including seven rigs delivered since 2008 and another five ultra deepwater rigs expected to be delivered between now and 2013. Thirteen of the rigs are rated for operations in water depths of 7,500 feet and greater.

The combined company's jackup rig fleet, composed of 47 rigs, all with independent leg design, includes 27 units with water depth ratings of 300 feet and greater, with nine units delivered since 2000. Mid-water rigs will represent 8% of the combined fleet.

Noting the combined company's "premium fleet," Jefferies says the company is "poised to generate significant EPS growth" and estimates 75% of the combined company's EBITDA will be derived from premium assets by 2013.

The combined company, to retain the name Ensco plc, will remain domiciled in the UK, as will most of the senior executives. Dan Rabun will remain chairman, president, and CEO and James W. Swent will continue as senior vice president and CFO. The remaining management will be named at a later date. Ensco's eight board members will continue to serve as directors and two Pride directors will be appointed to an expanded board effective at closing.

Ensco's lead financial advisor and strategic advisor for the transaction is Deutsche Bank AG Cayman Islands Branch and Citi also served as financial advisor, and its legal advisor is Baker & McKenzie LLP. The financial advisor for Pride is Goldman, Sachs & Co. and its legal advisors are Baker Botts LLP and Wachtell, Lipton, Rosen & Katz.

The companies anticipate that the transaction could close as soon as 2Q11.

— Mikaila Adams

Statoil has found gas and condensate around two kilometers west of the Gullfaks South field in the middle sector of the North Sea. The size of the discovery is estimated at between 19 and 75 million barrels of recoverable oil equivalent.

Plans call for tie-back of the discovery to existing infrastructure in the Gullfaks South area.

"The discovery by Gullfaks confirms once again that infrastructure-led exploration is important and leads to finds with high profitability that can quickly come on stream," said Gro Gunleiksrud Haatvedt, senior vice president for exploration on the Norwegian continental shelf (NCS).

The discovery was made in the Rimfaks valley where drilling of well 34/10-53 S confirmed a column of around 300 meters in good-quality reservoir rocks. Gas was found in the Brent group while no hydrocarbons were discovered in the Statfjord group.

The well was drilled to a vertical depth of 3,847 meters below sea level, and was concluded in the Lower Jurassic rocks of the Statfjord group. Water depth in the area is 136 meters.

"Even if the volumes are modest compared to the large discoveries previously made on the NCS, discoveries of this type are important in order to maximize the potential on the NCS," said Haatvedt.

While not formation tested, further data acquisition and sampling are being made to determine the hydrocarbon system and estimate contacts.

The well was drilled by the Deepsea Atlantic drilling rig. After completion, the rig is to drill a sidetrack well to Opal, which is a prospect in the Middle Jurassic reservoir rocks (Brent group) located west of the Rimfaks valley in production license 050B.

The licensees of PL050 and PL050B are Statoil (operator, 70%) and Petoro (30%).

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