Chesapeake, BP sign $1.75B contract for interests in Arkoma Basin Woodford Shale

Chesapeake Energy Corp. and BP America Inc. have signed an agreement in which BP will acquire all of Chesapeake’s interests in roughly 90,000 net acres of leasehold and producing natural gas properties in the Arkoma Basin Woodford Shale play for $1.75 billion in cash. The properties, which are located in Atoka, Coal, Hughes and Pittsburg counties, Oklahoma are currently producing nearly 50 MMcf of natural gas equivalent per day. Meagher Oil & Gas Properties Inc. acted as advisor to Chesapeake.

Sonoran Energy provides operational update on KWB field redevelopment

Dallas-based Sonoran Energy Inc., the independent oil and gas exploration and production company, has successfully completed the latest phase in its Central Texas KWB work program. The program involves the re-entry, re-activation, and re-completion of wells in the company’s KWB field in Tom Green County in Central Texas.

Ralph Watkins, Sonoran’s COO commented: “Following our most recent work, the field rate has been raised to over 600 thousand cubic feet of LNG-rich gas and nine barrels of associated condensate per day. Work continues with two rigs operating and hydraulic fracture stimulations already planned on three recently re-completed wells. I am encouraged that our most recent shallow gas re-completion flowed naturally at a rate of 250 Mcf/d, and shut-in with a pressure of over 1,800 psi.”

Re-completions focus primarily on the Canyon and Cisco sands, plus at least three additional horizons for which testing is planned.

ISL completes test of oil exploration technology

Information Systems Laboratories (ISL) and the Scripps Institution of Oceanography have completed the first phase of a project to more quickly detect areas of the ocean floor that are likely sites of oil and natural gas deposits.

The recent tests, completed off the coast of San Diego near San Clemente Island, were able to measure subtle changes in gravity from an autonomous underwater vehicle (AUV) maneuvering in 3,000 feet of water just above the ocean floor. The force of gravity is known to vary slightly over different areas of the Earth, mainly depending on the density of the rock formations beneath each location.

Oil companies have long known that salt domes on the ocean floor are likely sites of petroleum deposits, but finding such domes, especially in deeper water, has been an arduous task involving seismic sensing and gravity measurement, or gravimetry. The AUV gravimeter technology, developed with funding from a number of oil exploration firms, is thought to be the first demonstration of measuring minute changes in gravitational force from an AUV, rather than a fixed platform. This could allow relatively large areas of deep water to be surveyed more quickly than is currently possible in the search for oil deposits.

Forest Oil to acquire additional core area assets for $892 million

Denver-based Forest Oil Corp. has entered into a definitive agreement with privately-held Cordillera Texas LP to acquire producing assets including approximately 118,000 gross acres (85,000 net acres) in Forest’s core Greater Buffalo Wallow and East Texas/North Louisiana focus areas.

Forest attributes estimated proved reserves of 350 bcfe (36% proved developed) with additional net unrisked potential of 1,200 bcfe and approximately 1,500 additional vertical and horizontal drilling locations (1,194 unbooked locations) to the properties.

The properties produced an average of 34 MMcfe/d in the first half of 2008 and are focused primarily in the Granite Wash, Atoka, and Morrow intervals in the Greater Buffalo Wallow Area and in the Cotton Valley and Travis Peak intervals in East Texas. The acquired acreage in East Texas also has James Lime, Haynesville/Bossier Shale and Pettet rights.

Forest will pay roughly $708 million in cash and deliver 3.5 million shares of Forest’s common stock to the seller. The total transaction is valued at $892 million. Forest will initially fund the acquisition using its existing credit facility which has approximately $1.21 billion in liquidity as of July 31, 2008.

Craig Clark, Forest’s president and CEO, stated, “This significant transaction plays directly into Forest’s strengths by increasing the scale of our business in core areas and ultimately funding it with non-core divestitures. With this acquisition and through our intense focus on these assets we expect each of the Greater Buffalo Wallow and East Texas/North Louisiana areas to exit the year with 13 rigs running.

“We plan to increase activity further in 2009 in these areas and ramp our rig count 20% higher to more than 30 rigs running by the fourth quarter of 2009, including the addition of horizontal drilling activity in the Greater Buffalo Wallow Area. This activity is expected to result in a greater than 30% organic production increase on the acquired assets in 2009.

“Assuming the completion of our proposed divestitures, we will have acquired approximately $600 million of new assets in each of Greater Buffalo Wallow and East Texas/North Louisiana this year and fund it primarily by selling $800 million - 1.1 billion of non-core properties,” he concluded.

Quicksilver Resources completes Fort Worth basin acquisition

Fort Worth-based Quicksilver Resources Inc. has closed the acquisition of producing and non-producing leasehold, royalty, and midstream assets associated with the Barnett shale formation in northern Tarrant and southern Denton counties of Texas from various private parties including Chief Resources LP, Hillwood Oil & Gas LP, and Collins and Young LLC for $1 billion in cash and 10,400,468 shares of Quicksilver Resources common stock.

The purchase includes 13,000 net acres in the Fort Worth basin of northern Texas. Quicksilver’s internal engineers estimate the properties contain more than 1 tcf of recoverable natural gas resources including roughly 350 bcf of proved reserves, of which nearly 40% are proved developed. Current production from the properties is approximately 50 MMcf/d of natural gas.

BHP Billiton, ExxonMobil invest $1.725B for Turrum Field development

BHP Billiton has approved an expenditure of US$625 million (BHP Billiton share) for the full field development of the Turrum oil and gas field, a hydrocarbon resource in the Gippsland basin, offshore Victoria. Turrum is part of the joint venture in which BHP Billiton and ExxonMobil subsidiary, Esso Australia Resources Pty Ltd. (operator), each have a 50% interest.

Esso Australia will invest $1.1 billion to develop more than 270 million oil-equivalent barrels from the field.

The Turrum field holds roughly 1 tcf of gas and 110 million barrels of oil and natural gas liquids. The development concept for the project is based upon the construction of a new platform bridge-linked to the existing Marlin A platform in Bass Strait. The platform will process additional oil production and gas cycling which will be piped back to existing processing facilities at Longford. Construction is anticipated to begin in 2009. Oil production is expected in 2011, and first gas sales are estimated to take place in 2015.

In other BHP Billiton news, the company’s Neptune Tension Leg Platform (TLP) in the deepwater Gulf of Mexico, which began production in July, has five of six wells on line and has ramped up the oil production to full design capacity of 50,000 b/d.

The Neptune TLP was installed in 4,250 feet of water on Green Canyon Block 613. Field development includes six initial subsea wells tied back to the TLP. Further development wells are expected to be drilled after interpretation of new seismic data, which will be obtained in the latter half of 2008.

BHP Billiton is the operator of Neptune with a 35% interest. Partners include Marathon Oil Corp. (30%), Woodside Energy (USA) Inc. (20%), and Maxus (US) Exploration Co. (15%).

Marathon to proceed with Angola project; evaluates businesses separation

Marathon Oil Corp.’s subsidiary, Marathon International Petroleum Angola Block 31 Ltd., and its co-venturers have received approval from Sociedade Nacional de Combustiveis de Angola - Sonangol EP to proceed with the first deepwater oil development project on Angola Block 31, comprised of the Plutao, Saturno, Venus and Marte (PSVM) fields. Located in the northeast sector of the block, about 250 miles northwest of Luanda, Angola, in a water depth of nearly 6,500 feet, PSVM will utilize a floating, production, storage and offloading vessel. Construction work is expected to begin later this year. Peak gross production of about 150,000 b/d is targeted in 2012. A total of 48 production, gas and water injection plus infill wells are planned.

In the meantime, the company’s board is evaluating the potential separation of Marathon into two independent publicly traded companies, each focused on its own set of business opportunities. One entity would consist of the company’s exploration and production, integrated gas, and oil sands mining businesses; and the other entity would consist of the company’s refining, marketing and transportation business.

While this evaluation has been underway internally for several months, the company has now engaged financial advisors Morgan Stanley and the law firms of Baker Botts LLP and McKee Nelson LLP as external advisors. It is anticipated that a decision will be made during the fourth quarter 2008. Should the decision be made to separate, the separation would likely occur during the first quarter 2009.

Berry increases ‘oil in place’ estimate of diatomite asset

Berry Petroleum Co. is increasing its estimate of original oil in place in its diatomite asset by over 35% to 330 million barrels. During 2008, Berry drilled six delineation wells in the northern portion of the field. These wells encountered a 300 feet to 400 feet thick oil column with reservoir characteristics similar to Berry’s current diatomite development. As a result, Berry anticipates drilling an additional 230 wells and now expects production from this project will increase to over 12,000 b/d by 2015.

Robert Heinemann, president and CEO, stated, “These appraisal results have enabled us to expand our portfolio of low geologic risk, high-return oil projects. Our diatomite project continues to add significant long term oil production growth that will create value for our shareholders. Finding and development costs are expected to be between $6.00 and $8.00 per barrel.

“Assuming a steam oil ratio of 6 to 1 and a natural gas price of $7.50 per MMbtu, operating cost should be approximately $25 per barrel. At a $100 WTI price, this project is delivering exceptional rates of return and this latest addition to the overall project should add 19 million barrels of risked reserves to our resource base, assuming an ultimate recovery of 23%. Our existing diatomite development continues to deliver solid results with current production averaging 2,300 barrels per day and we expect to exit 2008 at 3,000 barrels per day,” he concluded.

Production begins at ExxonMobil Angola developments

Exxon Mobil Corp.’s subsidiary, Esso Exploration Angola (Block 15) Ltd., has started production from the Saxi and Batuque fields as part of the development progression of the Kizomba C project.

Combined with a third Kizomba C field, Mondo, which came on stream in January, the project is anticipated to reach a total production rate of 200,000 b/d later this year. The Kizomba C development is designed to produce a total of roughly 600 MMboe over the life of the three producing fields, which are located approximately 90 miles off the coast of Angola in water depths of nearly 2,400 feet.

The Kizomba C development includes two floating production, storage, and offloading (FPSO) vessels and 36 subsea wells, making it the largest subsea development operated by an ExxonMobil affiliate worldwide. The twin FPSO vessels are the fourth and fifth production hubs on Block 15, following Xikomba in 2003, Kizomba A in 2004, and Kizomba B in 2005. Total Block 15 production is expected to total approximately 700,000 barrels a day when the Saxi and Batuque fields reach peak production.

In addition to Esso Angola (operator, 40%), other co-venturers in Block 15 are BP Exploration (Angola) Ltd. (26.67%), ENI Angola Exploration BV (20%), and Statoil Angola Block 15 AS (13.33%). Sonangol is the Concessionaire.