Pride expands contract work in deepwater GoM, inks $66M deal to sell platform rig fleet

“This contract award allows us to further build a greater presence in the ultra-deepwater US Gulf of Mexico, a strategically important and technically challenging region.” - Louis A. Raspino, president and CEO of Pride International

Design modifications include the addition of a 160-metric ton active-heave compensated construction crane that allows the rig to perform subsea construction activities, such as the placement of production trees and manifolds in up to 10,000 feet of water without obstructing the path of drilling deepwater wells, and an additional 2,000 feet of marine riser.

The estimated cost to construct the rig is roughly $725 million, excluding capitalized interest, which Pride expects to fund with available cash and borrowings.

Louis A. Raspino, president and CEO of Pride stated, “With this five-year contract award, Pride has further expanded its strategic relationship with one of the world’s premier integrated oil companies and a leader in ultra-deepwater exploration and development. This contract award allows us to further build a greater presence in the ultra-deepwater US Gulf of Mexico, a strategically important and technically challenging region.”

In addition, the company has agreed to sell its fleet of platform rigs and related equipment to Blake International LLC for $66 million in cash. The platform rig fleet consists of eight units in the US Gulf of Mexico, of which four are under contract, two units under contract in Mexico, and two units previously retired from service.

The sale follows Pride’s stated strategic direction to focus its offshore drilling operations in deepwater and other high specification assets.

Pride reported first-quarter income of $136.1 million on revenues of $557.4 million. This represents an 85% jump in earnings and an 18.5% increase in revenues over the same period in 2007.

Apache successes double 1Q08 net income to $1.02B

Apache Corp. has reported on many operations as of late. Horizontal wells drilled in the Ootla shale play in Northeast British Columbia test-flowed at rates of 8.8 million cubic feet (MMcf), 6.1 MMcf, and 5.3 MMcf of gas per day. The three wells drilled during the 2008 winter season are producing from the Muskwa shale and flowing through Apache’s Missile gas plant. Apache and EnCana have formed an area of mutual interest controlling more than 400,000 acres at the center of the play.

Apache performed 18 fracture stimulations in the three horizontal wells, pumping a total of 7.8 million pounds of sand and 280,000 barrels of water into the formation. EnCana has drilled, but not yet completed, two horizontal wells in the area, and is drilling a third well. The two companies have drilled approximately half of the wells drilled in the play to date.

Additionally, the Julimar Southeast-1 discovery on Australia’s Northwest Shelf logged 195 feet of net pay across five intervals of the Triassic Mungaroo Sandstone. Apache has now drilled five gas discoveries on License WA-356-P, including Julimar-1, Julimar East-1, Brunello-1, and Brulimar-1.

The latest discovery, which was not tested, was drilled in 502 feet of water about 1.9 miles from Julimar-1, which logged 132 feet of net pay and test-flowed a combined 85 MMcf/d from two zones.

The Halyard-1 discovery test-flowed at a peak rate of 68 MMcf of gas and 936 barrels of condensate per day from 91 feet of net gas pay in the Cretaceous Halyard sandstone.

Apache owns a 55% interest in the block, Santos owns the remaining interests.

Future production from Halyard could be brought to Western Australia’s domestic gas market via an existing Apache-operated pipeline 10 miles south of the discovery and through the Varanus Island processing and transportation hub.

The Julimar Northwest-1 exploration well logged 43 feet of net pay in the J-17 Triassic Mungaroo sandstone. “Apache has now drilled six successful exploration wells on Permit WA-356-P, validating the geophysical techniques used to identify natural gas-bearing stratigraphic traps,” said G. Steven Farris, Apache’s president and CEO. “We are planning to drill three additional wells on the block during 2008.”

Apache owns a 65% interest in the 239,440-acre block; Kufpec owns the remaining interest.

The company recently reported first-quarter net income of $1.02 billion, the company’s second consecutive quarter with earnings over $1 billion and a 108% increase from earnings of $492 million in the prior-year period.

Offshore drilling spends surge ahead

High oil prices will drive oil and gas industry spends on offshore drilling to a total of $380 billion over the five year period to 2012; a rise of nearly 60% in comparison to the $240 billion spent in the previous five years.

The latest edition of the ‘World Offshore Drilling Spend Forecast 2008-2012’ published by Douglas-Westwood and Energyfiles forecasts that by 2012 the global drilling market will be worth an estimated $80 billion, more than doubling since 2003.

The data derived from Energyfiles shows that nearly 18,000 offshore wells were drilled over the last five years.

Steve Robertson of Douglas-Westwood commented, “With oil prices more than quadrupling over the past five years, drilling rig utilization has reached close to 100% and maximum day rates have soared from $225,000 to more than $520,000, with a future contract agreed at $637,000 for a latest generation deepwater rig.”

The real growth story in the report continues to be the move into deep waters. It is estimated that in 2007 nearly $50 billion was spent on shallow water drilling compared to $18 billion in deep waters. By 2012 deepwater expenditure is expected to have increased by more than 40% whilst shallow water drilling will have risen by just 6%.

Report author Dr. Michael R. Smith of Energyfiles commented, “Despite today’s political environment there are still lots of offshore opportunities. Even within OPEC, activity is now increasing. Nigeria, Indonesia and Angola, the three OPEC countries with deep water potential, are promoting outside investment into their deep water basins. And countries around the Persian Gulf are drilling many more shallow water wells, as well as encouraging foreign companies to develop their huge gas reserves.

“In the future shallow water development spending will be generally flat although will show modest gains after 2010. However, some areas are seeing increases, especially in projects underway in the Persian Gulf to increase production capacity. But deep water development drilling is increasing rapidly in all regions where fields have been discovered, supported by the many ultra-deep water projects now proceeding, especially in West Africa, Brazil, and the Gulf of Mexico.

Though rigs have increased their relative share of drilling spend the money is not just being spent there. In 2007 it is estimated that 37% of expenditure was billed by the rig contractors, just over a fifth was earmarked for support, 6% went towards geoscience and the remainder went towards well engineering. “But as the industry probes more complex geology, spending on anything related to longer and more tortuous well paths is expected to grow disproportionately to other technologies,” said Dr. Smith.

Forest Oil increases 2008 Capex to $1.25 billion

Forest Oil’s average oil and gas net sales volumes for the three months ended March 31, 2008 were roughly 478 MMcfe/d, representing a 58% increase over Forest’s 302 MMcfe/d in the same period in 2007. The increase was due primarily to the acquisition of The Houston Exploration Co. in June 2007.

The following change to oil and gas net sales volumes guidance is based on increased expected capital expenditures of $1.15 billion to $1.25 billion for 2008. Capital expenditures were previously expected to be $900 million to $1 billion. The increased capital expenditures are expected to generate annualized organic production growth of approximately 15% beginning in the second quarter of 2008.

Oil and gas net sales volumes

Forest expects total net sales volumes of 189 to 193 bcfe in 2008 up from 183 to 190 bcfe previously disclosed. Subsequent to the first quarter of 2008, the Company expects net sales volumes to increase 5 to 6.5% sequentially in each of the second and third quarters, and to increase 3% to 4% sequentially in the fourth quarter. Forest estimates its net sales volumes will average 545 to 560 MMcfe/d in the fourth quarter of 2008.

This expected net sales volumes increase includes the effects of the Ark-La-Tex acquisition as well as the increased capital program.

Price differentials

Based on current prices, Forest expects natural gas price differentials for the remainder of 2008 will average $1.25 to $1.50 per MMbtu less than the Henry Hub price. Based on current prices, Forest expects oil differentials for the remainder of 2008 will average $6.00 to $8.00 per bbl less than the NYMEX West Texas Intermediate (WTI) price.

Based on current prices, Forest expects natural gas liquids differentials for the remainder of 2008 will average 50% of the WTI price.

Production expense

Forest expects production expense (which includes lease operating expense, ad valorem taxes, production taxes and product processing, gathering and transportation) will be $275 to $300 million. The increase is due to increased production taxes resulting from higher commodity prices and increased expected production.

Falcon receives updated resource assessment from RPS Scotia for Hungary deep gas project

Falcon Oil & Gas Ltd. has received a new, updated, independent report from RPS Scotia disclosing an updated resource estimate of the Makó Trough Pannonian Basin Gas Accumulation within the production license area of Falcon’s deep gas exploration project in southeastern Hungary.

Based on all available data, RPS Scotia has assigned the following probabilistic estimation of potentially recoverable contingent resources in the Szolnok formation, the Lower Endrod, the Basal Conglomerate, and the Synrift Sequence (see table). The RPS Scotia Report measures the Makó Trough in trillions of cubic feet (Tcf) and millions of barrel oil (mmbo).

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Devon completes Gabon sale in $3B African divestiture

Devon Energy Corp. has completed the sale of its operations in the West African nation of Gabon. The buyer, Oranje-Nassau Energie BV, a subsidiary of Oranje-Nassau Groep BV has purchased the operations for $205.5 million. Devon is in the process of divesting all of its operations in Africa. The company already has signed purchase and sale agreements with an aggregate value of more than $3 billion.

Sales of its operations in Cote d’Ivoire and Equatorial Guinea remain to be completed. Devon agreed to sell its operations in Cote d’Ivoire to Afren plc for $205 million.The company has also agreed to sell its operations in Equatorial Guinea to GEPetrol, the national oil company of Equatorial Guinea, for $2.2 billion. Devon expects to complete these remaining transactions around mid-year 2008.

Penn West enters agreement with Endev Energy

Penn West Energy Trust has agreed to acquire all of the outstanding shares of Endev Energy Inc. for roughly $170 million. The transaction is expected to add current production of approximately 3,500 barrels of oil equivalent per day to Penn West’s production base, with Endev’s current production weighted approximately 78% to natural gas and 22% to light oil and natural gas liquids.

Endev’s primary property is located near Majorville in southeast Alberta and complements existing Penn West operations in the area. Through this acquisition, Penn West will add approximately 100,000 net undeveloped acres to its land base.

Taylor-DeJongh partners with Global Banking for energy investments

Taylor-DeJongh (TDJ) has entered into a strategic partnership with Bahrain-based investment bank Global Banking Corp. for the purposes of identifying and structuring investments in the oil and gas and power sectors.

TDJ will provide knowledge and financial expertise to a newly established subsidiary of GBCORP set up for the purpose of promoting investments in hydrocarbons and energy infrastructure worldwide. Target sectors range from upstream exploration and production to natural gas processing, refining, petrochemicals, oilfield services, power generation and related infrastructure. Investments will be conducted through special purpose vehicles conforming to Shari’a principles.

Taylor-DeJongh provides independent financial advisory services to a global clientele in the development, structuring, negotiating and financing of major capital investments around the world. The firm has over 25 years of experience in structuring complex transactions in more than 100 countries, with an aggregate value of over US$70 billion.