Quicksilver acquires Barnett assets for $1.3B, shows earnings impact from Breitburn equity investment

Quicksilver Resources Inc. has entered agreements with various private parties including Chief Resources LLC, Hillwood Oil & Gas LP, and Collins and Young LLC to acquire assets associated with the Barnett Shale formation in northern Tarrant and southern Denton counties of Texas, for $1.307 billion.

The acquired properties currently have net production of nearly 45 million cubic feet (MMcf) per day. Quicksilver estimates that these properties contain more than one trillion cubic feet of recoverable natural gas resources including roughly 350 billion cubic feet (bcf) of proved reserves, of which approximately 40% are proved developed, and more than 650 bcf of additional resource potential on 13,000 net acres.

Quicksilver expects to fund the cash portion of the transaction through a combination of a $700 million 30-month second-lien term loan facility, operating cash flow, and its existing credit facility.

Quicksilver has expanded its hedges for the remainder of 2008 through 2010 by approximately 40,000 MMbtu/d of natural gas production.

Quicksilver has increased its estimate for the company’s total average daily production for the second quarter of 2008 to a range of 233 to 235 MMcf of natural gas equivalents, which excludes any volumes from the announced acquisition.

In addition, the company will record in its second-quarter 2008 results a $10.2 million non-cash loss related to its equity investment, representing an approximate 32% ownership interest, in BreitBurn Energy Partners LP’s first-quarter 2008 results.

BreitBurn Energy Partners reported a $41.1 million loss for the first quarter of 2008, which included a $71 million non-realized loss on derivatives. Quicksilver reports its share of BreitBurn’s earnings or loss on a one quarter lagged basis, due to the timing of BreitBurn’s filing its quarterly results with the SEC after Quicksilver has filed its quarterly results.

Marathon extends deepwater contract for $750M; achieves first production from Neptune

Marathon Oil Corp. has exercised a two-year option extension on its contract for the Noble Jim Day drilling rig, expected to begin drilling in the deepwater Gulf of Mexico in early 2010.

Marathon currently has two rigs under contract in the Gulf, along with a number of development wells associated with the Droshky discovery, which is expected to be sanctioned later this year. Marathon holds a 100% working interest in the Droshky discovery located on Green Canyon Block 244. Additionally, the company was the high bidder at recent lease sales, and expects to add interests in a total of 42 blocks.

The Noble Jim Day will be a dynamically positioned semi-submersible rig capable of working in water depths up to 12,000 feet. The estimated contract commitment amounts to approximately $750 million over the full four-year period.

The company is also involved in the Neptune development in the deepwater Gulf of Mexico that has recently begun production. Neptune is being developed with a tension leg platform installed in Green Canyon Block 613 at a water depth of 4,250 feet. The facility’s design capacity is 50,000 barrels of oil and 50 MMcf/d.

BHP Billiton is the operator of the development with a 35% interest. Marathon Oil holds a 30% interest, while Woodside Energy Inc. holds 20%, and Maxus Exploration Co. holds the remaining 15%.

David E. Roberts, Jr., Marathon executive vice president of upstream, stated, “Production from Neptune will be a significant contributor toward our projected total company average annual production growth of seven percent between 2007 and 2012.”

Neptune, located approximately 120 miles off the Louisiana coastline, is the first standalone deepwater production platform in the Gulf of Mexico operated by BHP Billiton.

Crude oil from Neptune is transported to markets via the Caesar pipeline (in which BHP Billiton has a 25% equity share), while natural gas is exported via the Cleopatra pipeline (where BHP Billiton has a 22% equity share).

ExxonMobil awards contracts to put Point Thomson field on production

ExxonMobil Production Co. has awarded contracts for work in support of the first well of a multi-well drilling program at Point Thomson. ExxonMobil is operator of the unit.

A contract to Nanuq Inc., together with Alaska Frontier Constructors Inc. (Nanuq/AFC), both of Anchorage, Alaska, is for construction and maintenance of nearly 50 miles of ice roads and an ice air strip needed to transport the drilling rig and associated materials, camps, and personnel to the Point Thomson site.

Barges to move the construction equipment to the Point Thomson site have been contracted. Additional contracts are planned for other key project activities.

The construction activity advances the development of the Point Thomson hydrocarbon resource for the mutual benefit of Alaskans and the 27 Point Thomson Unit working interest owners.

Craig Haymes, Alaska production manager for ExxonMobil, said, “The Point Thomson working interest owners are proceeding with the drilling plan and the project while we seek to resolve the dispute with the State over the Point Thomson Unit. We are hopeful that we will resolve the differences to our mutual satisfaction. Even if we cannot do so quickly, we intend to carry out the drilling program as leaseholders. We have already hired Alaskans, commenced upgrades on a drill rig and ordered long-lead materials in preparation to commence drilling this winter. The plan will provide jobs for over 200 people this winter.”

Point Thomson is remotely located 60 miles east of Prudhoe Bay. The project includes an investment of approximately $1.3 billion, including a multi-year development and delineation drilling program that will commence in the 2008-09 winter season, to construct production facilities, pipelines, and support infrastructure.

Under the initial phase, roughly 200 MMcf/d of Point Thomson gas is expected to be produced. Approximately 10,000 b/d of liquid condensate that is separated from the gas is planned to be delivered for sale through new and existing oil pipelines. The remaining gas will be injected back into the Thomson Sand reservoir to maintain pressure for continued hydrocarbon recovery and for subsequent gas sales.

The other major Point Thomson Unit owners include BP Exploration (Alaska) Inc., Chevron USA Inc., and ConocoPhillips Alaska Inc. In addition, there are 23 other Point Thomson owners.

Antero acquires acreage in Marcellus shale

Dominion has agreed to assign the Marcellus Shale natural gas drilling rights on approximately 205,000 Appalachian Basin net acres to Antero Resources for about $552 million, resulting in after-tax proceeds of roughly $325 million.

Dominion will receive a 7.5% royalty interest on future natural gas production from the assigned acreage. Dominion will retain the drilling rights in traditional formations both above and below the Marcellus Shale interval and will continue its conventional drilling program on the acreage. The transaction is expected to close in late September 2008.

In addition, Dominion has proposed development of Dominion Keystone, a pipeline project that would transport new natural gas supplies from the Appalachian Basin to markets throughout the eastern US.

As part of the drilling rights agreement, Antero Resources will join Dominion Exploration & Production as anchor tenants on Dominion Keystone. Collectively, the two customers are expected to provide roughly 500 MMcf/d to the pipeline, which would allow for transport of up to 1 bcf of natural gas per day by year end 2012.

The company intends to use net proceeds initially to reduce outstanding short-term debt. Longer term, the proceeds are expected to partially offset previously announced equity issuances in 2009.

Lehman Brothers acted as financial advisor to Dominion on the transaction.

Triangle Petroleum enters partnership, makes drilling plans for Maritimes basin

Triangle Petroleum Corp. has partnered with Zodiac Exploration Corp., a private Calgary-based exploration company, to drill as many as six new delineation wells on its 516,000 gross acre Windsor Block in the Maritimes basin of Nova Scotia. This is the second phase of Triangle’s three-phase strategy for developing natural gas from shale in Eastern Canada.

The joint venture provides for an initial commitment by Zodiac to pay 50% of drilling costs, up to $7.5 million, to earn a 12.5% working interest in the entire Windsor Block. Within 30 days of fulfilling the expenditure commitment, Zodiac has the option to commit another $7.5 million for an additional 12.5% working interest.

Based upon Zodiac spending the entire $15 million, Triangle would remain with a 45% working interest and would continue as operator, and Zodiac would have earned a 25% working interest in the Windsor Block. Nabors rig #4, which has a depth rating of 12,000 feet, has been contracted by Triangle for the balance of 2008.

ATP expands Telemark acreage

ATP Oil & Gas Corp.’s bids for Atwater Valley Block 19 and Block 62 in the deepwater Gulf of Mexico have been accepted for award by the MMS. Atwater Valley Block 19 is located in approximately 4,199’ of water and Atwater Valley Block 62 is located in approximately 4,173’ feet of water, and both are contiguous to ATP’s Telemark Hub. ATP acquired a 100% working interest in both blocks for a total cost of $463,980 and will serve as operator of each block.

With the acquisitions, ATP expands its interest in the Telemark Hub consisting of already discovered reserves at Mirage, Morgus, and Telemark, each 100% owned and operated by ATP. ATP is currently developing the Telemark Hub with first production expected in the first half of 2009 with additional production expected to be added in 2010.

XTO Energy acquires Barnett producing properties

XTO Energy Inc. is expanding yet again (see “XTO appears ever-expanding with acquisitions, increased production” in July’s OGFJ). The company has entered into an agreement to acquire 12,900 net acres adjacent to its existing operations in the Barnett shale core for roughly $800 million from an undisclosed third party.

XTO’s internal engineers estimate proved reserves to be in excess of 300 bcfe, of which about 25% is proved developed. The acquisition will initially add 35 MMcfe/d to the company’s production base.

“XTO’s position in the core of the Barnett Shale has provided confident production growth, increasing resource potential and value creation for our shareholders. These properties are located right in the heart of our operations and provide for more of the same,” stated Bob R. Simpson, chairman and CEO. “Given our extensive knowledge of the shale in this region, we anticipate ultimate recovery from these assets will be more than 1 tcf of natural gas over time.”

Keith A. Hutton, president, further commented, “Our overall position in the Barnett Shale play now includes about 280,000 net acres. Approximately 55%, or 155,000 acres, is situated in the premier core area of the play where the geology offers the best productivity. This bolt-on acquisition is perfectly situated in the fairway of our ongoing development in the core.”

The transaction is scheduled to close in early October. Funding is expected to be provided through a combination of the issuance of equity, long-term senior notes, and the company’s commercial paper program.

IHS, Energistics launch first-ever standardized well ID service

IHS Inc. and Energistics have launched a service that delivers an industry standard for global unique well identifiers (GUWI) for all known oil and gas wells outside North America.

Until now, no standardized well identifier existed, thus making cross-referencing information difficult.

Energistics worked with IHS on behalf of an industry work group comprised of representatives from major oil companies, including IHS customers, and oil service providers to create and launch the new service.

The IHS/Energistics Global Unique Well Identifier service consists of three parts:

• Well Registration Service, which provides an IHS GUWI to each new wellbore record, available to IHS clients and non-clients alike
• Well Matching Service, which provides the IHS GUWI for companies’ existing wellbore records, available to IHS clients and non-clients alike, and
• The Master Well Index, an IHS proprietary dataset containing the GUWI and associated meta-data for all its US, Canadian and international wells, available to IHS clients.