Industry Briefs

Endeavour pays $330M for UK asset package

Endeavour International Corp. has entered an agreement with ConocoPhillips to acquire a package of UK assets for $330 million, including $94 million of tax attributes. The Houston-based company will buy ConocoPhillips' interests in three producing UK fields in the North Sea.The fields have proven and probable reserves estimated at 33 million barrels of oil equivalent with current net production of 10,000 barrels of oil equivalent per day. The deal includes three existing oil fields -Alba (23.43% working interest), MacCulloch (40% working interest), and Nicol (18% working interest), making Endeavour one of larger independents in the North Sea and improves the company's operating profile and credit metrics, adding approximately $300 million in EBITDA at current production levels. Endeavour has received a $500 million senior secured financing commitment to fund the purchase and retire its existing Senior Term Loan, if needed. According to a Global Hunter Securities (GHS) note to investors on December 27, the transaction may appear large relative to the size of Endeavour but, "the high cash flow tied to the oily production and reserve adds within the company's core operating area would be accretive for END and should boost the stock." Commenting on production, GHS noted the "10,000 boed of production when combined with the anticipated start-up of Bacchus and Greater Rochelle in 2012 would grow production from current levels of approximately 4,500 boepd, to over 20,000 boepd."

Concho Resources acquires Wolfberry assets

Concho Resources Inc. has agreed to acquire producing and non-producing assets in the Wolfberry trend in the Permian Basin from PDC Energy for $175 million. The acquisition adds roughly 10,800 gross (10,200 net) acres in Andrews, Ector, and Midland counties, Texas. Current production is estimated at 1,100 boed; $6,373/acre; 13 MMboe proved reserves implies $13.46/boe. The deal increases Concho's net acreage in the Wolfberry by 20% and raises the company's average working interest in the Wolfberry to 54% from 50%. The company is increasing its 2012 capex budget to $1.37 billion from $1.30 billion and its 2012 production estimate up 0.5 MMboe to 27.5-28.5 MMboe. The acquisition, which is expected to close in the first quarter of 2012, will be funded with borrowings under the company's credit facility.

Rex Energy sets $189M 2012 capital budget

Rex Energy Corp. recently provided an operational and financial update and announced its 2012 capital budget. The company's midstream partner, Keystone Midstream, has received permit approval for the construction of the Bluestone cryogenic gas processing plant in Butler County, Pennsylvania. The plant is projected to come online in May 2012 as expected with approximately 50 MMcfed of throughput capacity. Currently, Rex has 20 gross operated wells in Butler County that are awaiting fracture stimulation and completion. Rex recently closed on a senior secured second lien term loan facility of up to $100 million with an initial commitment of $50 million and the company's bank group has agreed to increase its borrowing base under its senior credit facility from $240 million to $255 million. Production guidance for 1Q12 is expected to average 56-60 MMcfed and FY2012 production is expected to average 66-72 MMcfed. The company has set its FY2012 capital budget at $189.7 million. In Butler County in 2012, Rex plans to drill 12 gross wells, frac 20 gross wells and place 21 gross wells into service; leaving 11 gross wells drilled and awaiting completion at the end of 2012. In Westmoreland, Clearfield, and Centre counties in 2012, Williams expects to drill 17 gross wells, frac 16 gross wells and place 16 gross wells into service during 2012; with five gross wells drilled and awaiting completion in at the end of 2012. In Carroll County, OH in 2012, Rex plans to drill and place into service three gross wells; the Cheeseman 1H is expected to be placed into service in 1Q12.

CONSOL sets 2012 capex budget at $1.7B

CONSOL has set its 2012 capex budget at $1.7 billion, up 21% year over year, and includes the "first industry data point pertaining to development plans for the Utica next year," said Global Hunter Securities analysts January 10. The largest portion of the budget, $720 million, is set for coal, $755 million for gas, $135 million for water, and $110 million for other. Of the exploration and production budget, $575 million is being allocated to the Marcellus shale (122 gross wells) and $50 million to the Utica shale (22 gross wells). Production in 2012 is expected to grow by 12% to 160 bcfe in 2012.

Javelin, CME execute and clear $4.1B of interest rate swaps in real time

Javelin Capital Markets, a swaps trading platform, and the CME, a swaps clearing house, have executed and cleared over $4.1 billion of interest rates swap trades in an average time of under 2 seconds-a market first. Working with several dealers and the buyside, Javelin executed 21 trades across multiple points of the swap curve using Javelin's anonymous execution platform in mid-December. The average trade size was $195 million in notional. From the point of trade execution to the point the counterparties were notified of trade acceptance into clearing at the CME, the average round trip time was 1.932 seconds. CME accepted 90% of the trades in under 2 seconds, with the fastest being 1.32 seconds. Recently proposed CFTC rules require that swap trades be accepted into clearing as quickly as "technologically practicable." "Dealers, buyside firms, clearing firms, and Javelin wanted to put a time stamp on what ‘technologically practicable' meant. This now means in under 2 seconds - A new industry standard has now been set," said Javelin CEO, James Cawley. CME's clearing engine processed the swaps in real-time by utilizing preset credit limits that were allocated to the customers by their clearing members. Market participants executed the following swap notionals for the production trades: $747MM (2YR), $1,000MM (3YR), $985MM (5YR), 1,000MM (7YR) and $377MM (10YR).

Quicksilver closes Horn River midstream partnership

Quicksilver Resources Inc. has closed on its previously announced midstream partnership with private equity firm KKR & Co. in Horn River. Quicksilver received $125 million in upfront cash in exchange for a 50% working interest in the partnership. KKR is set to carry Quicksilver on a portion of future development costs on the initial treating facility in exchange for preferential distributions to KKR.

Schlumberger closes ThruBit acquisition

On December 16, 2011, Schlumberger closed on its acquisition of ThruBit BV, a Shell Technology Ventures Fund 1 BV portfolio company formed in 2005. ThruBit is based in Houston, Texas, and currently operates in Texas, Oklahoma, and Colorado. ThruBit provides openhole logging solutions based on a unique "through the bit" deployment technique that provides advantages in many applications, including in horizontal and highly deviated wells and in situations where downhole conditions make use of traditional wireline logging impractical. The acquisition provides new capabilities and technology to Schlumberger and expands Schlumberger's scope of downhole offerings. Simmons & Company International served as exclusive financial advisor to ThruBit BV in this transaction.

Breitling enters Bakken

Irving, TX-based Breitling Oil and Gas Corp. has acquired a large acreage position in the Sand Creek field, part of the Bakken Shale formation in McKenzie County, North Dakota. Breitling plans to drill the initial six Bakken and Three Forks wells during the next 24-36 months, which will represent the start of a continuous, multi-rig development program for the company.

Cameron agrees to $250M settlement with BP over Deepwater Horizon incident

Cameron International Corp. has come to an agreement with BP whereby BP will indemnify Cameron for current and future compensatory claims against Cameron associated with the Deepwater Horizon incident. Under the terms of agreement, Cameron agrees to pay $250 million to BP, and both parties have agreed to mutually release claims against each other. In addition, BP will fully indemnify Cameron for damage claims arising under the Oil Pollution Act, claims for natural resource damages and associated damage-assessment costs, and other claims arising from third parties. "This agreement with BP is the right action, as it removes uncertainty facing Cameron in the litigation associated with the Deepwater Horizon event," Cameron chairman and CEO Jack Moore said. "Though this agreement does not provide indemnification against fines and penalties, punitive damages or certain other potential non-compensatory claims, we do not consider these items to represent a significant risk to Cameron." The company's insurers are expected to fund not less than $170 million of the agreement. The remaining $80 million is expected to be charged in the fourth quarter.

Anadarko to drop down Green River Basin midstream assets

Anadarko Petroleum plans to drop down its Green River Basin midstream assets to Western Gas Partners LP for $483 million. The assets, primarily located in southwestern Wyoming, include the Red Desert Complex, which has 173 MMcf/d of processing capacity, and associated gathering lines. Under the terms of the agreement, Western Gas will purchase Anadarko's 100% ownership interest in Mountain Gas Resources LLC, which owns the Red Desert Complex, a 22% interest in Rendezvous Gas Services LLC, and related facilities. To manage the commodity-price risk associated with these assets, the partnership and Anadarko will enter into five-year, fixed-price commodity swap agreements. Western Gas expects the acquisition to be financed with cash on hand (estimated at $160 million), a $300 million draw on the partnership's revolving credit facility, and the issuance of 632,783 common units to Anadarko and 12,914 general partner units to Western Gas Holdings LLC, the partnership's general partner, at an implied price of approximately $37.38 per unit.

India's Reliance may buy El Paso E&P unit

Reliance Industries Ltd., one of the largest companies in India, and Apollo Global Management LLC, a New York-based private equity firm, are looking to buy El Paso Corp.'s oil and gas exploration and production business unit. As ranked by assets, El Paso is the 11th largest US oil and gas producer, according to the OGJ150 Quarterly Report. Bloomberg News is reporting that Kinder Morgan Inc., which acquired El Paso in October, is considering selling the company's E&P group in pieces. The total value of the unit is estimated at about $8.1 billion. Funds from the possible sale could help Kinder Morgan finance its $21 billion purchase of El Paso. Kinder Morgan, which is mainly a midstream business, reportedly intends to retain El Paso's extensive pipeline assets but wants to spin off or sell the company's upstream business. El Paso's E&P unit has extensive assets in the Eagle Ford Shale in South Texas, Haynesville Shale in Northwest Louisiana, and in the Permian Basin of West Texas. Final closing of the Kinder Morgan acquisition of El Paso is expected to close by the end of the second quarter of 2012.

ELIMS creates new solution to measure chemical use in hydraulic fracturing

Economy Liquid Inventory Management System, or ELIMS, and its parent company Economy Polymers and Chemicals are implementing a new technology into the inventory management phase of hydraulic fracturing. This new technology provides increased accuracy as well as a decrease in personnel risk, a means to invoice immediately, and effectively cuts service providers' inventory to zero. The focus of ELIMS is to eliminate the use of totes on hydraulic fracturing locations and in storage facilities. By doing this, ELIMS creates a smaller footprint and a greener oil field. ELIMS is currently being utilized on hydraulic fracturing locations throughout South Texas, East Texas, and Louisiana with plans to begin work in West Texas and the Williston Basin by Q2 of 2012. Technology derived from the space industry allows ELIMS to monitor fluid volumes in gallons with .05% accuracy. This is coupled with real-time data broadcasting on the frac location and over the ELIMS website so that it can be viewed anywhere in the world. The accuracy of the monitoring units allows Economy Polymers & Chemicals to charge for chemicals on a usage only basis. ELIMS reduces customer's billing lag through the bill-by-usage strategy as well as providing the customer with hard and soft copies of the chemical usage receipt at the end of each stage and/or job. An Electronic Database provided with the ELIMS monitoring service archives all data from previous jobs and gives customers access to historical values. The system can monitor and safely contain: surfactants, clay control agents, acid, acidizing chemicals, low pH buffer, high pH buffer, borate and zirconate cross-Linkers, Breakers, Friction Reducers, Guar Gel, Gel Stabilizer, Lubricants, Scale Inhibitors, Biocides, and Water.

Buccaneer signs gas sales agreement with ConocoPhillips

Buccaneer Energy Ltd. has executed a gas sales contract with ConocoPhillips to supply natural gas to ConocoPhillips' LNG facility located on the Kenai Peninsula approximately 10 miles north-west of Buccaneer's 100% owned Kenai Loop project. The contract with ConocoPhillips started when Kenai Loop # 1 started production in December 2011. The contract is expected to conclude on April 30, 2012, with the potential to end earlier if construction of the Cook Inlet Natural Gas Storage (CINGSA) facility is completed prior to this date. Once the CINGSA facility is on line, Buccaneer has a gas sales contract in place with ENSTAR - the largest gas utility in Alaska. ENSTAR will purchase the Kenai Loop gas and inject into CINGSA for storage and use at a later date. Buccaneer is not obligated to sell any gas under the ConocoPhillips contract, but allows the Kenai Loop # 1 well to flow continuously from the commencement of production, while being able to sell gas either into the ConocoPhillips gas contract or the daily auction to supply local peak demand requirements. The daily auction to supply gas does not provide guaranteed daily volumes. Buccaneer has the ability to sell up to 2.5 bcf to ConocoPhillips under the contract.

Enerjex forms partnership to drill up to 150 new wells

EnerJex Resources Inc. has formed a general partnership named "Rantoul Partners" in order to develop the company's Rantoul Project assets in Eastern Kansas. EnerJex contributed its existing Rantoul Project assets to the partnership at a value of $15 million, and two investors are scheduled to contribute a total of $5 million, which would enable the partnership to drill approximately 150 new wells. Management expects the additional wells to more than double production from the Rantoul Project to in excess of 200 barrels of oil per day. Upon closing of this transaction, the investors immediately funded $2.35 million in return for an 11.75% ownership interest in the partnership, and they are scheduled to fund an additional $2.65 million in multiple tranches over the next 14 months. EnerJex currently owns 88.25% of the partnership and will own 75% if the full $5 million is funded as scheduled. At the end of 2010, EnerJex had a net operating loss carry forward of nearly $10 million, which has increased significantly during 2011 as a result of the company's capital expenditures program. Therefore, EnerJex does not expect to pay income taxes in the foreseeable future. As a result, EnerJex is in a position to make special tax allocations to investors under the general partnership structure.