Deloitte: Oil, gas industry seeing financing transformations

Paula Dittrick, Oil & Gas Journal

The oil and gas industry is experiencing some transformations in obtaining financing with private equity firms while a steel manufacturer recently took a working interest in Piceance basin natural gas drilling, a spokeswoman with Kohlberg Kravis Roberts & Co. LP told the Deloitte Oil & Gas Conference.

Claire Farley, KKR managing director of energy and infrastructure, said KKR has taken a nonoperating working interest in unconventional exploration and production in the South Texas Eagle Ford shale.

In July, KKR announced it was participating with Comstock Resources Inc., Frisco, Tex., in Eagle Ford shale development in South Texas (OGJ Online, July 31, 2012).

KKR is paying a drilling carry for the right to participate for one-third of Comstock’s working interest in wells drilled on Comstock’s 28,000 net acres in Atascosa, Frio, Karnes, LaSalle, McMullen, and Wilson counties.

On Nov. 13 as Farley spoke to Deloitte, private equity provider Blackstone Energy Partners separately announced a partnership with an oil company in the Gulf of Mexico.

Privately owned LLOG Exploration Co. LLC of Covington, La., and Blackstone Energy Partners formed a long-term partnership in which the two committed to invest more than $1.2 billion to expand and accelerate LLOG’s offshore operations in the gulf.

Blackstone will provide financing along with LLOG’s operating expertise and financing to expedite development of LLOG’s deepwater discoveries and its exploration and appraisal of prospects on more than 110 offshore leases.

On Nov. 9, steel manufacturer Nucor Corp. of Charlotte, NC, and Encana Oil & Gas (USA) Inc. agreed to a joint natural gas drilling program for the Piceance basin in Colorado.

The agreement will enable Encana to drill up to 4,000 new wells over 20 years—doubling the company's well count in Colorado, Encana spokesman Doug Hock in Denver told OGJ (OGJ Online, Nov. 9, 2012).

Terms call for Nucor to pay its share of drilling costs plus an additional amount of carried interest as each well is drilled, subject to a cap on carry paid for each well and a cap on total carried interest. Either party may suspend drilling if gas prices fall below a predetermined threshold.

A document filed with the US Securities and Exchange Commission showed Nucor expects to invest $542 million over 3 years and $3.64 billion over the agreement’s estimated 13-22 years. 

“This is really interesting, it's a perfect hedge,” for Nucor, Farley said on Nov. 13, adding other end users might enter similar joint ventures with oil and gas companies.

In the case of KKR, Farley said KKR is working with geoscientists and engineers as it participates in Eagle Ford projects. Farley formerly with at Texaco Inc., where her roles included North American production division president and also president, worldwide exploration and new ventures.

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