Industry Briefs

Pioneer Natural Resources enters $1.7B Wolfcamp deal with Sinochem

Pioneer Natural Resources Co. has signed an agreement with Sinochem Petroleum USA LLC, a US subsidiary of the Sinochem Group, to sell 40% of Pioneer's interest in approximately 207,000 net acres leased by the company in the horizontal Wolfcamp Shale play in the southern portion of the Spraberry Trend Area Field for a total price of $1.7 billion. At closing, Sinochem will pay $500 million in cash to Pioneer, before normal closing adjustments, and will pay the remaining $1.2 billion by carrying a portion of Pioneer's share of future drilling and facilities costs. Under the agreement, Sinochem will acquire approximately 82,800 net acres of leasehold held by Pioneer for all Wolfcamp depths and deeper horizons. Pioneer retains 60% of its interest in the Wolfcamp depths and deeper horizons, with Sinochem receiving 40% of Pioneer's interest. Pioneer will continue as operator and will conduct all leasing, drilling, completion, operations and marketing activities in the joint interest area. The joint interest area covers defined portions of Upton, Reagan, Irion, Crockett and Tom Green Counties in Texas. Pioneer retains its current working interests in all horizons shallower than the Wolfcamp horizon. In addition to funding its own drilling obligations for the horizontal Wolfcamp Shale, Sinochem has agreed to fund 75% of Pioneer's portion of drilling and facilities costs after closing until the $1.2 billion of drilling carry is fully utilized. Pioneer has six years to utilize the drilling carry, subject to extension under certain circumstances. At closing, Sinochem will pay its 40% share of net expenditures in the joint interest area from the December 1, 2012 effective date of the transaction to the closing date. Pioneer and Sinochem have agreed to a development plan which forecasts the drilling of 86 horizontal Wolfcamp Shale wells during 2013, increasing to 120 wells in 2014 and 165 wells in 2015. Pioneer has drilled and completed 39 horizontal wells in the joint interest area through December 31, 2012. Of these, 22 wells were on production and 4 additional wells were flowing back. Of the wells on production, 20 were completed in the B interval and 2 wells were completed in the A interval. Pioneer's net horizontal Wolfcamp Shale production in the joint interest area averaged approximately 2,000 boe/d in 2012, with a year-end exit rate of approximately 5,000 boe/d. BofA Merrill Lynch served as financial advisor and Vinson & Elkins LLP served as legal advisor to Pioneer on the transaction.

Hess budgets $2.7 billion for unconventionals in 2013

Hess Corp. has announced a 2013 exploration and production budget of $6.7 billion, of which 40% will be dedicated to unconventional oil and gas plays. Greg Hill, president of Hess Worldwide E&P, said the company plans to spend $2.2 billion in the Bakken formation this year compared with $3.1 billion in 2012. "This reduced level of spend is driven by lower well costs associated with our transition to pad drilling…and decreased investments in infrastructure projects," Hill said of the Bakken. "In addition, we plan to increase our expenditures in the emerging Utica shale play to $400 million from $300 million last year," he said. Hess is drilling appraisal wells in the Utica play in Ohio. In the Bakken, Hess operates 14 rigs in North Dakota and plans to complete expansion of its Tioga gas plant this year.

Wildcat Midstream Holdings secures equity investment from Highstar Capital

Wildcat Midstream Holdings LLC announced Jan. 21 that it has entered into an agreement with Highstar Capital IV, LP, whereby Highstar has acquired a 50% interest in Wildcat from Liberty Energy Holdings, LLC, and Wildcat's management team. Together, this group will dedicate significant capital toward the continued development and expansion of Wildcat's midstream infrastructure in North Louisiana and West Texas. Wildcat was founded in 2011 by Chris Rozzell, Mike Davis and David Miller in partnership with Liberty Energy. In North Louisiana, Wildcat currently operates a cryogenic processing facility with a design capacity of 140 MMcf/d and 400 gpm of amine treating, which is expected to be in full service by the second quarter of 2013. In West Texas, Wildcat is constructing a 40-mile crude-gathering and storage system in Crockett and Reagan counties, which is anticipated to be in service in the first quarter of this year.

Berthelot launches new natural gas company

Natural gas industry veteran Chip Berthelot has launched Azure Midstream Company LLC - a natural gas gathering and processing company based in Houston. Azure Midstream will work with producers to gather and/or process natural gas for their customers throughout North America. Azure's initial capitalization comes from investors who have previously invested in Berthelot companies. Azure has an aggressive growth plan based on a combination of new development and acquisition of gathering pipeline projects. Berthelot developed Laser Northeast, the first gathering system to traverse Pennsylvania and New York State in the Marcellus Shale region, as well as a number of other projects. Berthelot brings over 30 years of successfully developing and managing natural gas projects. He founded Laser in 2005 which was partially purchased by EROC in 2007 for $143 million and then subsequently formed Laser Northeast Gathering Company which was sold to Williams Partners LP in 2012 for $750 million. While on his own, Berthelot has purchased or developed and expanded over 75 operating natural gas gathering and processing pipeline systems. Prior to that, he was at Midcoast Energy Resources as COO. Berthelot assembled a handpicked management team to launch this new venture. 31-year natural gas veteran David Garrett heads up Azure's Business Development. Dennie Dixon brings four decades of operations and engineering experience to Azure operations. Christy Morgan oversees finance and accounting. The firm has partnered again with strategic consulting firm Power Communications.

CME Group hits trading volume record in NYMEX Brent crude oil futures

CME Group, a derivatives marketplace, announced Jan. 18 a record in daily trading volume for its NYMEX Brent (BZ) crude oil futures contract. These contracts are listed by and subject to the rules of NYMEX. Brent Crude Oil Last Day Financial Futures trading volumes jumped Jan. 17 to 30,250 contracts, a 38% increase over the previous record of 21,997 set on August 8, 2012. CME Group has seen strong interest in its Brent contract so far this year, with average daily volume of 9,217 so far in January, an increase of 100% over ADV of 4,589 in 2012. CME Brent is available on CME Globex, the Trading Floor, for clearing over CME ClearPort, and over CME Direct, a free, Web-based trading platform for listed and over-the-counter markets.

Chevron expands offshore Africa footprint with exploration agreement

A Chevron Corp. subsidiary, Chevron Morocco Exploration Ltd., has signed petroleum agreements with Morocco's Office National Des Hydrocarbures Et Des Mines for three offshore areas. Once awarded, Chevron will acquire seismic data and conduct studies in deepwater areas known as Cap Rhir Deep, Cap Cantin Deep and Cap Walidia Deep located between 60 and 120 miles (100 to 200 kilometers) west and northwest of Agadir, Morocco. The areas encompass approximately 11,300 square miles (29,200 square kilometers) with average water depths ranging from between 330 feet to 14,700 feet (100 meters to 4500 meters). Chevron Morocco Exploration Ltd has a 75% working interest in the three areas, with the Office National Des Hydrocarbures Et Des Mines holding the remaining 25%.

Linde to supply LNG to Utica, Marcellus ops

Linde North America has signed on to provide LNG and related equipment and services for all of CONSOL Energy's operations in the Marcellus and Utica basins. This agreement follows the completion of a trial conducted by the two companies using Linde's LNG to replace some of the diesel fuel used to power the diesel engines (gensets) that drive drilling rigs. Under the new agreement, Linde's LNG solution will be used to power gas drilling for CONSOL and may also be expanded to applications such as hydraulic fracturing, mining and marine operations. The LNG-diesel dual-fuel solution lowers the cost of producing on-site power at gas and oil operations and burns more cleanly than diesel fuel alone.

ASAP Industries acquired by American Capital

On December 31, 2012, ASAP Industries LLC, a portfolio company of Hudson Ferry Capital LP, was acquired by American Capital Ltd. ASAP, based in Houma, Louisiana, is a manufacturer of high-pressure flow-control products for the global crude oil and natural gas industry. ASAP specializes in the manufacture of API-certified products that are used in drilling, completion and production activities. The company also provides aftermarket repairs for flow-control assemblies, including blowout preventers. ASAP's customers include original equipment manufacturers, oilfield service companies, and rental equipment suppliers. Hudson Ferry is a New York-based private equity firm that was formed in 2006. It is currently making investments from Hudson Ferry Capital II, LP, a $155 million fund with a focus on lower-middle-market niche manufacturing and business service companies. American Capital, based in Bethesda, Maryland, is a publicly traded private equity firm and global asset manager. It originates, underwrites and manages investments in middle-market private equity, leveraged finance, real estate and structured products, and manages $18.6 billion of assets.

BNK Petroleum Inc. announces new senior credit facility

BNK Petroleum (US) Inc. (BNK US), an indirect wholly owned subsidiary of BNK Petroleum Inc. has obtained a new US$76,000,000 credit facility from Morgan Stanley Capital Group Inc. (MSCGI). The initial commitment amount of the new reserve-based facility is US$61,000,000 with an additional uncommitted amount of US$15,000,000 available at the discretion of MSCGI. A portion of the proceeds from the initial advance under the new facility were used to repay BNK US' existing Senior First Lien Secured Credit Facility, which had a fully drawn borrowing base of US$32,000,000. After the repayment of the existing facility, the proceeds from the new facility are primarily intended to fund drilling of Sycamore/Caney and Woodford wells in the Tishomingo field. A portion of the proceeds may also be used for general corporate purposes, including the company's European activities. The new facility will bear interest at a per annum rate equal to the greater of 1% and the then three month LIBOR plus an applicable margin ranging from 4% to 9% based on the ratio of outstanding borrowings to present value of proved developed producing reserves discounted at 9% (PDP PV9). The facility provides for principal amortization beginning July 1, 2013 through the maturity of the facility in five years. Amortization is determined based on a formula of PDP PV9 to outstanding debt subject to a minimum monthly amortization of US$300,000 a month beginning in January 2014.

Taylor-DeJongh supports Ex-Im Bank for LNG project in Australia

Energy investment banking firm Taylor-DeJongh served as financial advisor to the Export-Import Bank of the United States (Ex-Im Bank) for the financing of a US$1.8 billion direct loan to BG Energy Holdings Ltd. (BG) to support US exports for a natural gas liquefaction (LNG) project in Queensland, Australia. Ex-Im Bank's financing will cover approximately US$1.8 billion in goods and services related to the construction of the Queensland Curtis LNG Plant Trains. This is the Bank's second LNG project in Australia, and it will support an estimated 9,200 American jobs. This project is also the second coal seam gas to LNG project in Australia successfully concluded by Taylor-DeJongh.

Trapoil enters $20M debt deal with GE Energy Financial Services

Trapoil, the independent oil and gas exploration, appraisal and production company focused on the UK Continental Shelf region of the North Sea, has entered into a three-year senior secured borrowing base facility agreement of up to US$20 million with an affiliate of GE Energy Financial Services and associated hedging arrangements with Britannic Trading Ltd., a subsidiary of BP International Ltd. The committed facility is on conventional oil and gas industry borrowing base financing terms linked to the economic performance of the group's interests in the Athena and Lybster production assets. Funds are intended to go to certain potential production and development expenditures related to the group's Athena and Crazy Horse assets. In conjunction with the facility, Trapoil has entered into certain oil price hedging arrangements consisting of swap agreements, entered into at prices ranging from US$108.51/barrel for 2013 to US$95.50/barrel for 2015.

New API website grants free online access to latest oil spill research

American Petroleum Institute (API) Director of Marine and Security Issues Robin Rorick announced the launch of www.ioscproceedings.com, a new website that hosts research papers presented every three years at the International Oil Spill Conference (IOSC). The site aims to enable greater sharing of best practices and latest technologies among industry, government and other stakeholders, as well as promote safe operations around the world. The IOSC provides an open public forum for professionals from the international community, the private sector, government, and non-governmental organizations to highlight and discuss innovations and best practices across the spectrum of prevention, preparedness, response and restoration. Peer-reviewed papers presented at each conference are then published in the IOSC Proceedings. Online for the first time ever, this new database provides free access to more than 3,000 articles containing information and perspectives available nowhere else. Permanent sponsors of the triennial IOSC include API, the US Coast Guard, the Environmental Protection Agency, the National Oceanic and Atmospheric Administration, and the Bureau of Safety and Environmental Enforcement.

Shell, Kinder Morgan to form LNG export company

Shell US Gas & Power LLC, a subsidiary of Royal Dutch Shell plc, and Southern Liquefaction Company LLC, a Kinder Morgan company and unit of El Paso Pipeline Partners LP, announced Jan. 28 their intent to form a limited liability company to develop a natural gas liquefaction plant in two phases at Southern LNG Company LLC's existing Elba Island LNG Terminal, near Savannah, GA. Subject to various approvals, Shell and Kinder Morgan affiliates have agreed to modify EPB's Elba Express Pipeline and Elba Island LNG Terminal to physically transport natural gas to the terminal and to load the liquefied natural gas (LNG) onto ships for export. Once finalized, EPB will own 51% of the entity and operate the facility. Shell will own the remaining 49% and subscribe to 100% of the liquefaction capacity. The project will use Shell's small-scale liquefaction unit, which will be integrated with the existing Elba Island facility. The total project is expected to have liquefaction capacity of nearly 2.5 million tonnes per year (mtpa) of LNG or 350 million cubic feet of gas per day (Mmcfd). In June 2012, the Elba Island terminal received approval from the US Department of Energy to export up to 4 mtpa (500 Mmcfd) of LNG to Free Trade Agreement countries. In August 2012, the terminal submitted a filing to the DOE seeking approval to export up to 4 mtpa (500 Mmcfd) of LNG to non-FTA countries. Phase I of the project, approximately 1.5 mtpa (210 Mmcfd), requires no additional DOE approval.

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