Tuesday, May 3, 2011

Occidental’s Q1 2011 Production Results beat Quarterly Guidance numbers; Announced Second Quarter Operational Guidance

Occidental Petroleum reported Q1 2011 results, daily oil and gas production volumes averaged 730,000 boepd, up 4% over Q1 2010 production of 701,000 boepd. This is primarily due to domestic gas and NGL production and Middle East/North Africa. The domestic gas increase was from the new acquisition in South Texas, which closed in the first quarter of 2011. The Middle East/North Africa increase included new production from Iraq and higher volumes from the Mukhaizna field in Oman.

The company’s sales volume (728,000 boepd), which is higher than initial guidance of 725,000 boepd differ from production volumes due to the timings of liftings principally caused by Iraq where liftings are expected later half of 2011. The company’s Iraq production was lower by about 9,000 boepd due to less than planned spending levels as we are in the startup phases of operations. Inclement weather, mainly in Texas, caused an additional reduction of about 7,000 boepd.

These reductions were offset by less-than-expected production loss from the Elk Hills maintenance shutdown and operational enhancements, providing higher-than-expected production in Colombia, Yemen and Qatar as well as the new assets resulting in production of 730,000 boepd.
The production guidance we gave you in last quarter's conference call of 740,000 to 750,000 BOE a day was at an $85 average price assumption. The actual first-quarter oil price reduced our production volumes by about 10,000 BOE per day including 1000 BOE a day at THUMS and Long Beach in California.
Second Quarter 2011 Outlook

Expected 2Q 2011 exploration expense to be about $85 mm for seismic and drilling operations.
Domestic volumes are expected to increase to about 425 mboepd,  compared with 1Q 2011 production of 404 mboepd
During 2Q11, the company will make a payment of about $500 million in connection with the signing of the Shah Field Development Project

Chesapeake divests certain mid-continent assets through its ninth VPP for $850 million or $28/BOE!

Chesapeake has agreed to monetize certain of its producing assets in the Mid-Continent through a ten-year volumetric production payment (VPP) to an affiliate of Barclays PLC for proceeds of approximately $850 million. The transaction includes approximately 180 bcfe of proved reserves and approximately 80 mmcfe per day of current net production. The reserves in the package are approximately 80% gas, 20% liquids.

Chesapeake has retained drilling rights on the properties below currently producing intervals and outside of existing producing wellbores and the production tail beyond ten years. The transaction will be Chesapeake's ninth VPP and is expected to close in the 2011 second quarter. Inclusive of the pending VPP sale and the company's eight previously closed VPPs, the company will have sold 1.215 tcfe of proved reserves for total proceeds of $5.619 billion, for an average sales price of $4.62 per mcfe.
The following table shows the other VPP deals of Chesapeake -

Anadarko reported 15-percent quarter-over-quarter increase in daily liquids volumes; On-track with the company’s five-year target of growing sales volumes at a CAGR of 7%- 9%!!

During Q1 2011, Anadarko reported sales volumes totaled 62 mmboe, or 690,000 boepd, averaging approximately 2.4 billion cubic feet of natural gas per day, 212,000 barrels of oil per day, and 76,000 barrels of natural gas liquids per day. This record performance was highlighted by the rapid growth of shale plays and first lifting from the Jubilee field offshore Ghana. Recently, the company closed the $1.6 billion Eagle Ford JV with KNOC.
Source: Derrick Petroleum E&P Transactions Database

Operations Report:
In the company’s shale plays, average sales volumes in the Eagleford and Marcellus areas increased by about 30 percent and 82 percent, respectively, over the fourth quarter of 2010. Production also continued to ramp up at the Jubilee mega project offshore Ghana, which at the end of the 1st quarter, was producing almost 70,000 boepd gross from five wells.
At the Caesar/Tonga development in the Gulf of Mexico, Anadarko successfully completed and tested two wells at more than 15,000 BOPD and initiated completion activities on the third well. In addition, the development team is simultaneously progressing two riser solutions with first oil expected in 2012.
In Algeria, the El Merk mega project is progressing and is approximately 75% complete and remains on schedule for full facility completion around year-end 2012.

Exploration Report:
Source: Derrick Petroleum Planned Exploration Wells Database

Anadarko announced three deepwater discoveries during the first quarter of 2011. The Teak-1 and Teak-2 discoveries, located in the West Cape Three Points Block offshore Ghana, encountered high-quality oil, condensate and natural gas. In Mozambique, the company announced the Tubarão discovery, marking its fourth operated natural gas discovery in the Offshore Area 1 of the Rovuma Basin. 
In the Deepwater Tano Block offshore Ghana, the company and its partners announced successful appraisal wells at Enyenra-2A, Tweneboa-3 and Tweneboa-3ST. Subsequent to quarter end, the operator also announced the successful Tweneboa-4 appraisal well. Additional appraisal activity is ongoing in the Tweneboa/Enyenra complex as the partnership continues to work toward a declaration of commerciality, which is expected later this year.
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CrownQuest Operating sells Permian Basin package. Package could be valued at $350-$450 million

In January, CrownQuest Operating LLC had initiated the sale of certain of its interests in the Iatan-East Howard field located in Howard and Mitchell Counties, in the Permian Basin. The sale has been completed recently without disclosing the buyer or the value of the asset. BMO Capital Markets had been retained to provide financial advisory services for this transaction.

The Iatan-East Howard field focusing primarily the Clearfork along with San Andres and Wolfcamp formations was discovered in the 1920s. The field has maintained production between 1,000 b/d and 3,000 b/d since 1962. It is surrounded by significant fields such as Howard Glasscock, Snyder, Westbrook and Sharon Ridge.

Package highlights:
-- Concentrated acreage position with ~7,910 net acres (~8,640 gross) which is all HBP
-- 100% CrownQuest operated with weighted average 91.6% WI and 78.4% NRI
-- Shallow decline and long-lived producing base of 1,012 BOEPD net and $18.2 MM annualized net cash flow with Proved R/P of 41 years
-- According to CGA reserve report, effective 1 Jan 2011, total net Proved reserves – 15.142 MMBOE (96% Oil, PUD 23%, NPV10 $246 million)
-- 5.8 MMBO gross technically Proved reserves
-- 19 MMBO gross technically Probable/Possible reserves
-- Low operating cost of less than $17/bbl
-- Booked opportunities include infill drilling, recompletions, improved waterflood conformance and re-fracs
-- Upsides in fully developing the San Andres and Wolfcamp, additional waterflooding and multiple re-fracs; CO2 flood potential, located near a main CO2 pipeline.

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What’s the value of the package???

  • Based on NPV- NPV10 of the net proved reserves of 15.142 MMBOE is reported to be $246 million. In addition, the package includes 5.8 MMBO of gross (4.55 MMBO net) technically Proved reserves. Based on this same NPV model, these additional reserves could be valued at $74 million. This NPV model equates the proved metrics to ~16/BOE. The net Probable/Possible reserves of ~15 MMBO could be valued at $60 million (based on $4/BOE, ie., quarter of NPV model metrics). The total value of the package is estimated to be $380 million.
  • Based on cash flow- With the Reserve Life Index of 41 years and the reported annualized cash flow of $18.2 million, the value of the package is reported to be $770 million (undiscounted).
  • Based on the industry metrics- The average reserve metrics for the Permian Basin run at ~$17/BOE, at which the Proved reserves are valued at $356 million. In addition, the net Probable/Possible reserves of ~15 MMBO could be valued at $75 million (based on $5/BOE). In total the package value goes at $430 million.
With these methodologies, the value of the package could be in the range of $350 million to $450 million.

The following table shows the Permian Basin deals of Q1-2011


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