Tuesday, June 14, 2011

SM Energy divests Eagle Ford acreage at ~$15,000/acre

SM Energy entered into an agreement with Statoil and Talisman to divest a portion of its Eagle Ford shale position. The position is a detached block of acreage that is comprised of the entirety of the company's operated acreage in LaSalle County, Texas, as well as an immaterial portion of adjacent operated acreage in Dimmit County, Texas. In total, approximately 15,400 net acres are being sold for cash proceeds of approximately $225 million.

Due to limited infrastructure, there is currently no production associated with three wells that have been drilled on the acreage. As of year-end 2010, there was an immaterial amount of proved reserves booked for this acreage. The buyers will be entitled to approximately 12% of the takeaway capacity associated with SM Energy's agreement with Eagle Ford Gathering LLC, a joint venture between Kinder Morgan Energy Partners LP and Copano Energy LLC.

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A busy month for Eagle Ford Shale. A look at Eagle Ford metrics
SM Energy’s Eagle Ford divestiture is the third deal for the month June, 2011. The most notable transaction was Marathon’s acquisition of Eagle Ford acreage for ~$25,000/acre. The current SM divestiture leaves the acreage metrics at $14,600/acre.

In addition, Talisman is also looking to buy additional assets in Eagle Ford Shale, if prices are going to be reasonable. Recently, the metrics in Eagle Ford Shale is skyrocketing between $20,000-$25,000/acre as compared to the 2010 average metrics of $8,000/acre.

Here is an interactive tool with regards to Eagle Ford acreage metrics. Play around.

Oil exploration in Sierra Leone in 2011..Maybe a new frontier

          Oil and gas exploration has had a very short history in Sierra Leone. Although some seismic and G&G studies were carried out in in the past, there was not much potential seen for oil and gas deposits. All this changed with Anadarko’s Venus discovery in the deep waters offshore Sierra Leone in August 2009. Although this discovery was relatively thin (50 ft of net hydrocarbon pay), in water depth of 1800m, the discovery generated a lot of interest and opened up the potential for a multi-billion barrel oil frontier in West Africa. Linking the Venus discovery to the previous Jubilee find in Ghana which was discovered by Anadarko’s partner in that block, Kosmos Energy, gives a new interpretation of the petroleum geology in the region. The new Transform Margin (a place where 2 tectonic plates slide past each other) play was generating a lot of interest as it could potentially lead to a string of discoveries along its length. Although Venus was a significant discovery, it has still not been deemed to be commercial.

Figure 2: Map  showing the location of the Venus and Mercury discoveries. Blocks SL-06 and SL-07 have now been merged and are now together called Block SL-07B-10. Source: Anadarko

On the 15th of November 2010, Anadarko announced that it had struck oil with its Mercury-1 well which encountered approx. 135 net feet of oil pay in two Cretaceous-age fan systems. The well was drilled to a total depth of approx. 15,950 feet in about 5,250 feet of water. In the primary objective, the Mercury well encountered approx. 114 net feet of light sweet crude oil with a gravity of between 34 and 42 degrees API, with no water contact. An additional 21 net feet of 24-degree API crude was encountered in a shallower secondary objective. This discovery is almost certain to be declared commercial, although it has not yet been announced. Both, Venus and Mercury, discoveries were in Block SL-07B-10. A third exploration well on the Jupiter prospect is planned to be drilled in Q4, 2011. Anadarko (55%) operates the block and the partners are Repsol YPF (25%), Tullow Oil (10%) and Mitsubishi (10%).

African Petroleum Corporation Ltd., has a 100% interest in Block SL-03. The block covers an area of 3,135 km and is located ~ 150 km from the Mercury-1 discovery and 85 km from the Venus discovery. The company is planning an extensive 3D seismic survey over the block in 2011 to firm up exploration prospects. It is understood that drilling would occur in 2012, after processing and interpretation of the seismic data. 
Sierra Leone has had a long history of strife, turmoil and civil war. It is bordered by Guinea to the east Liberia to the southeast, and the Atlantic ocean to the west. After more than a century of colonial rule, the country gained independence in 1961. Its history since independence has been marked by widespread corruption and economic, social and educational deterioration. It culminated with the beginning of a 10 year long civil war in 1991 that is estimated to have cost the lives of 50,000 people, besides displacing 2 million more and causing  civilian populations to endure violence at the hands of opposing factions. In 2001, with the help of United Nations forces, rebel forces of the Revolutionary United Front (RUF) were disarmed, and president Kabbah was re-elected to power, and he declared the civil war officially over. The current president is Ernest Bai Karoma, who was elected in the 2007 elections for a period of 5 years.

Figure 1: Map showing location of Sierra Leone (Red Polygon)

Sierra Leone is an extremely poor country and ranks 163 in its GDP compared to other countries in the world. 70% of the population is estimated to be below the poverty line (CIA). According to the CIA world factbook, its GDP in 2010 was $4.72 billion, a marginal increase from $4.498 billion in 2009 and $4.358billion in 2008. The biggest threat to its economic development is disruption of domestic peace and isolation from foreign aid. Economic and social infrastructure development has been severely stymied due to the long history of civilian unrest. However, relative peace since the end of the civil war in 2002, has offered the promise for economic rejuvenation and development of the country. GDP growth rate since 2002 has been between 4% and 7%. The country is endowed with rich mineral resources and the economy is overly dependant on mineral exploitation. Although agriculture employs most of the population, it accounts for only 42% of national income. The mineral extraction and exploitation industry generates most of the income although it has been managed poorly, with most of the income escaping formal channels, and used to fund rebel activities in the region. Diamond exports account for almost half of Sierra Leone’s exports, and remains the biggest source of earnings. A number of significant offshore oil discoveries in 2009 and 2010, could herald a new period of growth, although development of these reserves is still many years away.

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Talisman hunting for more oil-rich Eagle Ford assets..Will clinch deals if price are in-line

Canadian O&G company, Talisman Energy has oil and gas assets in North America, the North Sea and Southeast Asia. The company is pursuing a number of high-impact international exploration opportunities for 2011. In 2010, Talisman produced 417,000 boepd, approximately 50% oil and 50% natural gas.

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Talisman's Transforming to Oil-Focused Company:

In terms of the portfolio, the company completed the sale of $2 billion of non-core, predominantly North American natural gas assets during 2010, bringing the total to $5 billion over the past two years. In general, the intent was to sell higher-cost, high-decline conventional gas assets and reposition the portfolio towards lower-cost, long-life assets, focusing on liquids.

"In North America, our emphasis will shift to liquids, and we will reduce gas directed spending by 35%. Our reduced gas directed drilling remains profitable at US$4 prices, and our land retention commitments are relatively minor. With the Eagle Ford acquisition complete, we plan to build to eight rigs by year end, with net Talisman production expected to average 55-65 mmcfepd, just under half of which will be liquids” said John A. Manzoni, President and Chief Executive Officer, Talisman.

Talisman’s Divestitures from 2010:

Following the successful entry into the liquids-rich Eagle Ford through two acquisitions in 2010, the company is expecting to drill approximately 35 net wells. Talisman expects to ramp up to eight operated rigs by year end, and has budgeted approximately US$300 million. Net annual production from this play is estimated at 55-65 mmcfepd. Approximately half of this production is expected to be liquids.

Shale production in North America is expected to average 455-525 mmcfepd (~75,000-85,000 boepd), with an additional 90,000 boepd of conventional production.

Talisman in Eagle Ford:

Talisman took its first position in Eagle Ford in May 2010, buying 37,000 acres, and augmented that in December, when it and joint-venture partner Statoil paid $1.33 billion for 97,000 acres
The company successfully sold $2.2 billion of assets through 2010, all at very good metrics, and that allowed company to reposition the portfolio substantially through the year with about $2 billion of acquisitions, including some discoveries in Norway, the BP Colombia acquisition partnering with Ecopetrol, and deepening in the Eagle Ford jointly with Statoil.

Recent Major Transactions in Eagle Ford:

Source Documents:


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