Affiliates of Apollo Global Management LLC, Riverstone Holdings LLC, Access Industries Inc and other investors, have signed a definitive agreement to acquire all of the oil and gas exploration and production assets of El Paso Corp for approximately $7.15 billion.
Analysis of all opportunities for sale (Assets, JV, Corporate M&A, etc) in North America with deal values above $100 million gives the following results seen in Chart 1. Opportunities related to the Marcellus Shale lead the pack at $7.5 billion worth of assets for sale in the US. Oil sands related projects in Canada come second with $4.5 billion worth of assets for sale.
Figure 1: Chart of total deal value vs play type/ sub-region. Only deals in the market with deal values above $100 million have been considered for this analysis. Source: Derrick Petroleum ‘Deals in Play’ database.
Clearly, there are a lot of shale related opportunities in North America. Shale related opportunities represent ~52% of all opportunities in North America with the rest split between the conventionals (34.8%) and oil sands (12.5%). Marcellus shale related opportunities dominate at ~23% of all opportunities.
Shales are the hottest play in North America at the moment, and deal activity involving them looks set to dominate the oil and gas industry in North America for some time to come.
There are many unconventional packages put up for sale, with most in the US or Canada. Given the flurry of unconventional deal activity recently, it wouldn’t be surprising if unconventional deal volumes and values reach record highs this year.
Jack Williams, president of the Irving, Texas-based ExxonMobil's XTO unit, which was acquired by ExxonMobil in June 2010, says that Exxon is looking to expand its shale gas holdings in more than a dozen gas-rich shale-rock formations worldwide. Exxon is also getting active internationally, starting hydraulic fracturing on formations in Poland this year and last week agreeing with China Petrochemical Corp. to jointly assess the resource’s potential in China. Although gas prices have been relatively low, Exxon is reportedly pleased with the returns they’re seeing with production from their unconventional assets, and particularly XTO’s assets.
This announcement by Exxon comes on the back of a series of multi-billion dollar deals involving unconventional (shale) transactions. Last week, BHP Billiton agreed to acquire Petrohawk Energy for $12.1 billion to expand its shale gas holdings in the US. Since June 1, companies including Exxon, Marathon Oil Corp. and Malaysia’s Petroliam Nasional Bhd have announced at least $7 billion worth of North American shale-gas deals.
The following table shows unconventional opportunities for sale recorded in Derrick’s “Deals in Play’ database, part of Derrick’s ‘E&P transactions’ database
Table 1: Unconventional opportunities available in US and Canada as of July 2011. Click on squares to get to the detailed deal sheet. Source: Derrick Petroleum Services. *HRB = Horn River Basin.
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There are currently 67 unconventional oil and gas packages for sale in the market. The majority of these packages are located in the USA (46) and most of them are either for unconventional oil (21) or unconventional gas (21). A large number of packages are for investments in undeveloped discoveries (30) and for investments in fields under development (20). Eagle Ford Shale has the most number of opportunities at 12 followed by the Marcellus Shale at 7. Most packages are related to selling undeveloped acreage (36), followed by Joint Venture related opportunities (17)
BHP Billiton has agreed to acquire Petrohawk for US$38.75 per share by means of an all-cash tender offer for all of the issued and outstanding shares of Petrohawk, representing a total equity value of approximately US$12.1 billion and a total enterprise value of approximately US$15.1 billion, including the assumption of net debt.
Quick facts of the transaction:
Provides BHP Billiton with operated positions in the three world class resource plays of the Eagle Ford (332,000 net acres) and Haynesville shales (345,000 net acres), and the Permian Basin (325,000 net acres acquired in May 2011 for an average price of $1,400/acre).
Estimated 2011 net production of approximately 950 MMcfe/d.
Year-end 2010 proved reserves of 3.4 Tcfe and unproved resource base of 32 Tcfe for a total risked resource base of 35 Tcfe.
US$0.39 per Mcfe for total risked resources.
Valuation of the assets being acquired
A look at the split up of deal vale paid for the Haynesville, Eagle Ford and Permian assets-
The value for Haynesville Shale acreage is $3,622.5 million (at an assumed price of $10,500/Acre for 345,000 acres or $1.12/BOE of uproved resource potential);
The value for Eagle Ford Shale acreage is $3,784.8 million (at an assumed price of $11,400/Acre for 332,000 acres or $1.78/BOE of unproved resource potential).
The value for Permian basin acreage is $455 million (at $1,400/Acre for 325,000 acres based on the May 2011 transaction value);
Midstream assets are valued at $995 million as estimated by the buyer;
Remaining deal value of $6,242.7 million is ascribed to Proved Reserves ($11.04/BOE or $39,428/Daily BOE).
Benefits for BHP Billiton:
BHP’s acquisition of Petrohawk is the largest unconventional deal this year, the previous one happened when ExxonMobil bought XTO in 2009. This $15 billion deal has been followed by its recent entry into US shale business by acquiring Chesapeake’s Fayetteville assets for $4.8 billion. With these two back to back unconventional deals, BHP has set itself a strong foundation in unconventional business.
The following are the benefits for BHP through this acquisition.
The unconventional assets being acquired are well connected to a pipeline network which Petrohawk recently sold it to Kinder Morgan for $920 million. Therefore, distribution of the produced gas will not be an issue for BHP.
BHP’s acquisition of Fayetteville assets boosted its net reserves and resources by 45% and the current acquisition of Petrohawk takes BHP to a next level by doubling the resource base to 11.3 Billion BOE.BHP expects to increase its oil and gas production by 10% per year for the next decade.
BHP Billiton Petroleum will become one of the 10 largest independent upstream oil and gas companies in the world based on total resources.
Shale market is ROBUST
The unconventional market in US has seen a total deal volume of ~$33 billion since the beginning of this year against the last year volume of ~$17 billion with the same number of deal count. The following interactive charts show the unconventional deals in the past one year sorted by deal value and region.
The unconventional marketplace is being driven by motivated buyers (majors, internationals like KNOC, Marubeni, CNOOC, BHP, etc.,) and opportunistic sellers (Anadarko, Chesapeake, EnCana, Talisman, etc.,). Unconventional transactions dominated the upstream asset transactions in Q1-2011, nearly 35% of the total upstream value. PetroChina’s C$5.4 billion for a 50% interest in Cutbank Ridge assets in the Montney shale play fromEnCanaand BHP Billiton’s $4.75 billion for acquisition of interest inFayettevilleshaleplay from Chesapeake were the two major gas weighted shale deals in Q1-2011. However, number of transactions were more towards oil weighted Bakken and Eagle Ford plays. The following two tables show the significant unconventional deals of Q1-2011 in US/Canada.
A total of $13,671 million worth of shale oil/gas assets are available for sale in the United States and Canada. The Marcellus shale gas assets top the sale activity and account for 44% of the total value. The key and the emerging shale plays and the assets put up for sale in those areas are detailed below-
Key US shale plays:
• Bakken Shale, hybrid shale system with mainly oil production, also exploiting underlying Three Forks tight sands formation
• Marcellus Shale in Appalachia, covering multiple states with Pennsylvania as main state, NE-part dry, SW-part with wet gas area
• Barnett Shale in Texas, dry and wet gas zones, combo area with oil/condensate as well
Goodrich Petroleum increased 2011 capital program to develop the company's new acreage in the Eagle Ford Shale, as the company joins the shift towards oil and liquids development. Goodrich Petroleum increased its total 2011 capital budget by $10 million, from $225 million to $235 million. The company increased the allocation to the Eagle Ford Shale formation by $45 million, from $100 million to $145 million.
Goodrich Petroleum has been focusing its attention and capital over the last few years for developing the company's natural gas assets, including the Haynesville Shale and Cotton Valley formations in East Texas and North Louisiana.
In April 2010, faced with low prices and weak fundamentals for natural gas, the company decided to diversify away from this commodity, and purchased 35,000 net acres in the Eagle Ford Shale in Texas. The acreage is located in La Salle and Frio County, which is considered the oil window of the play. During the fourth quarter of 2010, the company drilled 4 gross or 3 net wells into the Eagle Ford Shale. Goodrich Petroleum is operating two rigs on its Eagle Ford Shale acreage and expects to drill from 22 to 26 wells on its 40,000 net acres.
Although Goodrich has been focusing in the Haynesville Shale, the company is deemphasizing development here in 2011 in favor of more oil focused properties in its portfolio. In 2010, the company spent approximately 56% of its total drilling budget, or $156 million, to drill 18 net wells into the Haynesville Shale. In 2011, the company plans to spend only $90 million to drill nine net wells on its Haynesville Shale properties. One area of focus for Goodrich Petroleum in 2011 will be in the Shelby Trough area of East Texas, where the company has 28,000 net acres under lease. The company drilled its first Haynesville Shale well here, and also plans development of the Bossier Shale in 2011. This formation lies just above the Haynesville Shale and produces natural gas.
Petrohawk produced an average of 562 Mmcfepd during 2010. The midpoint of full year 2011 production guidance is 885 Mmcfepd, representing an estimated 31% year over year increase and a 57% year over year increase pro forma for 2010 divestitures. The midpoint of first quarter 2011 production guidance is 770 Mmcfepd.
Petrohawk announced $2,300 million capital program, of which $1,900 million (82%) is allotted to drilling and completion activities.
Eagle Ford Shale:
- Planned 12 rigs for 1H 2011 and 15 rigs for 2H 2011. ~347,600 risked net commercially productive acres
Black Hawk:
- Estimate of ~73,600 risked commercially productive net acres. Currently operating eight rigs ramping to 10 rigs by June 2011
Hawkville Field:
- Currently operating 5 rigs with plan to hold constant in 2011. Risked estimate of ~224,000 commercially productive net acres
Red Hawk:
- Five wells scheduled for 2011, two waiting on completion.
Haynesville Shale:
- Estimated ~225,000 risked commercially productive net acres; 75% operated. Operated rig count currently 16 and will hold thru 1st half 2011, 7 in 2ndhalf of 2011; leasehold requirements primarily met by mid-year
Lower Bossier Shale:
- Estimate ~150,000 risked commercially productive net acres. The company anticipates initiating Bossier development once Haynesville lease capture complete in mid-2012
A short note on Haynesville Shale- which beat Barnett in production!!
A recent report by the US Energy Information Administration on US gas production said the Haynesville is now producing at least 5.5 Bcf/d and overtook the Barnett Shale's production of 5.3 Bcf/d. The production from the Haynesville shale increased from 0.4 Bcf in 2007 to 410.9 Bcf in 2009. The production from the play is expected to increase to 2,328.4 Bcf in 2020 at an average annual growth rate of 15.8%. Some industry experts believe the Haynesville shale could ultimately produce as much as 30 to 40 trillion cubic feet of natural gas.
Haynesville Vs Barnett- Haynesville to be the winner??
Haynesville’s rig count has increased 11% over the past year to 168 rigs as against the Barnett’s 31% decline to 53 rigs. The drilling pace in Haynesville is ramping up due to the Barnett having many matured producing wells versus the Haynesville just speeding up the production since 2007 when the first well was hit by Chesapeake. Another reason for continued drilling in the Haynesville Shale in 2011 despite weak natural gas prices is the existence of some independent companies like BG, ExxonMobil and EXCO. These independents, in 2010, gave a new outlook to Haynesville Shale lifting the metrics to ~15,000/acre.
Haynesville runs @ high metrics of ~15,000/acre The Haynesville's average 2010 metrics of ~$15,000/acre had increased 67% from the average 2009 metrics of $9,000/acre. The Haynesville metrics is the highest of all the other unconventional gas plays! Observing the growth in Haynesville Shale play, it might become a replica of Barnett.
Here is the snapshot of a Haynesville package up for sale.
