67 Unconventional Assets for Sale as of July 2011

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)

      

US/Canada unconventional assets worth ~$14 billion available on market. Marcellus Shale leads the play.

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 from EnCana and BHP Billiton’s $4.75 billion for acquisition of interest in Fayetteville shale play 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.

In United States...

In Canada...

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Unconventional assets worth $14 billion up for sale

Source: Derrick Petroleum E&P Transactions Database

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

• Fayetteville Shale in Arkansas, mainly dry gas

• Haynesville Shale on the Louisiana-Texas border, mainly dry gas

Emerging plays:

• Eagle Ford in South Texas, oil and wet gas in addition to dry gas

• Niobrara in the Rockies, mostly oil

• Utica in eastern Ohio and western Pennsylvani may be oil prone and future target by companies

• Avalon in the Permian, mostly oil

• Canadian plays, notably Montney and Horn River in British Columbia; and Oilsands in Alberta.

Enerplus sells Marcellus package for $575 million. Deal value break-up puts resources at $2.4/boe.

Enerplus agreed to sell a portion of its Marcellus natural gas interests in Pennsylvania, Maryland and West Virginia for estimated proceeds of US$575 million. The sold interests include:

• Approximately 91,000 net acres, primarily non-operated, in southwest and central Pennsylvania, Garrett County in Maryland and northern West Virginia
• Contingent resources of 1.6 Tcfe (1.36 Tcfe net) of natural gas as of December 31, 2010.
• Proved plus probable reserves associated with these leases at December 31, 2010 were 24.5 Bcfe (20.83 Bcfe net)
• Current production is approximately 5.4 MMcfe/d (4.59 MMcfe/d net). Enerplus’ total production from the Marcellus Shale was 21.27 MMcfe/d (18.08 MMcfe/d) for the Q1-2011.

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Upon conclusion of this transaction, Enerplus will retain all of its non-operated acreage in Bradford, Susquehanna, Lycoming, Columbia, Tioga, Wyoming and Sullivan counties in northern Pennsylvania as well as its operated acreage in Clinton County, Pennsylvania, Garrett County, Maryland and Preston County, West Virginia. Enerplus will retain ownership in approximately 110,000 net acres of land with an independent best estimate of 2.3 Tcfe of natural gas contingent resource and 92 Bcfe of proved plus probable natural gas reserves, each as of December 31, 2010. Of this total, approximately 60% (or 66,000 net acres) will be operated by Enerplus.

Value break-up for Reserves and Resources..

• Proved Reserves or Production- Enerplus’ April 2011 Presentation discloses that the total proved reserves associated with its Marcellus shale assets is 45% of the total proved plus probable reserves (2P) associated with its Marcellus shale assets.
• Applying the same ratio, the acquired proved reserves would be ~ 9.4 Bcfe (1.57 MMboe). The proved reserves can be valued using the industry benchmark metrics of $10/boe at $15.7 million, which leaves the production metric at ~$20,500/flowing barrel.
• Alternative way to arrive at the proved reserves- The current production being sold represents 25% of Enerplus’ total Marcellus production. Enerplus had disclosed in their April 2011 presentation that the total proved reserves associated with the Marcellus assets to be 52.4 Bcfe (44.54 Bcfe net). 25% of the total proved reserves is 11.54 Bcfe (1.85 MMboe). Approximately equal to the number obtained through the above methodology!
• Probable Reserves- The probable reserves involved in this transaction are 55% of the total 2P reserves and are calculated as 11.46 Bcfe (1.9 MMboe). The probable reserves could be valued at $5/boe or a total of $9.5 million.
• Contingent Resources- Deducting the value of reserves, the contingent resources of 1.36 Tcfe (227 MMboe) have been bought for $549.8 million ($2.4/boe).

A quick look at the significant Marcellus deals with acreage and production metrics

Source: Derrick Petroleum - E&P Transactions Database

Range Resources Q1 output up on Marcellus Shale drilling; Targeting Marcellus to be self-funding 2013 and capture full resource potential

Natural gas company, Range Resources Corp reports increase in its Q1 2011 production as the company focused on drilling the liquids-rich portion of the Marcellus Shale play in Pennsylvania and the Midcontinent regions. The company's production volumes up 17% to 545.5 mmcfepd, and they are on track to produce 400 mmcfe by the end of 2011. Range says by the end of 2012 they will be producing 600 mmcfe. Due to the outstanding performance of its existing wells combined with the initial performance of the newly connected wells, Range's Marcellus production has temporarily outgrown the existing infrastructure.

Range Expects the Marcellus Division to be a Value Driver for the Future
The Marcellus now appears to be the second or third largest natural gas play ever discovered in the world.  With the benefit of a large, liquids-rich window in southwestern Pennsylvania, the Marcellus offers the best economics of any large-scale, repeatable play in the US.  A significant portion of Range's acreage also offers the benefit of natural gas potential from the Upper Devonian and Utica shale formations that lie above and below the Marcellus.  In 2011, Range is directing 86% of its capital budget toward development drilling in the region.

Range has ~550,000 net acres in the SW part of the play. Over 800 wells have significantly de-risked 460,000 of Range’s acres. Assuming 80 acre spacing, and that 80% of this acreage will be drilled, this equates to 4,600 wells. The resource potential is for the Marcellus and does not include any potential from other shale zones. Utica and Upper Devonian shale wells have been completed and are currently waiting on pipeline connection.

Range is giving up 113 mcfe a day of natural gas production capacity with its 52,000 acre Barnett Shale sale. The $900 million Range gets for Barnett, coupled with cash flow and another $200-250 million in expected non-core asset sales this year, not only funds 2011 Marcellus development but also carries $400 million forward for 2012 development. Couple in 2011 and 2012’s development and production growth and Range expects 2013’s capex will be funded solely from its own cash flow.

Key Marcellus Deals in 2010 and 2011

Source: Derrick Petroleum E&P Transactions Database
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Chevron acquires Marcellus acreage from Chief Oil and Tug Hill. Cost may be between $7,000-$11,000/acre!

Chevron has agreed to acquire oil and gas assets, primarily 228,000 net leasehold acres, in the Marcellus Shale from Chief Oil & Gas LLC and Tug Hill Inc. The acreage, which is principally located in southern Pennsylvania, will give Chevron an estimated five trillion cubic feet of additional natural gas resources in its Marcellus Shale operations.


Chief's spokeswoman Kristi Gittins said the sale involves all of Chief’s interests in Cambria, Somerset, Bedford and Blair counties. "After the sale of these properties, Chief and Tug Hill will have approximately 125,000 acres of Marcellus leasehold, focused in the Bradford, Susquehanna, Tioga, Sullivan and Wyoming counties of northeastern Pennsylvania" said Trevor Rees-Jones, president and CEO of Chief.

Below is the map showing Chevron’s position in Marcellus

Source: Chevron 2011Credit Suisse Energy Summit Presentation

The following table shows the acreage metrics of Marcellus deals

Source: Derrick Petroleum- E&P Transactions Database

How much did Chevron pay for the Marcellus acreage??

Though the financial terms of the transaction were not disclosed, the assets could be valued as follows…

• Method-1: The average metrics for Marcellus Shale acreage run between $7,000-$11,000/acre which leaves the transaction value between $1.6-$2.5 billion.
• Method-2: It is disclosed that this transaction includes 5 TCF (~833 mmboe) of resources. The past transactions in the Marcellus Shale have valued the resources in the range of $2-$3/BOE. Applying the same metris for the resources that Chevron have acquired, the transaction is valued between $1.6-$2.5 billion.

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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 1^st 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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Marathon to divest non-core Marcellus acreage, where the metrics run at $7,000 per acre

Scotia Waterous (USA) Inc has been retained as exclusive financial advisor by Marathon Oil Corporation for sale of the company’s non-core Marcellus Shale assets in West Virginia and Pennsylvania. The offering has been organized into two packages: the operated leasehold and the non-operated leasehold. The total acreage for the offering is 81,397 gross (51,679 net) acres.


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Investment Highlights:
-- Operated leasehold: This package is comprised of 21,961 gross (net) acres with 100% WI in West Virginia, primarily in Randolph, Preston and Tucker Counties.
-- Non-operated leasehold: This package is comprised of 59,436 gross (29,718 net) acres with 50% WI in West Virginia and Pennsylvania. The acreage is operated by Triana Energy LLC, a Morgan Stanley backed private company, and is located primarily in Fayette County, Pennsylvania and Preston and Randolph Counties, West Virginia.
-- Joint Venture with Triana in which the leasehold is included within an Area of Mutual Interest to be developed by Triana on behalf of both parties. Triana has committed to $45 million drilling carry to earn 50% of AMI leasehold. Minimum drilling commitment in 2011 to drill 4 wells.
-- Encouraging results from Marathon’s drilling activity provides valuable technical data to partnership. Nine wells drilled to date with a focus on data collection and delineation of acreage. Seven operated, frac’d vertical wells with core and fluid efficiency test data. Two OBO horizontal wells providing production data and conventional core data.
-- Additional assets enhance ability of buyer to develop the asset base. Full compliment of regional geological and engineering analysis used to define the play. 100 square miles of 3D seismic currently being acquired over core leasehold. Company owned, buried 3D micro seismic array for stimulation monitoring. Two taps on major interstate pipelines.


Metrics for recent deals in Marcellus

Year	Heading	Deal Value ($MM)	$/Acre
2010	Epsilon Energy and Chesapeake form Marcellus JV	100	17,391
2010	Atlas Energy  and Reliance to form Marcellus JV	1,699	14,158
2010	Anadarko and Mitsui form Marcellus JV	1,400	14,000
2010	Williams acquires Marcellus acreage from Alta Resources	501	11,928
2010	BG and  EXCO form Marcellus JV	950	10,215
2010	EXCO and BG acquire Marcellus assets from Chief Oil & Gas	459.4	9,188
2010	Rex Energy and Sumitomo form Marcellus JV	140.4	8,595
2010	Shell acquires Marcellus acreage from East Resources	4,700	7,230
2010	Reliance enters into Marcellus JV with Carrizo	392	6,257
2010	EQT Corp acquires additional Marcellus acreage	280	4,827
2010	Trans Energy and Republic Energy form Marcellus JV	18	4,736
2010	Magnum Hunter acquires additional Marcellus assets	39.75	4,594
2010	Atlas Energy and Reliance jointly acquire Marcellus assets	191.9	4,531
2010	Antero Resources acquires Bluestone Energy Partners	180	4,500
2010	Statoil acquires Chesapeake’s additional Marcellus acreage	253	4,325
2010	Gastar and Atinum Partners form Marcellus JV	70	4,093
2010	Williams acquires additional acreage in Marcellus Shale	31	3,875
2010	EXCO Resources acquires additional Marcellus properties	95	3,392

Source: Derrick E&P Transactions Database

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Traffic towards Marcellus is high!! Seneca Resources divests GoM assets and focuses on Marcellus assets

Seneca Resources agreed to sell its Gulf of Mexico oil and natural gas producing properties for $70 million.

David F. Smith, Chairman and Chief Executive Officer of Seneca says, “We look forward to redeploying these proceeds to Seneca’s long-term growth opportunities in the Marcellus Shale. While our well costs have increased as a result of additional frac stages and increased service company charges, this has been offset by higher anticipated estimated ultimate recovery (EUR) factors. We are now anticipating well costs of $5.0 - $6.4 million for wells with up to 20 frac stages and lateral lengths reaching over 6,000 feet. Taking these factors into account, we expect to see results continue to improve over time, with some of our best wells achieving EURs of 8 Bcf. At a natural gas price of $4.00 per MMBtu, the pre-tax internal rates of return are still exceptional, ranging from 20 percent to better than 65 percent.”

As a result of the above, Seneca’s capital spending in the Exploration and Production segment for fiscal 2011 is now expected to be in the range of $600 to $655 million, up from the previously announced range of $485 to $560 million.

Traffic towards Marcellus!!!

There has been a vigorous traffic towards Marcellus area in 2010 with around $17 billion worth transactions as against ~$1.4 billion worth transactions in 2009. Huge difference!!!

In 2009.... 

In 2010....

Seneca’s divestiture of GoM assets and focus on Marcellus is in a way similar to the recent Range’s divestiture of Barnett assets and diversion of maximum capital towards Marcellus. Read more on the Range deal: http://mergersandacquisitionreviewcom.blogspot.com/2011/03/range-drops-barnett-for-900-million-and.html.

Also, Bob Ramsey, an analyst at FBR Capital said, "Marcellus Shale gas will bring an estimated $250 billion in payments to Pennsylvania land owners (more than four times the entire state's deposits) and drive $8 billion to $15 billion of annual spending in the state, based on 2,000 to 3,000 wells drilled per year.”

See more publications on Marcellus: http://docsearch.derrickpetroleum.com/research/q/Marcellus.html