BHP Billiton acquires Petrohawk for ~$15 billion in the largest oil and gas M&A deal so far in 2011

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.

By Deal Value 

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By Region

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Source Documents:

Acquisition ppt

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Petrohawk july 2011 ppt

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Laredo Petroleum grabs Permian focused Broad Oak Energy for $1 billion

Laredo Petroleum LLC has agreed to acquire Broad Oak Energy Inc, whereby Broad Oak will become a wholly-owned subsidiary of Laredo in exchange for aggregate consideration of approximately $1 billion. This is the biggest deal in the Permian Basin so far in 2011. This merger will make the combined company a leading player in the Permian Wolfberry oil play alongside Laredo's well established presence in the liquids-rich Granite Wash play.
Is the combined company planning for an IPO?
Both Laredo and Broad Oak are privately held companies formed in partnership with their management teams by affiliates of Warburg Pincus LLC. Through this merger, is there an IPO coming up from Laredo's side??

Broad Oak Energy Inc is a privately held oil and gas exploration and production company with a particular focus on the Permian Basin of West Texas. Broad Oak has assembled approximately 65,000 acres in the Wolfberry play of the Midland Basin. Assets include both infill and extension drilling prospects targeting a 3000 ft. proven producing interval that comprise Upper and Lower Spraberry, Dean and Wolfcamp reservoirs. Broad Oak has drilled over 200 wells and plans to drill 120 wells during the second half of 2010. The following map shows the operated producing assets of Broad Oak and Laredo Petroleum.

The following is the gross production profile of  Broad Oak operated assets.

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Summary of Permian Basin deal activity in the last 5 years

Deals by key operators in the Permian Basin

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Here are the significant Permian Basin deals of 2010 where the $/flowing barrel equivalent was around $100,000.

-- Apache acquires BP assets in Permian Basin for $3.1B

-- Concho Resources and Apache acquire assets of Marbob Energy for $1.65B

-- SandRidge Energy acquires Arena Resources for $1.3B

-- Oxy acquires Yates Drilling Co for $1.1B


Comparison of the deal activity by US sub-regions 
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The Permian Basin received the highest production multiples, $80,000-$110,000 per flowing barrel equivalent. The metrics reflect the premium buyers are willing to pay for oil reserves; future drilling opportunities, behind pipe potential and reserve quality.

The first 5-month results of 2011 show the total value of Permian Basin deals to be $2.3 billion with an average production metrics of ~90,000/daily BOE. There are a few Permian Basin packages put up for sale by Element Petroleum (brokered by BMO Capital), Piedra Resources (brokered by RBC Capital) and Parallel Petroleum (brokered by Scotia Waterous). These packages, being mandated by major advisors, are to make huge money to the Permian Basin for this year.

Source Documents

Permian basin overview

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USGS Assessment on Permian Basin Reservess

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Broad oak & laredo offset leases

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Apache Production increased by 25% in Q1 2011; Plans to Raise 2011 Capital Expenditures by 8% to $8.12 billion

Apache Corporation posted Q1 2011 production up 25% to 732,000 boe from 586,000 boe in the first quarter 2010. Liquids production increased 57,000 bpd to 358,000 bpd, which enabled Apache to achieve stand-out earnings and cash flow as a leading beneficiary of rising oil prices. Liquid hydrocarbons represented 49% of quarter production. Approximately 60% of the company’s oil production came from operations outside North America.


Apache’s operational data for year end 2010 comparing to peers:



Last year, Apache grew substantially with three large acquisitions. A $2.7 billion takeover of Houston’s Mariner Energy gave the company its first significant presence in the deep-water Gulf of Mexico. It also paid BP $7 billion for production in Canada, the U. S. Permian Basin, and Egypt; and struck a $1 billion deal with Devon to acquire shallow-water properties in the Gulf of Mexico.

Source: Derrick Petroleum - Global Oil & Gas M&A 2010 Review Report


Milestones during the Quarter:

- Development well in the Forties field (North Sea), which came online at approximately 11,800 boepd.

In the Permian Basin, Apache is operating 24 rigs, up nearly five-fold from a year ago. Targeting primarily oil objectives, Apache drilled 110 wells including 15 horizontals during the first quarter.

- Drilled six wells in Anadarko basin’s Granite Wash formation, every well has tested in excess of 1,000 barrels of oil and 2 mcfpd.

- In Egypt, Apache operated 22 rigs during the quarter, drilling 33 wells, including the company’s first wells in the Tayim development lease in West Kalabsha producing from deeper Paleozoic pay. Apache’s production remained online throughout the quarter, increasing sequentially from the previous three months.

"We continue to strengthen our land position, both in North America and internationally. Our LNG initiatives, Kitimat in Canada and Wheatstone in Australia, are steadily progressing toward project sanction with their respective joint venture partnerships," Farris said.

Plans to raise capital expenditures by 8%

The company now plans to spend $8.12 billion in 2011, up from its forecast for $7.5 billion. “The bulk of the increase will be spent in the second half of the year, so the company's 2011 production outlook for growth of 13% to 17% remains unchanged”, Chambers said.

The company is in the planning stages for the Kitimat liquefied natural gas terminal in northwestern Canada, and expecting a final investment decision on that facility later this year or early next year, with first gas expected in 2015.

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Petrohawk acquires 325,000 acres at $1,400/acre in Permian Basin - Its New Operating Area

Petrohawk Energy began building an acreage position in the Permian Basin in the second half of 2010, and has now acquired or has committed to acquire approximately 325,000 net acres at an average cost of approximately $1,400/acre with over 90% expected to be operated. The company’s core position includes acreage in the Midland Basin, where the primary target is the Lower Wolfcamp, and acreage in the Delaware Basin, where the primary targets are the Lower Wolfcamp Shale, Bone Springs Sands and Avalon Shale.

Capex for Permian Basin
Petrohawk will allocate approximately $75 million of drilling and completion capital to drill on its Permian Basin acreage during 2011. The company plans to run four rigs in the Basin with 15 wells scheduled to be drilled. Capital spending in this area is scheduled to gradually increase throughout 2012 and beyond with most lease terms providing for a four to five year development window.

Traffic towards Permian Basin is growing
In 2010, the Permian Basin received the highest production multiples, $80,000-$110,000 per flowing barrel equivalent. The metrics reflect the premium buyers were willing to pay for oil reserves; future drilling opportunities, behind pipe potential and reserve quality.



Source: Derrick Petroleum - 2010 M&A report


FY-2011 will again be a busy year for the oil-rich Permian Basin as the oil prices are increasing gradually. The following table shows the Permian Basin deals in Q1-2011.

Source: Derrick Petroleum E&P Transactions Database

W&T Offshore acquires Permian assets for $366 million

W&T Offshore Inc has agreed with private sellers to acquire approximately 21,900 gross leasehold acres (21,500 net acres) in the West Texas Permian Basin for a purchase price of $366 million. The reserves are over 91% oil and natural gas liquids. At January 1, 2011, estimates of proved reserves to be acquired are approximately 27 mmboe; and estimates of proved and probable reserves to be acquired are approximately 53 mmboe. The current wells produce around 2,800 barrel equivalents per day. Since the effective date of Jan 1, 2011, the proposed acquisition, production has increased from about 1,900 barrel equivalents.

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The sellers have three active rigs drilling in the field and ongoing completions are being made on the new wells. There is significant upside potential in the acquisition with hundreds of proved undeveloped and probable well locations. Capital expenditures associated with planned development activities for these properties for the rest of 2011 are currently estimated at $35 to $40 million.

Permian Basin Acquisition Metrics




Source: Derrick Petroleum Global E&P Transactions 2010 Review
(Note: 2010 M&A report is available for free- If interested in getting a copy of the same, please write to anitha.bharathi@derrickpetroleum.com)

In 2010, the Permian Basin received the highest production multiples, $80,000-$110,000 per flowing barrel. The current transaction values the proved reserves at $288 million ($10.67/BOE or ~$103,000 per flowing barrel equivalent) and the probable reserves at $78 million ($3/BOE).

With the reserve life index to be 26 years, the $/proved reserves going at $10.67 is certainly high. The metrics reflect the high oil price and the buyers are willing to pay for oil reserves; future drilling opportunities, behind pipe potential and reserve quality.

Following is the list of significant deals in Permian Basin in the last three quarters.

Source: Derrick Petroleum E&P Transactions Database

Another private company, Element Petroleum LP has put its Wolfberry assets for sale. The following slide shows the overview of the package:

PDC announced $233 million Capital Program; Projected 19% year-over-year growth in production for 2011

PDC Energy expects production growth of 19% in 2011, as the company moves to accelerate development of oil and liquid assets in the onshore area of the United States. The company plan to spend $233 million in 2011 to develop its various properties in the United States. The company will put 75% of this capital into oil and liquid plays, including the Niobrara Shale and the Permian Basin.

PDC Energy expects to produce between 2.4 million and 2.5 million barrels of oil and other liquids in 2011, up 34% from 2010. The following map illustrates the company’s planned operational activities in 2011.

Niobrara Shale
PDC Energy has 74,100 net acres under lease in the Denver Julesburg Basin in Colorado, with much of this acreage in the Wattenberg Field.  The company plans to drill 14 horizontal wells into the Niobrara in 2011.

Permian Basin
PDC Energy has 12,800 net acres under lease in the Permian Basin, where the company is working in several different areas. In 2011, PDC Energy plans to drill 25 vertical wells there, and recomplete six others. 

The company is working on different formations, with a primary emphasis on the Clear Fork, Spraberry and Wolfberry zones.  Annual production from the Permian Basin is projected to double by the end of 2011, to approximately 75,000  boe.

Other Plays
Despite the emphasis in 2011 on oil and liquids, PDC Energy is not abandoning natural gas development. The company has 56,100 net acres under lease in the Appalachian Basin that is prospective for the Marcellus Shale. The company plans to drill nine wells into this formation on its acreage in West Virginia.  

PDC Energy also has 8,000 net acres under lease in the Piceance Basin in Colorado, and plans to drill 12 wells there in 2011. Other companies involved in the Piceance Basin include, which drilled 125 net wells there in 2010. Occidental Petroleum also operates in this area, and has 120,000 net acres under lease.

The company will leverage its onshore oil properties in the U.S., while still advancing its natural gas production. By targeting the Niobrara and Permian Basin formations, PDC hopes to increase its development of oil and other liquids by 19% in 2011.

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Wolfberry Play- the Monarch of Permian Basin!!

In the recent days, the oil and gas industry sees many oil-weighted plays grooming up.. One such play is Wolfberry play- The Monarch of Permian Basin!!

The Wolfberry play is named after the two main productive formations, the low-permeability Wolfcamp and Spraberry. The Wolfberry play is spread across Midland, Upton, Martin, Howard, Glassock, Andrews and Reagan counties of Permian Basin. Rig count has increased noticeably in Glasscock and Andrews counties in West Texas over the last 90 days as both private and public operators ramp Wolfberry programs. The activity in the Wolfberry has recently increased, spurred by the current relatively strong oil prices. The active participants in the Wolfberry play include Berry Petroleum, Linn Energy, Energen and PDC Energy.

PDC Energy is planning a 25-well drilling program in the Wolfberry in 2011 and anticipates continued production growth. Linn Energy’s 2011 capital program of $480 million has two distinct components: high rate-of-return liquids-focused drilling in the Granite Wash and Permian Basin Wolfberry trend and low-risk, low-cost projects. The capital program calls for drilling 45 horizontal Granite Wash wells and more than 130 Wolfberry wells in the Permian Basin.

The Wolfberry Economics

The Wolfberry has moderate rate of return with low risk. The Wolfberry play has gained better interests now than when oil was $147 a barrel in 2008. The 2010 production metrics of Wolfberry play had hit ~$120,000/daily boe as against ~$100,000/daily boe in 2008. 

The economics of the Wolfberry well is as follows: 

• Multiple zones: Spraberry, Wolfcamp, Strawn, Clearfork
• EUR 100-140 MBOE
• Capital Costs: $1.5 - $1.75 million
• IRR: 35% - 70%

Source: PDC Energy-KeyBanc Capital Markets Jan 2011 PPT

Here is the Wolfberry opportunity available for sale!