Oil and Gas - Mergers and Acquisition Review

Friday, June 24, 2011

Malta Farm-In Extends Dominion

Dominion Petroleum Limited has entered into an Execution Agreement to acquire a 75% operated working interest in the production sharing contract for Blocks 4, 5, 6 and 7 of Area 4 Offshore Malta from Phoenicia Energy Company Limited, a wholly owned subsidiary of Mediterranean Oil & Gas plc (MOG), pursuant to a draft farm-in agreement. Closing of the acquisition is conditional upon Maltese government approvals and completion of the Placing of the subscription shares.

Under the terms of the farm-in agreement, Dominion will meet certain exploration costs up to a cap of US$1,260,000, on behalf of MOG in relation to its remaining 15% working interest. Dominion will also compensate MOG for a total amount of US$900,000 in certain historic costs, through the non-refundable sum of US$225,000 and a closing sum of US$675,000 under the farm-in agreement. The exploration costs to be paid by Dominion on behalf of MOG is US$0.189 million. The aggregate deal value including the historic costs is US$1.089 million.

The Maltese PSC is situated to the north of Libya, covering an area of 5,715 sq km in Maltese waters. It includes both the Cretaceous rift potential of the Melita-Median Graben and the confirmed Eocene carbonate play of North Africa. According to RPS Energy's report on Area 4, effective March 2006, there are number of prospects identified within the area, of particular interest is the Tarxien prospect, a lower Eocene carbonate build up. The reporat also estimated the prospect to have a gross recoverable un-risked P50 prospective oil resource of 115 MMbbl with an 18% chance of success.

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The work obligations of the current period of the Maltese PSC comprise the acquisition of 1,000 sq km of 3D seismic data and the drilling of one exploration well. The first exploration period is valid until January 2013 and there is a minimum spend requirement of US$5 million. The company anticipates that the 3D seismic survey will cost between approximately US$8 million and US$10 million gross to undertake, which will satisfy the minimum spend requirement. The results of the seismic survey will enable the JV partners to define and evaluate the Tarxien prospect and other identified opportunities within Area 4, prior to any drilling decision. The long-offset 3D will also allow for a clearer analysis of the pre-tertiary rift-fill below the Eocene carbonates and potential Cretaceous targets.

Post transaction the ownership structure in the blocks will be: Dominion Petroleum (75%, Operator), MOG (15%) and Leni Gas & Oil (10%).

SOURCE DOCUMENTS:

Malta-Dominion Farm-in Announcement

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Husky Energy raises $1.2B to fund growth plans; Expects 3 -5% CAGR Production Increase through 2021

Husky Energy Inc, Canada’s No. 3 integrated oil company, said it will raise $1.2-billion though public and private share offerings in order to finance its production growth plans. Husky, said it will sell 36.9 million common shares priced at $27.05 each, to a group of underwriters led by RBC Capital Markets, Goldman Sachs Canada, HSBC Securities (Canada) and J.P. Morgan Securities. The bought deal is expected to raise about $1-billion.

Husky announced a 2011 capital budget of CAD 4.9 billion (US$ 5.02 billion), a 23% increase from 2010. Excluding the acquisition, the bulk of the spending increases will go toward the Sunrise project and Southeast Asia, with reductions in midstream and downstream spending. With the larger capital budget and contributions from the recent acquisitions, Husky expects 2011 total production growth to be slightly above 4%.

Most of the gains will come from an increase in natural gas production of 14%, while expected 5% growth in heavy oil and bitumen volumes should offset a 3% decline in light and medium crude production. To supplement the funding of the capital plan, Husky also announced plans for a CAD 1 billion (US$ 1.02 billion) equity issuance. Current shareholders will have the option of receiving dividend payments in shares instead of cash.

The retention of the Southeast Asian assets is probably a positive step, given the outlook for increased gas demand in the region and the potential for exploration success. Also, moving forward with Sunrise should provide significant growth in oil volumes. However, while the company plans to achieve its previous production growth target of 3%-5% per year, short-term gains rely largely on natural gas acquisitions.

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The move toward natural gas stands in contrast to Husky's peers, which are shifting investment toward oil projects and away from natural gas. Also, the company's natural gas production is coming from Western Canada, a region that falls higher on the cost curve and faces intense competition from U.S. shale plays. As a result, returns may be challenged despite the growth in production.

Husky said the cash will go to boost exploration and development of its properties in Western Canada’s oil sands, offshore Newfoundland and Southeast Asia. It also said that, with the additional capital, it expects production to grow at the high end of its 3-5% annual target though 2015.

Husky Energy’s Exploration Portfolio:

Source Documents:
Corporate Overview June 2011

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Thursday, June 23, 2011

US O&G Majors' Presentations in May - June 2011

BP:
China's Energy Future

ConocoPhillips:
Investor Update - June 2011
UBS Energy Conference

Chevron:
Australasia Overview - June 2011

Anadarko:
2011 Energy Capital Markets Energy & Power Conference

Devon Energy:
Annual Meeting - June 2011

Shell:

Credit Suisse European Oil & Gas Conference

Chesapeake:
June 2011 Investor Presentation

2011 Annual Meeting of Shareholders

Occidental Petroleum:
2011 UBS Global Oil & Gas Conference

Falkland Islands Oil and Gas Exploration in 2011 & 2012

The first exploratory drilling occurred in 1998 in a single drilling campaign when 6 wells were drilled. 5 of the wells had oil and/or gas shows, with one well flowing oil to the surface. The deposits were small and not commercial, and given the low price of oil prevailing then, no further drilling was undertaken. However, various estimates of volumes of oil that lie in the area have been made, with some sources saying about 60 billion barrels lie in the area. These potential huge undiscovered volumes have managed to keep some companies, albeit relatively smaller, interested in the area.

Well	Operator	Trap	Comment
14/5-1	Shell	Structural - valid	Gas discovery
14/9-1	Amerada	Structural - valid	Oil shows
14/9-2	Amerada	Structural - uncertain closure	Oil shows
14/10-1	Shell	Structural - valid	Recovered oil to surface
14/13-1	Lasmo	Structural - valid	Dry
14/24-1	Lundin	Structural - invalid	Oil & Gas shows

Table 1: Summary of results of the 6 exploratory wells drilled in 1998.

Enter Sea Lion!
Rockhopper, the company that holds exploratory acreage around the Falkland Islands, drilled the Sea Lion discovery well during April and May 2010. The well discovered 53 m of net oil pay in multiple zones of good sands and was flow-tested at over 2300 barrels of oil per day under restricted testing conditions. This was the first proper oil discovery and apart from pushing up Rockhopper’s share price considerably, it also significantly de’risked the area. After very positive appraisal drilling, plans are currently to test the well, and also drill another appraisal well. The 2nd appraisal well (14/10-5) reportedly flowed at commercially viable rates. Further appraisal drilling is being progressed over the coming months to continue to define the extent of the Sea Lion resource. It is highly likely that this discovery will be commercial, and if so will herald a new chapter in the Islas Malvinas history.

At present there are 5 operators actively involved in exploration in the islands. These companies are:

A. Falkland Oil and Gas Ltd: Falkland Oil and Gas Limited (FOGL) is an AIM-listed oil and gas exploration company operating in the South and East Falkland Basins.

B. Desire Petroleum Plc: Desire Petroleum plc (Desire) is a UK company listed on the Alternative Investment Market (AIM) dedicated to exploring for oil and gas in the North Falkland Basin.

C. Rockhopper Exploration: Rockhopper Exploration ("Rockhopper") (AIM: RKH) is an AIM listed oil and gas exploration company based in the United Kingdom. Rockhopper has licences to explore for oil and gas in the North Falkland Basin

D. Argos Resources Ltd: Argos Resources Ltd is a quoted oil and gas exploration Company based in the Falkland Islands. The Company's principal asset is a 100 percent interest in Production Licence PL001 covering an area of approximately 1,126 square kilometres in the North Falkland Basin.

E. Borders and Southern Petroleum: Borders & Southern is a UK-based, London Stock Exchange (AIM) listed company. It holds a 100% interest and operatorship in five Production Licences covering an area of nearly 20,000 sq km.

Who’s drilling and When?

Block/ Prospect Name	Operator	Wells planned in 2010	Wells planned in 2011	Wells planned in 2012+
FOGL - Falkland Islands Northern Licences	Falkland Oil and Gas Limited			2
FOGL - Falkland Islands Southern Licences	Falkland Oil and Gas Limited			1
Alpha	Desire Petroleum Plc		1
Dawn	Desire Petroleum Plc	1
Liz	Desire Petroleum Plc	1
Ann	Desire Petroleum Plc	1
Ninky	Desire Petroleum Plc		1
Rockhopper Falkland Islands Exploration	Rockhopper Exploration plc	2	2	2
Borders & Southern - South Falkland Basin	Borders & Southern Petroleum Plc		2
PL 001	Argos Resources		1	1

Table 1: Companies looking to drill exploratory wells in the Falkland Islands in 2011 and 2012. Also listed are wells that these companies drilled in 2010. Source: Derrick Petroleum Planned Exploration Wells Database

FOGL - Falkland Islands Northern Licences
Falkland Oil and Gas Ltd. (FOGL) holds interests in 7 exploration and production licences in the northern region (collectively called Northern Licences) and is the designated operator. The production licences cover ~ 50,000 sq km and are located in water depths ranging from approximately 200 m to 2,000 m. The licences contain many prospects which include the Loligo, Nimrod, Hersilia and Endeavour prospects. The Lologo prospect is scheduled to be drilled in Q1 2012, and possibly other prospects will be drilled depending on FOGL's ability to farm out and acquire funding.

FOGL Falkland Island Licences. Source: FOGL

FOGL - Falkland Islands Southern Licences
The southern licences lie offshore the Falkland Islands, in water depths ranging from ~ 200 to 2,000 m. The Toroa-1 well was spud on June 1st, 2010, but was dry. It was plugged and abandoned. FOGL’s top ranked prospects in the southern licences are Vinson, Diomedea, Thulla, Inflexible Undine and Lutra. The work obligation for Phase II, which the company is currently in, is the drilling of one well before December 2015, which the company intends to do. FOGL holds a 100% interest in the licences.

Alpha Prospect
The Alpha prospect lies in PL034 in North Falkland Basin offshore Falkland Islands in water depths of 145 m. Midsize estimates of recoverable resources are 7,800 BCF. The licence is currently in phase 1 which requires the drilling of a well by August 2012. So far, Desire Petroleum has not indicated when it plans to drill the well. Desire Petroleum holds 30% interest and is the operator which Arcadia Petroleum holds 70%.

Desire Petroleum’s acreage in the Falkland Islands. Source: Desire Petroleum

Dawn/ Jacinta Prospects
Desire Petroleum spud the Dawn/Jacinta 25/5-1 well in Tranche 1 in the North Falkland Basin in Dec 2010 targeting 2 levels; the Jacinta prospect, a lower Cretaceous stratigraphic sand pinch out trap with a targeted depth of around 3,281 feet (1,000 meters), and the Dawn prospect, a 3-way dip, fault bonded closure with a targeted depth of around 4,429 feet. The well encountered minor gas shows and was plugged and abandoned. Desire Petroleum holds a 100% interest in this licence (Tranche 1)

Liz Prospect
The Liz prospect lies in 350m of water offshore Falkland Islands in Tranche C. An exploration well was spudded on the prospect on February 22, 2010. The well encountered 17 metres of net hydrocarbon pay were encountered between 2961 and 3031 metres within a zone of over-pressured, predominantly sandstone, reservoir. The primary and secondary targets had hydrocarbon shows but reservoir quality in both was poor and was in complex stratigraphic traps. As on Feb 2011, the company is reprocessing 3D seismic over the Liz prospect and also plans to shoot more 3D around the prospect to define volumetrics. Desire Petroleum (92.5%) is operator and Rockhopper Exploration (7.5%) is partner.

Ann
The Ann prospect lies in PL 003 Tranche C Ann sub-area in 400m of water. The consortium was planning to spud a well in 2010. However, pending further announcements, it is unlikely this prospect will be drilled in 2011. Desire Petroleum (57.5) is the operator and the partners are Rockhopper Exploration (7.5%) and Arcadia Petroleum (35%).

Ninky Prospect
The Ninky prospect is located in Tranche D license area, North Falkland Islands. The company drilled the well 14/15-3 on the Ninky prospect which reached a total depth of 2,620 m in the Barremian source rock interval on 18 Apr 2011. The well failed to establish commercial quantities of hydrocarbons and will be plugged and abandoned. Desire Petroleum (92.5%) is operator and Rockhopper Exploration (7.5%) is partner.

Rockhopper Falkland Islands Exploration
Rockhopper Group has 100% of 4 licences in the North Falkland Basin, PL023, PL024, PL032 and PL033, between them covering an area of ~ 3800 sq. km. The Ernest prospect identified on the blocks was drilled in July 2010. However, the well did not encounter any hydrocarbons and was plugged and abandoned. On April 16, 2010 the Company spudded an exploration well Sea Lion 14/10-B on the Sea Lion prospect in PL032 which encountered oil. After very positive appraisal drilling, plans are currently to test the well, and also drill another appraisal well. As on 14 March 2011, a wider seismic acquisition programme, over areas of licences PL024, PL032 and PL033 and adjacent areas, is ongoing, and the company has secured four firm additional well slots and plans to drill in PL 032 in the near future.

Rockhopper’s Falkland Licences. Source: Rockhopper Exploration

Borders & Southern Petroleum- South Falkland Basin Exploration
Borders & Southern Petroleum holds a 100% equity interest and operatorship in five Production Licences covering an area of nearly 20,000 sq km in the South Falkland Basin. The Company has acquired and evaluated 2,862 km of 2D seismic and 1,492 sq km of 3D seismic survey over the area. Two prospects, Stebbing and Darwin, are planned to be drilled in Q4 2011 by the Eirik Raude rig.

Borders and Southern’s Licence shown in Purple. Source: Borders and Southern Petroleum.

PL 001
Production License 001 is located in the North Falkland Basin, offshore Falkland Islands and occupies an area of about 1,126 sq km. Argos Resources has completed 2D seismic survey over the license and based on the report about seven prospects and five leads have identified. The Company carried out a 1,415 sq kms of 3D seismic data aquisition in 2011 and plans to drill exploration wells in late 2011 or early 2012. Argos holds 100% interest in the licence.

Map of Argos licences in the Falkland Islands. Source: Argos Resources Ltd.

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Wednesday, June 22, 2011

Encana/Petrochina Montney JV collapses. Encana in the hunt for new JV partners

Encana is looking for new partners to develop its Cutbank Ridge assets following the collapse of its C$5.4 billion deal with PetroChina. The companies were unable to achieve substantial alignment with respect to key elements of the proposed transaction, including the joint operating agreement.

The assets in the terminated JV included the majority of Encana’s Montney, Cadomin and other natural gas assets, on a portion of the company’s British Columbia and Alberta lands. According to Encana, the Cutbank Ridge assets hold reserves of: Proved-1.8 Tcfe, Probable-0.6 Tcfe and Possible- 0.4 Tcfe; and Contingent resources of 3.1 Tcfe, on a best estimate case.

Foreigners’ invasion into Montney Shale:

The Encana-PetroChina JV was the largest amongst several recent deals in the Canadian Shales. Following are the few snippets of the other significant Montney deals:

In early June 2011, Petronas agreed to form a Montney JV with Progress Energy Resources, to develop the Altares, Lily and Kahta shale gas assets in north-eastern British Columbia and acquire 50% of Progress’ interest in the three areas, for a total consideration of C$1,070 million.
Recently, Talisman clinched back-to-back Montney JVs with Sasol. In December 2010, Sasol agreed with Talisman to acquire a 50% interest in the Farrell Creek assets located in the Montney basin for C$1,050 million. In March 2011, Sasol agreed with Talisman to acquire a 50% interest in Cypress A acreage, located in the Montney basin for C$1,050 million.
In early 2010, Kogas agreed with Encana to spend C$565 million over three years to explore new shale gas reservoirs in largely undeveloped areas of Encana's land, in the Horn River and Montney formations.

This is an interactive chart to compare the Montney deals since 2007.

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Other divestiture/JV plans from Encana

In April 2011, Encana announced plans seeking investors in two joint ventures on Encana assets outside Cutbank Ridge in northeast British Columbia – one on undeveloped Horn River shale lands and the other in the company’s Greater Sierra resource play. Discussions are well underway on these potential transactions, as well as on a potential divestiture of producing assets in the northern portion of Greater Sierra. Encana expects that these transactions, plus other divestitures and joint venture pursuits that the company has initiated, will generate proceeds and joint venture investments in 2011, of between $1 billion and $2 billion, a level that exceeds Encana’s net divestiture target of $500 million to $1 billion for 2011.

Potential buyers of Encana’s assets

The termination of this Encana-Petrochina JV opens doors for other companies who are interested in shale gas. These companies could be ExxonMobil, ConocoPhillips and other Asian investors like Kogas, Mitsui, Mitsubishi, CNPC, CNOOC, etc.