Mako Energy and Partners Considering Potential Sale and/or Farmout Options for their Rock Creek Project and Duvernay Shale Acreage

Mako Energy Limited has announced that it, and its joint venture partners, Transerv Energy Limited and Kilgore Oil & Gas Ltd, are planning a potential farmout or other disposition of all or a portion of their Duvernay and Rock Creek mineral rights in West Central Alberta. They have engaged Macquarie Capital as advisor.

The land holding of the joint venture within the Duvernay and Rock Creek fairway totals 261.08 gross sections (167,040 gross acres). Mako holds 50% interest in both the resource plays, and the remaining is held by Transerv (34%) and Kilgore (16%).

Rock Creek Project

  • The total land holdings of the joint venture within the Rock Creek project is 132.28 gross sections (84,659 gross acres). The land position extends across Niton, Pembina, Willesdon Green and Rimbey fields.

  • Highly analogous to the Bakken and Cardium unconventional light oil plays.

  • Proven Production reservoir-20 MMbbls of liquids and 1 Tcf of gas.

  • The project has estimated recoverable resources of 30 MMBOE, gross P90 resources of 189.78 MMBOE (80% Oil) and gross P10 resources of 286.58 MMBOE (Source: Sproule and Associates).

  • The average Estimated Ultimate Recovery per well is 168,000 BOE.

  • Plan to commence a 3-well drilling program in September 2011 comprising horizontal wells with multi-stage fracs. Kilgore anticipates drilling and completion cost of approximately C$4.5 million per well.

  • Transerv reviewing options for select farmout to fund initial 3 well program.

  • Horizontal wells have been used to exploit the Rock Creek gas play for the last five years with approximately 30 wells. However, there have been only 5 applications of horizontal wells to the Rock Creek oil play, of which two are still confidential.

Duvernay Shale Acreage

  • The total land holdings of the joint ventures within the liquids rich Duvernay Shale is 128.28 gross sections (82,099 gross acres).

  • The Duvernay formation has been the focus of recent industry attention which generated a one day record land sale of C$750 million for 497 sections (318,080 acres) of land surrounding, or contiguous, with the joint venture’s lands with an average metric of about $2,000/acre ($5,000/hectare).

Comparable Deals

   • In April, 2011, Encana acquired about 190,000 net acres in the Simonette and Kaybob areas of the Duvernay shale in Alberta for approximately US$300 million or an average cost of about C$1,600 per acre (US$1,579 per acre). The company believed that the bulk of the acreage (~2/3 of total acreage) was located in the liquids rich window and planned to drill 3 to 4 horizontal wells in the year 2011, starting in around August. As no Proved Reserves were booked at the time, Derrick ascribed the entire deal value ($300 million) to Undeveloped Acreage ($1,579/ Acre).

  • In June, 2011, Talisman acquired a 100% WI in approximately 255,000 net acres in the Duvernay Shale play in Alberta through land sales for $510 million or $2,000/Acre. Talisman believes this to be a liquids rich shale play.

Duvernay Shale vs Other shales

Derrick Comments

Derrick values this package between $80-$100 million for

1. The value of the Rock Creek farmout option (~7.5 million): This farm out option was disclosed by Transerv (partner), where they are looking for a partner to fund a 3 well drilling program to begin in Sep, 2011. The drilling and completion cost of each well is estimated to be ~C$4.5 million (~US$4.6 million). Hence, the total cost for 3 wells is estimated to be ~$15 million. Assuming a 50% carry for the JV, the value is estimated to be ~$7.5 million.


2. Disposition of 50% of the  Duvernay Shale acreage (~82 million): The value of the JV’s acreage is estimated to be $164 million ($2,000/Acre). Assuming 50% to be sold, the value is estimated to be $82 million. The $/Acre metric is based on the recent June 2011 Alberta land sales where Talisman acquired Duvernay lands for $2,000/Acre ($5,000/Hectare).

The Mako JV Duvernay lands are adjacent to the land where Talisman paid a whopping $5,000/ Ha ($2,000/ acre) for 255,000 acres for a total consideration of $510 million in the 1 June, 2011 Alberta Crown Land Sale. The Mako JV lands were acquired previously for about $200/ Ha, as reported by Transerv. This is a substantial increase in the value of the shale acreage and the Mako JV is looking to capitalize on appreciation in their Duvernay shale property.

No Significant Change in Number of 'Deals in Play' So Far In 2011 In North America

There are no big changes in the numbers of 'deals in play' as measured on 1 Jan, 2011 & 1 Aug, 2011. Apart from an increase by 10 in Aug 1, 2011, the number of opportunities and their spread between country, sub-region/ plays, shales, and conventionals/ unconventionals remains largely the same. This analysis is based on opportunities recorded in Derrick’s “Deals in Play’ database as on 2 different dates: 1 Jan, 2011 and 1 Aug, 2011. Only opportunities where deal values are equal to or greater than $100 million have been considered for this analysis. The following charts show the split up of the number of opportunities vs Sub Region/ Play Type. Additional insights gleaned from this information are presented below.

Chart 1: Number of opportunities Vs Sub Region/ Play Type on 1 Jan, 2011. Source: DPS

Chart 1: Number of opportunities Vs Sub Region/ Play Type on 1 Aug, 2011. Source: DPS


On  Aug 1, 2011, there were 78 assets for sale in North America (US and Canada) with asset/ project values greater than $100 million. This is an increase by 10 in the number of deals in the market in this region as compared to Jan 1, 2011.

On Aug 1, 2011, the most number of deals in play were from Alberta, Canada at 14 (17.94%), for conventional assets/ projects. Deals in play from Alberta were also on top on Jan 1, 2011 at 11 or 16.17% of all opportunities.

Marcellus Shale related packages hold 2nd and 3rd place, in terms of number of packages for sale, as of Jan 1, 2011 & Aug 1, 2011, at 10 & 8 respectively. These numbers have remained constant for both these periods.

On Jan 1, 2011, there were 45 opportunities in the US (66%) and 23 in Canada (34%) as compared to 47 in the US (60%) and 31 in Canada (40%) on Aug 1, 2011.

On Jan 1, 2011, there were 28 (41%) shale opportunities as compared to 34 (44%) on Aug 1, 2011.

On Jan 1, 2011, there were 34 (50%) opportunities related to conventional hydrocarbons compared to 38 (49%) on Aug 1, 2011. On Jan 1, 2011, 34 (50%) opportunities were for unconventional hydrocarbons and on Aug 1, 2011, 40 (51%) were for conventionals.

Shale Assets Dominate North American Opportunities

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. 

CIC acquires 30% stake in GDF’s E&P unit for $3.3 billion. Chinese companies on acquisition spree again.

China Investment Cop (CIC) has inked Memorandum of Understanding to acquire a 30% stake in GDF Suez's gas exploration and production unit. It is believed that CIC will acquire the stake for as much as €2.3 billion ($3.27 billion) and finance GDF to expand power projects in Asia-Pacific.

Facts of GDF

GDF deploys its exploration and production activities in the Netherlands, Germany, the United Kingdom, Norway, Algeria, Egypt, and, in a more limited way, in Mauritania, the Ivory Coast, the USA, Indonesia, Denmark and France. The Group is also present in Azerbaijan, Libya, Australia and Greenland. The key figures concerning the exploration-production sector are as follows:

• 51.2 MMBOE (Gas- 74% and Oil- 26%) produced in 2010
• 815 MMBOE (Gas- 74% and Oil- 26%) in 2P reserves at year end 2010.

Source: GDF SUEZ

Comments on this Chinese Alliance

• There are some uncertainties about this MoU getting finalised. On the other hand if it is finalised, it will be beneficial to GDF to reduce its liabilities by €10 billion to €4 - €5 billion, and to meet the rapidly growing power demand in Asia-Pacific.
• GDF Suez has plans to put the exploration and production business into a separate unit ahead of the capital increase by the end of the year. As part of this, are there any chances for other potential candidates to acquire a strategic stake in GDF following the dilution of 30% stake?
• In 2009, China Investment made significant investments in Russia (Nobel Holdings) and Kazakhstan (KazMunaiGas EP). Last year, CIC formed an oilsands JV with Penn West Energy and committed to invest approximately $800 million in Penn West’s assets. Now, CIC has taken an initiative to venture into Europe. CIC- Quite active in overseas investment and posted 11.7% return on its overseas investments last year.
• Since January 2011, when CNOOC struck a Niobrara JV, there were no acquisitions by the Chinese companies. This $4.28 billion alliance and the recent CNOOC-OPTI oilsands (~$2.1 billion) deal have ended the long break the Chinese companies had taken from acquisition mode. Looks like the acquisition spree has again started!

SandRidge ropes in Korean partner, Atinum, to exploit Mississippian Play in a $500 Million JV. Chesapeake offers $1.5 Bn-Mississippian parcel for sale.

Slow M&A activity in the first week of August has ended with SandRidge Energy's $500 million JV with Atinum.
SandRidge Energy has entered into a joint venture with an affiliate of Atinum Partners Co Ltd, a leading investment firm located in South Korea. The JV area of mutual interest (AMI) covers, substantially, all of SandRidge's original Mississippian Play area, located in Northern Oklahoma and Southern Kansas, other than wells and acreage within the associated spacing units spudded prior to the effective date and all wells and acreage associated with SandRidge Mississippian Trust I.

As per the terms of the agreement, SandRidge will transfer an undivided 13.2% non-operated working interest in approximately 860,000 acres, or approximately 113,000 net acres to Atinum for a total transaction value of $500 million. Atinum will pay $250 million in cash at closing. Atinum has also committed to a drilling carry obligation to pay 13.2% of SandRidge's share of drilling and completion cost for wells drilled in the AMI up to a total amount of $250 million, which is anticipated to occur over a three year period.

Mississippian Oil Play- A new comer to the Unconventional Sector

The Mississippian Oil Play is an emerging horizontal play that has the potential to become one of the most profitable domestic onshore oil plays. This play is led by Chesapeake Energy, SandRidge Energy, Range Resources, Devon Energy and Eagle Energy of Oklahoma LLC. SandRidge Energy is the most active driller in this play with 3,400 drilling locations and 12 horizontal rigs.

The interesting fact about the Mississippi horizontal wells is the rate of return, when compared to other areas being drilled in the industry. The IRR for a Mississippi horizontal well is 120% and better than the average Bakken Shale well at 92%.

Economics of Mississippian Oil Play

• The Mississippian play exists in the shallow depths of less than 6000 feet.
• The cost to drill and complete a well is $3 million.
• The EUR for a well in this play ranges between 300 and 500 Mboe (52% crude oil).
• Low horsepower rigs (< 1,000 hp) and low pressure pumping (~12,500 hp).
• With the availability of extensive existing infrastructure and high IRR, as compared to the Bakken and Eagle Ford oil plays, the exploitation and development of Mississippian play is feasible and profitable.

The following table illustrates the comparison of single well economics of the unconventional oil plays-

SandRidge has made a good deal with Atinum. Chesapeake to follow.

SandRidge had accumulated the Mississippian acreage over a period of 3 years at an average cost of ~$200/acre or ~$170 million. However, the current transaction returns a value of $4,425/acre to SandRidge Energy and $/acre is increased by more than 20 times. This value of the acreage should also be attractive for Chesapeake who holds approximately 1.1 million net acres in this play. Chesapeake, in May 2011, had initiated a joint venture process for the same play. The highlights of Chesapeake holdings in the play are as follows- 

Chesapeake’s Mississippian play:
-- ~1.1 million net acres.
-- As of May 2011, Anadarko Basin had total of 1,990,000 net acres; Proved reserves of 2,184 Bcfe; Unrisked unproved resources of 33,500 Bcfe; April 2011 daily net production of 510 MMcfe.
-- As of October 2010, Mississippian play completions: ~230,000 net acres; 21 MMBOE of Proved reserves; ~145 MMBOE of risked unproved resources; ~385 MMBOE unrisked unproved resources; Net production in October 2010 was 3 MBOE/d.
-- To date, Chesapeake has drilled 53 operated Mississippian horizontal wells and has participated in the drilling of 36 non-operated Mississippian horizontal wells.
-- Currently drilling with five operated rigs.
-- Plans to increase its operated drilling activity in the Mississippian to seven rigs by the end of Q4-2011.

Source: Derrick Petroleum "Deals in Play" Database

Husky Seeks JV Partner for Accelerated Development of its Ansell, Liquids Rich, Gas Assets

Husky’s chief executive, Amit Ghosh, said in its 2nd quarter conference call, that the company is seeking a joint-venture partner to accelerate development of an emerging liquids-rich natural gas play in western Alberta.

Husky has created a preliminary development plan which could potentially see up to 2,600 Cardium and deeper Manville formation wells drilled in its Ansell assets, most of which would be horizontal. In the first two quarters of 2011, Husky drilled 21 Cardium Formation wells at Ansell. A further 12 Cardium and nine deeper multi-zone wells are planned to be drilled in the second half of 2011. The company is currently constructing additional offload capacity on its own, which will increase total production capacity at Ansell to 56 MMcf/d and over 2,000 Bbls/d liquids.

As prices for natural gas continue to remain low, North American natural gas producers have shifted focus towards fields rich in natural gas liquids, which trade at prices close to crude oil, and the Ansell property is one such liquids rich gas field, which could benefit from further development. 

Analyst Comment

Assuming a 50% JV for the undeveloped acreage of 150,000 acres, we value the 50% JV to be between $60 - $80 million. This valuation is based on similar recent deals in the vicinity involving the Cardium Formation acreage where the acreage metric was between $1,200/acre - $1,800/acre. 

Derrick 'Deals in Play'

Derrick has aggregated all publicly announced properties for sale. Derrick’ Deals in Play is the most comprehensive data set of its kind in the industry. This special feature includes every deal ranging from the large packages being brokered through investment banks to the much smaller, non-brokered prospects. For more information click here. 

Petrobras to sell $13.6 billion worth of assets in 2011 - 2015

Petrobras, Brazil's largest company, came out with its 2011 -2015 business plan last week. For the first time, Petrobras said in its business plan, it is looking to divest $13.6 billion worth of assets over the 2011 - 2015 period.

Reuters quoted its chief executive, Jose Sergio Gabrielli,  as having said on Monday, that as part of its divestment plan, Petrobras will look at selling stakes in some of its offshore oil blocks. Also, the company would sell stakes in some of its oil exploration and production projects, and partners in those projects would also be allowed to buy stakes. However, sale of its production assets would reportedly not involve its pre-salt  blocks.

Petrobras’ exploration is primarily focused in three major offshore basins in southeastern Brazil: Campos, Espirito Santo and the Santos basins. As of December 31, 2010, the company held exploration rights in 21 blocks comprising 6,374 sq km in the Campos Basin, 19 blocks (16 offshore blocks) comprising 8,086 sq km in the Espirito Santo Basin and 47 blocks comprising 29,302 sq kms in the Santos Basin. Petrobras also produces hydrocarbons and holds exploration acreage in 19 other basins in Brazil. Of these, the most significant are the shallow offshore Camamu basin and the onshore Potiguar, Reconcavo, Sergipe, Alagoas and Solimoes basins. In 2010, the company’s average daily production from its Brazilian assets was 2,165.5 MBOE/d.

Figure 1: Petrobras concession areas, Brazil. Source: Petrobras

Outside Brazil, Petrobras has significant operations in Argentina, Venezuela, Colombia, Peru, Ecuador, Bolivia, Gulf of Mexico, offshore Nigeria, Angola, Portugal, Turkey, Senegal, Libya, Tanzania, Mozambique, Iran, Pakistan and India. In 2010, the company’s average daily production from the International assets was 2,405.4 MBOE/d.

Petrobras is planning to divest $13.6 billion worth of assets over five years, which equates to approximately $2.5 billion worth of assets to be sold every year.

Derrick 'Deals in Play'

Derrick has aggregated all publicly announced properties for sale. Derrick’ Deals in Play is the most comprehensive data set of its kind in the industry. This special feature includes every deal ranging from the large packages being brokered through investment banks to the much smaller, non-brokered prospects. For more information click here.