Oil & Gas Financial Journal - February 2011

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From the best map data to software that maximizes the value of your spend and keeps you in compliance, P2 Energy Solutions has the right package to fit your company, large or small.

It’s never too late to MANAGE YOUR COSTS.

Find out more by downloading our complimentary white paper, “Squeezing Shale Plays for Higher Shareholder Return” at www.p2energysolutions.com/shaleplays

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Calgary Ph. 403.774.1000

Dubai, UAE Ph. +971 4 3910231

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Contents

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February 2011

®

Goodrich shifts capital to

Eagle Ford Shale INSIDE • • • • • Contents

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Oil companies make bad villains Financing the midstream sector Future of supply trading ERM for oilfield service firms OGJ150 Quarterly Report

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CONTENTS V8/#2

FEATURES

✱

ON THE COVER: Left to right: Goodrich Petroleum’s vice chairman and CEO Walter G. “Gil” Goodrich and president and COO Robert C. Turnham, Jr.

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COVER STORY: Goodrich Petroleum An interview with Goodrich Petroleum president and COO Robert Turnham.

22 Oil cos, bad villains Whether it was the proposed “windfall” profits tax in 2008, the price drop that “diverted” renewable energy investments in 2009, or the “greed” that caused the BP Deepwater Horizon spill in 2010, it seems the US oil industry gets blamed for most everything these days. Jude Clemente, an energy security analyst and technical

writer in the Homeland Security Department at San Diego State University, works to dispel certain misconceptions about the industry while outlining why oil companies make bad villains.

28 ERM for oilfields Oilfield services companies face many risks. To mitigate those vulnerabilities, Enterprise Risk Management should be built

into the culture and management philosophy of every oilfield service company. Weaver’s Joseph Allred brings attention to five questions companies should ask.

and their offshore transportation and processing systems. Understanding these costs in mature provinces may give players an advantage in identifying A&D opportunities.

31 Cost, abandonment

34 Supply trading

Bart Willigers and Zaur Muslumov of Palantir in Aberdeen outline some of the economic interdependencies between oil and gas fields

Supply trading represents both an opportunity and a challenge for oil and gas companies. Jonathan Dison of Bender Consulting explains how

expansion in the area could take oil and gas companies beyond simply playing in the upstream or downstream market.

36 Barnett briefs The Barnett Shale gas play may be the grandfather of shale gas plays in the United States, but it is still making news. Despite its maturity, the Barnett occasionally still produces a surprise. One of those surprises occurred

in 2010 when Chesapeake Energy’s White South #1H well set a record for production volume from the formation.

40 OGJ150 While revenues have made a rebound from the economic doldrums of 2009, net income for the OGJ150 group of companies slipped a little in 3Q10, with a few notable exceptions. Net income dipped by $2.7 billion, but still up 42% over 3Q09.

Oil & Gas Financial Journal® (ISSN: 1555-4082) is published 12 times a year, monthly, by PennWell, 1421 S. Sheridan Rd., Tulsa, OK 74112. Periodicals Postage Paid at Tulsa, OK, and additional mailing offices. POSTMASTER: Send address changes to Oil & Gas Financial Journal, 1421 S. Sheridan Rd., Tulsa, OK 74112. Change of address notices should be sent promptly with old as well as new address and with ZIP or postal code. Allow 30 days for change of address. Copyright 2011 by PennWell. (Registered in US Patent & Trademark Office.) All rights reserved. Permission, however, is granted for libraries and others registered with the Copyright Clearance Center Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, Phone (508) 750-8400, Fax (508) 750-4744, to photocopy articles for a base fee of $1 per copy of the article, plus 35 cents per page. Payment should be sent directly to the CCC. Federal copyright law prohibits unauthorized reproduction by any means and imposes fines up to $25,000 for violations. Requests for bulk orders should be sent directly to the Editor. Back issues are available upon request.

February 2011 Oil & Gas Financial Journal • www.ogfj.com

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DEPARTMENTS [Editor’s Comment]

5 Gov’t inertia drawing companies out of GoM The industry isn’t sitting still. Offshore operators, drilling contractors, and oilfield service companies are examining engineering challenges and other issues with the intent to mitigate the risks inherent in offshore exploration and development and move forward. Unfortunately, the government isn’t doing its part. [Capital Perspectives]

6 Midstream financing The availability of cost-effective, assetbased financing for First Purchasers has become increasingly limited since the bankruptcy of oil and gas transporter and marketer SemGroup LP. While lending continues, additional security measures required often kill transactions or prove too costly for prospective borrowers. Meyers-Reynolds’ Josiah Daniel writes

about tailored insurance products that can give lenders the security they need to increase lending to First Purchasers. [Upstream News]

10 Exxon’s energy outlook ExxonMobil issued the latest edition of its energy outlook. The company’s researchers forecast that global energy demand will be about 35% higher in 2030 than in 2005; natural gas will be the fastest-growing major energy source, overtaking coal as the second-largest global energy source behind oil; and that global energy demand growth will be far higher unless projected efficiency improvements are met.

55 Co./Ad Index [Beyond the Well]

56 P2 Energy invests in future landmen P2 Energy Solutions has awarded a $578,000 in-kind contribution to the Business Administration Program of Western State College of Colorado (WSC) in Gunnison. The contribution will be used to equip students majoring in the land and resource management with skills needed to fill positions in oil, gas, and alternative energy land management.

38 Deal Monitor 50 Industry Briefs 52 Energy Players

OGFJ.com▶ ______________________________________

FEATURED STORIES Updated daily, OGFJ.com brings you the latest information from the industry. Get details on ExxonMobil researchers’ recent energy outlook showing rising global demand, Kinder Morgan and Copano Energy’s Eagle Ford agreement with Anadarko, EnCap’s $3.5 billion private equity fund, and more.

NEW! LEGALLY SPEAKING OGFJ welcomes energy attorney Aaron Ball as a guest blogger. Legally Speaking serves as a forum to bring readers up to date on current legal and compliance matters and solicit input on issues facing the energy community. Visit today and read about Iraqi oil production shortfalls as land mines and other issues hinder development. Read and comment on this and other weekly topics.

FACILITIES AND INFRASTRUCTURE MAPS

▲

In collaboration with PennWell’s MAPSearch and OGJ, OGFJ is working to bring you new maps detailing facilities and infrastructure in various oil and gas plays. Visit the Unconventional Resource Center page on OGFJ.com for more information. 2

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ENERGY PHOTO OF THE WEEK Send us your photos, along with a short description, and your photo could appear online as our Energy Photo of the Week.

www.ogfj.com • Oil & Gas Financial Journal February 2011


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Editor’s Comment

Government inertia causing offshore companies to flee the Gulf of Mexico Don Stowers Editor-OGFJ

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he announcement on Feb. 7 that Ensco will acquire Pride International in a $7.3 billion transaction served as a reminder that offshore drilling companies are starting to leave the US Gulf of Mexico. This is due mainly to the failure of the Obama administration to tell offshore operators how drilling will move forward in the Gulf. The silence from the White House on this critical economic matter that impacts thousands of jobs is deafening. Houston-based Pride operates a fleet of 25 rigs, including four deepwater drillships, and the fleet operates primarily in the waters off Brazil and West Africa. Pride has been moving its rigs out of the Gulf for some time. London-based Ensco, the larger company, has a larger offshore fleet with a major presence in the North Sea, Southeast Asia, the Middle East, and a dwindling presence in North America. The merger will create the world’s second-largest offshore drilling company. In the wake of last year’s Deepwater Horizon explosion some 40 miles off the coast of Louisiana and the subsequent oil spill that affected parts of the central Gulf Coast, the US government decided to issue a temporary moratorium on deepwater offshore drilling in the Gulf. The government’s investigation determined

that part of the reason for the disaster was lax regulatory enforcement by the Minerals Management Service. As a result, that agency was dissolved and a new one created, the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE). The blowout of BP’s Macondo well last April 20 shook the industry in much the same way that the Challenger explosion rattled NASA in January of 1986. It’s caused a great deal of soul searching and a reassessment of safety standards. This week (Feb. 11), the Baker Institute for Public Policy at Rice University is holding a conference that will examine the policy implications of the disaster in light of new scientific and technical information. And on June 14-15, PennWell Corporation, parent of Offshore magazine, Oil & Gas Journal, and Oil & Gas Financial Journal, will hold Petrosafe Offshore in New Orleans. The conference will bring together industry experts and risk professionals to explore ways to make offshore drilling safer and foster an improved culture of safety in the offshore drilling industry. In short, the industry isn’t sitting still. Offshore operators, drilling contractors, and oilfield service companies are examining engineering challenges and other issues with the intent to mitigate the risks inherent in offshore exploration and development and move forward. Unfortunately, the government isn’t doing its part. Despite a lifting of the moratorium on drilling in the deepwater Gulf of Mexico, BOEMRE has been dragging its feet on the issuance of drilling permits. This has created contractual disputes between operators and drillers, and the uncer-

tainty has caused some operators and drilling companies to move their operations elsewhere. Noble Corp. is among the drillers that have grown tired of waiting for Washington to act. The company recently said it will move its Clyde Boudreaux rig to Brazil because the current leaseholder declined to extend its contract with Noble due to the lack of permits being issued by the government. Roger Hunt, Noble’s senior vice president for marketing and new contracts, told analysts in a conference call that the company has endured the moratorium but finally has decided it cannot wait any longer. He said there was too much uncertainty, and this situation had contributed to a serious decline in fourth-quarter profits. The offshore industry will adapt to the situation in the Gulf of Mexico by moving on. There is no shortage of places to explore for and develop offshore oil and gas resources around the globe, and the current high price of crude oil (hovering close to $100 per barrel) is proof that demand is up. However, at a time when the United States needs to develop its own resources to reduce its dependence on the overseas supplies, the government appears to have turned off the spigot to a major resource in our own back yard, the Gulf of Mexico, where deepwater drilling technology has opened up vast reserves that were not accessible just a decade or so ago. Until this inertia on the part of the federal government changes, the United States will continue to suffer the economic consequences. OGFJ Have an opinion about this? Visit www.ogfj.com to comment.


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Capital Perspectives

Financing in the wake of SemGroup Using insurance to increase the availability of financing for companies purchasing at the wellhead Josiah M. Daniel IV, Meyers-Reynolds & Associates, Oklahoma City

Introduction

Background

SemGroup LP, a highly-leveraged oil and gas transporter and marketer that purchased oil and gas at the wellhead (a First Purchaser), was the 18th largest private company in the nation when it filed for bankruptcy in 2008. Since then, the availability of cost-effective, asset-based financing for other First Purchasers has become increasingly limited. The SemGroup bankruptcy was a stern reminder that states such as Oklahoma, Texas, and Kansas have unique Oil & Gas Product Lien Statutes (OGPL Statutes) that in effect give exploration and production companies (Producers) an automatically perfected purchase money security interest in the oil and gas they sell at the wellhead. In other words, a lender’s Uniform Commercial Code Article 9 security interest in a First Purchaser’s inventory, accounts receivable, and bank deposits is subordinated to Producers’ purchase money security interest in those same assets. While lenders have found methods to continue lending to First Purchasers, the additional security measures required often kill new lending transactions or prove too costly for prospective borrowers to take on. Fortunately, tailored insurance products are now available that can give lenders the security they need to comfortably increase lending to First Purchasers.

The bankruptcies of several large crude oil purchasers in the 1980s led many states to enact OGPL statutes that protect Producers. While these statutes were intended to secure payment obligations owed to Producers for oil and gas bought by First Purchasers, they have had the unintended consequence of diminishing the ability of First Purchasers to obtain financing, since at any given time the purchaser’s inventory, accounts receivable, and a portion of its bank deposits are generally encumbered by the purchase money security interest of Producers. When SemGroup filed for bankruptcy, its lenders fought the effect and applicability of Texas, Kansas, and Oklahoma’s OGPL statutes in Delaware bankruptcy court. The Court ruled in favor of the lenders and gave their Article 9 security interests the traditional treatment received in the UCC. While this was an unpleasant surprise for Producers in that case, the ruling is not binding precedent in states with OGPL Statutes. Lenders’ attorneys remain concerned

Fig. 2: Enhanced First Purchaser financing scenario Second Purchasers

Collateral = inventory + accounts receivable

Fig. 1: Typical First Purchaser financing scenario

Credit and reduced unused line fees

First Purchaser

an ur Ins

Credit and unused line fees

Covers accounts payable due Producers with OGPL Statutory Liens not covered by First Purchasers Credit Insurance

it

Asset-based lender

Cr ed

Second Purchasers

First Purchaser

ce

Reduced reserve requirement

Advance s

Collateral = inventory + accounts receivable

Increased Advances

Pr em ium

Asset-based lender

Inventory (Oil & Gas purchased at wellhead) Subject to Producers’ Senior OGPL Statutory Liens

Inventory Reserve requirement Covers accounts payable due producers with OGPL Statutory Liens should First Purchaser go bankrupt/insolvent

(Oil & Gas purchased at wellhead) Subject to Producers’ Senior OGPL Statutory Liens

Producers

Lenders accepting inventory already encumbered by Producers’ Oil and Gas Product Liens often require large reserves in the borrowing base to cover the risk of the First Purchaser going bankrupt/insolvent.

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First Purchaser Credit Insurance Insurance provides amount necessary, up to limits purchased, to pay Producers’ unpaid Accounts Payable that is subject to Producers’ Senior OGPL Statutory Liens Result: Collateral Reduced Reserve Requirements

Producers

By transferring the risk of loss in collateral associated with a First Purchaser’s bankruptcy/insolvency to a third party, Lenders can securely offer more competitive asset-based loans to First Purchasers.



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From the best map data to software that maximizes the value of your spend and keeps you in compliance, P2 Energy Solutions has the right package to fit your company, large or small.

It’s never too late to MANAGE YOUR COSTS.

Find out more by downloading our complimentary white paper, “Squeezing Shale Plays for Higher Shareholder Return” at www.p2energysolutions.com/shaleplays

Houston Ph. 713.481.2000

Denver Ph. 303.292.0990

Fort Worth Ph. 817.339.1000

San Antonio Ph. 210.402.5900

Calgary Ph. 403.774.1000

Dubai, UAE Ph. +971 4 3910231

w w w.p2energysolutions.com

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Capital Perspectives security measures: • increased reserves against availability in the borrowing base • increased collateral for reduced amounts of advances • increased interest rates • increased borrowing costs Under the status quo, lenders, First Purchasers, and Producers all fail to maximize their interests due to the risk associated with a First Purchaser’s bankruptcy or insolvency. Certain specialized insurance markets have significant experience dealing with such risk. Insurers regularly insure against the bankruptcy of counterparties with business credit insurance policies (essentially ensuring the collection of accounts receivable) and the uncertainty created by regulatory statutes with political risk insurance The status quo policies (mitigating the risk of unfavorable political or legal outcomes). Using these proven insurance products As a result of OGPL Statutes and the uncertainty created as guides, lenders can now secure credit risk insurance by the SemGroup decision, lenders have less confidence that their UCC Article 9 security interests in First Purchas- policies from A-rated carriers that will ensure against the insolvency of a First Purchaser. This will allow a lender to er’s inventory, receivables, and bank deposits are senior offer more competitive terms regardless of the impact of to oil and gas product liens created by OGPL Statutes. OGPL statutes on their collateral. Lenders who continue to provide financing in the sector usually require a combination of the following additional

KPMG GLOBAL ENERGY INSTITUTE

Where industry financial executives can tap into knowledge The KPMG Global Energy Institute has been established to provide an open forum where industry executives can share knowledge, gain insights, and access thought leadership about key industry issues and emerging trends. To learn more, visit kpmgglobalenergyinstitute.com.

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© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 41967DAL

that their clients may not be so lucky if First Purchasers file for bankruptcy, or become enmeshed in lien-priority litigation, in states with OGPL Statutes. Legal developments in states with OGPL laws have only intensified lenders’ concerns. Following SemGroup’s collapse and the subsequent bankruptcy court ruling in Delaware, Oklahoma revised its OGPL Statute in a further attempt to ensure that the Producers’ liens on sold production and its proceeds have priority over the UCC Article 9 security interests granted by First Purchasers to their lenders. In addition, Producers may push to enact new OGPL statutes (and/or to strengthen existing statutes) in other oil and gas producing states in the wake of SemGroup.



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Capital Perspectives First purchaser credit insurance

Conclusion

The mechanics of these insurance products are straightforward: in the event of a First Purchaser’s bankruptcy or insolvency, the policy will cover the amount necessary, up to the limits purchased, to pay Producers’ OGPL statutory liens encumbering the First Purchaser’s assets. As a result, a lender’s Article 9 security interest in a First Purchaser’s inventory will retain its traditional senior lien position over Producers’ OGPL security interests. The insurer also agrees to subordinate its subrogation rights to the Lender via an intercreditor agreement. Some lenders have asked why the policy is structured this way instead of just providing lenders with the cash proceeds from the insurance policy. The answer is that many First Purchasers also own or utilize some oil and gas processing equipment. In many cases, a small amount of processing can significantly increase the value of the oil or gas purchased at the wellhead. So retaining the first-priority rights to processed oil and gas will be more valuable to lenders than the mere receipt of the purchase price of the raw material at the wellhead.

Insurance products can facilitate the completion of otherwise difficult financing arrangements. By transferring the risk of loss of senior rights in collateral associated with a borrower’s bankruptcy from the Lender to a third party insurer, the Lender can (1) attain greater security in collateral, (2) increase the competitiveness of loan terms, and (3) complete more deals in the midstream sector. Likewise, First Purchasers can have more flexibility in fashioning their capital structure and can avoid the necessity for posting letters of credit with Producers. OGFJ About the author Josiah M. Daniel IV is an associate in the Energy/Oil & Gas Practice of Meyers-Reynolds & Associates, a boutique risk services firm providing innovative risk management and insurance solutions and ancillary professional services to the oil & gas, energy, power, construction, and transportation industries.

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Upstream News ExxonMobil energy outlook shows rising global demand

According to the report, efforts to ensure reliable, affordable energy while also limiting greenhouse gas emissions will lead to polices in many countries that xxonMobil just issued the latest edition of its put a cost on carbon dioxide emissions. As a result, energy outlook, and when the largest publicly abundant supplies of natural gas will become increastraded international oil and gas company talks, ingly competitive as an economic source of electric people listen. The report is called “Outlook for Energy: power as its use results in up to 60% fewer CO2 emisA View to 2030” and the 56-page document is availsions than coal in generating electricity. Demand for able for viewing on the company’s website. natural gas for power generation is expected to rise by The company’s researchers forecast that global about 85% from 2005 to 2030 when natural gas will energy demand will be about 35% higher in 2030 than provide more than a quarter of the world’s electricity in 2005; natural gas will be the fastest-growing major needs. Natural gas demand is rising in every region of energy source, overtaking coal as the second-largest the world but growth is strongest in non-OECD counglobal energy source behind oil; and that global energy tries, particularly China where demand in 2030 will be demand growth will be far higher unless projected effi- approximately six times what it was in 2005. ciency improvements are met. The growing use of natural gas and other less-carAmong this year’s findings: bon intensive energy supplies, combined with greater • Rapid economic growth and expanding prosperenergy efficiency in nations around the world, will help ity in developing countries that are not part of the mitigate environmental impacts of increased energy OECD will drive an increase in their energy demand demand. According to the report, global energy-related of more than 70% in 2030 compared to 2005. By carbon dioxide emissions growth will be lower than the contrast, improvements in energy efficiency will help projected average rate of growth in energy demand. keep energy demand in OECD countries essentially “Our energy outlook clearly points to a growing flat over the period to 2030, even though the total demand for energy globally which reflects improveconomic output of these nations is expected to rise ing living standards for millions of people around the by approximately 60%. world,” said Rex W. Tillerson, chairman and CEO. • Efficiency gains are expected to accelerate between “The forecasts also show a shift toward natural gas as 2005 and 2030 versus historical trends. Gains in businesses and governments look for reliable, affordthe wise and efficient use of energy across all sectors able and cleaner ways to meet energy needs,” Tillerson of economies worldwide will curb energy demand added. “Newly unlocked supplies of shale gas and other growth through 2030 by about 65%. unconventional energy sources will be vital in meeting • There will be an expansion of natural gas supply, this demand.” particularly in the US where unconventional gas The energy outlook report is developed annually to supplies are expected to meet more than 50% of gas help guide ExxonMobil’s global investment decisions. demand by 2030. The company shares the findings publicly to increase • Power generation is the largest and fastest growing understanding of the world’s energy needs and chalmajor energy-demand sector and is likely to reprelenges. The outlook is the result of a detailed analysis sent 55% of the total growth in demand through of approximately 100 countries, 15 demand sectors 2030. At that time, power generation will account and 20 fuel types and is underpinned by economic for about 40% of total primary energy demand. and population projections and expectations of signifi- • Oil, natural gas and coal will continue to meet most cant energy efficiency improvements and technology of the world’s needs during this period because no advancements. other energy sources can match their availability, Rising electricity demand – and the choice of fuels versatility, affordability and scale. The fastest-growused to generate that electricity – represent a key focus ing of these fuels will be natural gas, reflecting its area, which will have a major impact on the global abundance, versatility and economic advantages as an energy landscape over the next two decades. According efficient, clean-burning fuel for power generation. to the outlook, global electricity demand will rise by Wind, solar, and biofuels will grow sharply through more than 80% through 2030 from 2005 levels. In the 2030, at nearly 10% per year on average. However, non-OECD (Organization for Economic Co-operation because they are starting from a small base, their conand Development) countries alone demand will soar by tribution by 2030 is likely to remain relatively small at more than 150% as economic and social development about 2.5% of total energy. improve and more people gain access to electricity.

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Upstream News Petrobras makes new Santos Basin pre-salt discovery

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etrobras announced January 25 that it has made a new discovery of “good quality” oil in the pre-salt reservoirs of block BM-S-9, in ultra deep waters of Santos Basin. The discovery was a result of the drilling of well 3-BRSA-861-SPS (3-SPS-74), informally known as Carioca Nordeste, located in a water depth of 2,151m and 275 km off the coast of the state of São Paulo in the evaluation area of Carioca well - 1-BRSA-491-SPS (1-SPS-50). Preliminary analyses confirm the extent of the accumulation with oil of 26º API in 250 meters of good quality reservoir, better than the result of the wildcat well. Block BM-S-9 has two evaluation areas: well 1-BRSA594-SPS (1-SPS-55), informally known as Guará and the area of well 1-BRSA-491-SPS (1-SPS-50), informally known as Carioca, where the discovery well is located. Petrobras holds a 45% stake in this concession, and is the operator of the consortium comprised of BG Group with 30% and Repsol with 25%. The Consortium will give continuity to the investments provided in the Discovery Evaluation Plan, presented to the ANP in 2007, to confirm the dimensions and characteristics of the reservoir, seeking the development of the project and the activities in the Santos Basin pre-salt.

Chevron confirms oil discoveries offshore the Republic of the Congo

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hevron Corp. (NYSE: CVX) confirmed discoveries within the Moho-Bilondo license in the Republic of the Congo. The Bilondo Marine 2 and 3 wells are located approximately 40 miles (70 kilometers) offshore of the Republic of the Congo, in 2,600 feet (800 meters) of water in the central part of the Moho-Bilondo license. Bilondo Marine 2 and 3 were drilled to a total depth of around 6,000 feet (1,800 m). The Bilondo Marine 2 (BILDM-2) well found 253 feet (77 m) of gross reservoir, while the Bilondo Marine 3 (BILDM-3) well, which had a different reservoir as objective, found 144 feet (44 m) of gross reservoir. Both wells were successfully tested and flowed oil. “We look forward to continuing the work needed to further evaluate these discoveries and potential development options,” said Ali Moshiri, president of Chevron Africa and Latin America Exploration and Production Company. The discoveries follow two previous successful exploration wells, Moho Nord Marine-1 and 2, drilled in the

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permit area in 2007 and the positive appraisal wells Moho Nord Marine-3 in 2008 and Moho Nord Marine-4 in 2009. The permit area’s deepwater Moho-Bilondo project began production in April 2008 and is currently producing 90,000 barrels of crude oil a day. Chevron’s subsidiary holds a 31.5% interest in the permit area with partners Société Nationale des Pétroles du Congo (15%) and Total E&P Congo (operator and 53.5%).

BP awarded four Australian deepwater exploration blocks

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P today announced that it has been awarded four deepwater offshore blocks in the Ceduna Sub Basin within the Great Australian Bight, off the coast of South Australia. BP said that it will explore Exploration Permit for Petroleum (EPP) areas EPP 37, EPP 38, EPP 39 and EPP 40 covering an area of 24,000 km2 for oil and gas reserves, with the right to develop any commercially viable discoveries. “This is a material and early move into an unexplored deepwater basin,” said Mike Daly, Executive Vice President of Exploration for BP. “The Ceduna Sub Basin is a very exciting new exploration area for BP. Our experience tells us that the geology has a high potential for containing hydrocarbons,” added Dr. Phil Home, managing director of BP’s Australian upstream oil and gas business. BP said that the proposed exploration activity would be phased over six years and, as part of the regulatory approval process, would be subject to detailed environmental assessment. BP Australia is an energy company involved in a wide range of activities, such as exploring for and producing natural gas and crude oil resources, refining and marketing petroleum products, producing lubricants, and generating electricity from solar panels. BP is a joint venture participant in the North West Shelf Project and also owns assets which are being developed in the Gorgon LNG Project and the Browse LNG Projects. Its downstream business is centered on refineries near Brisbane and Perth and has a network of almost 1,400 service stations throughout Australia. Seismic survey activity could take place in the summer of 2011/12. Drilling activity is not expected to take place until 2013 or 2014. BP is committed to use the intervening time to fully implement the lessons learned from the investigations into the Montara and Deepwater Horizon incidents, and is working closely with the Australian Government, the South Australian Government and industry to do so. OGFJ



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AN INTERVIEW WITH ROBERT TURNHAM, PRESIDENT AND COO OF GOODRICH PETROLEUM

Goodrich strives for robust growth and improved shareholder value

Goodrich Petroleum (GDP) capitalizes on increasing oil production in the Eagle Ford

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OIL & GAS FINANCIAL JOURNAL: Fiscal 2010 was a busy and productive year at Goodrich Petroleum. You continued to develop your prospective acreage for the Haynesville and other formations in East Texas and northern Louisiana, and you built a new position in the prolific Eagle Ford Shale. Start by telling us about your gas operations in East Texas and Louisiana. ROBERT TURNHAM: Yes, 2010 was a challenging, yet meaningful year for Goodrich Petroleum, with significant accomplishments. Even though the service industry was very tight, we were able to grow production volumes to a record level. Our gas hedges and de-levered balance sheet allowed us to weather the storm caused by low natural gas prices. Downturns force you to focus on costs as well, and we were successful in reducing our operating cost structure by half. And perhaps most importantly, we made a decision about a year ago to acquire a presence in an oil basin that would allow us the opportunity for commodity diversification and the ability to shift capital where we saw superior rates of return. We identified the Eagle Ford Shale as the play that best fit what we were looking for, and were able to put together about 40,000 net acres at a very attractive price of $1,650 per acre. OGFJ: Your Shelby Trough acreage in East Texas spans nearly 28,000 net acres. In addition to positive Haynesville Shale results in the area, the acreage is also prospective for the Bossier Shale. How do you plan to develop this area? TURNHAM: Our initial development plans in the Shelby Trough will focus on the Haynesville, the deeper horizon. Our current plans are to spend around $60 million this year drilling and completing wells in the trend, although we could shift some of that capital to one of our areas with more oil exposure. Our unitization efforts for the Haynesville will allow us to hold the Bossier Shale rights also, in that it sits above the Haynesville. We are excited about the Bossier potential over our block and have completed our initial Bossier discovery, the R. Dean 2H well, in Shelby County. Our current plans are to develop the Bossier at a later date once we have unitized more of our acreage from Haynesville development, and hopefully in a more robust gas price environment. About half of our 28,000 net acres in the trend has a continuous development provision built into the lease, which provides for a more orderly development of the acreage, with less pressure to drill it or lose it. With this flexibility we can pair timing of development with gas prices, thereby locking in more favorable rates of return. Our core Haynesville acreage in North Louisiana, along with this acreage block in the Shelby Trough, are extremely valuable assets for the company,

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and we expect to accelerate development of this acreage in the near future once gas prices return to a more normal level. OGFJ: Goodrich’s per-unit expenses continue to decrease. How is Goodrich leveraging this as it grows production in Texas and Louisiana? TURNHAM: We have made great progress in reducing our cost structure, with current lifting costs running about half of where they were two years ago. With our lease operating expenses per unit of production currently running less than $0.75/Mcfe, we are truly becoming a low-cost operator, which has been one of our goals for the company. Combine that with production volume growth of 15% to 25% this year and the expansion of our cash margins from our growing oil production and you will see strong growth in cash flow per share and better rates of return on our capital expenditures in 2011. Don, I also want to add that we continue to focus on enhancing shareholder value through lifting cost reduction efforts, along with maximizing our return on capital employed through reducing our drilling days and maximizing our completion results from optimization of frac designs. We have a track record of being an early mover in multiple plays and applying advances in technology to create better well results. Over the years, we have successfully transitioned from being a Gulf Coast operator to a vertical tight gas sand player in East Texas and North Louisiana to an exclusively horizontal drilling program with material acreage positions in the Haynesville Shale, Eagle Ford Shale, and Cotton Valley areas of Texas and Louisiana. We enter 2011 extremely well-positioned with the vast majority of our Haynesville and Cotton Valley acreage held by production, which will allow us the opportunity to transition once again, as

“We think 2011 will be a transformational year for Goodrich Petroleum. About 45% of our 2011 capex budget is being allocated to the Eagle Ford oil play due to the disparity between oil and natural gas prices.” — Robert Turnham


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GDP allocates resources to build its core position in the Eagle Ford Shale

we execute our growth plans in the oil window of the Eagle Ford shale play.

to 10% to 15% in 2011. The vast majority of our 15% to 25% projected growth in volumes in 2011 is being driven by a rapid buildup in oil volumes, which will OGFJ: In addition to growing your gas projects, also provide a material increase in cash flow per share Goodrich is moving forward with your liquids for the company. expansion and transition efforts. How will the comIn addition to our oil plays, the Shelby Trough, pany prioritize between gas and oil projects in your where we own 28,000 net acres, will be a secondary operating regions? focus area for us in 2011. The Shelby Trough wells are high-volume gas wells with reasonable economics even TURNHAM: We think 2011 will be a transformain this gas environment. We have very little lease prestional year for Goodrich Petroleum. About 45% of our sure in the area, and only have to drill four to five wells 2011 capex budget is being allocated to the Eagle Ford over the next two years to maintain the leases. We see oil play due to the disparity between oil and natural gas our acreage in the Shelby Trough prospective for both prices. We also have plans to drill two to four Cotton the Haynesville and Bossier Shale, providing us with Valley Taylor sand horizontal wells in our South Henhuge reserve potential. We expect to accelerate develderson field in Rusk County (East Texas) due to the opment in the trend once gas prices return to a more liquids yield associated with the gas. Our initial Cotnormalized price. ton Valley Taylor sand well in the field had an initial 24-hour production rate of 10 million cubic feet of gas OGFJ: Goodrich recently sold its non-core, shalper day and 380 barrels of condensate, which generates low assets in the Angelina River Trend and Bethany an exceptional rate of return due to the liquids yield. Longstreet in East Texas and northern Louisiana, With about half of our budget being spent in the oily which added nearly $65 million to an already debtand liquids-rich Eagle Ford and Cotton Valley Taylor free balance sheet. Is this another step forward in sand areas, we are expecting our oil volumes to increase diversifying the company’s asset base? How do you from around 2% of company-wide production in 2010 plan to redeploy the proceeds?

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GDP allocates approximately 45% of 2011 capex toward growing its position in the Eagle Ford

“We expect to fund the majority of our capital expenditure budget with cash and cash flow from operations. With nothing borrowed on our senior credit facility and a current borrowing base of $225 million, which we expect to grow throughout, we are well capitalized to execute our strategy.”

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TURNHAM: The sale of these non-core, shallow assets does two things for us. First, the proceeds will help subsidize the 2011 capital expenditure budget of $225 million, as we expect to fund the vast majority of our expenditures for the year from cash and cash flow from operations. And, secondly, the properties that were sold were our highest LOE [lease operating expense] properties, which will further drive down our per-unit costs for 2011. We announced closing of the transaction and receipt of approximately $65 million of proceeds on Dec. 30, 2010. As we enter 2011, we expect to fund the majority of our capital expenditure budget with cash and cash flow from operations. With nothing borrowed on our senior credit facility and a current borrowing base of $225 million, which we expect to grow throughout 2011, we are well capitalized to execute our strategy. In the past, we have dramatically outspent cash flow due to the growth potential of our inventory. We still have the growth potential in inventory, but with the majority of our acreage now held by production, and with an expanding cash margin per dollar invested, we expect to be cash flow neutral and self funding in early 2012. OGFJ: Many gas-weighted E&P companies have decreased their 2011 capital budgets from 2010 but are projecting increases in expected production for 2011. In December, Goodrich announced expectations to increase production in 2011 by 15% to 25% with $30 million less than you spent in 2010. How do you plan to do this? TURNHAM: As I mentioned previously, most of our production volume growth in 2011 will come from oil development. However, even though we will have a sharp decrease in gas-directed capex in

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tive for the Buda Lime formation, although it carries higher geologic and performance risk due to the play being driven off of naturally occurring fractures. The majority of our Eagle Ford trend budget for 2011 will be spent drilling Eagle Ford wells, but we do currently anticipate drilling additional Buda wells during the year. To date, we have drilled two Buda Lime wells that came in above 500 barrels of oil per day. Early cost estimates on our Buda wells are around $3.5 million, which is a good bit lower than our Eagle Ford wells due to the Buda not needing to be fracture stimulated. OGFJ: In closing, kindly paint a picture for investors of what you believe Goodrich Petroleum’s reserve base, production volumes, and areas of operations will look like in five years. TURNHAM: The focus for 2011 is cash flow per share growth, and with execution, we feel our investors will be appropriately rewarded. With most of our oil and gas properties either held by production or subject to reasonable continuous development provisions, we have the ability to grow our production and reserves organically for the foreseeable future. We have more than 6 trillion cubic feet equivalent (tcfe) of reserve exposure currently 2011, we think we can grow gas volumes marginally in inventory, with a growing oil mix. For us, our growth from high-grading our acreage and drilling more prorate on production and conversion of probable to proved ductive wells. A portion of our capital will be spent in reserves will be driven by allocation of capital. As we the Angelina River Trend of the Shelby Trough, where add oil volumes in 2011 and move towards a cash flow wells have very high initial production rates, as well neutral position versus our capital expenditures in early as drilling horizontal Cotton Valley sand wells in our 2012, we will be able to continue to grow production South Henderson area, where gas rates are attractive and reserves at an attractive rate, and most importantly, and the economics are being driven with a very high be self-funding. We are aligned with our investors, in condensate yield. We expect to spend roughly $30 mil- that management and the board of directors own 28% of lion in the core of the Haynesville play in North Loui- the outstanding shares of Goodrich. At the right time, siana, which is quite a bit lower than in the past, in that in the right market, we expect to accelerate development our acreage is for the most part held by production. further, and we have the assets that will allow for robust growth and enhanced shareholder value. OGFJ OGFJ: Goodrich currently has three horizontal wells on production in the Eagle Ford with addiOGFJ: Thanks for taking the time to speak with us. tional wells awaiting completion. How have your early Eagle Ford results compared with company expectations? TURNHAM: We have always expected variability in the oil window of the Eagle Ford, primarily driven by depth, pressure, and geologic complexity. We have published a type curve primarily driven off of offset wells, which has an initial production rate of 550 barrels of oil equivalent per day. We think you will see some wells above the type curve and perhaps some below, but at this point we are comfortable with our projections. Based on our type curve and a completed well cost of $7.5 million, we can achieve an approximate 45% rate of return at $90 oil and $5 gas. In addition, our South Texas acreage is also prospec-

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Gil Goodrich, Goodrich Petroleum vice chairman and CEO



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Why the oil companies make bad villains Jude Clemente, San Diego State University, San Diego, Calif.

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hether it was the proposed “windfall” profits tax in 2008, the price drop that “diverted” renewable energy investments in 2009, or the “greed” that caused the BP Deepwater Horizon spill in 2010, it seems the US oil industry gets blamed for most everything these days. In the wake of the Horizon incident, renewed calls for “forcing Big Oil to pay its fair share” are echoing more loudly than usual. For example, Dean Baker, co-director of the Center for Economic and Policy Research, wants oil profits to be “given back” to society via multibillion-dollar taxes because they result from “good luck,” and, according to him, companies “didn’t do anything” to deserve them.

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Unfortunately, the only relevant exposure the typical American gets to the oil industry is at the local fill-up station, where each day producers supply the nine million barrels of gasoline required to fuel the US fleet of 265 million vehicles. And a double-digit increase in gasoline prices in the past year has oil companies once again on the defensive. The anti-oil lobby has been markedly more vitriolic since the crude price spike in the summer of 2008: • “The unbearable arrogance of oil…..[is] a spectacular testament to the iron grip that Big Oil has on American politics,” Carl Pope, then-executive director of Sierra Club, July 17, 2008 • “Credible institutions like…..the US Congress need to stop doing business with un-credible institutions like



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have mutual funds, pension funds, and IRAs. From teachers’ retirement plans to “Mom and Pop” investors, the ownership of the oil industry is dispersed among a wide range of institutions and individuals (see Figure 1). Shapiro and Pham (2007) conclude: • Nearly 43% of oil company shares are owned by mutual funds and asset management companies that retain mutual funds. Mutual funds manage accounts for 55 million US households (half of the national the American Petroleum Institute…..It’s part of this total), with a median annual income of $68,700. huge campaign of Big Oil to sap tax dollars,” Phil • Some 27% of shares are owned by other instituRadford, executive director of Greenpeace, Dec. 4, tional investors, namely pension funds. In 2004, 2009 more than 2,600 pension funds run by federal, • “Giving Big Oil more access to our nation’s waters state, and local governments held $64 billion in will only lead to more pollution, more lost jobs, and shares of oil companies. This money is the main more damage to our economy,” Frank Lautenberg, financial security blanket for many current or US Senator (D-NJ), May 27, 2010 retired military personnel, teachers, police officers, Nevertheless, oil’s leading role in the US energy and firefighters. portfolio is virtually guaranteed to continue. Under • About 14% of shares are held in IRA and other perthe International Energy Agency’s (2010) optimissonal retirement accounts. The roughly 45 million tic 450 Scenario, which assumes “collective policy households that own these plans have an average action is taken to limit the long-term concentration of account value of just more than $22,000. greenhouse gases in the atmosphere to 450 parts per • An oil company’s profits (earnings) are its net million of CO2-equivalent,” oil will still constitute income and denote if the firm is profitable after 30% of our total primary energy demand in 2030. taxes. They do not, however, illustrate how effecToday’s complex interaction between energy secutively resources are being deployed. Thus, solely rity and climate change challenges likely marks a hisjudging the wealth of a company by its earnings toric turning point for our nation’s oil policy. Because can make larger, highly capital intensive companies, a single cartel, the Organization of Petroleum Exportlike those that thrive in the oil industry, appear ing Countries, controls more than 80% of the world’s much more “rich” than they actually are. Profit proven oil reserves, the US clearly needs policies that margins, or earnings per $1 of sales (measured as enhance, not impede, the domestic suppliers of this net income divided by net sales), are a useful tool irreplaceable liquid fuel. to compare financial performance among companies The following analysis seeks to contribute by proand industries of all sizes. Pride et al. (2009) report viding a better understanding of: 1) the oil industry’s “the average return on all sales for all business firms ownership, 2) the industry’s profit margins, and 3) is between 4% and 5%.” Although oil companies the beneficiaries of the industry’s profits. Indeed, normally operate above this percentage, earning an misconceptions abound. “Contrary to popular belief, the US oil industry is owned by middle-class Americans, not wealthy corporate elites. That is because most of company shares are held by the tens of millions of everyday citizens that have mutual funds, pension funds, and IRAs.”

Who owns the US oil industry? “This study disproves the popular misconception that ‘Big Oil’ is owned by a small group of industry insiders. In reality, across the oil and natural gas industry only 1.5% of shares of public companies are owned by company executives. The data show that ownership of industry shares is broadly middle class, with the majority of industry shares held by institutional investors, often on behalf of millions of Americans through mutual funds, pension funds and individual retirement accounts,” – Robert Shapiro, co-author of The Distribution of Ownership of US Oil and Natural Gas Companies, Sept. 19, 2007 Contrary to popular belief, the US oil industry is owned by middle-class Americans, not wealthy corporate elites. That is because most of company shares are held by the tens of millions of everyday citizens that

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Fig. 1: The ownership of the US oil companies Other institutional investors 5% IRAs 14%

Corporate executives 2% Mutual funds 30%

Pension funds 27% Individual investors 23% Source: Developed from Shapiro and Pham, 2007



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Fig. 2: Oil profit margins vs. other industries Banks Software companies Pharmaceutical companies Food producers Oil companies 0

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chance that a decline in sales would erode profits and result in a net loss. Long lead times, massive capital requirements, and returns realized only decades later have oil companies constantly operating in the face of major investment risk.

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Who benefits from the oil industry’s profits?

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10 15 Cents profits per $1 of sales

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Source: Developed from Forbes (Forbes and Ames, Nov. 3, 2009) US News & World Report (Newman, Aug. 25, 2009)

average of $0.073 on every $1 of sales from 2005 to 2009, they fall below the S&P 500 average of 8.5%. • As demonstrated in Figure 2, profit margins for oil companies are generally far less than those of other important industries. Pfizer, for instance, the world’s largest pharmaceutical firm, has enjoyed huge profit margins of $0.292 in recent years. The lower margins for oil companies signify a greater

Oil companies use their profits for two purposes: 1) to pay dividends to shareholders and 2) to fund the large capital investments required to find, produce, process, and transport products to consumers. Firms also utilize available cash to pay down debt and buy back shares of stock, thereby enhancing the company’s overall value for investors. Indeed, the anti-oil campaign misuses the necessity for oil companies to make heavy investments in places few Americans ever get to see, such as Alaska’s North Slope, the deepwater of the Gulf of Mexico, and the North Sea. The entire country gains, however, when firms produce from these difficult areas because oil meets nearly 40% of our total primary energy demand, and more than 70% of the industry’s ownership is in the form of mutual funds, pension funds, and IRAs – the bulk of which are held by the middle class. According to the US Census Bureau, $75 billion of the $198 billion in earnings the major oil companies

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made in 2008 was returned to shareholders through dividends. This 38% dividend payout ratio is above the average for the S&P 500, which has dropped from about 50% in the 1990s to 31% today. The higher payback rate of oil companies is remarkable considering the substantial funds required to find, produce, process, and transport oil. After a record high of 230 in 2008, IHS CERA reports the upstream capital costs index, benchmarked to 100 in the year 2000, reached 207 in 2010. Rising demand for oil is creating widespread shortages in labor, equipment, and raw materials within the global industry. Simply put, oil companies are good investments. Three of the top 20 firms in the Fortune 500 are in the oil business – ExxonMobil (2nd), Chevron (3rd), and ConocoPhillips (6th). And from 1999 to 2009, only one of the 20, McKesson (11.6%), had a higher annual “total return to investors” percentage than these three majors; ExxonMobil (7.7%), Chevron (9.4%), and ConocoPhillips (10.9%). By comparison, Berkshire Hathaway, Wal-Mart, and IBM had return rates of 5.9%, 1.5%, and -3% respectively. In fact, 8 of the 20 had negative return rates, and a number of them, including American International Group, JP Morgan Chase, and General Electric

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needed huge taxpayer-funded bailouts. The oil and gas sector, on the other hand, is contributing over $1 trillion to the national economy: • PricewaterhouseCoopers reports the oil industry supports more than six million jobs, accounting for 3.5% of the total employment in the country. The US Bureau of Labor Statistics indicates employment in oil and gas extraction carries a mean annual salary of $72,000, versus $42,000 for real estate and $63,000 for those in the computer and mathematics industry. • The oil and gas sector has a 48% tax rate, compared to 28% for the rest of the S&P 500. In 2008, ExxonMobil paid two and a half times more in total taxes ($116 billion) than it made in earnings ($45 billion). That year, ExxonMobil dished out a staggering average of $318 million in taxes every day. Royalties, rental payments, and other fees on oil development pay for critical societal infrastructure, such as schools, hospitals, and roads.

Conclusion As stated by John Felmy, chief economist at the American Petroleum Institute (API), those seeking to punish oil companies by seizing more of their profits are “not targeting industry executives but the hard-

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earned savings of working people.” Oil’s dominant role in the US energy economy will persist even under the best of circumstances for renewables, and unfair polices against the industry would hamper a vital revenue stream for increasingly cash-strapped federal, state, and local governments. OPEC’s extending nationalistic grip on the global supply chain confirms we need policies that support domestic producers by making them as internationally competitive as possible. Profits allow firms to reinvest in the infrastructure and emerging technologies that will help us avoid the fierce competition for energy in the years ahead. The US Energy Information Administration predicts domestic oil (all liquids) production could expand by nearly 70% by 2030. Further, API notes oil companies are leading the race toward low-carbon energy technologies: “US oil…..companies are pioneers in developing alternatives…..from geothermal to wind, from solar to biofuels, from hydrogen power to the lithium ion battery for next-generation cars.” For example, ExxonMobil plans to invest over $600 million in algae-based biofuels, Chevron is the world’s largest producer of geothermal energy, and ConocoPhillips is offering cash awards for graduate research in sustainable energy systems.

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From 2000 to 2008, T2 & Associates and CEE found the oil and gas sector was responsible for over $58 billion of the $133 billion invested in all CO2 mitigation in the US, compared to 52% for other private industries and 14% for the federal government. The Center for American Progress concludes these low-carbon investments by oil companies have created over one million “green jobs.” OGFJ About the author Jude Clemente is an energy security analyst and technical writer in the Homeland Security Department at San Diego State University. He holds a bachelor’s degree from Penn State University and a master’s degree in homeland security from SDSU. He holds certificates in infrastructure protection and emergency preparedness from the Federal Emergency Management Agency, the American Red Cross, and the US Department of Homeland Security. His research specialization is energy security at the national and international level. He is a member of the National Defense Transportation Association and is an energy adviser to B and S Corporation and Penn State’s Research Project on North American Energy Supply.

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Right-sizing ERM for oilfield services companies Joseph (Jody) R. Allred, CPA, CISA, Weaver, Fort Worth

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ommodity prices on the international market rise and fall, driving expansions and declines for companies throughout the energy industry. Compliance and environmental concerns need continual attention. Despite considerable technological advances in exploration and production activities, locating and exploiting sources of oil and gas still presents considerable difficulties and uncertainties. Field operations require considerable capital investment, and fluctuating interest rates strongly influence current and future profitability. The possibility of a catastrophic incident remains a constant threat, too. Oilfield services companies face many risks. To mitigate those vulnerabilities, Enterprise Risk Management (ERM) should be built into the culture and management philosophy of every oilfield service company. Oilfield services companies make decisions about their geographical operations, the services they provide, the methods they employ, their quality and safety standards, etc. These enterprise-wide, strategic decisions are often made passively, with little participation, but instinctively include components of ERM such as risk tolerance, objective setting, risk identification, and risk assessment. By bringing ERM concepts into managements’ decision making process, the effort is enhanced for the benefit of the company and documentation is established around the risk decision considerations.

Right-sizing the effort In a right-sized effort, oilfield services companies can address risks associated with cyclical price trends, changes in labor sources, labor rates, equipment availability, compliance issues, workplace safety, environmental protection, and other crucial concerns. ERM also helps ensure achievement of objectives, and identifies opportunities for competitive advantage. ERM focuses attention on the following activities and questions: • Defining strategic objectives: Where are we going? • Risk identification: What can go wrong? • Risk assessment: How significant is a risk? • Risk response: Should the risk be accepted, mitigated, or avoided? • Risk monitoring: Is something really being done about the risk?

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Risk – the potential of an adverse event or lost opportunity – is always present. One company may outsource various Health, Safety, Environment (HSE) training activities. Another company may contract for payroll, benefits administration and other human resources functions, while another business may contract for various engineering services. In each instance, ERM enables organizations to identify, assess and manage the risks associated with relying upon other entities to provide crucial services. That allows the company to realize the benefit of lower costs without ignoring risks associated with such outsourcing. The questions ERM poses are simple and straightforward. So, why does implementing ERM seem like a daunting challenge? ERM has been difficult to implement primarily because companies approach it as a massive project. Initially, combining distributed risk management efforts is a big job. It takes time to migrate from the old risk management model that often involved diverse, independently operated functional areas to one that is holistically managed and owned by a specific functional area, such as the Chief Compliance Officer, internal audit, the CFO, Legal Counsel, or the COO’s office. However, ERM should be a phased, evolutionary process that focuses first on strategic objectives, the highest entity-level risks and supporting process-level risks. This means that ERM is not ‘implemented’, but built into an organization over time typically beginning with a risk assessment effort that builds into an integrated ERM function. Using this right-sized method, the effort gradually filters outward into organization while keeping the scope manageable. While ERM does not eliminate functional area efforts, a realignment of authority, accountability, and responsibility establishes greater risk management timeliness, consistency, efficiency and effectiveness. The holistic perspective provides the basis for managing risk across the organization, rather than assessing risk in a vacuum. Establishing agreed upon organizational objectives is integral in identifying risk but may be the most difficult component. As a model, the ERM effort is



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Subsidiary Business Unit Division Entity-Level

typically pictured with the ERM COSO cube. Howrity exposures, proliferation of expertise, cost overruns, ever, to view a right-sized effort, the cube can actuand other concerns. ally be pictured as a declining effort represented by an inverted triangle overlayed on the components Risk assessment: How significant is a risk? defined in the ERM COSO cube. Once identified, risks must be assessed. Because the The broad top of the triangle represents the efforts risk identification phase may be broad, the potential around assessing and understanding the internal impact or likelihood of many risks identified may not environment and the narrow bottom point represents present significant exposure. A preliminary review the more focused efforts of monitoring. At each stage, of the identified risks by knowledgeable participants critical elements are identified to be addressed in the prior to the formal risk assessment can scope the risk next, thus continuously narrowing the scope of the assessment to focus on the crucial risk events. effort. The risk assessment phase is crucial and forms the Understanding the internal environment is critical basis for everything to follow. Appropriate definitions, to risk assessment. A clear understanding of the basis rules, instruction and training must be established of how risk is viewed within the organization must around the assessment to ensure valid input on the be established, including the company’s risk appetite. identified risks. The risk assessment data obtained Every organization has a risk tolerance that dictates can then be evaluated to determine if there are trends how it responds to risk. Intelligent risk response that vary from expectation to identify outliers and bad decisions are the ultimate data within the assessment goal. A startup fishing tool results. COSO ERM Framework company, established oilfield supply house, and multinaRisk response: Should the risk gic ns ing ce e t o n i t r a t a i tional oilfield servicing combe accepted, mitigated, ra pl po Str Re Ope Com pany all have very different or avoided? profiles and their internal Leaders then determine Internal Environment environment and risk appethe most appropriate risk Objective Setting tite will vary widely as well. response for each assessed exposure. Responses include Event Identification Defining strategic objectives: accepting, mitigating, or Risk Assessment Where are we going? avoiding risk. Oilfield service companies The risk response stage is Risk Response have unique objectives. where significant right-sizing Control Activities Those objectives may be can occur to ensure emphasis based on the geographiis placed on the most imporInformation & Communication cal areas, customer size, tant risks. Each risk event Monitoring financial strength and other should be reviewed first for characteristics, the specific risk response plans already in Source: ERM COSO Framework, AICPA services and areas of experplace to mitigate additional tise it offers, or various effort. Only risks with no other factors. Defining those objectives helps leaders existing response plan receive an original response. Risk recognize the most crucial exposures. The definition acceptance depends upon the organization’s risk tolerof critical strategic objectives hinges upon the estabance, which is unique to each company. lished understanding of internal environment and risk An oilfield services company may rely upon projecappetite. tions regarding future commodity prices to predict the strength of their market in future periods. IndiRisk identification: What can go wrong? vidual companies may vary in setting a future pricing A broad range of risks impacting critical strategic threshold on which it bases decisions to act upon or objectives should be identified. Each risk is linked avoid plans that require significant capital investment to the critical strategic objectives thus narrowing outlays. the scope of risks identified. Those risks may include For one company, its projections regarding future market price trends, existing or new compliance market strength may signify that prices will decline requirements, environmental hazards, labor markets, to a level that makes expansion plans an unacceptable equipment cost and availability, international ecorisk. Another company’s projections may reach the nomic conditions, difficulties facing large customers, same future market strength conclusions. That comor other external vulnerabilities. pany, however, has a slightly higher risk threshold, Internal vulnerabilities may include field safety, IT secu- so it accepts the risks that accompany the projected February 2011 Oil & Gas Financial Journal • www.ogfj.com

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market decline. Within a particular oil or gas field, the risk threshold may determine which identified production scenarios require the immediate attention of company managers, and perhaps the involvement of individuals with highly specialized areas of expertise. Ongoing controls to mitigate risks can include data analysis, physical inspections, audits and training. Real-time data transfers, dashboard report displays and other technological tools aid in mitigating risks. Such controls should be established only for exposures that would significantly impair the organization’s achievement of objectives. A company may evaluate the various risks associated with maintaining international operations. Those risks may include increased regulatory pressure from foreign governments, as well as potential political instability. There are also general concerns associated with maintaining and overseeing company activities thousands of miles away amidst a vastly different culture. The company, though, may utilize various online news services to keep abreast of changes in foreign regulatory and political climates. It may install and utilize online portals to receive and send information among field offices located in disparate areas. The company may enjoy a strong reputation among local elected officials and area business leaders. It may employ local individuals that help further strengthen various relationships. Due to those factors, the company accepts all of the risks associated with operating abroad. Another company, though, may decide that while international markets present opportunities, it needs to measure the risks that accompany operating in foreign countries. Those mitigation efforts include entering into partnerships and various joint venture agreements with companies based in those various countries. The company also contracts with various agents to represent its interests. By taking such actions, the company mitigates risks it faces in operating in other countries. For other companies, efforts to mitigate risks may center upon internal activities. To mitigate safety risks, the company may define environmental and health dangers and establish processes and daily procedures for site safety orientation, use of protective gear, proper lockout/tagout steps, and well control measures. Training courses may be scheduled, with documentation for courses taken and completed. Regular testing for blood pathogens, hearing loss, and alcohol or drug use may be required, with test results recorded. Onsite audits may provide another layer of protection, as may standards that dictate the potential for catastrophic incident. Such monitoring may indicate the speed and degree of involvement required by managers. By taking such steps, the company mitigates the various environmental and health threats it faces.

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Various applications and analytical tools provide means for monitoring current production and evaluating the value of reserves. Bubble maps, well log displays and other report data enable managers to oversee current field production and identify anomalies or trends that may require further attention. Decline curve analysis and similar tools likewise enable managers to more accurately assess the value of remaining reserves and devise production forecasts. In extremely high risk situations, or instances where a risk does not align with objectives, organizations may avoid risk entirely by exiting an activity. Offshore exploration and production, for example, may present too many risks for an oilfield services company accustomed to serving onshore customers. Offshore activities present a vast set of engineering challenges than what the company faces. There are also different compliance requirements, different environmental concerns, and different workplace safety issues. Hurricanes or other natural disasters pose threats. The potential liability exposure may be much larger than the company wishes to address. ERM is present in all of these scenarios as a management tool to define the problem and the appropriate outcome within the risk framework. Risk monitoring: Is something really being done about the risk? Finally, risk monitoring is applied to situations where a failure could produce a material or devastating impact to the organization. Oilfield service operations present the potential for considerable personal danger, as well as widespread environmental damage. Various means of oversight help a company avoid facing such consequences. Monitoring may include establishing appropriate controls and then implementing periodic internal audits, real time data mining, or other efforts to ensure operations remain in tolerance. Change continually confronts oilfield services companies. Broad economic changes influence high-level decisions. New competitors emerge. With periodic reviews of the risk management scope, oilfield services company managers can utilize ERM to continuously identify and respond efficiently, consistently, and effectively to risks and opportunities that accompany change. OGFJ

About the Author Joseph (Jody) R. Allred, CPA, CISA is a Risk Advisory Services partner at Weaver, the largest independent certified public accounting in the Southwest with offices throughout Texas.



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Inter-asset dependencies can drive A&D activity in mature provinces Bart J. A. Willigers and Zaur Muslumov, Palantir, Aberdeen, Scotland

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ost of the oil and gas production in mature hydrocarbon provinces such as the UK Continental Shelf (UKCS) and the shallow water Gulf of Mexico (SW GOM) is exported via systems of offshore hubs, subsea pipelines, and onshore terminals. In many cases, infrastructure assets are owned by parties that are different from those who produce hydrocarbons. Commercial agreements on transportation, processing, and operating services create economic dependencies between infrastructure owners and hydrocarbon producers. These intra-cluster dependencies may lead to material risks and opportunities that can be realized by both existing asset owners, and by potential buyers. Informed decision making, therefore, requires a thorough analysis of infrastructure assets and inter-asset dependencies, and an accurate modeling of associated commercial arrangements.

Rising transportation, processing costs in mature basins The business landscape in SW GOM and UKCS has changed over the past decades, with many assets today nearing the end of their economic lives, and typically suffering from high operating costs and looming abandonment liabilities. This provides a strong incentive for owners to keep them operational for as long as possible or to divest them. Although the importance of availability of reliable infrastructure in these conditions is widely acknowledged by industry participants, many still underestimate the costs, risks, and also potential business opportunities associated with the joint use of infrastructure assets. During the development stages in the past in both SW GOM and UKCS, substantial investments were made in


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Users prefer Fig. 1: A hydrocarbon tariffs to cost cluster example sharing because Flow of hydrocarbons tariff payments Field 3: User Field 2: Hub tend to be more & User stable and predictable. Also, Field 1: Field 5: Hub users have more User Trunk control over tariff Pipeline levels than over infrastructure costs. In addition, during the costField 4: User sharing phase, the payment made by Flow of service payments Tariff and cost-sharing arrangements a user is depenField 3: User Field 2: Hub Most infrastructure assets receive either a tariff or a costdent not only & User share payment from their users. There is a key difference on infrastructure Field 1: between jurisdictions where oil and gas infrastructure tariffs costs, but also Field 5: Hub User on the economic are regulated, and those where tariff levels are negotiated. In jurisdictions with no detailed prescribed tariff-setting performance of other users within mechanism, such as the UK, users are generally charged the same cluster. a negotiable unit tariff paid on periodic hydrocarbon Trunk Further comthroughput. Over time, the total tariff payment decreases Pipeline plexities arise as a consequence of the natural decline of production. Field 4: User from the fact that Once the service provider is no longer able to cover its Arrows in the figure on the top indicate the flow costs and to generate profit with tariff receipts, many com- users often use of hydrocarbons between users and infrastructure assets. The arrows in the figure on the bottom various sections of mercial agreements default to cost sharing. indicate the corresponding payment flows. the infrastructure In the cost-sharing phase each user in a cluster pays an chain, where each element may have a different ownership. As a consequence, “The gradual production decline implies that the user payments are subject to several commercial agreetransportation and processing infrastructure does ments that typically involve different terms (see Figure 1). not operate at full capacity. Both factors transIn addition, some fields act as users of downstream infralate into much higher unit operating costs. As a structure elements while serving as hubs for one or several result, understanding the economic implications upstream assets. of transportation and processing costs in mature provinces has never been as important as in the Dynamics of field cluster economics present, final, stage of production.” Once a user is in cost sharing, the operating costs depend infrastructure networks. At that time, little ullage existed in transportation and processing systems and unit operating costs were relatively low. The present situation is very different. Large parts of the existing infrastructure require significant maintenance investment as installations have passed their designed lifespan or will do so in the near future. The gradual production decline implies that the transportation and processing infrastructure does not operate at full capacity. Both factors translate into much higher unit operating costs. As a result, understanding the economic implications of transportation and processing costs in mature provinces has never been as important as in the present, final, stage of production.

allocated portion of the infrastructure costs in proportion to its share of the total throughput. Infrastructure owners also charge the uplift (profit margin), as a percentage of allocated costs (typically between 10% and 20%). In jurisdictions with regulated tariffs, such as the US, tariffs generally represent the cost of service (both the historical capital recovery and ongoing operating expenses) plus the regulated rate of return or a profit margin. The policy objective is to limit the price-setting power of infrastructure owners, which arises from the fact that most hydrocarbon infrastructure assets are natural monopolies. Under such arrangements, since costs are included in the tariff calculation, all users within a cluster are automatically allocated a share of infrastructure costs, or, in other words, enter the cost sharing phase from day one.

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on the performance of all other fields using the same infrastructure system. A particularly dramatic result of economic dependencies within a cluster of fields is the so-called “domino effect.” The “domino effect” as first described by Willigers et al. (2010) can occur when a user from the cluster ceases operation, which increases the cost burden for the users that remain on stream (see Figure 2). Such an increase in costs allocated to remaining fields is, therefore, likely to shorten their economic lives. This could in turn result in another user becoming uneconomic in the same period, triggering a chain reaction in which the growing costs for individual users might cause the entire field cluster to turn uneconomic. While there are a number of available measures to mitigate against the “domino effect” impact, such as the removal of redundant infrastructure elements (e.g. unused



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Fig. 2: Flow of service payments: “domino effect”

Under the “domino effect” scenario, cost share payments of producing fields progressively increase as individual cluster participants become uneconomic one by one, and the infrastructure costs are redistributed among fewer fields that remain operational.

processing trains and compressors) and more efficient maintenance, they are limited due to the lack of infrastructure scalability. Because operating cost profiles of infrastructure assets are heavily dominated by fixed costs, it is very difficult to vary costs in line with current throughputs. As a result, the risks associated with the “domino effect” tend to be more pronounced in mature provinces with declining production.

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imply higher unit costs, these players might exploit the information asymmetry by farming out their equity in users of the infrastructure. Until now, firms that have focused on the acquisition of mature exploitation opportunities appear to have ignored the bigger picture. As transportation and processing costs have a large impact on the value of such opportunities, it is essential to understand the economic dynamics and interasset dependencies within infrastructure systems and field clusters. Players might, for example, be in a position to acquire infrastructure assets alongside equity in a user and create an opportunity to benefit from the economic upside resulting from further brownfield developments or exploration successes in the areas adjacent to their upstream assets. Finally, it is important to note that the “domino effect” dynamics are broadly ignored in the assessment of economically recoverable reserves by the existing asset owners, which often makes reserves-based asset valuation methods inadequate in mature hydrocarbon basins.

Conclusion Strategic and economic interdependencies between oil and gas fields and their offshore transportation and processing systems are complex. Events occurring in one part of the system affect all connected elements of the infrastructure network and their users, and can have a dramatic impact on asset values. Players who have better access to information, and who are able to accurately model the economic dynamics within infrastructure systems and field clusters will be in a position to identify A&D opportunities hidden from fellow players. OGFJ

About the authors Bart J.A. Willigers is a principal consultant Although uncertainties related to inter-asset economic for Palantir. He has assisted a large numdependencies clearly represent a risk to asset owners, ber of companies in their improvement of they can also create valuable A&D opportunities for decision-making tools and processes. He has informed players. An important realization when evaluatexperience in risk modeling and manageing and modeling field cluster economics is that a change ment and has advised corporations with in assumptions for one element of a cluster will cascade respect to corporate decisions around major throughout the system of dependent fields, thereby impact- business spends, licensing purchases, and projing all connected parts of the cluster. ect sanctions. Willigers has experience in the upstream oil and Players that have superior knowledge of the future gas industry as well as the pharmaceutical sector, and he has potential or expected adverse developments in certain elewritten numerous papers on risk modeling and geology. ments of a cluster can exploit such information asymmetry to their benefits. For example, development of a large Zaur Muslumov is a senior consultant for new field and its subsequent connection to a hub could Palantir. He is an experienced oil and gas dramatically lower cost-share payments for the existing commercial and economics professional, and hub users. The reduction in the cost-share payments could his key interest areas are international fiscal significantly increase the value of these users, thus creating regimes and commercial arrangements for a material value gap between those players who are aware hydrocarbon transportation and processing. of the new development and those unaware of it. He is also an expert in asset and portfolio In an alternative scenario, the infrastructure owners valuation and natural gas marketing and sales. Muslumov holds a masters degree in economics from might have exclusive access to data that suggests that the Duke University and is currently a Level III candidate in the decline in the total throughput of the infrastructure asset is accelerating faster than expected. As steeper decline rates Chartered Financial Analyst program.

A&D strategies and field cluster economics


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The future of supply trading in the oil and gas industry Jonathan Dison, Bender Consulting, Austin

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he last two years have been a very interesting time for nearly every company in every industry – and not just in the US. The economic crisis impacted organizations worldwide. For most, cutbacks were the order of the day and self-preservation was key. But we are starting to emerge from the frozen wasteland of economic despair as the financial chill that slowed our global economy begins to thaw and business begins to stabilize. Companies are cash rich and looking to take advantage of unique opportunities to return to profitability and gain a competitive edge that might not have been considered even two years ago. In the US alone companies are sitting on nearly one trillion in cash – the highest amounts ever in this country. Oil and gas companies are no different – cash rich in a recovering economy that is replete with opportunity. But where to begin? Most oil and gas companies tend to focus on one area of the market. Upstream companies focus on the exploration and production side of the business, searching for oil and

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gas deposits and reserves to exploit. Downstream companies refine the crude product and deliver supply to end-users. Some span both the upstream and downstream markets. Acquisition of depressed assets or strategic assets will certainly play a big role for many oil and gas companies, but this is somewhat of a sideways move that simply extends a company’s reach within an area in which they already play. So what opportunities exist to expand beyond established business practices in the upstream and downstream markets?

Supply trading: an untapped resource for the bottom line Supply trading represents both a huge opportunity and a huge challenge for oil and gas companies going forward, and is the area of expansion that takes oil and gas companies beyond simply playing in the upstream or downstream market. Many companies in the sector have a rudimentary play in trading, but nowhere near as sophisticated as many of the investment banks.



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The reality is that supply trading, in the long run, will add tremendous value to the bottom line and provide muchneeded insight into the full spectrum of exploration to distribution that many oil and gas companies don’t have today. As mentioned earlier, oil and gas companies are looking to leverage their cash-rich positions to improve the bottom line as well as further optimize the full value chain. Technology is playing a key role in facilitating this transition as well. Improvements in technology enable better data mining and decision-making support that will pay dividends in the long run. So, what are the challenges and opportunities that exist? We’ll explore both below in more detail:

Challenges • The C-suite: Most executives in the oil and gas industry have risen through the engineering ranks to achieve their current positions. Most have a very clear understanding of the engineering challenges that exist in both the upstream and downstream worlds. But the world of supply trading is very foreign to many of them. The pendulum has also swung against risk. A conservative financial and business approach are the rule of the day. Memories of Enron and others are still very fresh in the energy industry, and the idea of supply trading is viewed with some degree of skepticism (or at least without a full understanding) at the highest ranks. Many are unwilling to risk their career for a concept that some believe will not provide a solid ROI. Without support from the top, most projects are doomed to failure. • Trading systems: The trading technology is improving significantly. For the most part, the technology is sound and the concepts are good, but the implementation is poor. To put this in perspective, most Enterprise Resource Planning (ERP) systems achieve about 10% – 20% of value due to poor implementation because the focus has been primarily on technology and not on usability. • Policy: The lack of a clear energy policy is causing problems across the industry as a whole, and certainly has an impact on supply trading as well. Without a clear understanding of the playing field, most companies are taking a conservative approach to any investments due to the extreme layer of complexity that is introduced.

Opportunities • Shareholder value: The oil and gas companies who fully understand the implementation of trading systems stand to capture hundreds of millions in shareholder value, as well as offset and manage risk in the millions if not billions of dollars. • Policy: Policymakers can control the degree of speculative trading by controlling the banks’ role in commodity trading. The investment banks’ role in the crude and commodities market will likely be limited to ensure a decrease in volatility in the market. When this happens, it will result in less competition from the investment bankers for the

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oil and gas companies and make it easier for homeowners and businesses to accurately forecast budget. • Knowledge of the full value chain: By investing in a trading strategy, oil and gas companies will be given the opportunity to see the full value chain. Most companies know how to pull oil out of the ground, refine it and sell it. But tremendous value exists in understanding the entire marketplace to gain critical knowledge that can be exploited to know what levers to pull and when. For example, what move do oil and gas companies need to make if a ship goes down carrying 1 million barrels of crude? Having insight into the full value chain makes for smarter upstream and downstream bets, and will influence upstream and downstream capital investments.

Predictions • Policy: If crude prices hover above $90 a barrel, expect to see increased efforts by lawmakers to keep crude prices down. Efforts will include decreasing speculative trading by investment bankers to reduce volatility as well as increasing production by easing the deepwater moratorium. • Technology: Trading and risk management systems will consolidate over the next five years, resulting in winners and losers. • ERP Systems: There will be an increased investment by ERP companies to reduce integration complexity for supply and trading systems. • Executives: This generation and the next generation of C-suite executives will exhibit a greater appetite for risk than their predecessors to go after value capture. They will trust systems, policies and process to get the picture they need to make informed decisions. • Chevron, Exxon: Chevron and Exxon will leverage their upscale/downscale reach to move up the trading scale in a positive way. Supply trading is extremely complex, but oil and gas companies need this as a foundational element because they need to better understand their risks so they can properly hedge. The challenge is that the systems are still immature; but they will continue to improve. The companies that will see the most success in the short term – and position themselves well for the long term – are the ones that invest in high-quality implementation, integration, adoption and training to begin to see value opportunities across the entire chain. It’s going be a bumpy, bumpy ride, but well worth it to the oil and gas companies that implement a solid trading strategy. OGFJ About the author Jonathan Dison is a managing director and the Global Energy Lead for Bender Consulting. He has more than ten years experience in the oil and gas industry managing complex change initiatives around the world.


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‘Old’ Barnett Shale play still yields some surprises

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he Barnett Shale gas play of North Central Texas may be the grandfather of shale gas plays in the United States, but it is still making news. Despite its maturity, the Barnett occasionally still produces a surprise. One of those surprises occurred in 2010 when Chesapeake Energy’s White South #1H well set a record for production volume from the formation. It made national news and was quickly dubbed a “monster” well because of the high volume of natural gas it was producing – an average of more than 17.8 million cubic feet of gas per day in September, or more than 534.7 million cubic feet for the month, a figure that Chesapeake has confirmed. That production volume makes it the all-time biggest producing well in the Barnett, with a 30-day production average around 37% higher than the previous top producer, the Day Kimball Hill #A1 well. Both wells are southwest of Arlington in Tarrant County and both are operated by Chesapeake. A company spokesman declined to elaborate as to what the drilling crew did to successfully complete the well to get the extraordinary production, saying merely that that information is proprietary. Since September, Chesapeake has restrained production from the White South #1H well along with seven other wells on the same pad site due to low natural gas prices. The wells produce dry gas, but no oil, condensate, or natural gas liquids that can be sold at higher prices. Currently, Oklahoma-based Chesapeake is the secondlargest producer in the Barnett after Devon Energy, another Oklahoma company. XTO Energy, which is now wholly owned by ExxonMobil, is the third-ranked producer. Other large Barnett producers include EOG Resources and Quicksilver Resources. “This play already covers parts of 15 or more counties,” says Eric Potter, associate director of the Bureau of Economic Geology at the University of Texas at Austin. “It compares favorably with the biggest of the old oil booms of the early 20th century.”

of natural gas equivalent per day of current net production, and around 3.0 trillion cubic feet of natural gas equivalent of proved reserves. At the time the deal was announced, Chesapeake said it believed its leasehold position will support the drilling of about 3,100 additional net locations. Approximately 60% of Chesapeake’s Core and Tier 1 leasehold is held by production and therefore considered developed. Total has partnered with Chesapeake and several other North American energy companies in an effort to gain technological know-how as well as access to the energy supplies. Total and other European and Asian energy giants have signed partnership agreements in the Barnett, Marcellus, Eagle Ford, and other shale plays, to learn more about drilling and completion techniques, which they plan to apply elsewhere in the world. For example, Italy’s Eni SpA recently said it is applying knowledge gained from a partnership with Quicksilver Resources in the Barnett to a Polish shale gas play. Eni acquired Minsk Energy Resources and now has three operating licenses in the Polish Baltic Basin. The company says it plans to expand its position in European unconventional resources.

Other Barnett deals

On Sept. 30, Chesapeake monetized certain of its producing assets in the Barnett. The company sold a five-year volumetric production payment (VPP) to an affiliate of Barclays Bank for proceeds of $1.15 billion. The deal includes roughly 390 billion cubic feet of proved reserves and about 280 million cubic feet per day of net production in 2011. Chesapeake retained drilling rights on the properties below currently producing intervals and outside of existing producing wellbores. Chesapeake is responsible for all production costs associated with the VPP. Houston-based EnerVest Ltd. has entered the Barnett Shale with an agreement to purchase oil and natural gas assets from privately-held Talon Oil & Gas LLC for $967 million. Recent Barnett activity Privately-held EnerVest Ltd., which manages oil and natural There have been several key developments in the Barnett gas assets for institutional investors, entered the deal along Shale in the past year, one of the major deals involving with affiliated partners, including EV Energy partners LP, Chesapeake, which executed a $2.25 billion joint venture with which will pay $300 million to acquire a 31% interest in the France’s Total last January. Under terms of the agreement, assets. Total acquired a 25% interest in Chesapeake’s Barnett Shale The majority of the 20,207 held-by-production gross acres assets. Total paid $800 million in cash and also agreed to pay acquired from Talon are considered Core to the play with an additional $1.45 billion by funding 60% of Chesapeake’s 212 active wells producing 87 million cubic feet per day of share of drilling and completion expenditures. The assets gas equivalent from 1.1 trillion cubic feet of gas equivalent in include roughly 270,000 net acres of leasehold in the Core reserves. Production is 29% natural gas liquids and 71% natuand Tier 1 areas of the Barnett, about 700 million cubic feet ral gas with a reserves-to-production ratio of 33 years. OGFJ 36

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Deal Monitor

$1.7 billion oil sands deal is month’s largest

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gain this month, large international deals dominate the M&A space. Last month, it was BP’s sale of its Argentina assets to Bridas Corp. and CNOOC for $7.1 billion. For the 30-day period from mid-December to mid-January, the single largest deal was the strategic alliance between Canada’s Suncor Energy and Total E&P Canada Ltd. in the Canadian oil sands. Although this is a fairly complicated partnership arrangement involving four separate but related transactions, Total will end up paying Suncor about $1.74 billion for a greater

asset position in the Athabasca oil sands region of Alberta, and the two companies have also agreed to a joint commitment to develop the Fort Hills and Voyageur projects in parallel so that both come on stream in 2016. In short, it appears that Total is betting that the price of oil remains sufficiently high so that these oil sands projects remain economically viable. Total, like other super majors, has the deep pockets to spend on projects that will not see a return on investment for years to come. In the United States, the two largest deals were Petrohawk

Rodman & Renshaw - Deal Monitor – Select transactions

12/16/10 - 01/15/11

US Transactions Date Announced

Buyer

Seller

Asset Location

17-Dec-10

Korea National Oil Corporation / STX Energy

Renaissance Petroleum

Gulf Coast Onshore

21-Dec-10

Treaty Energy

Town Oil Company

Mic Continent

21-Dec-10

Constellation Energy

Undisclosed

Mic Continent

21-Dec-10

EXCO Resources

Chief Oil & Gas

Appalachia

22-Dec-10

Legacy Reserves

Undisclosed

Mic Continent

22-Dec-10

Undisclosed

Gulfsands Petroleum

Gulf of Mexico

23-Dec-10

Exxon / XTO

Petrohawk Energy

Mic Continent

27-Dec-10

Quantum Resources

Melrose Resources

Mic Continent

27-Dec-10

Magnum Hunter

NGAS Resources

Appalachia

27-Dec-10

Magnum Hunter

PostRock Energy

Appalachia

3-Jan-11

Earthstone Energy

Undisclosed

Rocky Mountains

6-Jan-11

Energen

Undisclosed

Mic Continent

10-Jan-11

Lime Rock Resources

Undisclosed

Mic Continent

10-Jan-11

NFG / Seneca

EOG Resources

Appalachia

11-Jan-11

Range Resources

Undisclosed

Gulf Coast Onshore

13-Jan-11

Energy Partners LTD

Anglo-Suisse Offshore

Gulf of Mexico

13-Jan-11

EXCO Resources

Undisclosed

Appalachia

17-Jan-11

Undisclosed

Strike Energy

Gulf Coast Onshore

Asset Location

International Transactions Date Announced

Buyer

Seller

17-Dec-10

Total

Suncor Energy

Canada

21-Dec-10

Undisclosed

Petrolifera Petroleum

South America

22-Dec-10

Omers Resources

ARC Resources

Canada

29-Dec-10

Accelerated Oil Technologies

Connacher Oil and Gas

Canada

15-Jan-11

Baytex Energy

Undisclosed

Canada

Source: Rodman Energy Group, public filings, and company press releases. Information represents best data available at time of publishing. Metrics include adjustment for non-reserve value and/or non-proved reserve value if applicable. Prepared by Jason Reimbold, Vice President, Rodman Energy Group. For more information, email to [email protected]. Rodman & Renshaw LLC (Member FINRA, SIPC) is a full-service investment bank with offices in New York and Houston.

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Deal Monitor Energy’s sale of its upstream and midstream assets in the Fayetteville Shale to XTO Energy, a subsidiary of ExxonMobil, and Anglo-Suisse Offshore’s sale of some of its Gulf of Mexico assets to New Orleans-based Energy Partners Ltd. In the Petrohawk deal, the company sold its natural gas assets in Cleburne and Van Buren counties (Arkansas) to XTO for $575 million. Although announced on Dec. 23, the sale had an effective date of Oct. 1, 2010. In addition, Petrohawk entered into an agreement with XTO to sell its midstream assets in the Fayetteville Shale for $75 million. The portion of the transaction involving the midstream assets is expected to close in early 2011 and is subject to regulatory

Price ($MM)

Non Proved Reserve Value ($MM)

55.0

—

9.0

—

Reserves (MMBoe)

approval and customary closing conditions. In all the deals totaled about $650 million. On Jan. 13, Energy Partners agreed to acquire oil and natural gas assets from Anglo-Suisse Offshore Partners, a privately held US company, for $201.5 million. The assets are located in the central Gulf of Mexico and currently produce about 3,000 net barrels of oil equivalent per day, about 92% of which is oil. The newly acquired field areas are in the vicinity of EPL’s existing South Timbalier and East Bay operations and are shallow water fields. Energy Partners said it would issue senior notes to fund the acquisition. OGFJ

Production (Boe/D)

Reserves ($/Boe)

Production ($/Boe/d)

Reserves ($/Mcfe)

5.6

NA

NA

165

Production ($/Mcfe/d)

9.82

NA

1.64

NA

NA

54,545

NA

9,091 7,804

5.9

—

0.2

126

34.71

46,825

5.78

—

459.4

NA

NA

NA

NA

NA

NA

1.4

—

NA

17

NA

82,353

NA

13,725

4.2

—

NA

NA

NA

NA

NA

NA

575.0

—

49.8

16,333

11.54

35,204

1.92

5,867

80.0

—

23.0

913

3.48

87,591

0.58

14,599

98.0

—

13.1

1,533

7.50

63,927

1.25

10,654

26.8

13.0

4.1

151

6.62

177,680

1.10

29,613

0.7

—

NA

24

NA

29,351

NA

4,892

—

15.3

NA

NA

NA

NA

NA

NA

130.0

—

NA

NA

NA

NA

NA

NA

23.0

—

7.0

NA

3.29

NA

0.55

NA

—

0.1

NA

NA

NA

NA

NA

NA

201.5

—

8.0

3,000

25.19

67,167

4.20

11,194

95.0

—

NA

NA

NA

NA

NA

NA

21.7

—

1.4

NA

15.78

NA

2.63

NA

$9.82 $13.10

$63,927 $71,627

$1.64 $2.18

$10,654 $11,938

Median Mean

Number of Transactions 18

Price ($MM)

Non Proved Reserve Value ($MM)

Reserves (MMBoe)

Production (Boe/D)

Reserves ($/Boe)

Production ($/Boe/d)

Reserves ($/Mcfe)

Production ($/Mcfe/d)

1,700.0

—

NA

NA

NA

NA

NA

NA

10.0

—

NA

NA

NA

NA

NA

NA

170.0

—

14.7

3,400

11.56

50,000

1.93

8,333

57.5

—

NA

700

NA

82,143

NA

13,690

156.5

—

NA

2,600

NA

60,192

NA

10,032

$11.56 $11.56

$60,192 $64,112

$1.93 $1.93

$10,032 $10,685

Number of Transactions 5

Median Mean


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OGJ150 Quarterly

Net income dips by $2.7B, but still up 42% over 3Q09 Don Stowers, Editor, OGFJ Laura Bell, Statistics Editor, Oil & Gas Journal

W

hile revenues have made a rebound from the economic doldrums of 2009, net income for the OGJ150 group of companies slipped a little in the third

quarter of 2010, with a few notable exceptions. For the group of companies tracked by Oil & Gas Journal and Oil & Gas Financial Journal, net income

fell by 11% (about $2.7 billion) in the third quarter of 2010 compared to the previous quarter. However, income increased by 42% (around $6.4 billion) compared to the third

The top 20 fastest growing companies1 — Stockholders’ equity — 3rd quarter rank by total assets Company 36

Ultra Petroleum

10

Devon Energy Corp.

11

El Paso Corp.

76

Gulfport Energy Corp.

9

Hess Corp.

22

Southwestern Energy Co.

56

Carrizo Oil & Gas Inc.

31

Forest Oil Corp.

26 20 106

Earthstone Energy Inc.3

65

Contango Oil & Gas Co.4

95

Houston American Energy Corp.

73

GeoResources Inc.

Most recent quarter

Preceding quarter2

–––––– $1,000 ––––––

——– Net income ——– Change, %

Most recent quarter

Preceding quarter2

–––––– $1,000 ––––––

–––– Long-term debt –––– Change, %

Most recent quarter

Preceding quarter2

–––––– $1,000 ––––––

1,092,536

924,749

18.1

162,642

61,493

164.5

1,326,000

1,181,000

18,652,000

16,830,000

10.8

2,090,000

706,000

196.0

3,821,000

5,571,000

5,601,000

5,073,000

10.4

183,000

157,000

16.6

—

—

195,361

179,064

9.1

12,678

10,389

22.0

—

1,815

15,828,000

14,530,000

8.9

1,091,000

375,000

190.9

5,541,000

4,293,000

2,880,501

2,665,867

8.1

160,638

122,069

31.6

1,289,400

1,178,000

375,356

349,258

7.5

24,355

1,785

1264.4

584,069

576,876

1,319,129

1,233,638

6.9

68,911

33,254

107.2

1,868,453

1,867,534

Cimarex Energy Co.

2,502,259

2,367,652

5.7

128,216

124,620

2.9

350,000

350,000

Newfield Exploration Co.

3,300,000

3,128,000

5.5

161,000

96,000

67.7

2,169,000

2,169,000

14,571

13,857

5.2

1,102

378

191.5

—

—

395,626

377,330

4.8

18,941

15,367

23.3

—

—

38,328

36,829

4.1

1,172

990

18.4

—

—

199,055

191,875

3.7

7,636

4,443

71.9

85,000

69,000

1

ExxonMobil Corp.

150,600,000

145,367,000

3.6

7,561,000

7,560,000

0.0

15,248,000

17,486,000

89

Panhandle Oil & Gas Inc.

73,582

71,079

3.5

3,036

1,511

100.9

—

—

15,273,000

14,815,000

3.1

558,000

255,000

118.8

11,445,000

10,501,000

3,615,577

3,507,276

3.1

98,681

13,495

631.2

2,593,062

2,404,989

31,844,000

30,912,000

3.0

1,213,000

1,063,000

14.1

2,512,000

2,511,000

6,737,000

6,541,000

3.0

232,000

204,000

13.7

2,194,000

2,584,000

8

Chesapeake Energy Corp.

19

Petrohawk Energy Corp.

6

Occidental Petroleum Corp.

14

Noble Energy Inc.

1 Based on 3rd quarter ending Sept. 30, 2010, unless otherwise noted. Companies were selected on the basis of growth in stockholders’ equity from previous quarter. Only companies with positive net income for both quarters were considered. Companies were not considered if they had a decline in net income, were subsidiaries of another company, or became public within the last year. 2Based on previously reported data.32nd quarter. 41st quarter.

Managing the Complete Process CONSULTING

SOFTWARE

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OGJ150 Quarterly The top 20 in net income and stockholders’ equity* Net income, $1,000 Rank Company

Rank Company

Stockholders’ equity, $1,000

dramatic – a $75.2 billion bump (about 16%).

1

ExxonMobil Corp.

7,561,000

1

ExxonMobil Corp.

150,600,000

Largest in net income

2

Chevron Corp.

3,792,000

2

Chevron Corp.

102,965,000

3

ConocoPhillips

3,069,000

3

ConocoPhillips

69,917,000

4

Devon Energy Corp.

2,090,000

4


31,844,000

5


1,213,000

5

Marathon Oil Corp.

23,356,000

6

Hess Corp.

1,091,000

6

Apache Corp.

21,945,382

7

Apache Corp.

778,265

7

Anadarko Petroleum Corp.

21,144,000

8

Marathon Oil Corp.

696,000

8

Devon Energy Corp.

18,652,000

9


558,000

9

Hess Corp.

15,828,000

10

SandRidge Energy Inc.

307,602

10


15,273,000

11

Noble Energy Inc.

232,000

11

EOG Resources Inc.

10,118,124

12

Kinder Morgan CO2 Co. LP

221,500

12

Murphy Oil Corp.

7,966,919

13

Murphy Oil Corp.

202,832

13

Noble Energy Inc.

6,737,000

14

El Paso Corp.

183,000

14

El Paso Corp.

5,601,000

15

Ultra Petroleum

162,642

15

Denbury Resources Inc.

4,863,918

16


161,000

16

Pioneer Natural Resources Co.

4,157,838

17


160,638

17


3,615,577

18

Cimarex Energy Co.

128,216

18

Plains Exploration & Production Co.

3,388,774

19


114,574

19


3,300,000

20


98,681

20

The 20 largest companies ranked according to income had more than $22.8 billion in collective net income. This compares with just $21.7 billion for the entire group of 127 companies on the OGJ150 list. The disparity is because the other 107 companies ranked behind the top 20 showed a collective net loss of $1.1 billion. The top five companies by net income for the quarter are ExxonMobil Corp. ($7.6 billion), Chevron Corp. ($3.8 billion), ConocoPhillips ($3.1 billion), Devon Energy Corp. ($2.1 billion), and Occidental Petroleum Corp. ($1.2 billion). The next five include Hess Corp. ($1.1 billion), Apache Corp. ($778 million), Marathon Oil Corp. ($696 billion), Chesapeake Energy Corp. ($558 million), and SandRidge Energy Corp. ($308 million) – a new addition to the top 20 income-earners and the OGJ150 Quarterly. Other companies that moved up into the top 20 in income are Ultra Petroleum, Newfield Exploration Co., and Petrohawk Energy Corp. Falling out of the top 20 this quarter are Exco Resources Inc., Denbury Resources Inc., Whiting Petroleum Corp., and Concho Resources Inc.

Total

22,820,950

QEP Resources Inc. Total

3,071,400 524,344,932

*Based on 3rd quarter ended Sept. 30, 2010

quarter of 2009. Total net income for the OGJ150 group of companies was $21.7 billion for the quarter. Total revenue for the group exceeded $259 billion, a 1% increase (roughly $2.0 billion) from the second to the third quarter of 2010. However, the upward surge reflected a 17% ($37.5 billion) bump over the same quarter a year ago in 2009. Year-to-date capital spending rose from $87 billion in the third quarter of 2009 to $96 billion in the same quarter a year later, representing an 11% increase.

Total assets for the group increased to $1.16 trillion from $1.12 trillion the previous quarter, representing about a 4% gain. This is a significant increase for one quarter. Last quarter, total assets grew by just 0.84%. Total assets increased by $100.1 billion (about 10%) over the third quarter of 2009. Stockholder equity continues to grow as well, which is good news for investors. Equity for the group rose by $22.9 billion to $566.4 billion, a 5% increase. Growth from the same quarter a year ago was even more

Land Management

Leaders in stockholder equity Looking at the top 20 companies ranked according to stockholders’ equity, there were few changes from the prior quarter. The top five

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OGJ150 Quarterly The top 20 in spending*

Rank

Capital, exploratory spending, $1,000

Company

The top 20 in total revenue* Rank

The top 20 in assets — market capitalization1 Total revenue, $1,000

Company

Rank

Market capitalization, $1,000

Company

1

ExxonMobil Corp.

19,701,000

1

ExxonMobil Corp.

95,298,000

1

ExxonMobil Corp.

124,347,957

2

Chevron Corp.

14,108,000

2

Chevron Corp.

49,718,000

2

Chevron Corp.

163,107,329

3

ConocoPhillips

6,371,000

3

ConocoPhillips

49,549,000

3

ConocoPhillips

84,377,563

4

Devon Energy Corp.

4,793,000

4

Marathon Oil Corp.

18,575,000

4


28,496,567

5

EOG Resources Inc.

3,963,955

5

Hess Corp.

8,953,000

5

Marathon Oil Corp.

6


3,718,000

6

Murphy Oil Corp.

6,063,783

6


7

Marathon Oil Corp.

3,634,000

7


4,929,000

7

Apache Corp.

35,626,170

8


3,563,000

8

Apache Corp.

3,012,659

8


14,819,470

1,324,000 63,625,469

9

Hess Corp.

3,151,000

9


2,581,000

9

Hess Corp.

19,420,758

10

Apache Corp.

3,040,609

10


2,550,000

10

Devon Energy Corp.

27,995,759

11


2,816,000

11

Devon Energy Corp.

2,353,000

11

El Paso Corp.

12

El Paso Corp.

2,733,000

12

EOG Resources Inc.

1,582,075

12

EOG Resources Inc.

17,884,336

13


1,731,707

13

El Paso Corp.

1,213,000

13

Murphy Oil Corp.

11,911,348

14

Murphy Oil Corp.

1,611,656

14

Williams Cos. Inc.

1,012,000

14

Noble Energy Inc.

13,215,840

15


1,506,079

15

Noble Energy Inc.

755,000

15


16

Noble Energy Inc.

1,326,000

16


682,172

16

Williams Cos. Inc.2

17


1,191,000

17


616,652

17


7,495,607

18

QEP Resources Inc.

1,035,900

18

QEP Resources Inc.

564,600

18


3,736,467

19


861,944

19


466,703

19


4,880,498

20

Ultra Petroleum

831,423

20


449,000

20


Total

81,688,273

Total

250,923,644

*Based on year-to-date Sept. 30, 2010.

*Based on 3rd quarter ended Sept. 30, 2010

companies remain ExxonMobil, Chevron, ConocoPhillips, Occidental Petroleum, and Marathon Oil. Apache Corp. and Anadarko Petroleum switched places with Apache moving up to No. 6 and Anadarko falling a notch to No. 7. Hess and Chesapeake did the same with Hess moving to No. 9 and Chesapeake falling one place to No. 10. No. 20 Southwestern Energy fell out of the top 20, and QEP Resources took over that position.

Largest in total revenue Most of the top 20 companies ranked by total revenue held their positions. The top 10 in order are ExxonMobil, Chevron, ConocoPhillips, Marathon, Hess, Murphy Oil, Occidental, Apache, Chesapeake, and Anadarko. Chesapeake moved up from No. 11 to the No. 9 position. Anadarko dropped one spot to No. 10. Devon fell from No. 10 to No. 11. Southwestern moved up one spot to No. 16, while Pioneer Natu-

Financial Accounting 42

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Total

8,716,883

6,348,653 11,160,240

7,685,828 656,176,744

1

As of Sept. 30, 2010 2Based on parent company data.

ral Resources fell from No. 16 to No. 17. Denbury moved up to No. 18 and Newfield fell one spot to No. 20. Cimarex Energy dropped off the list, while QEP Resources entered the list at the No. 18 position.

Top spenders The top 20 companies in spending showed a dramatic increase in capital spending over the previous quarter. Spending for the group grew from $50 billion in the second quarter of

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OGJ150 Quarterly Return on total assets, %

8.8

Total assets

8

6.6

7

5.9

6

5.6

5

5.0 4.3

4

4.1 3.7

3

3.3

3.2

2 1

Contango Oil & Gas Co. (65)

Hess Corp. (9)

Total revenue

100 90

Pyramid Oil Co. (114)

Reserve Petroleum Co. (98)

Gulfport Energy Corp. (76)

Ultra Petroleum (36)

Earthstone Energy Inc. (106)

Dorchester Minerals LP (85)

Devon Energy Corp. (10)

Mainland Resources Inc. (111)

0

88.8 79.0

80

67.7

70

57.9

60

56.6

54.4

50

49.5

49.1

42.4

40

38.2

30 20 10

15

14.9


Reserve Petroleum Co. (98)

Belden & Blake Corp. (66)

Exco Resources Inc. (38)

GeoMet Inc. (84)

Rex Energy Corp. (68)

Dorchester Minerals LP (85)


Carrizo Oil & Gas Inc. (56)


0

Total stockholders’ equity 12.5

7.6

6.9

6.5

6.5

Carrizo Oil & Gas Inc. (56)

10.0


10.1

Hess Corp. (9)

11.2 10

6.0

W&T Offshore Inc. (50)

Earthstone Energy Inc. (106)

Mainland Resources Inc. (111)

Callon Petroleum Co. (79)


0

GeoMet Inc. (84)

5


Ultra Petroleum takes top honors as the fastest-growing company for the quarter with an 18.1% increase in stockholders’ equity over the 2Q10. The company also showed a 164.5% rise in net income over the prior quarter. Houston-based Ultra Petroleum is an independent E&P company focused on developing its long-life natural gas reserves in the Green River Basin of Wyoming – the Pinedale and Jonah fields – and is in the early exploration and development stages in the Appalachian Basin of Pennsylvania – the Marcellus Shale. Devon Energy (10.8% growth in stockholders’ equity) and El Paso Corp. (10.4% growth) were the second and third fastest-growing companies in the third quarter of 2010. OGFJ

9

Return on total revenue, %

Fastest-growing companies

Top companies in return on...*

Return on stockholder equity, %

2010 to $81.7 billion in the third quarter – an increase of $31.7 billion, or a 64% rise in capex. Top spenders, in order, were ExxonMobil, Chevron, ConocoPhillips, Devon, EOG Resources, Chesapeake, Marathon, Anadarko, Hess, and Apache. New additions to the top 20 spenders are QEP Resources (No. 18 on the list) and Pioneer Natural Resources (No. 19). Plains Exploration and Production Co. (previously No. 18 on the 2Q10 list) and Continental Resources Inc. (previously No. 20) fell off the list of top 20 spenders.

*Includes companies whose accounting methods vary. Excludes companies whose results were inflated by identifiable extraordinary gains. Excludes royalty trusts. Numbers in parentheses indicate rank by total assets.

Production Revenue Accounting

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OGJ150 Quarterly ——————––––––––– Quarter ending Sept. 30, 2010 –––––––––-————— Rank by total assets 3Q10

Total assets $1,000

Company

Stockholder —— equity —— Rank

$1,000

Total —— revenue ——

Net —— income ——

Rank

Rank

$1,000

$1,000

YTD Capital & expl. ––– spending ––– Rank

$1,000

1

ExxonMobil Corp.

299,994,000

1

150,600,000

1

95,298,000

1

7,561,000

1

19,701,000

2

Chevron Corp.

177,199,000

2

102,965,000

2

49,718,000

2

3,792,000

2

14,108,000

3

ConocoPhillips

155,333,000

3

69,917,000

3

49,549,000

3

3,069,000

3

6,371,000

4


51,826,000

7

21,144,000

10

2,550,000

117

(8,000)

8

3,563,000

5

Marathon Oil Corp.

48,123,000

5

23,356,000

4

18,575,000

8

696,000

7

3,634,000

6


47,503,000

4

31,844,000

7

4,929,000

5

1,213,000

11

2,816,000

7

Apache Corp.

36,928,349

6

21,945,382

8

3,012,659

7

778,265

10

3,040,609

8


34,333,000

10

15,273,000

9

2,581,000

9

558,000

6

3,718,000

9

Hess Corp.

33,485,000

9

15,828,000

5

8,953,000

6

1,091,000

9

3,151,000

10

Devon Energy Corp.

31,863,000

8

18,652,000

11

2,353,000

4

2,090,000

4

4,793,000

11

El Paso Corp.

24,507,000

14

5,601,000

13

1,213,000

14

183,000

12

2,733,000

12

EOG Resources Inc.

19,944,859

11

10,118,124

12

1,582,075

125

(70,906)

5

3,963,955

13

Murphy Oil Corp.

13,732,622

12

7,966,919

6

6,063,783

13

202,832

14

1,611,656

14

Noble Energy Inc.

13,089,000

13

6,737,000

15

755,000

11

232,000

16

1,326,000

15


9,843,203

15

4,863,918

19

466,703

29

16

Williams Cos. Inc.2

9,381,000

—

—

14

1,012,000

127

17


9,297,120

16

4,157,838

17

616,652

19

18


8,127,169

18

3,388,774

23

19


7,701,495

17

3,615,577

21

20


7,226,000

19

3,300,000

20

21

QEP Resources Inc.

6,720,400

20

3,071,400

18

22


5,992,724

21

2,880,501

16

23

Range Resources Corp.

5,837,165

22

2,575,270

34

24

SandRidge Energy Inc.

5,094,165

29

1,437,424

28

25

Whiting Petroleum Corp.

4,366,530

24

2,465,351

25

26

Cimarex Energy Co.

4,149,694

23

2,502,259

24

378,583

27

Quicksilver Resources Inc.

3,964,119

40

893,409

31

28

Cabot Oil & Gas Corp.

3,946,710

25

1,843,338

36

3

29

EQT Production4

3,814,091

—

—

46

3 3

5

387,823

42

18,848

21

805,744

409,182

20

98,681

13

1,731,707

449,000

16

161,000

17

1,191,000

3

18

1,035,900 1,506,079

226,961

118

(8,168)

27

589,753

245,302

10

307,602

23

694,187

373,734

25

58,532

34

473,697

18

128,216

24

691,536

237,700

33

26,569

31

494,338

219,130

63

3,898

25

658,123

26

39,827

—

—

234,111

21

76,644

40

310,401

210,387

23

68,911

26

612,453

22

6

392,669

34

26,171

51

179,018

3

240,496

39

20,775

33

486,903

102,414

124

(51,401)

30

498,625

—

32

31

1,319,129

39

33

Concho Resources Inc.

3,541,675

26

1,788,622

29

34

ATP Oil & Gas Corp.

3,346,110

49

461,815

50

3

115,218

Cost Accounting 44

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861,944

15

—

Authorization for Expenditures

19

71,900

3,803,118

Joint Interest Billing

114,574

160,638

3,775,430

1,353,676

—

22

Energen Corp.

30

500,062

17

Forest Oil Corp.

3,645,259

29 —

564,600

30

Helix Energy Solutions Group Inc.

31,234 (1,608,000)

3

682,172

31 32

1

Fixed Assets

www.qbsol.com

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Total assets $1,000

Company


$1,000



Rank

Rank

$1,000

$1,000


$1,000

35

Continental Resouces Inc.

3,334,625

32

1,248,751

35

219,450

27

39,077

22

727,162

36

Ultra Petroleum

3,275,093

35

1,092,536

30

240,374

15

162,642

20

831,423

37

Mariner Energy Inc.

3,161,657

39

982,322

38

210,681

68

1,821

28

588,376

38

Exco Resources Inc.

2,912,015

28

1,599,871

45

130,990

24

64,896

36

392,370

39

Berry Petroleum Co.

2,553,882

37

1,040,255

44

139,224

107

(3,023)

46

230,955

40

Unit Corp.

2,544,885

27

1,682,868

37

218,116

28

34,491

37

335,821

41

SM Energy Inc.

2,518,997

33

1,202,451

33

226,969

46

15,452

32

488,684

42

Atlas Energy Inc.2

2,282,159

—

—

57

67,503

35

24,891

44

246,817

43


2,136,300

—

—

26

296,000

12

221,500

—

—

44

Bill Barrett Corp.

2,070,133

34

1,160,232

40

180,862

36

24,562

39

313,481

45

Penn Virginia Corp.

1,980,423

38

1,002,891

56

68,953

123

(30,159)

38

313,710

46

Comstock Resources Inc.

1,936,590

36

1,069,514

55

79,725

113

(4,700)

35

406,778

47

Stone Energy Corp.

1,575,779

51

444,135

43

153,666

40

20,281

42

261,970

48

Swift Energy Co.

1,546,923

41

725,439

49

105,646

53

9,330

47

228,379

8, 9

7

49

Seneca Resources Corp.

1,539,705

—

—

47

109,716

31

27,485

—

—

50

W&T Offshore Inc.

1,423,403

50

452,437

41

169,575

32

27,188

54

127,427

51

Eagle Rock Energy Partners LP

1,369,759

42

629,497

42

159,019

122

(25,237)

63

42,799

52

Petroleum Development Corp.

1,250,564

46

520,846

52

87,630

64

3,354

55

106,795

53

Delta Petroleum Corp.

1,146,355

44

545,212

64

35,436

50

10,733

70

24,959

54

McMoran Exploration Co.

1,138,231

65

168,499

51

94,840

121

(20,729)

52

160,259

10

11

55

Fidelity Exploration & Production Co.

1,137,628

—

—

48

107,015

44

18,717

—

—

56


1,080,495

53

375,356

66

30,812

37

24,355

43

261,341

57

Brigham Exploration Co.

1,022,531

43

574,688

62

38,326

97

(676)

41

279,406

58

Rosetta Resources Inc.

1,017,362

45

539,680

54

80,267

54

8,850

45

243,066

59

Clayton Williams Energy Inc.

846,187

58

254,536

53

85,232

49

11,623

48

208,641

8,194

64

41,003

12

60

Layne Christensen Co.

808,282

47

493,177

27

269,797

55

61

Legacy Reserves LP

796,667

54

347,503

60

52,777

120

(20,185)

50

182,725

62

Goodrich Petroleum Corp.

674,393

60

215,254

63

37,435

126

(213,548)

49

184,081

63

Energy Partners Ltd.

627,485

48

473,979

58

56,279

116

(7,846)

62

43,032

64

GMX Resources Inc.

618,823

56

287,387

69

24,833

60

4,504

53

129,877

65

Contango Oil & Gas Co.13

597,294

52

395,626

59

55,085

41

18,941

73

12,502

66

Belden & Blake Corp.

574,842

68

149,333

77

16,599

56

8,150

83

3,332

12

67

Miller Petroleum Inc.

503,324

57

278,054

92

6,676

104

(1,689)

81

5,906

68

Rex Energy Corp.

457,680

55

310,900

76

16,862

51

9,540

61

52,105

Gas Marketing

www.qbsol.com

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Total assets $1,000

Company


$1,000



Rank

Rank

$1,000 3

$1,000


$1,000

69

Crimson Exploration Inc.

430,163

64

174,013

70

24,536

109

(3,820)

66

38,903

70

PetroQuest Energy Inc.

420,063

61

209,766

61

46,285

58

6,226

56

78,015

71

Approach Resources Inc.

358,308

59

229,665

82

14,916

67

2,087

60

52,385

2

72

Black Hills Corp.

358,113

—

—

74

19,354

75

836

—

—

73

GeoResources Inc.

341,316

62

199,055

67

26,929

57

7,636

59

65,282

74

PostRock Energy Services Corp.

319,316

116

(21,824)

68

25,323

30

28,189

71

20,588

7,000

111

(4,000)

—

—

15,600

119

(9,096)

80

6,746

14

15

3

75

DTE Gas Resource

76

Dune Energy Inc.

77


292,313

63

195,361

65

33,214

48

12,678

58

72,590

78

Warren Resources Inc.

272,261

67

149,886

72

23,214

61

4,320

69

25,976

6,244

112

(4,568)

90

1,355

79

13

Cano Petroleum Inc.

309,000

—

—

91

296,718

117

(248,486)

81

258,642

70

131,052

3

94 3

80

Callon Petroleum Co.

213,820

87

15,883

73

20,485

69

1,602

65

39,617

81

PrimeEnergy Corp.

206,507

78

42,316

71

24,119

73

1,125

76

9,621

82

NGAS Resources Inc.

206,071

72

118,608

86

11,148

106

(2,509)

106

64

83

Magnum Hunter Resources Corp.

182,225

74

71,065

87

9,674

108

(3,697)

68

28,123

84

Abraxas Petroleum Corp.

178,109

112

(1,673)

84

13,971

99

(856)

72

20,362

85

GeoMet Inc.

171,511

80

36,180

89

8,316

59

4,527

—

—

86

Dorchester Minerals LP

160,641

66

158,884

78

87

Double Eagle Petroleum Co.

157,092

76

56,187

79

88

American Oil & Gas Inc.

151,146

71

126,311

96

89

US Energy Corp.

148,802

69

131,932

93

6,393

88

(235)

67

29,013

90

Panhandle Oil & Gas Inc.9

105,125

73

73,582

85

12,298

65

3,036

75

11,309

91

Gasco Energy Inc.

80,817

77

44,600

97

4,702

114

(5,344)

82

5,135

92

HKN Inc.

68,796

75

58,003

100

3,306

92

(450)

85

2,068

93

Platinum Energy Resources Inc.

53,856

83

26,926

88

8,816

110

(3,918)

100

262

94

FX Energy Inc.

48,827

88

15,582

90

7,437

38

22,152

84

3,229

95

Tengasco Inc.

41,973

82

28,126

101

3,286

81

188

109

16

96


40,981

79

38,328

95

5,367

71

1,172

77

7,770

97

Evolution Petroleum Corp.13

40,473

81

31,949

109

1,177

94

(485)

96

431

13

3

16,467

52

9,536

—

—

16,162

66

2,862

74

11,466

4,806

87

(119)

57

73,547

98

Cubic Energy Inc.

40,303

93

12,241

112

99

Reserve Petroleum Co.

32,887

84

23,515

102

100

GeoPetro Resources Co.

31,985

85

21,995

115

—

103

2,755

93

15,261

75

19,037

43

2

101

Adams Resources & Energy Inc.

30,917

—

102

San Juan Basin Royalty Trust

23,142

89

16

Business Intelligence 46

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3

840

105

(2,069)

103

125

3,173

70

1,346

—

—

642

102

(1,094)

102

138

17

(476)

—

—

18,838

—

—

www.qbsol.com

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Stockholder —— equity ——

Total assets $1,000

Company

Rank

$1,000



Rank

Rank

$1,000

$1,000


$1,000

103

Pegasi Energy Resources Corp.

22,294

96

11,001

123

209

96

(628)

105

103

104

Lucas Energy Inc.18

21,563

86

17,818

110

939

95

(545)

79

7,053

105

Spindletop Oil & Gas Co.

20,731

92

13,839

105

1,831

80

226

91

1,311

106

Royale Energy Inc.

19,918

98

10,565

104

2,436

77

276

89

1,443

107

Earthstone Energy Inc.18

19,726

91

14,571

99

3,769

74

1,102

86

1,780

108

FieldPoint Petroleum Corp.

18,978

99

9,165

106

1,673

79

240

98

393

16

14,987

98

4,143

62

4,063

—

—

11,942

113

789

82

70

88

1,674

5,924

118

371

115

(5,643)

92

1,032

11,362

127

—

72

1,131

78

7,255

(8,082)

124

114

98

(835)

99

320

97

10,883

107

1,605

78

241

93

780

100

8,759

108

1,434

76

394

87

1,714

7,520

116

597

83

38

94

698

113

(2,541)

117

572

89

(297)

101

222

106

1,487

121

247

101

(1,022)

95

676

6,736

102

5,997

120

274

86

(118)

110

3

(7,640)

109

Cross Timbers Royalty Trust

16,400

90

110

Mexco Energy Corp.

15,673

94

111

Tri-Valley Corp.

14,417

103

112

Mainland Resources Inc.19

12,886

95

113

Black Raven Energy Inc.

12,545

115

114

Texas Vanguard Oil Co.

12,221

115

Pyramid Oil Co.

10,531

116

Apache Offshore Investment Partnership

10,116

101

20

117

John D. Oil & Gas Co.

9,472

118

Glen Rose Petroleum Corp.

7,590

119

21

Oakridge Energy Inc.

18

17

120

EnerJex Resources Inc.

6,409

114

121

Permian Basin Royalty Trust

6,249

107

122

Blue Dolphin Energy Co.2

5,745

105

111

897

100

995

80

16,017

45

2,624

114

740

85

16

16

(954)

—

—

15,893

—

—

(69)

107

59

17

17

123

Sabine Royalty Trust

5,586

104

5,261

83

14,115

47

13,681

—

—

124

Doral Energy Corp.22

2,771

109

(38)

122

210

91

(399)

—

—

2,476

108

420

119

307

90

(370)

97

418

1,895

111

(1,066)

125

113

103

(1,378)

104

107

94

110

(695)

126

13

84

(42)

108

40

NA

—

NA

—

NA

—

NA

—

NA

125

23

Daybreak Oil & Gas Inc.

22

126

Strategic American Oil Corp.

127

Savoy Energy Corp.

—

24

Credo Petroleum Corp.

24

—

Daleco Resources Corp.

NA

—

NA

—

NA

—

NA

—

NA

—

EnDevCo Inc.24

NA

—

NA

—

NA

—

NA

—

NA

NA

—

NA

—

NA

—

NA

—

NA

NA

—

NA

—

NA

—

NA

—

— —

24

Meridian Resource Corp. 24

Pioneer Oil & Gas Totals

1,160,249,719

566,438,302

259,070,131

21,717,102

NA 95,958,089

NA = Not Available. *Annual data reported in OGJ150, Sept. 6, 2010, p. 50 1Net operating. 2Oil and gas operations. 3Operating. 4Subsidiary of EQT Resources Inc. 5Subsidiary of Energen Co. 6Net. 7Before depreciation, depletion and amortization. 8Subsidiary of National Fuel Gas Co 94th quarter. 10Subsidiary of MDU Resources Group. 11Total assets are Sept. 30, 2009. 123rd quarter Oct. 31. 131st quarter. 14 Subsidiary of DTE Energy Inc. 15Total assets are Dec. 31, 2009. 16Trust corpus. 17Distributable income. 182nd quarter. 193rd quarter Nov. 30. 20Partner’s capital. 212nd quarter Aug. 31. 221st quarter Oct. 31. 23 2nd quarter May 31. 24Not filed at press time.

Software and consulting services for the oil and gas industry 713.430.8601

[email protected]

www.qbsol.com ____________


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OGJ150 Quarterly Rank by total assets 3Q10 Company 84 101 88

Abraxas Petroleum Corp. Adams Resources & Energy Inc. American Oil & Gas Inc.

Headquarters city

Rank by total assets 3Q10 Company

Headquarters city

San Antonio

86

Dorchester Minerals LP

Dallas

Houston

87

Double Eagle Petroleum Co.

Denver

75

DTE Gas Resource

The Woodlands, Tex.

76

Dune Energy Inc.

Houston

Eagle Rock Energy Partners LP

Houston

Casper, Wy. Detroit, Mich.

4


7

Apache Corp.

Houston

51

Apache Offshore Investment Partnership

Houston

107

Ft. Worth

11

El Paso Corp.

Houston

Moon Township, Penn.

--

EnDevCo Inc.

Houston

30

Energen Corp. Energy Partners Ltd.

116

Earthstone Energy Inc.

71

Approach Resources Inc.

42

Atlas Energy Inc.

34

ATP Oil & Gas Corp.

Houston

66

Belden & Blake Corp.

Houston

63

39

Berry Petroleum Co.

Denver

120

44

Bill Barrett Corp.

Denver

12

EOG Resources Inc.

72

Black Hills Corp.

Rapid City, SD

29

EQT Production

EnerJex Resources Inc.

113

Black Raven Energy Inc.

Denver

97

Evolution Petroleum Corp.

122

Blue Dolphin Energy Co.

Houston

38

Exco Resources Inc.

57

Brigham Exploration Co.

Austin, Tex.

1

28

Cabot Oil & Gas Corp.

Houston

55

80

Callon Petroleum Co.

Natchez, Miss.

108

79

Cano Petroleum Inc.

Ft. Worth

31

Forest Oil Corp.

56


Houston

94

FX Energy Inc.

Oklahoma City

91

Gasco Energy Inc.

San Ramon, Calif.

85

GeoMet Inc.

Denver

100

Midland, Tex.

73

Frisco, Tex.

118

8


2

Chevron Corp.

26

Cimarex Energy Co.

59

Clayton Williams Energy Inc.

46

Comstock Resources Inc.

33


ExxonMobil Corp. Fidelity Exploration & Production Co. FieldPoint Petroleum Corp.

Birmingham, Ala. New Orleans Overland Park, Kan. Houston Pittsburgh Houston Dallas Irving, Tex. Bismarck, ND Cedar Park, Tex. Denver Salt Lake City Englewood, Colo. Houston

GeoPetro Resources Co.

San Francisco

GeoResources Inc.

Williston, ND

Glen Rose Petroleum Corp.

Midland, Tex.

64

GMX Resources Inc.

ConocoPhillips

Houston

62

Goodrich Petroleum Corp.

65

Contango Oil & Gas Co.

Houston

77


35

Continental Resouces Inc.

Enid, Okla.

32

Helix Energy Solutions Group Inc.

3

Denver

Katy, Tex. Oklahoma City Houston Oklahoma City Houston

--

Credo Petroleum Corp.

Denver

9

69

Crimson Exploration Inc.

Houston

92

HKN Inc.

Houston

Ft. Worth

96


Houston

Dallas

117

109 98

Cross Timbers Royalty Trust Cubic Energy Inc.

Hess Corp.

John D. Oil & Gas Co.

New York

Mentor, Ohio

--

Daleco Resources Corp.

West Chester, Pa.

43


125

Daybreak Oil & Gas Inc.

Spokane, Wa.

60

Layne Christensen Co.

53

Delta Petroleum Corp.

Denver

61

Legacy Reserves LP

Midland, Tex.

15


Plano, Tex.

104

Lucas Energy Inc.

Bellaire, Tex.

10

Devon Energy Corp.

Oklahoma City

83

124

Doral Energy Corp.

Midland, Tex.

112

48

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Lakewood, Colo. Mission Woods, Kan.

Magnum Hunter Resources Corp. Mainland Resources Inc.

Houston The Woodlands, Tex.



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OGJ150 Quarterly Rank by total assets 3Q10 Company

Headquarters city

Rank by total assets 3Q10 Company

Headquarters city

5

Marathon Oil Corp.

Houston

22


Houston

37

Mariner Energy Inc.

Houston

105

Spindletop Oil & Gas Co.

Dallas

54

McMoran Exploration Co.

New Orleans

47

--

Meridian Resource Corp.

Stone Energy Corp.

Houston

126

110

Mexco Energy Corp.

Midland, Tex.

48

Swift Energy Co.

67

Miller Petroleum Inc.

Huntsville, Tenn.

95

Tengasco Inc.

13

Murphy Oil Corp.

El Dorado, Ark.

114

Texas Vanguard Oil Co.

20


Houston

111

Tri-Valley Corp.

Bakersfield, Calif.

82

NGAS Resources Inc.

Lexington, Ky

36

Ultra Petroleum

Houston

14

Noble Energy Inc.

Houston

40

Unit Corp.

Wichita Falls, Tex.

89

US Energy Corp.

119 6 90 103 45 121

Oakridge Energy Inc. Occidental Petroleum Corp. Panhandle Oil & Gas Inc. Pegasi Energy Resources Corp. Penn Virginia Corp. Permian Basin Royalty Trust

19


52

Petroleum Development Corp.

70

PetroQuest Energy Inc.

17


--

Pioneer Oil & Gas

Los Angeles

50

W&T Offshore Inc.

Oklahoma City

78

Warren Resources Inc.

Tyler, Tex.

25


Radnor, Pa.

16

Williams Cos. Inc.

74

PostRock Energy Services Corp.

Oklahoma City

81

PrimeEnergy Corp.

27

Quicksilver Resources Inc.

Ft. Worth

23

Range Resources Corp.

Ft. Worth

99

Reserve Petroleum Co.

Dallas

68

Rex Energy Corp.

58

Rosetta Resources Inc.

24 127

SandRidge Energy Inc. Savoy Energy Corp.

49

Seneca Resources Corp.

41

SM Energy Inc.

Denver Tulsa

Bakersfield, Calif.

QEP Resources Inc.

San Juan Basin Royalty Trust

Houston New York

Stamford, Conn.

21

102

Riverton, Wyo.

Irving, Tex.

Houston

Sabine Royalty Trust

Tulsa

South Jordan, Utah

Platinum Energy Resources Inc.

123

Austin, Tex.

Lafayette, La.

93

Royale Energy Inc.

Knoxville, Tenn.

Denver

Houston

106

Houston

Houston


Pyramid Oil Co.

Corpus Christi, Tex.

Ft. Worth

18

115

Strategic American Oil Corp.

Lafayette, La.

Salt Lake City

State College, Penn. Houston San Diego Dallas Ft. Worth Oklahoma City Houston Williamsville, NY Denver


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Industry Briefs Eclipse Resources founded with $150 million equity commitment Benjamin W. Hulburt and Christopher K. Hulburt, former senior executive officers of Rex Energy Corp., have formed Eclipse Resources I LP, an independent oil and natural gas company headquartered in State College, Pa., with a $150 million equity commitment from EnCap Investments LP and from Eclipse management. Eclipse will focus on the acquisition, exploration, and development of unconventional oil and natural gas properties in the Appalachian Basin, including the Marcellus Shale, Utica Shale and Upper Devonian Shales. Prior to forming Eclipse, Hulburt served as president and CEO of Rex Energy. Benjamin Hulburt co-founded the first Rex Energy partnership in 2001. Christopher Hulburt served as general counsel, executive vice president, and secretary of Rex Energy.

XOG secures $50 million equity commitment Houston-based XOG LLC, an independent oil and natural gas company, has received a $50 million equity commitment from Kayne Anderson Energy Funds and management. XOG Resources was founded in December 2010 by Wes VanNatta and Greg Miller to acquire and develop oil and natural gas properties in the Ark-La-Tex and onshore Gulf Coast Texas regions. Previously, VanNatta was a founding member of Force 5 Energy LLC. Miller previously worked for Common Resources.

Corridor established to specialize in energy infrastructure financing Corridor Energy LLC has been established as an asset management company focused on real energy infrastructure assets. Corridor plans to provide growth capital to finance energy infrastructure assets deployed in sectors such as electric power

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transmission and distribution, and natural gas and liquid transportation and storage facilities. Corridor Energy is being formed by principals of The Calvin Group, as well as Tortoise Capital Advisors LLC, and Tortoise’s majority owner, Montage Asset Management LLC. Richard Green, former CEO of Aquila and Utilicorp United and a founder of Calvin Group, will serve as managing director of Corridor and lead its management team.

Lime Rock Resources makes $130M acquisition of NM oil, gas properties Lime Rock Resources has closed the acquisition of oil and gas interests in the East Artesia areas of Lea and Eddy Counties, New Mexico for $130 million. The Lime Rock Resources team assumed operations of over 350 producing wells in December 2010 and is beginning the assessment of development drilling and operational improvement projects. The team now operates over 1,000 wells and produces over 5,000 boe/d in New Mexico, alone. The Lime Rock Resources team has made nearly $1 billion of acquisitions since its inception in 2005.

work with Weaver. Sandra Dunphy and Ron Chapman, previous directors of L.T. Hawthorne & Associates will join Weaver as directors of Energy Compliance and will office in Weaver’s Houston location.

Kayne Anderson sells Energy Contractors to Nabors Well Services Kayne Anderson Energy Funds has sold privately held Energy Contractors LLC, a provider of oilfield services in the Marcellus Shale market, to Nabors Well Services Co. Energy Contractors was formed in 2004 by Gary Bowers and Andy Lang, and subsequently partnered with Kayne Anderson in 2008 to expand the company’s service lines and geographical presence in the region. Established in 1998, Kayne Anderson Energy Funds manage $2.7 billion of committed capital for energy private equity investments.

Acquisition of Pinnacle Gas Resources completed

Sheridan, Wyoming-based Pinnacle Gas Resources Inc. has been acquired by Powder Holdings LLC, an entity controlled by private equity group SW Energy Capital LP, for $10.3 Weaver merges with LT million, or $0.34 per share. The Hawthorne & Associates close comes nearly 11 months after Independent certified accounting firm the natural gas company announced Weaver is is merging with L.T. Haw- entering the agreement in February thorne & Associates Inc. Weaver’s 2010. A January 26 research report Renewable and Energy Compliance by Global Hunter Securities LLC Practice provides a variety of attesputs the acquired proved reserves at tation and advisory services to the 15 bcfe at year-end 2009, down from energy industry, including attesta27.7 bcfe at year-end 2008 and lattions required by the Environmental est quarter volumes at 5.9 MMcfed. Protection Agency, compliance audits “Metrics on the transaction equate to of independent and refinery laborato- $1,745 per flowing mcfe and $0.67 ries and Marine Preservation Associa- per mcfe of proved reserves,” noted tion (MPA) dues attestations, which the report. Scotia Waterous acted are required for MPA members. The as financial advisor to SW Energy Hawthorne team brings refining and Capital LP, and Vinson & Elkins LLP acted as SW Energy Capital’s legal fuels expertise and regulatory comadvisor. Houston-based Carrizo Oil pliance resources to Weaver. Tom & Gas Inc. owned 2.55 million shares Hawthorne, president of L.T. Hawthorne & Associates, will continue to of PINN generating proceeds of www.ogfj.com • Oil & Gas Financial Journal February 2011


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Industry Briefs $869,000, noted Global Hunter. Pin- to define prospects throughout its nacle Gas Resources Inc. was founded portfolio. in 2003. Its focus is the development of coalbed methane properties in the Deloitte expands energy Rocky Mountain region. analytics capabilities

DynMcDermott selects Allegro 8 to manage US SPR

Allegro Development, a provider of energy trading and risk management (ETRM) software, has announced with acquisitions that DynMcDermott Petroleum Rock Oil uses private equity Deloitte has acquired substantially all Operations Company is using Allegro to fund Eagle Ford Shale JV of the assets of energy consultancy 8 in its management and operating Denver, Co.-based Rock Oil Co. LLC company Altos Management Partners services to the US Department of reported that on August 18, 2010, it Inc., as well as those of MarketPoint Energy on the Strategic Petroleum closed an initial common equity com- Inc., an Altos sister company best Reserve (SPR) project. DynMcDermitment with Energy Trust Partners known for MarketBuilder, an analytic mott provides management and manIII LP (ETP), and on December suite for energy market modeling and power to operate and maintain the 20, 2010 completed a follow-on price forecasting. The acquisition will SPR and related pipeline systems as investment with Wells Fargo Energy provide Deloitte’s clients with the the Department of Energy’s primary Capital, Hexagon Investments, and ability to gain a better understanding contractor. DynMcDermott selected BNP Paribas. Initial proceeds from of market fundamentals for energy Allegro to deploy a comprehensive the offering were used by Rock Oil commodities, including oil, gas, refin- Crude Oil Inventory Tracking and to fund its initial equity commitery products, electricity and coal. As Valuation System to meet its special ment to Blue Eagle Energy LLC, a part of the acquisition, Dale Nesbitt, needs. joint venture with Abraxas Petroleum PhD, has joined Deloitte. Nesbitt focusing on the Eagle Ford Shale in founded MarketPoint in 1995. ONGC finds first shale gas South Texas. The JV has drilled and in Asia near Durgapur cased its first horizontal Eagle Ford JayHawk buys into North India’s Oil and Natural Gas Comwell in DeWitt County. Rock Oil Co. Dakota Bakken, Three Forks pany (ONGC) marked an explorarecently changed its name from Blue Post Falls, Idaho-based JayHawk tion landmark on Jan. 25 when it Stone Oil & Gas LLC. Rivington Energy Inc. has acquired leases in reported that gas flowed out from the Capital Advisors LLC acted as exclu- the Bakken Shale and Three Forks Barren Measure Shale at a depth of sive financial advisor to Rock Oil. unconventional oil play in Divide around 5,577 feet in an exploratory County, North Dakota. Marshall well near Durgapur, at Icchapur in Avista Capital Partners to Diamond-Goldberg, president of the West Bengal. Although the well is still support Celtique Energie Post Falls, Idaho-based company stat- under assessment, the breakthrough growth in Europe ed, “JayHawk’s intention has always is significant as India is the first Asian Celtique Energie Holdings Ltd., been to eventually become involved country where gas was discovered a London-based exploration and in the Bakken due to its proximity to from shale outside North America. production company, has entered into the company’s production presence in The RNSG-1 well drilled down to a an agreement with private equity firm the state of North Dakota. In order depth of 6,562 feet. The Barren MeaAvista Capital Partners and affilito proceed with the company’s recent sure Shale, which is the main target, ates of a wealthy European family to drilling at Crosby, a quarter section of was encountered from 3,232 feet to provide an equity commitment up to land was acquired with Bakken rights, 6,047 feet. The well was spudded on $100 million. Celtique was formed in which allowed JayHawk a small entry Sept. 26 of last year. In India, many 2006 with a $50 million commitment into the play.” The Bakken and Three shale sequences are in well-explored from Avista to develop oil and natural Forks rights acquired include 1,066.5 sedimentary basins such as the gas discoveries and prospects in ongross acres and 135.056 net acres Damodar, Cambay, Krishna Godavari, and Cauvery basins. However, shore basins in Europe. The company in Divide County approximately 20 the Damodar Basin, where ONGC has assembled a portfolio of onshore miles from the Crosby pool. Based on corporate assessments by others in has been drilling for and producing exploration licenses and substantially the play, Diamond-Goldberg believes coalbed methane gas, was prioritized completed its prospect generation by the company shale gas exploration phase. Near-term, the company plans recoverable reserves in the area are because of the shallow nature of the to implement drilling programs in the somewhere between 300 and 800 Jura region of France and Switzerland thousand barrels of light sweet crude shale formations and abundant water and in the Aquitaine basin of France, separately in the Bakken and Three availability, a pre-requisite for doing Forks. and undertake seismic programs massive hydro fracturing. February 2011 Oil & Gas Financial Journal • www.ogfj.com

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Energy Players Maxted succeeds Musselman undergraduate degree summa cum as Kosmos CEO laude from Southern Methodist UniKosmos Energy LLC’s chairman and CEO, James C. Musselman has retired from the company. John R. Kemp III has been named chairman, and Brian F. Maxted has Maxted been promoted to president and CEO and made a member of the company’s board of directors. Musselman, along with Maxted and three other partners, co-founded Kosmos Energy in late 2003. Musselman previously served as chairman and CEO of Triton Energy. Following its sale to Hess Corp. in 2001, Musselman served as a senior advisor to Hess chairman and CEO John Hess. Earlier in his career, Musselman was founder and operator of JM Petroleum Corp. He is a graduate of Duke University and the University of Texas School of Law. Most recently, Maxted served as the company’s COO. Prior to Kosmos, Maxted was senior vice president of exploration for Triton Energy. Kemp has been an independent member of the company’s board of directors since March 2005. He spent 34 years at Conoco. He earned a bachelor’s degree from Pennsylvania State University.

Burleson Cooke names Cagle partner Kim S. Cagle has been named a partner of energy law firm Burleson Cooke. Cagle concentrates her practice in energy lending, leveraged acquisitions, and senior and subor- Cagle dinated debt financings; asset-based lending transactions; project financings and derivatives. She has been practicing law for more than 20 years and joined Burleson Cooke in 2007 after serving as a partner with Mayer Brown & Platt. She earned her

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versity and her JD, cum laude, from the SMU Dedman School of Law.

Squire Sanders expands Houston practice with Ball Aaron Ball has joined the corporate and finance practice as of counsel in the Houston office of Squire, Sanders & Dempsey. Ball’s practice focuses on international Ball corporate, finance and government matters, with a concentration in the international energy industry. He has been the lead lawyer in transactions involving both public and private entities with interests in Argentina, Brazil, Colombia, China and Mexico. Ball received his bachelor’s degree from Butler University, his JD from the American University Washington College of Law, and his LLM (tax) from DePaul University.

Gibson Dunn adds five lawyers to Dallas office Gibson, Dunn & Crutcher LLP has added a group of five litigation and corporate lawyers to its Dallas office. The group is comprised of Robert C. Walters, executive vice president and general counsel at Energy Future Holdings; William B. Dawson, formerly the head of Vinson & Elkins’ Litigation and Regulatory Department; Jeffrey A. Chapman, a corporate partner and formerly a member of Vinson & Elkins’ Management Committee; Michael L. Raiff, a litigation partner who served as Vinson & Elkins’ Media Practice Leader; and corporate partner Robert B. Little. They will be joining Gibson Dunn as partners in the Dallas office, and Walters will assume an additional role as Co-Partner in Charge of the Dallas office. Walters graduated cum laude from the University of Texas School of Law. Dawson received his JD with

highest honors from Texas Tech University. Chapman, currently representing Doug Miller, the CEO of EXCO Resources, in Miller’s $5.5 billion bid to take EXCO private, received his JD cum laude from Harvard Law School. Raiff received his law degree with high honors from the University of Texas. Little graduated from the University of Texas School of Law with highest honors. Over the past two years, he has represented Energy Future Holdings in debt issuances and exchanges totaling over $5 billion.

Matt Flanagan promoted at Opportune Energy consulting firm Opportune LLP has promoted Matt Flanagan to managing director in the Energy Process and Technology Practice. Flanagan Flanagan brings over 17 years of experience in global refining and marketing, pipelines and transportation, E&P, petrochemicals and mining. His primary focus areas include mergers & acquisitions, business operations and planning, energy trading and risk management, hydrocarbon supply chain management, logistics, asset maintenance and reliability, and leading large scale business transformation initiatives. Prior to joining Opportune in February 2010 as a director, Flanagan led the M&A and Commercial Systems groups for Petroplus Marketing AG.

Stark joins Ballard Spahr Roger D. Stark, a lawyer known for his work in US and crossborder energy sector project development and finance, has joined Ballard Spahr as a partStark ner. As a member of Ballard Spahr’s Energy and Project Finance Group, Stark will handle energy-related project devel-



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Energy Players opment and financing transactions, mergers and acquisitions, public-private partnerships, and infrastructure development matters. Stark previously served as a partner at Curtis, MalletPrevost, Colt & Mosle LLP in Washington DC. At Ballard Spahr, Stark is a member of the Energy and Project Finance, Mergers and Acquisitions/ Private Equity, and P3/Infrastructure Groups and the Climate Change and Sustainability Initiative.

Lewis back at Palantir Solutions as VP For the second time, Charles Lewis has been appointed by Palantir Solutions, which provides economic planning consultancy and software to the global upstream oil and gas Lewis community. The appointment follows his MBA gained in Energy Risk Management at the University of Houston. Lewis re-joins Palantir Solutions as vice president, business development. Following an internship with Merak, Lewis worked at Palantir for two years from 2003 as an economic consultant. He spent the following two years as an economic planning analyst for Kerr McGee and then Anadarko, moving to Constellation Commodities Group in 2007.

Coleman joins Select Energy Services as COO Gainsville, TX-based Select Energy Services LLC has named Ronald “Ronney” Coleman COO. Coleman joins Select Energy Services following a 33-year career at BJ Services. He most recently served as vice president of pumping for all of North America. He serves on the board of a small coiled tubing business and is an advisor to Cadent Energy, a private equity firm that invests in the oilfield service industry. He earned his bachelor’s degree from the University of Texas – Permian Basin.

Melendrez appointed SVP, CCO of W&T Offshore Houston-based W&T Offshore has appointed Jesus G. Melendrez senior vice president and chief commercial officer. Melendrez previously worked at Mariner Energy for seven years and served in a variety of positions of increasing responsibility, culminating as senior vice president and chief commercial officer and acting CFO and treasurer. Before that, he was a vice president at Enron North America Corp. in the Energy Capital Resources group. He was a senior vice president of trading and structured finance with TXU Energy Services from 1997 to 2000. From 1992 to 1997, Melendrez was employed by Enron in various commercial positions in the areas of domestic oil and gas financing and international project development. He holds a bachelor’s degree and a master’s degree from the University of Southern California. He also has an MBA from the University of Houston.

degree from the Colorado School of Mines and a bachelor’s degree from the University of Utah.

Chesapeake Energy names Simpson to board Louis A. Simpson has accepted an invitation to join the board of directors of Chesapeake Energy Corp. Simpson will fill the vacancy created by the retirement of Frederick B. Whittemore, the final nonexecutive member of Chesapeake’s 1992 founding board of directors. Simpson currently serves as chairman of SQ Advisors LLC. He has served as president and CEO, Capital Operations, of GEICO Corp. from May 1993 until his retirement on December 31, 2010. Prior, Simpson was president and CEO of Western Asset Management. Simpson obtained a bachelor’s degree from Ohio Wesleyan University and a master’s degree from Princeton University.

Guynn joins King & Spalding in New York

International law firm King & Spalding has added veteran corporate partner Steven D. Guynn to its New On December 16, 2010, Whiting York office, the latest move in the Petroleum Corp. elected James T. firm’s expansion of its transactional Brown president and COO of the practices. Guynn has more than 25 company. He joined Whiting in years’ experience in capital markets May 1993 as a consulting engineer transactions and mergers and acquisiand became operations manager in tions. He joins King & Spalding from 1999, was elected vice president of Gibson, Dunn & Crutcher. Guynn operations in 2000 and has held the specializes in strategic transactions position of senior vice president since and international matters for corporaMay 2007. He began his career with tions, underwriters and capital proShell in 1975 and subsequently held viders. He has extensive experience engineering and supervisory positions with US and cross-border transacat BP and his own consulting firm. tions for corporations, underwriters, He holds a bachelor’s degree from the private equity firms and sovereign University of Wyoming and an MBA wealth funds. He has advised clients from the University of Denver. Mark in industries including financial instiR. Williams has been named senior tutions, energy, pharma/life sciences, vice president, exploration and devel- telecommunications, transportation, opment. Williams joined the company retail and real estate. He received a JD degree from the University of in December 1983 as exploration Virginia Law School, and a bachelor’s geologist and has been vice president of exploration and development since degree, summa cum laude, from December 1999. He holds a master’s Brigham Young University.

Whiting Petroleum promotes Brown, Williams


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RISK MITIGATION CONSEQUENCE MITIGATION

Preparing for the future of Offshore. JUNE 14-15, 2011

l RIVERSIDE HILTON l NEW ORLEANS, LA

Industry risk management and mitigation professionals will discuss risk factors, risk mitigation, and consequence mitigation in the offshore environment. Speakers will be experts in their respective fields, including risk advisory, insurance, legal, financial, weather, security, and all aspects of offshore operations. Topics to be covered include: · Integrating all risk makers in a company · Prevent the event · Automation risk · Technological and equipment risks · How financial decisions get made

· Risk assessment of contractual agreements · Insurance and financial exposures · Environmental liabilities · Regulatory issues, requirements, changes · Use of safety cases

If you are involved in finance, safety, and operations, Petrosafe Offshore is your premier resource for navigating the industry’s most important risk management challenges.

www.petrosafeoffshore.com Owned & Produced by:

Presented by:

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Companies mentioned in this issue of Oil & Gas Financial Journal are listed in alphabetical order with advertisers in boldface type. The index is provided as a service. The publisher does not assume any liability for errors or omission.

COMPANY

PAGE

F

Company/Advertiser Index

COMPANY

PAGE

COMPANY

PAGE

PAGE

Quicksilver Resources

36

Abraxas Petroleum

51


41

KPMG

AICPA

29

Devon Energy Corp.

41

Lime Rock Resources

50

Quorum Business Solutions Inc. 40-47

Allegro Development

51

DrillingInfo Energy Services Group

19

LT Hawthorne & Associates

50

Repsol

Altos Management Partners

51

DynMcDermott Petroleum Operations Co.

51

Marathon Oil Corp.

41

Rex Energy Corp.

50

American International Group

26

Eclipse Resources I LP

50

Marcus Evans

25

Rivington Capital Advisors LLC

51

American Petroleum Institute

26

El Paso Corp.

43

Marine Preservation Association

50

Rock Oil Co. LLC

51

Anadarko Petroleum

53

EnerCom Inc.

11

Mariner Energy

53

SandRidge Energy Corp.

41

Anglo-Suisse Offshore Partners

39

Energy Contractors LLC

50

MarketPoint Inc.

51

Scotia Waterous

50

Apache Corp.

41

Energy Future Holdings

52

Mayer Brown & Platt

52

Select Energy Services LLC

53

Aquila

50

Energy Partners Ltd.

39

McKesson

26

SemGroup LP

Asset Risk Management

3

Energy Trust Partners III LP

51

Meyers-Reynolds & Associates

Avista Capital Partners

51

Enertia Software

IFC

Minerals Management Service

Baker Institute for Public Policy

5

8

COMPANY

12

6

6

Shell

53

5

Sierra Club

22

EnerVest Ltd.

36

Minsk Energy Resources

36

Societe Nationale des Petroles du Congo

12

Ballard Spahr

52

Eni SpA

36

Montage Asset Management LLC

50

Southwestern Energy

42

Barclays Bank

36

Enron North America Corp.

53

Murphy Oil

42

SQ Advisors LLC

53

Bender Consulting

34

Ensco

Nabors Well Services Co.

50

Squire, Sanders & Dempsey

52

Berkshire Hathaway

26

Environmental Protection Agency

Suncor Energy

38

BG Group

12

EOG Resources

SW Energy Capital LP

50

BJ Services

53

EV Energy partners LP,

Netherland Sewell & Associates Inc. 4

T2 & Associates

27

Blue Eagle Energy LLC

51

EXCO Resources Inc.


Talon Oil & Gas LLC

36

Blue Stone Oil & Gas LLC

51

ExxonMobil

The Calvin Group

50

BNP Paribas

51

Forbes

25

Noble Royalties Inc.

Tortoise Capital Advisors LLC

50

Force 5 Energy LLC

50

NGP Capital Resources

17

Total

General Electric

26


41

Triton Energy

52

BOEMRE

5

BP

5,22,38,53

5 50 36,43 36 41,52 10,26,35,36,39,41

NASA Natural Gas Partners

Noble Corp.

5 BC

41 5 IBC

12,36,38

Bridas Corp.

38

Gibson, Dunn & Crutcher LLP

52

OECD

10

TXU Energy Services

53

Burleson Cooke

52

Global Hunter Securities LLC

50

Oil and Natural Gas Co.

51

Ultra Petroleum

41

Cadent Energy

53

Goodrich Petroleum

14

OPEC

24

US Bureau of Labor Statistics

26

Capital Operations

53

Greenpeace

24

Opportune LLP

52

US Census Bureau

25


50

Halliburton Energy Services

13

P2 Energy Solutions

7,56

US DOE

51

CEE

27

Harwood Capital Inc.

Palantir

31,53

US Energy Information Administration

27

Celtique Energie Holdings Ltd.

51

Hess Corp.

US News & World Report

25

Center for Economic and Policy Research

22

Hexagon Investments

51

Unconventional Gas

37

Utilicorp United

50

IBM

26

Petrosafe Offshore

54

Varel International

21

IHS CERA

26

Petrobras

12

Verado Energy

49

27


Chesapeake Energy Corp. Chevron Corp.

36,41,53 12,26,35,41

9 41,52

PennWell Corp.

5

Cimarex Energy

42

Infocast Inc.

CNOOC

38

International Energy Agency

24

Petroplus Marketing AG

52

W&T Offshore

Common Resources

50

IPAA

23

Pfizer

25

Weaver


41

JayHawk Energy Inc.

51

Pinnacle Gas Resources Inc.

50

Wells Fargo Energy Capital

26,41,52

ConocoPhillips

38,41

Vinson & Elkins LLP

50,52 53 28,50 51

JM Petroleum Corp.

52

Pioneer Natural Resources

42

Western Asset Management

53

Constellation Commodities Group

53

JP Morgan Chase

26

Plains Exploration and Production Co.

43

Western State College of Colorado

56

Continental Resources Inc.

43

Kayne Anderson Energy Funds

50

Powder Holdings LLC

50


Corridor Energy LLC

50

Kerr McGee

53

PricewaterhouseCoopers

26

XOG LLC

Curtis, Mallet-Prevost, Colt & Mosle LLP

53

King & Spalding

53

Pride International

Deloitte

51

Kosmos Energy LLC

52

QEP Resources

5 42

41,53 50

XTO Energy

36,39

YPE

26


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Beyond the Well

P2 Energy Solutions invests in future landmen is designed to prepare students for entry-level positions as land negotiators. Students learn land and Mikaila Adams Associate Editor – OGFJ resource management principles through knowledge and perspectives of business administration, economics, geology, and environmental studies. 2 Energy Solutions provides P2’s contribution will allow WSC oil and gas software, oil and students to graduate with a thorgas map data and services for ough understanding of real-world the upstream energy industry. More workflows, the importance of high than 650 global energy compaquality accurate data, and relevant nies–from hydrocarbon-sourced to data capture dependencies. alternative-sourced–use P2 products “Our new partnership with P2 and services to improve decisionEnergy Solutions will add an addimaking, gain clarity into complex tional level of real-world skill and workflow scenarios, and optimize upstream efficiency. The company, based in Denver, Colorado, is now looking beyond those already established in the energy industry and towards those looking for a future in the industry. The company recently awarded a $578,000 inABOVE: WSC Land Management Program Head Ed kind contribution to the Grauke (right) with a recent graduate, Erin Nelson Business Administration (left) Photo courtesy of Luke Mehall Program of Western State RIGHT: P2 president, CEO Bret Bolin College of Colorado (WSC) in nearby Gunnison, Colorado. expertise for our Founded in 1901, WSC is a pub- PRLM students,” lic, liberal arts college with roughly said Ed Grauke, WSC 2,300 students taught by 120 facMoncrief chair and ulty members. The school offers 22 director, Professional undergraduate majors in 22 areas Land and Resource of study, as well as pre-professional Management Program. “This will programs, and two graduate progive our students direct experience grams. with GIS, leasing, and resource P2 Energy’s contribution will be management that will help further used to equip students majoring differentiate our land management in land and resource management graduates from those at other univerwith skills needed to fill positions in sities.” oil, gas, and alternative energy land The contribution includes prodmanagement. uct, training, maintenance, and WSC’s Professional Land and service for the firm’s Tobin EnterResource Management Emphasis prise Land (TEL) software. TEL is

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lease management software used in the oil and gas and energy industry for lease acquisition and tracking for major, mid-cap, and micro-cap firms. From acquiring leases to maintaining producing properties, Tobin Enterprise Land handles the entire land asset management process using a familiar, browser-based interface. “By allowing WSC students and instructors to learn and use Tobin Enterprise Land, P2 will assist with the training and development of future generations of oil and gas professionals,” said Bret Bolin, P2 Energy Solutions’ president and CEO. “This will enable WSC students to learn vital lease and contract information as well as learn and understand what and how data is captured in a lease record management application.” All 15 of the May 2010 graduates of the Land and Resource Management Program at WSC have been hired and are working in the oil, gas, and energy industry. P2’s Bolin is excited about the company’s continued involvement in shaping the future of the oil and gas and energy industry. “Western State has a leading oil and gas land management program, this contribution is intended to support the development of future skills in this area and is only the start for P2. P2 is hiring over 60 individuals from leading schools this year and programs, and contributions, like this support the future of this industry, but also the future skills development to support our growth. I look to P2 to support several other programs, including land management, well life cycle and advanced GIS in the coming year.” OGFJ



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America is a special place. We consider it a privilege to do business here. Over the last 12 years, Noble has become one of the country’s largest independent oil & gas royalty purchasers. We’re interested in acquiring more. Find out what your royalties are worth. Talk to us.

Cash for current and future cash flow Discreet, Simple, timely closings

Contact Doug Bradley – Senior Vice President, Land & Acquisitions 15601 N. Dallas Parkway, Suite 900, Addison, TX 75001 972.788.5839 | [email protected] © 2010 Noble Royalties, Inc.

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Committed to being America’s #1 independent royalty purchaser.


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