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oil and natural gas assets. Since inception, LINN continues to be one of the industrys
most successful MLPs. Thanks to our people, strategy and assets we remain a leader
in the industry.
Visit www.linnenergy.com or call 281.840.4000 to learn more about LINN.
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OPEC THROWS
BOULDER IN RIVER
OF ENERGY CAPITAL
SPECIAL FOCUS:
OFFSHORE RISK
SHALE VS OFFSHORE
GREAT CREW CHANGE
HEDGING SURVEY RESULTS
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www.ngpenergycapital.com
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------------------------
------------------------
------------------------
November 2014
November 2014
October 2014
$93,000,000
$2,000,000,000
$1,000,000,000
Corporate Banking | Capital Markets & Advisory Services | Dedicated Industry Experience
2015 Regions Securities LLC. Investment banking and business advisory services are offered through Regions Securities LLC, 1180 W. Peachtree
St. NW, Suite 1400, Atlanta, GA 30309. Member FINRA and SIPC. Regions Securities LLC is an affiliate of Regions Bank. | Regions and the Regions logo
are registered trademarks of Regions Bank. The LifeGreen color is a trademark of Regions Bank.
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CONTENTS
V12/N O . 4 | APRIL 2015
FEATURES
18
30
COVER STORY
MANAGING THE CAPITAL CYCLE
EnerComs James Constas offers an in-depth
look at managing the capital cycle, detailing
the need for industry participants to adapt in
the cyclical oil and gas industry.
16
46
48
51
70
28
46
OFFSHORE OUTLOOK
Short-term dip, long-term rise
30
33
70
37
ADAPTING TO CHANGES
As complexity grows, companies must focus
on capabilities, flexibility
ON THE COVER
Saudi Arabian
Oil Minister
Ali Al-Naimi
Northfoto/
Shutterstock.com
39
41
DEPARTMENTS
6 EDITORS COMMENT
8 CAPITAL PERSPECTIVES
12 UPSTREAM NEWS
14 MIDSTREAM NEWS
54 DEAL MONITOR
56 OGFJ100P
64 INDUSTRY BRIEFS
67 ENERGY PLAYERS
80 BEYOND THE WELL
Oil & Gas Financial Journal (ISSN: 1555-4082) is published 12 times per 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, P.O. Box 3264, Northbrook, IL 60065. Change of address notices should be sent promptly with
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EXPERIENCE MATTERS
TRUST YOUR INVESTMENT TO A PROVEN LEADER
Cudd Energy Services has a proven reputation for professionalism, reliability, and
experience. We apply ingenuity and persistence to each operation to help you achieve
the maximum return on your investment. With highly trained, certified crews located
in major resource basins, we stand ready to deliver on time, every time.
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Group Publisher
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markp@pennwell.com
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Macquarie Energy Capitals ability to understand and deliver on the complete spectrum of
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Yakobchuk | Dreamstime.com
CAPITAL PERSPECTIVES
WITH WTI BREAKING $45 earlier this year and hovering around
$50 recently, many CFOs will struggle to fund operations in the coming months. In the current pricing environment, it has become more
difficult to generate a positive risk-adjusted return from new drilling.
This has led nearly every company to plan significant reductions to
drilling budgets for the coming year.
Many companies, however, have existing obligations that leave
them little choice but to either drill uneconomic wells, pay delay rentals, or risk losing valuable leases. With capital markets closed to all
but the highest-rated companies, many CFOs are considering nontraditional funding options to meet these obligations.
Fortunately many prudent operators put into place hedges that
have insured cash-flows during this period of depressed commodity
prices. However the value underlying these hedges is only realized on
a month-to-month basis as contracts expire. For companies with
ample liquidity this is fine, and monetizing hedges for these firms is
generally not recommended as there is a cost to the process. However, for firms in need of immediate capital, hedge monetization can
8
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PETROLEUM DATA
INTEGRATION + INFORMATION + MANAGEMENT
May 1921, 2015
The 2015 PNEC is a power-packed, two and a half days of technical program featuring 50 in-depth,
how-topresentations and panel discussions. Numerous opportunities to network with your peers
plus exhibitors from leading technology companies make this event one-of-a-kind. Changes in key
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CAPITAL PERSPECTIVES
their portfolio prior to negotiating the unwinding with counterparties are at a significant disadvantage and could be leaving substantial
money on the table. Given the complexities involved, its generally
advisable to have an independent qualified advisor on hand to ensure best practices are implemented and maximum valuation
achieved.
During the monetization process many companies will be tempted to believe that oil has found a floor or that it cant go any lower
and will therefore be reluctant to put on new hedges. This is a dangerous trap that can spell future disaster. Hedging against lower prices is
insurance against the systemic risk of an uneconomic business. Each
operator has different pain points and the new hedge program
should be customized to protect against those particular pain points.
Its important for operators to understand that hedges are simply
an asset, in the form of insurance, that in most cases today has paid
off handsomely.
Now is the time for many oil and gas companies to consider
monetizing this valuable asset as a source of funding for 2015 operations. Companies such as EnerFi Capital, ClearHedging, and others
provide independent advice to operators interested in maximizing
net proceeds from hedge monetization and implementing a dynamic hedge program to achieve ongoing protection throughout
this volatile period.
We
e are also seeking additional leasing
opportunities in Texas and Oklahoma
Trusted Operator
& Capital Provider
for over 30 Years
1504ogfj_11 11
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www.usedc.com
11
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UPSTREAM NEWS
B RIEFS
GULF OF MEXICO
DRILLING SALE
Forty-two companies
pledged $583.2 million
bidding on 169 central
Gulf of Mexico tracts
during a government
auction that took place
on March 18. The government is set to collect
approximately $538.8
million in expected
winning bids, down
significantly from a
March 2014 central Gulf
of Mexico auction that
raked in $850.8 million
in winning bids from 50
companies.
2015 WORLD OIL
DEMAND UP SLIGHTLY
OPEC adjusted its 2015
world demand forecast
slightly higher, to 92.32
MMbpd. Demand by
developing countries
is expected to outpace
growth rates from China,
which is expected to
experience another
round of decelerated
demand growth. OPEC
is forecasting 820,000
bpd of YoY growth in oil
demand from developing countries in 2015,
well ahead of the 310,000
bpd growth expected to
be seen by China.
12
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UPSTREAM NEWS
down cycle. The commission along with the Energy Ministry will decide by 2Q 2015 which areas
will be trimmed.
The first deepwater Mexican prospects due to
be auctioned later this year remain attractive even
in the current environment because production
is at least eight years away, meaning current prices
are less relevant to exploration budgets for companies assessing their existing portfolios.
Moreover, in 2015, Mexico plans to award permits for companies to conduct seismic studies,
including an assessment of presalt prospects.
Two-dimensional and 3D studies conducted by
outside parties will be a first for the country.
I think what Mexico has accomplished recently
is outstanding for two reasons: a) the number of
years that the Mexican industry has been closed
and b) the emblematic nature of oil in Mexico,
stated Gabriel Salinas, associate, Mayer Brown,
to Offshore. In one year, a major reform occurred
with new energy laws and regulations set in place.
Theyve done their homework and Im excited to
see this process begin.
Robin Dupre, Offshore
IEA RAISES FORECAST FOR OIL DEMAND
Having bottomedout in the second quarter of
2014, global oil demand growth has since steadily
risen, with yearonyear gains estimated at around
0.9 MMbpd for the final quarter of last year and
1.0 mb/d for the current quarter, said the International Energy Agencys (IEAs) Oil Market Report
for March. The forecast of demand growth for all
of 2015 was raised by 75 kb/d to 1 MMbpd, bringing global demand to an average 93.5 MMbpd.
Global supply rose by 1.3 mb/d yearonyear
to an estimated 94 MMbpd in Feb., led by a 1.4
MMbpd gain in nonOPEC output. Declines in
the US rig count have yet to dent North American
output growth. Final Dec. and preliminary current-quarter data show higherthanexpected US
crude supply, raising the 2015 North American
outlook.
OPEC crude output edged down by 90 kb/d
in February to 30.22 mb/d, as losses in Libya and
Iraq offset higher supply from Saudi Arabia, Iran,
and Angola. The slightly higher demand forecast
has raised the call on OPEC crude for the second half of 2015 to 30.3 MMbpd, above the
groups official 30 mb/d target.
Global crude refinery throughputs estimates
have been raised to 77.8 MMbpd for the current
quarter and 77.3 MMbpd for the second quarter
on sustained high margins and a slightly more
APRIL 2015
1504ogfj_13 13
WWW.OGFJ.COM
BR I E F S
BOTTOM FOR OIL
SERVICE STOCKS
In a February report,
Sterne Agee analysts
looked at rig momentum as a factor to help
indicate where the oil
service industry would
hit bottom. One key
factor historically linked
to the bottom for oil
service stocks has been
a slowdown in the pace
of the drop in rig activity.
Owing to the historically
sharp decline in activity,
this point will likely arise
sooner in this downturn
than prior drops, the
analysts noted. At the
time of the report, the
industry began to see
signs of deceleration in
the pace of the rig count
decline.
13
3/31/15 3:25 PM
MIDSTREAM NEWS
B RIEFS
WOODSIDE CLEARED
TO ACQUIRE
APACHES STAKES IN
LNG PROJECTS
The Australian Competition and Consumer
Commission (ACCC)
said March 5 that it will
not oppose Woodsides
proposed acquisition of
Apache Corp.s interests
in the Wheatstone, Balnaves, and Kitimat projects. The Wheatstone
and Balnaves projects
are located in the Northern Carnarvon Basin, offshore Western Australia,
while the Kitimat project
is located in British
Columbia, Canada.
Woodside and Apache
overlap in the wholesale
supply of natural gas to
the domestic market in
Western Australia. While
the ACCC determined
that the proposed
acquisition would be unlikely to raise significant
competition concerns, it
acknowledged concerns
expressed by the market
about the effects of any
further industry consolidation.
14
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MIDSTREAM NEWS
1504ogfj_15 15
WWW.OGFJ.COM
BR I E F S
ENLINK COMPLETES
CORONADO
ACQUISITION
The EnLink Midstream
companies, EnLink
Midstream Partners LP
and EnLink Midstream
LLC, have completed the
acquisition of Coronado
Midstream Holdings LLC,
which owns natural gas
gathering and processing facilities in the Permian Basin, for approximately $600 million.
WILLIAMS SEEKS
FERC APPROVAL FOR
PIPELINE EXPANSION
Williams said March 19
that Transco has filed an
application with the US
Federal Energy Regulatory Commission (FERC)
for its Dalton Expansion
Project, which would
support providing Marcellus shale gas to the
Southeast for electricity
generation and local
natural gas distribution.
Construction is planned
to begin in the third
quarter of 2016, with
completion targeted
for 2017, subject to all
necessary or required approvals by FERC and all
other regulatory bodies.
15
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16
1504ogfj_16 16
Offshore
Shale
300
US$ Billions
E&P companies have guided considerable cuts in their 2015 investment budgets. Preliminary budgets indicate a
~20% drop in global E&P investments
this year, with shale declining the most.
Does this mean offshore is more
competitive than shale, and how have
these sources performed historically?
Observing historical trends, Figure
1 shows global investments for offshore
and shale oil and gas. During the past
decade, offshore investments have increased from ~ US$150 billion in 2005
to ~ US$360 billion in 2014. The growth
in offshore investments is a combination of higher activity and higher unit
costs (i.e., rig rates). Also over the last
10 years, shale activity accelerated as
horizontal hydraulic fracturing became
proven and economical. As a result,
investments increased from almost
zero to ~ US$160 billion in 2014.
Figure 2 shows the change in production resulting from investments. While
incurring increasingly more costs
throughout the period, offshore production remained largely unchanged
at 27 MMboe/d. Shale production, on
the other hand, showed robust growth,
increasing from less than 100 kboe/d
in 2006, to an estimated ~7,500 kboe/d
in 2015. The reactiveness of the production to the investments is largely a factor of the life cycle.
Offshore drilling has been prevalent
since the 1960s and has a large accrual
of declining legacy wells. Each year,
operators must drill more wells just to
offset the natural decline from historical wells. Shale is relatively immature,
with significant activity levels starting
in 2008. Therefore, operators are able
to build up production with each new
well drilled.
Looking into short-term investment
budgets, 2015 E&P activity will be ~20%
lower than 2014 levels. Shale-focused
250
200
150
100
50
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
15,000
10,000
5,000
0
Offshore
Onshore
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
APRIL 2015
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Brent breakeven
oil price*
USD/bbl
Shale/
tight oil
Ultra
Deepwater
35%
24%
10%
12
13%
12
77
14
9%
19%
64
14%
11
71
Deepwater
IRR*
%
90 USD/bbl
70 USD/bbl
61
Shallow
water
Payback time*
Years
11
14%
*Estimates are based on the 30 largest projects within each group expected to start up
in the period 2014-2020.
1504ogfj_17 17
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APRIL 2015
1504ogfj_19 19
120.0%
R2 = 0.7741
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100%
50%
0%
50%
100%
150%
200%
250%
300%
IPO
Secondary equity
Debt
90%
80%
Millions of dollars
70%
60%
$45,932
$37,246
$39,233
$60,843
$41,469
50%
40%
$37,786
30%
20%
$12,299
$14,296
$4,429
$3,465
$5,587
$3,511
2010
2011
2012
Year
2013
10%
0%
$14,522
$15,978
$12,684
2014
Inflation has often been called the silent thief, to describe the pernicious effect of rising
prices on household budgets, especially those on fixed incomes. In the oil and gas business,
resource depletion is the silent thief that works against corporate growth goals.
In many ways, the upstream business behaves like the car business. We have all been
seduced by the aroma of new car smell, that alluring combination of aromas from new
plastic, supple leather seats, and fresh carpet. Combined with an exterior free of parking
lot dings and paint chips on the outside and a Blaupunkt premium sound system that
makes us feel like we are listening to Pavarotti at Carnegie Hall on the inside, suddenly
were hooked! Once we drive off the lot, our rolling opera house instantly loses 20% of its
value. In two years, we will be fortunate if our vehicle loses only 30% of what we paid on
the showroom floor.
Since most unconventional wells drilled in North American resource plays will produce
about 30% of their total estimated recovery within the first two years, suddenly a 20%
depreciation hit on a new car doesnt sound all that bad. In fact, EnerComs well economics
model for the typical Bakken oil shale well forecasts a 65% first-year decline in the production rate and estimates total production of 220,000 barrels of oil equivalent in the first
WWW.OGFJ.COM
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15.0x
10.0x
5.0x
0.0x
5.0x
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
AA
BB
CC
DD
EE
FF
GG
HH
II
JJ
KK
LL
MM
NN
OO
PP
QQ
RR
SS
TT
UU
VV
WW
XX
YY
ZZ
AAA
BBB
CCC
DDD
EEE
FFF
GGG
HHH
III
JJJ
KKK
LLL
MMM
NNN
OOO
PPP
QQQ
RRR
SSS
TTT
UUU
VVV
20.0x
two years of its life, or about 30% of the wells total estimated ultimate
recovery (EUR).
Although we write for a savvy audience, emphasizing the decline
curve at the outset is important, because it is fundamental for
understanding the challenges, opportunities, and risks involved in
capital allocation and financing growth.
Merely holding production flat, however, is not an option for
most independent E&Ps. As public companies, their mission is to
grow and the target capital market for these companies is institutional growth investors, who expect management to deliver growth
at an annual rate of 20% or more. Yet, the silent thief of depletion
works silently and persistently against this objective.
WHAT IS A GROWTH COMPANY?
1504ogfj_20 20
If the growth company threshold is approximately 20% for debt-adjusted production growth, then the question becomes what is the
financing required to achieve that threshold and what is a companys
WWW.OGFJ.COM |
APRIL 2015
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1504ogfj_21 21
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RAISING CAPITAL
If debt has been the most popular form of capital to raise, then
how much leverage do independent E&Ps have? Figure 3 plots net
debt to EBITDA for the trailing 12 months ended Sept. 30, 2014
22
1504ogfj_22 22
0.00%
5.00%
Mid-cap
Small-cap
5.95%
10.00%
11.78%
12.95%
15.00%
22.32%
20.00%
23.31%
25.00%
31.64%
30.00%
35.00%
Week
0.5%
0.4%
YTD
6-Months
1.8%
10.00%
20.00%
14.6%
30.00%
34.5%
40.00%
50.00%
60.00%
70.00%
66.5%
APRIL 2015
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50.00%
Internal rate of return (IRR)
40.00%
30.00%
us
le
rd
rd
an
vil
fo
Fo
mi n
tte
od
er Basi gle
e
o
P
y
M
W
Ea
Fa
Note: Chart assumes no change in drilling costs
e
kk
ell
arc
Ba
et
rn
Ba
8.00%
7.10%
4.50%
8.00%
7.30%
5.20%
12.00%
11.50%
8.60%
24.00%
14.70%
3.90%
29.30%
18.20%
6.10%
10.00%
51.00%
48.90%
40.30%
0.00%
43.40%
11.00%
2.60%
10.00%
19.00%
11.50%
7.60%
20.00%
vil
es
n
ay
le
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
us
ell
arc
ian
rm
Pe
gle
Ea
rd
Fo
Fa
t
ye
vil
te
le
d
or
df
oo
W
en
kk
Ba
et
rn
Ba
$9,100
$5,900
$5,211
$3,000
$1,630
$1,423
$9,000
$6,650
$3,020
$4,000
$2,950
$2,570
$2,500
$1,890
$1,595
$7,500
$6,675
$3,617
$0
$69,00
$6,550
$4,105
$1,000
$7,000
$7,000
$7,000
$2,000
vil
es
n
ay
le
expect companies with higher debt levels to post above-average production growth rates.
To test this hypothesis, we analyzed a subset of 74 companies in our US E&P universe
comparing their debt, as measured by Net Debt to EBITDA for the TTM ended September
30, 2014, to year-over-year production growth rates with the Median being 2.0x.
It is telling that the companies with above-median leverage grew production during
the analysis perod, on average, at 25%, as compared to 42% for companies with leverage
below the median. At first, this observation is counter-intuitive, and we recognize that
there may be a chicken and egg effect here, in the sense that several of the above-average
leveraged companies are non-resource players, but not all. The above median group also
includes some companies that have divested assets to reduce debt.
The E&P companies with Net Debt to EBITDA below the 2.0x median include resource
players drilling high-quality assets, including the Bakken/Three Forks shale oil play, the
Marcellus and Utica shale gas plays, the Eagle Ford shale play in South Texas, the horizontal
Niobrara play in the Colorado D-J Basin and the multi-pay, multi-play Permian Basin of
West Texas.
APRIL 2015
1504ogfj_23 23
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%Change CapEx
Debt/EBITDA
6.7x
40%
3.4x
2.3x
20%
0%
2.8x
6.0x
4.0x
Average = 1.7x
2.2x
2.1x 2.1x
1.8x
2.2x
1.1x
2.5x
1.9x
1.1x
20%
40%
37% 37%
41% 41% 39%
33%
28%
22%
9%
0.0x
P
2.0x
4.0x
6.0x
CAPITAL ALLOCATION
WELL ECONOMICS
16% 14%
8.0x
80%
1504ogfj_24 24
1.8x 2.0x
2%
60% 57%
24
1.2x
0.9x
60%
10.0x
When the down cycle comes, an E&P companys capital structure and its ability to endure
the cycle take center stage. One of the unique features of the oil and gas business is that
the value of an E&P companys most important assets oil and gas reserves fluctuate
daily with commodity prices, but the amount of debt on the balance sheet stays the same
and must be repaid in full.
To cope with compressed margins, lower free cash flow and wounded drilling economics,
operators have cut capital spending in 2015 from 2014 levels. Figure 8 illustrates announced
2015 capital budgets compared to estimated 2014 spending levels (either based on guidance
or analyst estimates).
From left to right in Figure 8, companies are ranked by largest capital expenditure decline
to the lowest (growth), as of Sept. 30, 2014 and proforma for material capital raises before
year-end. The impact of leverage is apparent. Companies with announced capital budget
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BORROWING BASE
REDETERMINATIONS
40%
Revolving credit facilities are another capital source, and as spring approaches, CFOs
and bankers alike are thinking about this
years first round of borrowing base redeterminations. On average, 50 E&P companies in EnerComs US E&P database have
drawn down only 24% of their availability.
However, that average masks the fact that
several of companies are close to fully
drawn. Depending on their year-end 2014
reserves report and the lending bank price
deck, they could find themselves in the
difficult position of having to cut capital
spending further, sell their hedge book to
pay down a reduced borrowing base, and/
or renegotiate covenants.
32.68%
28.53%
30%
20%
23%
19.63%
10%
22.44%
18.55%
8%
6.78%
4%
6.88%
0%
2%
3%
3%
-10%
-20%
-30%
20%
cuts greater than 40% have debt to EBITDA ratios of 3.2x on average, as compared to 1.7x
for those E&P companies with announced reductions of less than 40% and in two cases
even a slight uptick in spending.
Even with dramatic reductions in capital expenditures, operators still report they will
grow production in 2015. Wells drilled in 2014 but not yet completed are likely to be placed
on production in the first half of the year, while those wells that produced a partial year
in 2014 will show a full year of production in 2015. Combined, these factors will drive
production increases, although the rate of growth should decline.
We also note that at current oil price levels, it is still profitable to produce in most major
oil plays. The average operating expense and overhead costs for the 87 companies in the
US E&P subset of our database was $22.37 per barrel of oil equivalent at Sept. 30, 2014. Even
at $45 per barrel, most operators are generating positive cash flow from operations.
Lets talk about the decision to allocate capital to drill new wells versus producing wells,
given profitable operations. Calculating the go-forward internal rate of return on an established, producing well (after classifying the initial capital for drilling and completion
as a sunk cost) is quite different, or superior, to that of drilling a new well with flush production. Therefore, producers are not really incentivized to shut-in production from
profitable wells. Rather, they are highly incentivized to keep the values open and invest
capital to enhance or maintain production and improve operational efficiencies, because
companies have G&A burden (overhead), financing burden (interest and principle), and
stock market burden (stock price) to cover.
THE BONDS THAT TIE
Investors are very aware of the new microeconomic realities imposed on E&P companies
by the macroeconomic environment. Not only have equity valuations fallen, but refinancing
debt for many E&Ps has become more expensive.
From 2010 through year-end 2014, the yields on higher-quality bonds have steadily
declined, along with the general trend in interest rates. In the fourth quarter, however,
yields on lower quality paper having an S&P rating of B or CCC, skyrocketed. A sample of
CCC rated bonds issued by independent E&Ps rose to approximately 15% at year-end
2014, up from about 7.0% only two months previous.
The river of capital continues to flow, and we note that approximately $3.4 billion of
corporate bonds for independents reach maturity during 2015, and lower quality credits
may find refinancing substantially more expensive in todays market than they may have
anticipated.
26
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There may be several reasons for the market not selling off the
shares of companies raising equity in the current environment to
several factors, including:
At this point in the cycle, those investors who wanted to trim
or eliminate their exposure to oil and gas names have already done
so. In other words, the panic and fear money is gone.
Short sellers have made their money, and after a 50%+ decline
in oil and gas valuations, they may have less interest in betting on
additional weakness.
Bargain hunters abound. As we reported at EnerComs conference in San Francisco in February, 76% of respondents to our survey
of the West Coast buy-side indicated they were in bargain hunting
mode, looking for opportunities to stock-up on their favorite names
at discount prices, providing willing buyers to those looking to
rotate out of the sector.
Combined, the above factors may have helped to create support
for oil stocks before the most recent dip in oil prices this month,
and no one minimizes the potential for commodity prices to go
lower before they go higher. However, we do note a split on broad
investor sentiment on the future direction of oil and gas prices.
For example, respondents to our West Coast buy-side survey
conducted in February 2015 were nearly evenly divided on oil
prices. 52% of respondents expected oil prices to rebound to the
$70 to $85 per barrel range and 43% expected continued trading
in the $40 to $50 per barrel range. Only 5% believed prices would
fall from prevailing levels. It bears mentioning that no one anticipated a return to $100 oil in the next 12 months.
With 95% of the market believing oil prices are at or near a
APRIL 2015
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bottom, oil and gas equity investors decided now was the time to
put more equity into their favorite names. We anticipate more
companies will consider tapping the equity river of capital in 2015.
OIL AND GAS IS (STILL) A SUNRISE INDUSTRY
When the sea changes, investors want a steady hand on the helm
of the corporate ship. Those teams with experience managing through
the cycles have an edge, a portfolio of high-quality assets certainly
helps make things easier and a conservative capital structure helps
improve a teams ability to navigate turbulent markets. Over the past
14 quarters, public E&Ps have raised more than $100 billion in new
equity and debt capital, and if past is prologue, the best future performers will be those who have been able to manage the capital cycle
to generate profitable growth and strategic advantage.
We are mindful that within every cycle are planted the seeds of
its own destruction. Although the down cycle initiated by the Saudi
grab for market share has brought with it much upheaval to much
of the rest of the worlds oil producing nations, including America,
we note that the longer term trends appear to be working towards
a rebalancing of supply and demand in the future.
As middle classes in developing nations grow and prosper, we
anticipate that they will want to live a more energy-intensive
lifestyle, which includes central air conditioning, maybe central
heating too, and they will want a diet consisting of more protein
and drive or use more public transportation. Simply put, a growing
number of humanity will be living more materially prosperous and
healthier lifestyles that necessarily consume more energy, and oil
and natural gas are simply the most cost-efficient energy sources
to deliver on that need.
In our view, oil and gas remains a sunrise industry, and this
cycle, too, shall pass like all the others. The market will eventually
find its equilibrium, and the river of capital will continue to flow
into and through this current down cycle. Those management
teams able to adapt to changing circumstances and wisely conserve,
raise, allocate, and generate capital are those most likely to profit
from the current down cycle and see the dawn of the next up cycle
sooner than others.
ABOUT THE AUTHOR
3/31/15 3:26 PM
SINCE JULY 2014 the crude oil price has more or less halved.
1504ogfj_28 28
Between 2000 and 2013 the global oil & gas industrys CAPEX
increased by a CAGR of 14.8%. According to Barclays, CAPEX
rose to a new record of US$679 billion in 2014. CAPEX increased
strongly due to (i) growth of global oil and gas consumption,
(ii) underinvestments in the 1990s, (iii) an increasing shift from
onshore to offshore production, which is relatively more expensive, and (iv) cost inflation. The latter was caused by a shortage
of staff and equipment, but also due to increased local content
requirements.
In early 2014, the oil majors (ExxonMobil, Shell, BP, Chevron,
ConocoPhillips, Total, and ENI) already announced CAPEX
budget cuts for 2014. The fall of the oil price since July 2014 has
also forced other oil and gas companies to cut their CAPEX
budgets for 2015. Particularly unconventional oil and gas producing companies in North America have announced CAPEX
budget cuts of tens of percentage points. Furthermore, the oil
majors stepped up their budget cuts even further.
To sum up, we expect the oil and gas industry will lower its
CAPEX spending by 21% to US$538 billion in 2015, followed by
a further drop of 5% in 2016. As a result, oil production growth
will be limited or even become negative in 2017, tightening the
supply/demand balance and leading to the recovery of the oil
price. Therefore, the oil and gas industry will raise its upstream
CAPEX budgets again as of 2017, leading to a new record high
in 2020.
OFFSHORE PRODUCTION GROWTH
EXCEEDS INCREASE OF ONSHORE
Oil and gas production at offshore oil and gas fields has existed
for many decades. However, in the last two decades technological
progress has been huge, leading to the possibility to explore oil
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APRIL 2015
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Richard Brakenhoff has worked as an industry analyst at Rabobank in Utrecht, The Netherlands, since 2007. He covers the
oil & gas, dredging, and transport sectors. Prior, Brakenhoff
spent 17 years as an equity analyst at several banks covering
the same industries. He studied business economics at the VU
(Free University) in Amsterdam.
F1: OIL PRICE UNDER PRESSURE IN 2015 AND 2016,
FOLLOWED BY RECOVERY
160
140
120
Oil price
100
80
60
40
20
13
15E 16E 17E 18E 19E 20E 21E 22E 23E 24E 25E
Year
IEA base case
Rabobank
14
800
140
750
120
CAPEX
700
100
650
80
600
60
550
500
Oil price
13
14E
IEA
15E
16E
Rabobank
17E
Year
18E
19E
20E
40
120
110
Index
100
90
80
70
Year
Oil services market
Average
1504ogfj_29 29
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29
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Dylons | Dreamstime.com
ships, traditional rigs, spars, floating production semi-submersibles, or other offshore exploration and production
installations destined for operations in the Gulf of Mexico
face a starkly different environment today than even just a
few months ago. In particular, the risk/reward profile of these
assets presents a unique suite of considerations for both
owners and potential financiers.
Offshore exploration and production is typically more
expensive and riskier than onshore projects, especially given
the shift towards deep and ultra-deepwater exploration,
which influences the financing terms available to sponsors.
In 2013 and the beginning of 2014, we saw energy companies
committing more and more resources to E&P projects as oil
and natural gas prices were experiencing sustained highs,
spurring increased orders for offshore installations to sustain
30
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The market outlook is not all bleak as the current pressure for offshore units is partially offset
by a number of factors. The existing fleet is aging and there will be a need to replace obsolete
equipment in the coming years. The technological requirements of some of the newer plays in
ultra-deep waters will require either newbuilds
or refurbishment of existing assets. A significant
unknown is the level of demand from the newly
opened Mexican regions of the Gulf of Mexico,
all of which could act to partially counteract the
market demand drag and oversupply.
The drop in oil and natural gas prices has not only affected
projects under way, but has reverberated across the sector
in a wider fashion. E&P companies have announced decreased exploration budgets as the incentive to drill new
wells and explore new fields has diminished. As a result,
new orders can be expected to decline to some extent or be
delayed. Further exacerbating these issues is the oversupply
of many offshore assets, particularly in certain segments.
31
3/31/15 3:26 PM
While energy prices were high, there was a rush to construct newbuild vessels, platforms, and rigs to service all of
the fields projected to come online in the coming years. But,
as of the end of February 2015, IHS estimated the percentage
of jackups, semi-submersibles, and drillships under contract
in the Gulf of Mexico at 79%, down from 95.53% last year at
the same time. This has put pressure on day rates as price
competition has set in and dampened the prospects of recontracting assets as they roll off previous charters. According to various industry sources, day rates have started to
decrease, in some cases materially, with more rigs and drillships set to come into the market over the next 12 to 18
months.
In the Gulf of Mexico, pricing pressures are expected to
be particularly significant with respect to jackups, given the
large number of uncontracted newbuild jackups scheduled
for delivery in the near future. In the circumstances, if the
price environment continues to be challenging, it would not
be surprising to see some older units being cold-stacked or
scrapped earlier than originally anticipated.
However, the market outlook is not all bleak as the
current pressure for offshore units is at least partially offset
by a number of factors. The existing fleet is aging and there
will be a need to replace obsolete equipment in the coming
years. The technological requirements of some of the newer
plays in ultra-deep waters will require either newbuilds or
refurbishment of existing assets. And a significant unknown
is the level of demand that could result from the newly opened
Mexican regions of the Gulf of Mexico, all of which could act
to partially counteract the market demand drag and
oversupply.
Given the current uncertainty in the market, what options
remain for companies wishing to finance their offshore
projects? Stronger companies will no doubt continue accessing the conventional bank and capital markets to obtain
necessary capital, though potentially on less favorable terms.
But for the smaller owners of offshore assets, access to credit
could be more challenging, at least in the short run.
A particular companys ability to get financing will depend
32
1504ogfj_32 32
in part on the nature and age of its fleet, its geographic focus,
and overall contract backlog. With respect to individual assets, the availability of a longer-term charter arrangement
with a strong counterparty will continue to be a key factor
in determining whether standalone financing can be
considered.
While access to traditional financing sources may be more
challenging for some industry participants, a notable development in the recent past has been the amount of capital
raised by alternative investors to focus on the energy industry.
Private equity firms such as Blackstone, KKR, and Apollo
created funds to acquire assets and make investments in
companies operating across the energy value chain and are
actively looking for opportunities to deploy capital. Most
recently, Blackstone announced the closing of its second
energy-focused private equity fund, with total commitments
of $4.5 billion.
Energy funds and other alternative financing sources may
be willing to provide additional capital to asset owners to
refinance upcoming maturities, bridge current capital needs
or help develop individual systems. In addition, as was seen
in recent transactions consummated onshore, hedge funds
and private equity funds may be willing to provide financing
for E&P activities through working interest or royalty interest
investments, such as overriding royalty interests or volumetric production payments. Such additional financing could
in turn help support the construction and financing of related
offshore production infrastructure.
The decrease in commodity prices has deeply affected the
energy sector and the tools energy companies possess to
acquire the capital required to proceed with their desired
projects. In the short and medium term, many projects are
expected to be delayed or cancelled. However, despite the
current market prices and supply concerns with respect to
offshore units, many remain optimistic about the long-term
prospects for development in the Gulf of Mexico, and capital
should remain available to sound projects and companies
even during the downturn.
ABOUT THE AUTHORS
APRIL 2015
3/31/15 3:26 PM
Numskyman | Dreamstime.com
1504ogfj_33 33
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decision-making.
Leveraging technology to support operational risk management initiatives offers cost-saving opportunities. Bestin-class companies that leverage technology platforms to
manage safety and operations performance are reported to
have 8% less unscheduled asset downtime (over those who
dont), 8% fewer regulation citations, experience a 13% reduction in compliance-related costs, and realize operating
margins 2% or greater than targeted in the corporate plan.
Indeed, theres big opportunity and big value for operators
to reduce risk and improve the productivity of their operations, but to achieve this, they need to do things
differently.
AGING, GRACEFULLY OR DISGRACEFULLY?
1504ogfj_34 34
Best-in-class companies that leverage technology platforms to manage safety and operations performance are reported to have 8% less
unscheduled asset downtime (over those who
dont), 8% fewer regulation citations, experience
a 13% reduction in compliance-related costs, and
realize operating margins 2% or greater than targeted in the corporate plan.
Todays business environment forces operators to be cautious about operations, prudently rationalizing costs without
compromising safety. Many organizations find it difficult
to decide how to focus operations to achieve the best shortterm and long-term results.
Various functional roles within organizations, including
operations, maintenance, engineering, EHS, well services,
and so on, understandably assert their own functional priorities in order to secure scarce resources (ranging from
budget to offshore bed space) in order to meet internal KPIs.
This siloed approach leads to tensions between departments as different practices and business processes emerge
to support individual competing interests. It can also hamper
clarity around the true state of assets leading to problems
prioritizing operational activities.
Operators are beginning to employ technology solutions
to evaluate barrier impairments and operational activities
using a common currency of risk. In this way, the impact
13%
+2%
8%
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Michael Porter from the Harvard Business School emphasizes, A company must continually improve its operational
effectiveness and actively try to shift the productivity
frontier.
Operators continually juggle productivity and safety factors, typically one at the expense of the other. While most
operators err on the side of caution, decisions on prioritization are inadvertently made without fully understanding
Asset productivity
the consequences. Process safety risks may not be so apparent if knowledge and understanding of deviations are
not shared or if the existence of an impaired barrier is not
identified. Despite the bias of a safe, cautious approach and
because there are a number of safety critical systems to
manage, it is often considered reasonable to assume that
such systems are in good working condition, unless one
hears otherwise. As a result, organizations can be caught
in the traditional safety-productivity dynamic, driving-up
inefficiency as well as operational risk.
Recent regulatory changes from BSEE, in the form of
SEMS II, have been designed to help organizations better
manage the dynamic between safety and productivity, to
improve offshore workplace safety and reduce the frequency
1504ogfj_35 35
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35
3/31/15 3:26 PM
and severity of accidents. In addition, regulatory and government sanctions have made getting the dynamic wrong
that much more critical.
Using a common currency of risk, productivity and safety
demands can move from being antagonistic to complimentary forces that enable safely optimizing operations. When
operators have a better understanding of their operational
risk, including how people, processes, assets, the environment, reputation, health, and major hazard risk come together, they are able to see the consequence of their decisions, recalibrate if necessary, and accomplish more of the
right things, at the right time, in the right way. In this way,
they can safely and cost effectively extract the maximum
value from an asset and optimize its performance.
By developing a common currency of risk through sophisticated technology frameworks, where activities and
priorities are measurable in the context of daily operations,
no longer is there a battle between risk management and
operations productivity. When the two are harnessed together, safety no longer needs to be set against production.
When more work can be done safely and efficiently and
when we can measure and report on how safely and efficiency work was carried out can we go so far as to say
weve reached operations excellence nirvana?
THE PATH TOWARDS OPERATIONAL EXCELLENCE
1504ogfj_36 36
Best-in-class companies that leverage technology platforms to manage safety and operations performance are reported to have 8% less
unscheduled asset downtime (over those who
dont), 8% fewer regulation citations, experience
a 13% reduction in compliance-related costs, and
realize operating margins 2% or greater than targeted in the corporate plan.
APRIL 2015
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upstream operationshave always been better at managing dayto-day operational uncertainty than firms in other industries.
However, even by those standards, the industry now faces a series
of profound structural changes that will create a dramatically more
complex environment for the foreseeable future. Upstream companies must operate across a wide range of exploration and production environments, leading to more diverse operations and
greater complexity. The recent decline in oil prices complicates
this challenge, yet that is a medium-term factor. The more persistent
issue is high volatility in oil prices, which increases the level of
planning uncertainty and is only likely to get worse in the future.
In this environment, the strategic responses that may have
worked for upstream companies in the past are no longer relevant.
Instead, companies need to identify and focus on a small number
of differentiating capabilities, and then reshape their portfolio and
investment decisions accordingly. Perhaps most critically, this
strategy must remain flexible enough to adapt to changes in the
operating environment.
GROWING UNCERTAINTY
IN BOTH SUPPLY AND DEMAND
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1504ogfj_38 38
FLEXIBILITY IS CRITICAL
The right combination of capabilities and assets will vary from one
company to another, yet there is a common thread: strategy must
be flexible enough to adapt to changes in the operating environment. In the past, oil and gas companies had the luxury of investing
in attractive, long-term opportunities, and then focusing on executiona linear and inflexible approach. Today, by contrast, success
lies in flexibility: wherein capabilities set the broad direction, yet
flexibility still affords companies the freedom to anticipate and
respond quickly to unexpected events.
In some ways, flexibility is more difficult for oil and gas companies, given the long-term nature of many investments in the sector.
Decisions on major capital investments have become increasingly
challenging, particularly because of persistent project time and
cost overruns. Yet companies can still build significant flexibility
into their investment programs.
For companies active in exploration, the right approach might
involve taking small stakes in emerging basins in case significant
discoveries are made, and by actively managing the exploration
portfolio of options. For producing assets, a company can actively
consider, and plan for, the different activity sets it would need to
conduct under different oil price scenarios. Designing modular
field developments that can be scaled up in response to changing
market conditions also builds optionality into long-cycle investment
projects. This is particularly important for companies in volatile
operating environments, such as Iraq.
CONCLUSION
In an industry beset with increasing uncertainty, diverse technological and operational environments, and intensifying industry-specific skill shortages, oil and gas companies will need to
change the way they conduct business. For virtually all players, a
dynamic, capabilities-driven approach will help them win in a
turbulent market. To get there, companies must identify and focus
on a few differentiating capabilities required to win in their chosen
areas of operations. They must reinforce their portfolio and investments round those capabilities. Moreover, they must remain agile
enough to respond to changes in both internal and external
circumstances.
By implementing this approach, companies will position themselves to be able to respond efficiently to changing conditions, and
stay ahead of the competition.
ABOUT THE AUTHOR
APRIL 2015
3/31/15 3:26 PM
ton-based hedge advisory firm serving the oil and gas industry, to
conduct a detailed survey on hedging strategies. The anonymous
online survey was open to participants via www.ogfj.com during
late February and early March. The survey results provide a glimpse
into the strategies that responding producers currently employ.
Here are the questions and results:
QUESTION 1: What hedging tools does your firm utilize?
SURVEY RESULTS (See Figure 1):
Fixed price swaps 14%
Options (collars, puts, 3-way collars) 20%
Combination of the above 37%
None 29%
SURVEY RESULTS:
Yes, less than 25% 4%
Yes, 25% to 50% 24%
Fixed price
swaps
14%
Options
(collars, puts,
3-way collars)
20%
Combination
37%
APRIL 2015
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Drilling
budget
protection
13%
Lender/investor
requirements
19%
Fundamentals
and market view
44%
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3/31/15 3:26 PM
Yes, a third-party
advisor
40%
Board of
directors
14%
Hedge
committee
21%
SURVEY RESULTS:
More 23%
Less 60%
About the same 17%
SURVEY RESULTS:
Less than $50 3%
$50 to $70 60%
$70 to $90 24%
More than $90 13%
QUESTION 12: One year from now, what you do expect NYMEX
Henry Hub Natural Gas prices to be?
SURVEY RESULTS:
Less than 25% 27%
25% to 50% 21%
50% to 75% 32%
75% to 100% 20%
40
1504ogfj_40 40
SURVEY RESULTS:
Less than $2.50 9%
$2.50 to $3.25 41%
$3.25 to $4.00 36%
More than $4.00 14%
Thanks to Aegis Energy Risk President and CEO Chris Croom for
his part in developing this survey. Croom has spent nearly 20 years
in the energy markets developing hedge strategies, marketing
structured energy derivative products, and trading crude oil and
natural gas. Aegis Energy Risks clients include oil and gas producers,
energy consumers, and the petrochemical markets. Visit www.
aegis-energy.com for more information.
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energy industry, reversing a trend of rapidly declining domestic production. Between 2000 and 2015, natural gas
production from shale rocks increased by 10 Tcf/year, while
non-shale production fell by 4 tcf/year a slump of almost
a quarter.
The perennial question is whether the US shale revolution
will be replicated elsewhere around the world. The potential
is certainly there. The US Energy Information Administration,
for example, estimates that more than 90% of the worlds
technically recoverable resources are outside the US. But
this potential has not yet translated into significant production, even 10 years after the start of the US shale-gas boom
(Figure 1).
INFRASTRUCTURE BARRIER
TO SHALE DEVELOPMENT CYCLE
One reason for the slow progress is the limited reach of gas
pipeline systems in many of the countries that have promising
geological potential. Over one-third of prospective shale gas
<1
Production outside of
North America is mainly
in China (90%) and
Argentina (10%)
Basins with
shale potential:
Assessed volume
Non-assessed volume
<1
1995
2000
2005
12
2
10
2010
2015E
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41
3/31/15 3:28 PM
Large
reserves
holders avg.
Countries
with largest
conventional
gas reserves
Qatar
Iran
Turkmenistan
UAE
19
Venezuela
35
Nigeria
75
US shale
gas avg.
174
Russia
1,417
Haynesville
US shale
plays
1,476
Marcellus
2,269
Woodford
3,152
Fayetteville
4,123
Barnett
50 200
10X
2,000
1504ogfj_42 42
portunities for an alternative, gas-to-wire (GTW) monetization model. This alternative model, which is being proposed
in this article, is designed to develop shale-gas reserves in
relatively small modules that can be systematically replicated
within the field, consisting of a group of wells capable of
producing at an expected plateau, connected to in-field gas
processing and power generation plants, to generate electricity and send it to consumers through existing transmission
lines (Figure 5).
The plants capacity determines the size of modular reserve
required i.e. the amount of gas needed to supply the power
plant over its operating life. As such, this alternative monetization model enables sustainable economic production in
regions with no gas infrastructure when only a relatively
small amount of gas reserves is proved, which requires a
limited number of wells before final investment decision: a
100 MW combustion turbine (CT) would require, over its
20-year operating life, modular reserves of 0.15 tcf, which
can be proven by an estimated 30 wells; a 500 MW natural
gas combined-cycle (NGCC) power plant, meanwhile, would
need 0.6 tcf, or an estimated 120 wells in order to prove
reserves.
Several incremental costs, or monetization costs, would
need to be factored into the local gas-sale price in order to
make the gas-to-wire model successful. These costs falls into
two groups: (1) the incremental costs of supplying gas directly
to a power plant; and (2) the incremental costs of creating
competitive operating conditions for the power plant.
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Denition upfront
on the reserves
73
47
Development of
infrastructure
822
1,464
5
2,121
2,151
1,739
14
Time
Permeability of reservoir makes it possible to estimate
reserves early on and with few exploratory wells, reducing uncertainties significantly faster than in shale plays
2,457
Time
The heterogeneity of shale formations means a significant number of wells and continuous drilling are needed
to prove up reserves and estimate resources
1504ogfj_43 43
Drilling
Gas production
monetization
Subsurface data
acquisition
e
tur
rucer
t
s
ra ri
Inf bar
Resource
assessment
relative economic attractiveness of modular gas-to-wire model and the pipeline-transportation model.
The proposed model tends to be the better alternative the greater the ratio
becomes or the smaller the gas reserves being considered for development. When
the distance to the grid is the same as the distance to a gas pipeline a ratio of
1:1 gas-to-wire is an attractive alternative for plays with reserves of up to 1 tcf.
This rule-of-thumb (ratio of 1:1) is often used to model the economics of gas-towire systems but, in some regions, the 1 tcf figure is too conservative and caps
the attractiveness of GTW model at too low a level (Figure 6).
However, the cap on the size of reserves increases in relation to the relative
proximity of available transmission lines. For example, the proposed model remains
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Processing
plant
Monetization costs
Power
plant
New first-mile
transmission line
Consumers
3
2
1
0
10
44
1504ogfj_44 44
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variability parameters would vary according to several factors, such as the initial production rate from wells and plateau
production volume.
PROMISING ALTERNATIVE
Andr Olinto do Valle Silva is senior vice president and Brazil office manager at the SBC office
in Rio de Janeiro, having led that office since
2009. Prior to that, he was a senior partner at
McKinsey & Company, where he led the electric
power and natural gas practice in Latin America
and served clients in the energy and basic materials sectors
for more than 14 years. Olinto has an electrical engineering
degree from Pontificia Universidade Catlica do Rio de Janeiro, where he also undertook graduate-level studies in
statistics and operations research. He has an MBA summa
cum laude from the University of Chicago Graduate School
of Business with a concentration in finance and
accounting.
Matheus Nogueira is a vice president with SBC,
based in Rio de Janeiro. He is an experienced oil
and gas professional, having worked both as a
strategic management consultant and in several
managerial roles within Schlumberger. He has
broad international experience, having worked
in North and South America, Europe, and Africa for a wide
range of clients in exploration and field development projects
the last 15 years. Nogueira has a degree in mechanical engineering and has developed a patented solution in fluid sampling, which has been adopted by the industry worldwide.
3/31/15 3:28 PM
Buchachon | Dreamstime.com
WE HAVE ALL READ that the market price of crude oil is down
CONVENTIONAL VS UNCONVENTIONAL
from prices a year ago. The fact is evident as we pass gas stations around the country and read the posted prices. That, of
course is the good news. The bad news is the effect it is having
on jobs and profitability in the oil industry.
The causes for the drop in crude oil prices are many and
debatable. Some say its oversupply. Others suggest that lower
demand, both domestically and globally, is the cause. Whether
we blame the Saudis or thank the frackers, there is little to be
gained or better understood by going down that path. Ultimately,
it comes down to economics. No one is going to pump oil for
long if it costs exploration and production companies more to
pump than they can recover when they sell it. When there are
ample supplies around, the cost of production plays an increasingly important role in viability.
Its not so easy to calculate the cost of drilling for oil. Different
types of wells cost different amounts of money, depending on
whether they are conventional or unconventional fracked wells.
Some geologies and cost factors favor one over the other. Typically, conventionally drilled wells, unburdened by the expenses
associated with fracking, are lower in cost to drill and
complete.
The wells are economically viable if the geology of the reservoir
is suitable. If the geology consists of shale and the reservoir requires more coaxing to get the oil to flow, fracturing the rock and
other technologies are required to pump the crude. That adds
cost to the process. If the oilfields are relatively new and gathering
pipelines, terminals, and railheads are few and far between, more
costs are added to the process. If the fields are located great
46
1504ogfj_46 46
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As an example, cost per barrel in the Bakken shale at highly efficient wells with high IP rates can be as low as $20/bbl to $45/
bbl or even higher, depending on the cost to drill a particular well
at a particular site. Whether or not its cost-effective to drill a
well depends on how much oil can be recovered both initially
and over time. IP rates quickly drop off, however, in fracked wells,
lowering the amount of oil thats being retrieved and raising the
cost per barrel.
Another aspect of Bakken oil wells is that there is typically an
80% decline in the production rate within the first year. Without
re-fracking the well, supply drops off quickly. However, because
Bakken wells produce so well and it is such high-quality, low-sulfur
crude oil, it is worthwhile for companies to accept that lower
recovery rate and production decrease. It is not uncommon to
see initial production of 1,000 barrels per day from these wells.
CANADIAN OIL SANDS
Due in large measure to geology and the fact that Saudi Arabias
oilfield infrastructure is already well established, the cost to drill
a barrel in Saudi Arabia is significantly lower than the cost per
barrel in most places. Ali al-Naimi, Saudi Arabias veteran oil
minister, recently said that the production costs in Saudi Arabia
are about $4 to $5 a barrel. Getting the crude out of the ground
is only part of the cost, however. There are still transportation
and transactional costs to consider.
Ultimately, whether the world uses oil from Saudi Arabia or
North Dakota, the decision will lie in the price that the purchaser
must pay on the open market. The solution for companies in the
US is to add efficiency to each and every action and
transaction.
Geologies, drilling methodologies, and transportation all contain variable costs, some of which are controllable, some of which
are not. While great strides have been taken in the area of production, much more is even now being done to lower the cost of
transportation. And still more needs to be done in the processing
of transactions.
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with the tumbling price of crude and the belief, voiced in some
corners, that the days of $100 per barrel oil may be behind us. This
is also the year when nearly 50% of the worlds oil and gas workers
become eligible to retire.
An estimated 71% of the energy workforce is 50 years old or
older, and the American Petroleum Institute says that as many as
50% of skilled energy workers may retire in the next five to seven
years. This event is commonly referred to as the Great Crew
Change.
This brings up some questions that beg to be answered:
How do the volatile price of oil and the rising number of retirements converge for energy companies?
How can companies in the energy space continue to prepare
for the Great Crew Change while hunkering down to survive and
even thrive in a down market?
SIGNIFICANT TALENT GAPS 1980S TO 2000S
1504ogfj_48 48
ers (those born between 1946 and 1964), confounded by the impact
of the downturn in the energy market beginning in the 1980s.
Between 1982 and 2000, nearly half a million jobs were shed from
the energy industry.
During that downturn, roughly 25% of engineers and geologists
left the energy market. Moreover, between 1984 and 1999, few
college students opted to go into energy-related fields. As a result
of the dearth of employees entering the energy field between 1984
and 1999, mid-career professionals are now in short supply, and
the industry finds itself with a large group of workers heading towards retirement and another group of inexperienced Millennials
unready to replace them.
2000S TO THE PRESENT
Using data collected by UCLA, one study found that from 1997
through 2005 the proportion of college freshmen planning to enroll
in STEM fields declined, hitting a low in 2005 of 20.7%. Thereafter
the percentage of freshmen planning to major in STEM increased
rose to 28.2% by 2011, as the 2008 recession prompted many to
focus on the job potential of various fields of study.
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Against the backdrop of the Great Crew Change, tumbling oil prices
are having an impact on the oil and gas workforce. Bloomberg
reports that there have been more than 100,000 layoffs worldwide
in the industry since prices began to fall in the summer of 2014.
Indeed, we have all seen the headlines in recent months reflecting
the impact of tumbling oil prices, with oilfield service companies
announcing layoffs of thousands in recent weeks, and large independent oil companies issuing hiring freezes and closing branch
offices. If the price of oil remains low, companies will likely take
stronger measures.
Pearson Partners Internationals survey revealed that 59% of
those surveyed expect their segments to perform moderately or
significantly worse in 2015 than in 2014, although in the longer
term 76% expect their industry segments to perform significantly
or moderately better over the next five years.
Although the near-term outlook is more gloomy, 22% of those
surveyed still expect their headcounts to grow in 2015. Those who
expected to see decreases in headcount were oilfield equipment
and services suppliers, drilling contractors, and EPC companies,
whereas the major, independent, and national oil and gas companies
were more likely to take a balanced view of headcount in 2015.
One consulting group, Metroworth Consulting, suggested that
industry roles that will still be going strong in terms of hiring in
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In the short term, the current down market may provide some
hiring opportunities. Hiring managers can focus on this new
availability of opportunity hires, noting that skilled people may
now be available at a more reasonable cost. Previously, when
oil had been $100 a barrel, there had been increases in salary
expectations to unsustainable levels. Employers offered lucrative bonuses in an effort to retain top talent in a highly competitive market and poached employees from competitors with
promises of high salaries and large bonuses.
However, in the current industry downturn, employers have
increased purchasing power when considering hires. One noteworthy exception will be companies offering retention bonuses
in the face of increased merger and acquisition activity. Another
potential impact is that companies can be more selective in
hiring during this period. For example, a STEM graduate with
a C average from a second-tier university may have been a hot
commodity when oil was $100 a barrel and such employees
were in demand. Now that oil prices have come down, job applicants will find the market for talent has become more
competitive.
Companies should not lose sight of the issues related to the
Great Crew Change, however, and the ways in which this round
of layoffs may compound existing and future talent gaps. For
example, skilled workers who are laid off in an energy downturn
may seek work in other industries that are also experiencing a
less-dire version of the Great Crew Change. The construction
industry, for instance, has struggled since 2009 to find craft
workers to fill positions, while those workers flocked to the
energy industry with promises of larger paychecks and lucrative
bonuses. Now the situation may reverse, as many energy workers move into the construction industry during the downturn
and thereafter refuse to rejoin the energy workforce.
Energy companies should make an effort to retain their
experienced workforce during this downturn. This issue can
be exacerbated by a reduction in workforce leading to increased
stress on remaining workers who also may leave, particularly
more experienced employees who may opt to retire.
A number of energy personnel consultants have opined that
employers should remain cognizant of the stress placed on the
industry by the dearth of employees in the mid-career cohort.
Given the existing knowledge and experience gap caused by
layoffs and hiring freezes in the last downturn, employers should
make a greater effort to retain workers to avoid such an outcome
when the market returns.
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LONG-TERM OUTLOOK
1504ogfj_50 50
Kate Birenbaum (kbirenbaum@seyfarth.com) is senior counsel in the Labor and Employment practice
of law firm Seyfarth Shaw LLP in Houston. She advises
clients in the energy sector on a variety of employment
law matters and represents them in administrative
matters as well as litigation.
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Costs and Prices. Since 2012, it appears that the staff has engaged
in a more granular review of E&P companies financial and accounting disclosures. Many staff comments during the 2013-14 review
period dealt with how companies determined their costs for financial
accounting purposes whether under the successful efforts method
or the full cost method as well as for purposes of calculating the
SM and other data required under Regulations S-X and S-K.
A more frequent comment during 2013-14 was whether, in
computing net operating income in connection with companies
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was more than its net capitalized oil and gas assets subject to depreciation, it requested the company to provide it with a summary,
broken down by cost center, of its ceiling test calculations, and a
reconciliation of the sums used in that calculation to its balance
sheet or standardized measure, as appropriate (Triangle Petroleum
Corp. (Jan. 30, 2014)).
Correspondence between the staff and one company during
2013-14 illustrates issues companies have had in conforming their
accounting methods to staff guidance. Devon Energy Corp. did not
include certain general and administrative costs in calculating its
capitalized costs for ceiling test purposes because it did not consider
them to be well-level expenditures. However, it did include them
in connection with determining its results of operations and for
purposes of its SM. The staff questioned Devons authority for this
disparity in treatment. Devon argued that its treatment for the G&A
expenses in question (which it referred to as production support
costs) was proper and based on the same accounting treatment
that it employed in its joint operating agreement accounting procedures. After much back-and-forth, Devon finally agreed with the
staff s contentions. However, one day later, Devon decided to reverse
its decision (see Devon Energy Corp. (Feb. 7, 2014); response letters
(Feb. 26 and 27, 2014)).
Companies treatment of transportation costs received additional
attention during 2013-14. The staff asked one company how its oil
& gas transportation costs had been incorporated into its historical
and projected (for purposes of its SM determination) production
costs, or into its average sales price per unit of production, pointing
out that transportation costs should be reflected in either the prices
the company is paid or the costs it incurs (RSP Permian Inc. (Nov.
4, 2013)). In EP Energy Corp. (Oct. 2, 2013), the staff asked a company
to explain how its transportation costs had been incorporated in
its estimated proved reserves, associated future net income and
the standardized measure. Where the disclosures had been unclear,
the staff asked whether companies oil and gas prices as reported
had been inclusive of certain adjustments, such as differentials for
transportation, quality, gravity or btu content (Santa Maria Energy
(Jan. 16, 2013); FX Energy Inc. (Jan. 10, 2014)).
In addition to costs, there were also comments addressing how
companies determined their average sales price per unit of production as required under Regulation S-K Item 1204(b). One company,
in determining its average sales price per unit of production, had
wrongfully taken into account the impact of hedges. The staff
pointed out that average sales price determinations should exclude
hedges impact (Vanguard Natural Resources LLC (Sept. 10, 2013)).
As the case with prior review periods, the staff continued to ask
companies about the potential for ceiling test write-downs (e.g.,
Forest Oil Corp. (Apr. 9, 2014)) and their property cost amortization
practices (see EOG Resources Inc. (Aug. 29, 2013)).
MLPs and Distributable Cash Flow. During the 2013-14 review
period, the staff directed many comments to E&P master limited
partnerships and their calculations of projected Distributable Cash
Flow, to indicate to investors the expected continued stability of
their distributions for the future. A key element of the formula for
determining estimated Distributable Cash Flow is maintenance
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derivatives fair value changes. The staff cited previous (albeit obscure)
authority for their position from the SEC website: Transcript - Speech
by G. Faucette, 31st AICPA National Conference on Current SEC
Developments (Dec. 11, 2003) at http://www.sec.gov/news/speech/
spch121103gaf.htm. There, the staff indicated its view that the
presentation of unrealized gains (losses) in one income statement
line with a reclassification of realized gains and losses to another
line was essentially a form of synthetic instrument accounting
the practice of integrating two or more transactions into a single
transaction for purposes of recording gains, losses and income
which had been discredited by the accounting profession. See Santa
Maria Energy Corp (Jan. 16, 2014); Gastar Exploration Ltd. (Sept.
12 and Oct. 21, 2013); QR Energy LP (Sept. 24, 2013); Antero Resources
Corp. (Aug. 16 and Sept. 19, 2013); Equal Energy Ltd. (Aug. 27, 2013);
Penn West Petroleum Ltd. (Aug. 23, 2013); WPX Energy Inc. (Aug.
23, 2013).
In July 2013, Linn Energy LLC and its affiliate, LinnCo LLC disclosed that the SEC staff had commenced a private inquiry, requesting documents and communications potentially relevant to, among
other things, the companies disclosures related to hedging
strategy.
ENGINEERING INFORMATION
A consistently disappointing area in terms of companies and engineering firms compliance with the amended oil and gas disclosure
rules has been the continuing failure by many to observe all of the
requirements of the SECs reserve engineering disclosures especially
regarding third-party engineers reports filed as exhibits to the filings.
Numerous comments addressed engineers reports simply failing
to meet all the requirements of Item 1202(a)(8) of Regulation S-K,
which requires specific disclosures in the report about the engineers
role in connection with the preparation of the report or the preparation (or audit) of the companys reserves estimates (see Daybreak
Oil and Gas Inc. (Feb. 20, 2014); Red Mountain Resources Inc. (Mar.
26, 2014); Lucas Energy Inc. (Mar. 18, 2014)). One report had omitted
to include numerous items required by Item 1202(a)(8), such as a
statement regarding the purpose for which the report was prepared,
the date on which the report was completed (in addition to its effective date), the proportion of the companys total proved reserves
covered by the report and, as part of the reports primary economic
assumptions, the realized prices by product type for the reserves
covered by the report (EPL Oil & Gas Inc. (Dec. 19, 2013).
Also troubling was continuing instances of inconsistencies between information and data contained in the engineers reserve
report and that contained in the forepart of the filing. For example,
a number of engineers reports had included summary presentations
of estimated probable reserves, while the forepart of the filing had
not included any references to probable reserve estimates. To remedy
the inconsistencies, the staff generally asked the company either
to file a revised engineering report, deleting the references to probable
reserves, or else amend the entire filing to include probable reserves
estimates wherever required (Petron Energy II Inc. (Feb. 21, 2014);
Sundance Energy Australia Ltd. (Jan. 15, 2014); Equal Energy Ltd.
(Nov. 14, 2013); FX Energy Inc. (Sept. 26, 2013)). Another letter
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Marc Folladori has been an M&A and securities attorney in Texas since 1974, and has extensive experience representing energy companies and firms engaged in energy investment and finance. Before his
retirement from Mayer Brown LLP in 2014, he served
as the head of the firms Global Energy Practice. The
author wishes to acknowledge the research and other contributions
in connection with this article made by Amelia Xu while she was
an associate at Mayer Brown LLP during 2014.
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3/31/15 3:28 PM
DEAL MONITOR
mic as oil futures continue to search for a bottom. From February 17 through March 16, just five upstream transactions
were announced in the US with disclosed values totaling $61
million. There are plenty of buyers in the market, as many
companies have indicated their intent to take advantage of
the downturn to buy more assets. However, while the oil price
collapse has hurt many E&P firms cash flow, companies still
are not willing to sell at steep discounts to a longer view of oil
prices particularly for cash. The equity and debt markets are
still working to keep US drillers turning to the right, albeit
with significantly reduced capex budgets vs. 2014.
As an illustration, leading Bakken shale producer Whiting
Petroleum on March 23 announced it will raise over $3 billion
in offerings of shares and notes to address debt taken on for its
$6 billion Kodiak Oil & Gas acquisition last year. The new financing puts to bed media speculation that had been circling
for weeks about a potential sale of the company, despite reports that ExxonMobil, Statoil, Continental Resources and
Hess were all considering bids in order to expand their Bakken
positions.
On the capital side, private equity remains a force to be
reckoned with, particularly in the conventional oil and gas basins. In the one US upstream deal to break the $10 million
mark, Midstates Petroleum agreed to sell its last remaining
legacy properties along the Gulf Coast in south Louisiana for
$44 million to Pintail Oil & Gas, a portfolio company of PE
firm Ridgemont Equity Partners. The purchase price was a
steep discount to the $80 million Midstates would have gotten
under a previous PSA with Houston-based startup Baseline
Energy Resources that fell apart in December. The assets cover 12,700 net mineral acres in the DeQuincy area of Beauregard and Calcasieu parishes with YE14 production of 1,300
boe/d generated by horizontal Wilcox development.
Date Announced
Buyer
Seller
Asset Location
10-Mar-15
Midstates Petroleum
GC Onshore: S. LA.
4-Mar-15
CapGain Properties
Landmaster Partners
Permian: Mulitple
20-Feb-15
BE Resources
Eastern: Kentucky
Asset Location
INTERNATIONAL TRANSACTIONS
Date Announced
Buyer
Seller
13-Mar-15
Senex Energy
Orca Energy
Australia
12-Mar-15
Interra
PT Benakat et al
Indonesia
12-Mar-15
Tourmaline Oil
Perpetual Energy
Canada: Wilrich
4-Mar-15
Undisclosed
2-Mar-15
Mart Resources
Nigeria
2-Mar-15
Gazprom
Russia
25-Feb-15
Marquee Energy
Undisclosed
Canada: Alberta
20-Feb-15
Kelt Exploration
Artek Exploration
Canada: Montney
19-Feb-15
Bonterra
Enerplus
Canada: Cardium
17-Feb-15
Cardinal Energy
Canada: Alberta
17-Feb-15
Pinecrest Energy
Canada: Alberta
PLS Inc. Validity of data is not guaranteed and is based on information available at time of publication.
Prepared by PLS Inc. Source: PLS Derrick Global M&A Database. For more information, email memberservices@plsx.com
54
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DEAL MONITOR
The most active area in the upstream deal market right now is
Canada, where from February 17 through March 16 there were 10
transactions announced with disclosed values totaling $724 million. Standout deals include Kelt Explorations $242 million acquisition of Artek Exploration to consolidate its position in the Inga,
Fireweed and Stoddart areas of northeast British Columbia and
Tourmaline Oils $202 million purchase of Deep Basin peer Santonia Energy. Consideration in both transactions consisted entirely
of stock and assumed debt, providing upside for shareholders of
the acquired companies upon the recovery of oil and gas prices.
In contrast with the US, low commodity prices have already dried
up the capital markets for Canadian oil and gas companies, so the
much anticipated process of basin consolidation is underway.
Outside of North America there were eight deal announced
during the month with disclosed values totaling $512 million.
The lions share of that total came from Nigerian producer Midwestern Oil & Gas $324 million takeout of partner Mart Resources and Swiss petrochem firm Ineos expansion of its UK
shale portfolio via a $143 million acquisition from IGas Energy.
Both moves follow fiscal measures by these countries to increase industry activity: shale drilling in the case of the UK and
the acquisition of oil licenses by local companies in the case of
Nigeria.
Proved Reserve
Value ($MM)
Non Proved
Reserve Value
($MM)
Proved
Reserves
(MMBoe)
Production
(Boe/D)
1,300
Category
Deal Type
Hydrocarbon
Deal Value
($MM)
Conventional
Property
Oil + Gas
$44
$44
NA
Conventional
Property
Oil
$9
$9
NA
82
Conventional
Acreage
Oil
$3
$3
NA
NA
$56
3
$53
$3
NA
1,382
Deal Type
Hydrocarbon
Deal Value
($MM)
2P Reserve
Value ($MM)
Conventional
Property
Oil
$2
$2
NA
Conventional
Corporate
Oil
$7
$7
NA
NA
Unconventional
Property
Gas
$202
$202
19.2
4,600
Unconventional
Corporate
Oil
$11
$7
$4
2.6
88
Conventional
Corporate
Oil
$324
$324
16.9
4,764
Conventional
Corporate
Gas
$22
$22
NA
NA
Conventional
Property
Oil
$13
$13
2.9
264
Unconventional
Corporate
Gas
$242
$151
$91
37.1
4,320
Unconventional
Property
Oil
$139
$139
10.4
1,440
Conventional
Property
Oil
$19
$19
0.3
136
Conventional
Corporate
Oil
$92
$92
NA
1,224
$1,072
11
$754
$318
89.5
16,836
Category
Production
(Boe/D)
NA
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55
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OGFJ100P
100P
Rank
3
4
5
100P
Rank
Company
Liquid (bbl)
203,847,324
16,638,801
197,346,610
12,312,384
189,534,624
12,095,536
109,387,735
11,219,023
84,747,429
14
11,123,746
66,164,768
12
Petro-Hunt Group
10,219,979
18
60,639,166
10,071,794
20
54,888,972
16
9,055,431
54,265,714
10
8,755,365
10
19
48,472,936
10
8,434,528
Company
Source: IHS
Gas (Mcf)
Source: IHS
1504ogfj_56 56
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OGFJ100P
President and co-founder of Citrus, Lance Peterson, joined
Warrens board of directors. Key technical, operating, and land
personnel are transitioning from Citrus to Warren as employees,
including Zachary Waite, who will assume the role of vice
president of business development and Marcellus operations,
and Daniel Collins, who will assume the role of vice president
of Marcellus land.
BMO Capital Markets served as financial advisor, and Thompson & Knight LLP served as legal advisor to Warren. Jefferies
LLC served as financial advisor, and Vinson & Elkins LLP served
as legal advisor to Citrus.
the deal helps bolster the companys position among the top
10 oil & gas producers in Colorado, where the company continues to look for additional acquisitions of wells, acreage and
non-consenting working interests.
Rich Frommer, president and CEO of Great Western Oil &
Gas, said the aquisition is a great example of our strategy to
expand our holdings in the Wattenberg Field, particularly during
the current period of variability in the industry, and achieve
economies of scale throughout our operations in Northern
Colorado. We continue to search for additional suitable wells
and leasehold acreage located near our current operating
locations.
BANKRUPTCY
Company
BOE
Total wells
Largest field
43,901,488
3,497
Caillou Island
40,451,451
3,630
Ignacio-Blanco
32,891,135
173
26,665,817
4,890
25,683,087
34
25,343,595
1,794
Pan Petro
18,478,610
3,223
15,390,132
5,216
Spraberry
Dimock
Painter Reservoir East
Mississippi Canyon Block 0546
13,920,129
2,721
Sho-Vel-Tum
10
13,633,239
4,113
Fuhrman-Mascho
11
Bass Companies
13,587,343
1,026
Wildcat
12
Petro-Hunt Group
13,125,049
444
Clear Creek
13
12,753,653
64
14
12,722,595
435
Big Bend
15
11,955,564
1,122
Spraberry
Quorum Production
Revenue Accounting
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OGFJ100P
Rank
BOE
Total wells
16
Company
Hunt Oil Co.
11,525,567
919
Largest field
17
11,350,796
1,734
18
10,896,671
464
Terryville
19
9,917,954
825
Stiles Ranch
20
9,250,449
1,166
Elm Grove
21
7,504,604
1,342
SILO
22
7,357,861
724
Bethany Longstreet
23
7,265,204
53
Atchafalaya Bay
24
7,170,352
496
Spraberry
25
7,011,962
630
Carthage
26
6,486,411
317
Spraberry
27
5,755,400
397
Ignacio-Blanco
28
5,398,982
69
Sublime West
29
4,754,417
122
30
4,368,848
3,064
East Texas
31
4,360,206
39
Glasscock
32
4,354,109
230
Newark East
33
4,189,463
83
Beech Grove
34
4,006,807
410
Two Georges
35
4,000,183
205
Weeks Island
36
3,919,410
806
Gragg
37
3,872,249
487
Round Mountain
38
3,809,357
386
Cedar Lake
39
3,648,087
226
Brooklyn
40
3,646,319
421
Spraberry
41
3,640,099
540
Wilmington
42
3,495,445
349
Pan Petro
43
3,470,212
202
Stanley
44
3,466,014
41
Eagleville
45
3,323,042
94
46
Berexco Inc.
3,229,684
1,587
47
DCOR LLC
3,153,255
252
Dos Cuadras
48
3,137,340
591
Beccero Creek
49
3,121,648
127
Eagleville
50
3,043,914
1,145
Wolfbone
51
3,019,865
441
Laurel
52
2,979,968
275
Madisonville West
Eagleville
Golden Meadow
Burntwood Canyon
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OGFJ100P
Rank
Company
BOE
Total wells
Largest field
53
2,961,428
1,029
Texas Hugoton
54
2,943,218
166
Timbalier Bay
55
Laredo Energy IV
2,904,296
73
Owen
56
2,898,018
383
Baxterville
57
2,863,725
198
Triple X West
58
Texland Petroleum LP
2,829,307
696
Fullerton
59
2,816,251
455
Cuba Libre
60
2,768,822
112
Winchester South
61
2,743,048
142
Mills Ranch
62
2,707,973
513
Magnet Withers
63
2,604,992
708
Ford West
64
2,520,685
1,151
Poso Creek
65
2,504,862
228
Newark East
66
2,502,997
342
Sylvian Northeast
67
2,476,428
1,040
68
2,447,338
65
69
2,370,680
1,315
70
2,323,582
545
Samano
71
2,277,945
459
72
2,212,890
231
Pearsal
73
2,166,955
695
Oklahoma City
74
2,045,112
698
Cottonwood Creek
75
2,032,045
353
Garcias Ridge
76
1,839,530
1,167
77
1,825,963
273
78
1,787,331
1,168
79
1,683,406
100
Napoleon
80
R. Lacy Inc.
1,669,121
255
Carthage
81
1,639,872
184
Broxton North
82
1,629,486
129
University 31 West
83
1,610,081
175
Spraberry
84
1,609,592
23
Covenant
85
1,575,502
443
86
1,568,106
232
Antelope Creek
87
1,552,014
78
Brooklyn
88
1,546,481
17
Unknown
89
1,498,619
326
Lipscomb
Scoda
Eagleville
Madisonville West
Silsbee
Fort Trinidad
Powder River Basin Coal Bed
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OGFJ100P
Rank
Company
BOE
Total wells
Largest field
90
1,492,141
29
Cottonwood North
91
1,489,717
194
92
1,483,739
310
Shuler
93
1,465,802
192
Lea South
94
1,459,270
227
Marceaux Island
95
1,439,350
913
Basin
96
1,430,760
1,098
97
1,424,686
70
Wolfbone
98
1,424,333
60
99
1,415,471
70
Lac Blanc
100
1,385,581
379
Clyde Reynolds
Waverly
Source: IHS; For more information on the Private Company Database visit www.IHS.com
Production totals based on latest year-to-date figures as reported to and recorded by individual state agencies and tabulated by IHS at the time of publication. Some agencies are
delayed by as many as several months in releasing data which may impact company rankings.
Company
Alta Mesa Holdings LP
BOE
City
State
4,000,183
Houston
TX
Michael McCabe, VP, CFO; Mike Ellis, chair, COO; Hal Chappelle, pres, CEO
LA
29
4,754,417
New
Orleans
65
2,504,862
Plano
TX
28
5,398,982
Houston
TX
30
4,368,848
Dallas
TX
Robert Marshall, VP ops; Sandra Wallace, CFO; Lary Knowlton, co-founder, EVP;
Michael Foster, pres, co-founder
11
Bass Companies
Fort Worth
TX
78
1,787,331
Denver
CO
46
Berexco Inc.
3,229,684
Wichita
KS
98
1,424,333
Houston
TX
Larry Combs, VP ops; John Hoffman, pres, CEO; James Hagemeier, CFO
33
4,189,463
Austin
TX
77
1,825,963
Wichita Falls
TX
Steven Stults, VP ops; David Kimbell, chair, pres, CEO; Michael Elyea, VP finance,
treas
38
3,809,357
Fort Worth
TX
Philip Boschetti, VP, CFO; Anne Marion, chair, owner; William Pollaru, pres
23
7,265,204
Houston
TX
68
2,447,338
Oklahoma
City
OK
Dallas
TX
John Hinton, SVP, CFO; Sam Fragale, SVP ops; Logan Magruder, pres, CEO;
Trevor Rees-Jones, founder, chair
90
Arlington
TX
13,587,343
32,891,135
1,492,141
Quorum TIPS
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OGFJ100P
Rank
Company
BOE
City
State
Houston
TX
Curtis Harrell, pres, CEO; Robert Kennedy, SVP bus dev, land; Christopher
Phelps, SVP, CFO; Steven Pearson, SVP ops
2,979,968
Kingwood
TX
William Temple, prod mgr; Lee Staiger, ops mgr; Kenneth Nelson, mgr
1,610,081
Wichita Falls
TX
Jeff Dillard, pres; Robert Osborne, VP, co-owner; Richard Haskin, CFO
3,495,445
Perryton
TX
85
1,575,502
Oklahoma
City
OK
24
7,170,352
Midland
TX
Robert Floyd, pres; Timothy Dunn, principal, CEO; Ken Beattie, COO, SVP;
Charles Wetzel, CFO
99
1,415,471
Houston
TX
Thomas Hardisty, VP land, bus dev; Daniel Hawk, EVP, CFO; Michael Reddin,
pres, CEO, chair
47
DCOR LLC
3,153,255
Ventura
Dallas
CA
95
1,439,350
Farmington
NM
64
2,520,685
Bakersfield
CA
Jeff Blesener, SVP, LA basin div, midwest div; Jeff Jones, VP, eastern San Joaquin
div; Bill Moody, SVP, Gulf Coast; James Tague, SVP, finance, corp planning;
Stephen Layton, pres; Joyce Holtzclaw, VP, western San Joaquin div
Midland
TX
74
2,045,112
Fort Worth
TX
Jonny Brumley, pres, CEO, mgr; John Arms, co-founder, mgr; Kimberly Weimer,
CFO
15
11,955,564
Midland
TX
63
2,604,992
Fort Worth
TX
Clinton Koerth, VP acq, land; James Finley, CEO, owner; Stephen Clark, CFO;
Brent Talbot, pres
76
1,839,530
Dallas
TX
John Wetzel, CFO; Eddie Rhea, CEO; Richard Payne, VP ops, eng
94
1,459,270
Denver
CO
Samuel Gary, pres, treas, founder; Jeff Lang, VP ops; Craig Ambler, COO,
partner; Lonnie Brock, CFO
49
3,121,648
The
Woodlands
TX
82
1,629,486
Midland
TX
43,901,488
Houston
TX
Jeffery Hildebrand, CEO, chair; Greg Lalicker, pres; Jason Rebrook, EVP A&D;
Lee Beckelman, EVP, CFO; Greg Hoffman, VP bus dev
16
11,525,567
Dallas
TX
Steve Suellentrop, pres; Thomas Cwikla, EVP exp; Paul Habenicht, EVP ops, dev;
Travis Armayor, VP corp dev; Dennis Grindinger, CFO; Jess Nunnelee, VP prod
22
7,357,861
Houston
TX
Becky Bayless, CFO, EVP; Keith Jordan, pres; William Pritchard, chair, CEO
88
1,546,481
Denver
CO
86
1,568,106
Boise
ID
50
3,043,914
Dallas
TX
34
4,006,807
Fort Worth
TX
OK
52
83
42
13,920,129
15,390,132
81
1,639,872
Oklahoma
City
20
9,250,449
Addison
TX
21
7,504,604
Tulsa
OK
Henry Kleemeier, EVP, COO; Don Millican, CFO, VP; George Kaiser, pres, CEO
59
2,816,251
Laredo
TX
Quorum PGAS
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OGFJ100P
Rank
55
Company
Laredo Energy IV
BOE
2,904,296
City
State
Houston
TX
2,032,045
Houston
TX
Mark Holcomb, SVP, COO; Christopher Hammack, pres, CEO; John Steveson,
SVP, CFO
25,683,087
Houston
TX
Scott Gutterman, pres, CEO; Mitch Ackal, VP, bus dev; Tim Lindsey, SVP,
prod,ops; John Newman, CFO, treas; Randy Pick, managing dir, A&D
3,872,249
Santa
Monica
CA
Donald MacPherson, pres, CEO; Scott MacPherson, SVP, COO; Steve Wilson,
CFO
92
1,483,739
Jackson
MS
Joseph McGowan, VP; James Phyler, VP; David McGowan, partner; John
McGowan, managing general partner; David Russell, pres, CEO
26,665,817
Dallas
TX
Meghan Cuddihy, dir, IR; Kevin Ryan, CFO, SVP; William Gayden, pres, CEO,
chair, founder
25,343,595
Tyler
TX
Kenneth Waits, COO, EVP; J. Roe Buckley, CFO, EVP; Curtis Mewbourne, pres,
CEO, owner
62
2,707,973
Houston
TX
Gary Mabie, pres, COO; Marshall Munsell, SVP bus dev; Robert LaRocque,
CFO, treas
57
2,863,725
Plano
TX
43
3,470,212
Houston
TX
75
37
67
2,476,428
Wichita
KS
Robert Young, CFO, sec, treas; William Murfin, chair; David Murfin, pres; Leon
Rodak, VP prod
100
1,385,581
Tulsa
OK
Stephen Heyman, partner, LLC mgr; Wayne Hamilton, CFO; James Adelson,
pres, partner, LLC mgr
93
1,465,802
Dallas
TX
66
2,502,997
Tulsa
OK
Jean Antonides, VP, exp; Susan Keary, CFO; Kevin Easley, pres, CEO
53
2,961,428
Amarillo
TX
Juanita Malecha, sec, treas, land mgr; William Pair, controller; Scott Herrick, VP;
Jason Herrick, pres
97
1,424,686
Midland
TX
51
3,019,865
Plano
TX
Joe Schimelpfening, COO; Dennis Justus, CFO; Gareth Roberts, chair; Scott
King, VP exp, dev; William Griffin, pres, CEO
12
Petro-Hunt Group
13,125,049
Denver
CO
Tom Nelson, VP finance; Douglas Hunt, dir acq; Charles Rigdon, VP ops; Bruce
Hunt, pres
39
3,648,087
Jackson
MS
80
R. Lacy Inc.
1,669,121
Longview
TX
Jamey Walker, VP exp; Walt Tehan, VP ops; Kathy Maxwell, VP land; Brent Haas,
VP eng; Mike Chery, pres
27
5,755,400
Ignacio
CO
Robert Voorhees, pres, COO; Bill McFie, VP ops; Stephen Goff, CFO
26
6,486,411
Midland
TX
B. Jack Reed, CFO; Gary McKinney, pres, CEO, owner; Julie Edgerton, controller
TX
Jeff Durrant, VP exp, Development; Skip Ward, VP ops; Mike Koenig, VP land,
bus dev; Jeffrey Soine, CEO; Brian Romere, CFO
45
96
61
10
87
14
3,323,042
Houston
1,430,760
Dallas
TX
Linda Tucker, VP admin, finance; Gary Conrad, pres; Geoff Ice, VP exp
40,451,451
Tulsa
OK
2,743,048
Tulsa
OK
Houston
TX
Matt Assiff, EVP, CFO; Jim Bass, EVP, COO; Lisa Stewart, CEO
Shreveport
LA
Howard Sklar, owner, CEO; David Barlow, VP, COO; Chris Farrell, VP, CFO; Cory
Ezelle, VP exp
Wichita
KS
13,633,239
1,552,014
12,722,595
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OGFJ100P
Rank
Company
BOE
City
State
31
4,360,206
Houston
TX
73
2,166,955
Wichita Falls
TX
36
3,919,410
Fort Smith
AR
44
3,466,014
Houston
TX
Ed Butler, VP, CFO; Lance Moore, VP exp; Michael Harvey, chair, CEO
89
1,498,619
Tulsa
OK
40
3,646,319
Midland
TX
Ryan Hamilton, VP ops, eng; Matthew Johnson, pres, COO; Mark Bruehl, VP
finance; Dennis Johnson, chair, CEO; Thomas Fago, VP exp; James Behrmann,
VP gen counsel
54
2,943,218
The
Woodlands
TX
56
2,898,018
Ridgeland
MS
19
9,917,954
Oklahoma
City
OK
72
2,212,890
Austin
TX
17
Houston
TX
58
Texland Petroleum LP
2,829,307
Fort Worth
TX
Frank Kyle, CFO; Gregory Mendenhall, VP ops; Jerry Namy, co-owner; James
Wilkes, pres, co-owner; Bryan Lee, VP exp
41
3,640,099
Long Beach
CA
Don Foster, controller; Michael Domanski, pres, CEO, gen mgr; Mark Kapelke,
VP ops, eng
91
1,489,717
Casper
WY
David True, partner; Diemer True, partner; Ron Severson, treas; H. True, partner
25
7,011,962
Kingwood
TX
Steve Manning, pres; Douglas Scherr, CFO, sec; Walter Scherr, CEO
32
4,354,109
Englewood
CO
Roger Biemans, co-founder, chair, CEO; Thomas Tyree, co-founder, pres, CFO;
Mike Kennedy, EVP, COO
60
2,768,822
Laurel
MS
70
2,323,582
Tyler
TX
Tom Markel, VP, acct, CFO; Vernon Faulconer, CEO; Jean Crawley, VP land,
admin; David Enright, pres
69
2,370,680
Wichita
KS
Barry Hill, CEO; Ronnie Nutt, COO; J. Michael Vess, chair; Brian Gaudreau, VP
land, acq
71
2,277,945
Fort Worth
TX
Bryan Wagner, pres, owner; William Lesikar, VP, CFO; HE Patterson, COO, SVP
13
12,753,653
Houston
TX
Joseph Walter, pres, chair, CEO; Ron Wilson, VP; CJ Looke, VP eng
MI
Harry Graham, VP exp; Robert Tucker, pres, owner; David Rataj, VP finance, treas
11,350,796
79
1,683,406
Traverse
City
48
3,137,340
Houston
TX
Scott Nonhof, VP bus dev; Mark Etheredge, VP exploitation; Mike Rayburn, EVP;
Thomas Isler, pres
18
10,896,671
Houston
TX
1,609,592
Grand
Rapids
MI
18,478,610
Artesia
NM
John Yates Sr. , chairman emeritus; John Yates Jr., pres, chair; John Perini, EVP,
CFO; James Brown, COO
84
Source: IHS; For more information about the Private Company Database, visit www.IHS.com
Production totals based on latest year-to-date figures as reported to and recorded by individual state agencies and tabulated by IHS at the time of publication. Some agencies are
delayed by as many as several months in releasing data which may impact company rankings.
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INDUSTRY BRIEFS
Opportune LLP has acquired independent petroleum engineering firm Ralph E. Davis Associates LP. Established in 1924, Ralph
E. Davis performs petroleum engineering and geological studies
(both domestic and international), independently certifies
reserve reports, provides acquisition/divestiture support, and
prepares technical financial analyses for use in litigation and
regulatory hearings. Opportune will keep Ralph E. Davis Associates LP in a separate legal entity and maintain the long-established name. Allen Barron will remain President of Ralph E.
Davis Associates LP. Opportune LLP is an international energy
consulting firm. Opportunes service lines include: complex
financial reporting, corporate finance, dispute resolution, enterprise risk, outsourcing, process and technology, process
engineering, reserve engineering and geosciences, restructuring,
strategy and organization, and tax.
FRANKS INTERNATIONAL TO ACQUIRE
TIMCO SERVICES
Franks International NV, through its Texas-based indirect wholly-owned subsidiary Franks International LLC, has entered into
a definitive purchase agreement for the purchase of Timco
Services Inc., a privately-held provider of tubular running services and rental equipment onshore in the southern US and
offshore in the Gulf of Mexico. According to the 8-K filing, the
deal is expected to have a purchase price of $75 million at close,
with up to $20 million in an earnout dependent on market
conditions. The earnout is payable in two separate payments
of $10 million, each of which are contingent on the US land
rotary rig count, as reported by Baker Hughes, exceeding certain
targets over prescribed time periods during the period from
the fourth quarter of 2015 through the second quarter of 2017.
In addition, Franks LLC has agreed to make a tax reimbursement
payment of $8 million to the sellers in connection with closing
of the transaction as a reimbursement of estimated additional
tax costs to be incurred by the sellers as a result of structuring
the transaction in a manner that provides a step up in the tax
basis of Timcos assets. Mark Guidry, president of Timco, will
serve as vice president of Franks South Texas operations once
the deal has closed. Simmons & Company International acted
as financial advisor to Franks International, and Vinson & Elkins
LLP represented the company in connection with the transaction. Founders Investment Banking acted as Timcos financial
advisor, and Butler Snow LLP represented Timco in connection
with the transaction. The acquisition, expected to be financed
with cash on hand, is scheduled to close in the second quarter
of 2015, subject to regulatory approval and other customary
closing conditions.
NUTECH SIGNS ALLIANCE WITH UKOG
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INDUSTRY BRIEFS
Tullow Oil plc and its lending banks have completed the
six-monthly reserve based lend (RBL) redetermination process,
with its asset portfolio supporting a $200 million increase in
lenders commitments, thus increasing available debt capacity
from $3.5 billion to $3.7 billion, despite lower oil prices. Tullow
and its lending banks have arranged an additional $250 million
of lenders commitments, secured through the corporate credit
APRIL 2015
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PRESENTED BY:
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ENERGY PLAYERS
Stewart
MacDonald
Romero
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Tamarind Energy, a Kuala Lumpur-based E&P company formed with a commitment from Blackstone
Energy Partners in 2014, has appointed Ron Aston as
vice chairman. Aston recently retired from Talisman
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ENERGY PLAYERS
Mendez
Lewis
Allan Bradley, who serves as executive vice president of Questar Corp. and as president and CEO of
Questar Pipeline, has elected to retire, effective June
1. Micheal Dunn will become the executive vice
president of Questar Corp. and president of Questar
Pipeline, effective April 16. Bradley has led Questars
interstate pipeline subsidiary since 2005, after 30
years with other energy companies. Dunn comes to
Questar after serving since 2010 as president and
CEO of PacifiCorp Energy, a subsidiary of Berkshire
Hathaway Energy. Prior to that, Dunn was president
of Kern River Gas Transmission Co., Berkshire
Hathaway Energys interstate pipeline subsidiary.
He graduated in 1988 from the University of
Oklahoma with a bachelors degree in civil engineering. In addition to these changes, Craig Wagstaff,
Questar executive vice president and COO of
Questar Gas Co., has been named executive vice
president of Questar and president of Questar Gas
Co.
MAYER BROWN ADDS ENERGY PARTNER
Francisco Mendez has joined Mayer Brown as a partner in the firms global energy practice. Previously,
Mendez spent nearly 20 years at ExxonMobil as inhouse counsel for Latin America, where he most recently advised the company on the opening of the oil
and gas industry in Mexico to the private sector. He
was also involved in the formation of the Mexican
Hydrocarbons Association, the first such industry
association in Mexico. He will be based in the Houston
office. Subject to Mexican legal and regulatory requirements, If approved, Mayer Brown intends to open a
representative office in Mexico City. In addition to
Mexico, Mendez has experience in handling oil, gas
and power matters in Argentina, Chile, Brazil, Uruguay,
Peru, Colombia, Ecuador, Venezuela and Guyana. He
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ENERGY PLAYERS
Helix Energy Solutions Group Inc. says that, effective May 11,
Cliff Chamblee will retire after 36 years in the offshore services
business and will resign as executive vice president and COO.
Also effective May 11, Scotty Sparks will be promoted to the
position of executive vice president of operations. Sparks has
25 years of industry experience and has been with Helix since
2001. He currently holds the office of vice president of commercial and strategic development, and has also served in various
positions within Helixs robotics subsidiary, including as senior
vice president, during his tenure at Helix. Prior to that, Sparks
held various positions within the industry, including as operations manager at Global Marine Systems. Helix Energy Solutions
Group, headquartered in Houston, Texas, is an international
offshore energy company that provides specialty services to
the offshore energy industry, with a focus on well intervention
and robotics operations.
for Stophlet & Associates, vice president for Mullen Crane and
Transport, COO for the US Energy Development Corp., and
executive consultant for Baker Hughes. Stophlet has also held
multiple positions at Schlumberger. He received his Bachelor
of Science degree in geology at the University of Arkansas.
PARKER DRILLING ELECTS SELIM TO BOARD
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advertisement
MEXICO
BOLD PIONEERS OF THE NEW ENERGY FUTURE
APRIL 2015
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and gas sector is perhaps justified given developments over the last
new world is dawning in Mexico, and the expertise of the old guard may
not prepare companies sufficiently for new frontiers a lesson that can
Emilio Lozoya
Austin,CEO,
PEMEX
In recent decades, Mexico has done little to bust the monopolies and
Despite
these
chal-
oligopolies that stunt the countrys growth. The states control of the
determined to rise to the challenge and are viewing the reforms more
out of every three schools, one out of every three hospitals, one out of
every three kilometers of roads that are built. Indeed, with the opening
services in the area of solids and fluids control for the oil industry, shares
up of the energy sector, the Pea Nieto administration has taken bold
steps to act on the mandate for change that was handed to it in the last
pation. I most certainly view the reforms with great optimism. They
sector will enable Mexican businesses like his to interact with interna-
most economies.
Some, however, have pointed out that at face value, it is big business
ing and doing business. SMEs in particular, like Altopetrum, have a lot
that is far better positioned to benefit from the opening of the Mexican
oil industry as a result of the size of the required investment. The re-
annual growth rate (CAGR) in dollar terms of 14 percent since 1993, the
country has experienced mediocre growth in relationship to peer countries like Brazil over the same time period. However, after a rough 2014
plagued by high inflation, economists
expect a gloomy year for Brazil, whose
GDP is forecasted to shrink by 0.5 percent in 2015. In contrast, Mexico had a
2.1 percent GDP increase in 2014, forecasted to pick up to an encouraging
annual average of 3.7 percent in 201519. Research suggests that these differences in performance are attributable
to entrepreneurship and the growth of
small and medium enterprises (SMEs).
In the past, a handful of companies
dominated the sector in its entirety,
explains Altonar.
The energy reforms and new regulations effectively allow for a larger market in terms of investors and invest-
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The oil industry needs to look at very long-term goals. Investment cycles
in deep water are more than ten years, to recover the cost. In other types of
became the CEO of Pemex after heading the international affairs office for
Pea Nieto during his campaign, and leading his transition team. He speaks to
But Pemex, considering that we have one single owner which is the State,
has very long-term goals and very long-term investment cycles, and this is ben-
Q: Beginning in 2015, Pemex is set to ink its first joint ventures with private
resources of the areas we have the highest expertise. We will be focusing in the
and foreign oil companies. Generally speaking, what characteristics and at-
areas we have successfully been developing, but also have the opportunity to
tributes will Pemex seek in its partners as the company makes one of the
add joint ventures with other international oil companies to complement our
investments.
serves to ensure sustainability in the medium and long-term, while giving the
world are very eager to work with us, because we are a leading global player,
to assure our companys growth and our place as a leader in the oil and gas
industry in Mexico.
In the end, our goal is to allow Petroleos Mexicanos to have enough re-
ment
levels.
Increased
exercised its strong influence over the national company; training and new comers were few and
far in between. Over time, Pemex was drained of its experienced people and had many of its key
However, Aparicio goes on to explain that what we see today is a growing pool of newer
generations that have both the skills and the eagerness to transform Pemex into a nimble 21st
century oil company. So long as there is a shift in mentality and in the outdated
Jos Juan
president for Mexico and Central America. Indeed, international partners look-
ing to take advantage of the opportunities in Mexico should listen to these Bhattacharya,
messages carefully. Pemex, and the E&P industry as a whole, is communicating President
Arindam
Mexico &
its desire for international participation and investment. Instead of being ap- Central America,
Schlumberger
prehensive of international competition, Mexico welcomes it.
We began the process of analysis and evaluation to become a public company in June 2012, when
the energy reforms were just a good idea, far from the reality that it is today, explains Andrs Garca
Castillo, CEO of C.I.C.S.A, a company specialized in cranes for the offshore segment. He believes the
energy reforms will provide solid growth to his company, based on the fact that the potential pool of
clients which we can offer our services is sure to expand, thereby increasing our long term commercial
Do such listings mark a shift in the way that Mexican offshore service companies will do business,
now there will be more than just Pemex as a client? There were several objectives to listing the com-
pany, Garca explains. As well as giving us better access to financing, preparing for the listing also
allowed us to institutionalize and better define process and access to quality information. The shift to
corporate governance will help us develop and grow in the long term. We believe that everyonefrom
partners and customers to suppliers, financial institutions and our own employeeswill benefit from a
According to Garca, listing on the Mexican exchange by local businesses is limited, with less than
150 companies listed. In fact, C.I.C.S.A will be the first company based in the state of Campeche to
be listed on the local market. Nevertheless, the relative underdevelopment and lack of experience in
Pemex is home. Fortunately, newer generations of businessmen and leaders are heading
the listing market will cause us to incur generally higher costs, with restricted consulting and advisory
resources that are more likely than not unsuitable for our specific needs. If more Mexican companies in
the oil and gas industry wish to list, they may well have to face the same challenges.
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Although one of the primary aims of the energy reforms is to reverse Pemexs
2.4 MMb/d today, the NOC has the chance today to enhance investment effi-
ciency and operational productivity across the entire value chain by introducing
For instance, earlier in 2014, Pemex was forced to cut production forecasts to Primo Luis
2.35 MMb/d by the end of 2014 after it was revealed that aging production sys- Velasco Paz,SubDirector of
tems were counting some water as oil. This was unwelcome news for the NOC,
Distribution
as it had already cut its output target earlier in the year, forecasting that produc- and Marketing,
PEMEX
tion would fall to 2.4 MMb/d at 2014 by year-end after appearing to stabilize for
to enhance our measurement accuracy and effectiveness made possible by the recently-introduced secondary laws.
Furthermore, he goes on to explain that Pe-
a number of months at around 2.5 MMb/d. In response to these issues, Pemex sought to discover
the best international technologies and practices to measure hydrocarbon flow and quality by or-
ganizing its first ever Exhibition on Hydrocarbon Flow and Quality Measurement in November
tendees,
in
addition
to
Pemexs
own
the latest technologies and solutions. The topic of measurements and their implementation
in Mexico is taking on an even greater impor-
US
Burgos
Sabinas
MEXICO
Plataforma de
Yucatan
Tampico
Prospective Resouces
Deep Waters
mmmbcboe
Sabinas
Burgos
Tampico- Misantla
Veracruz
Southeast ( Sureste)
Deep Waters of Gulf of Mexico
Yucatan Platform
0.4
2.9
2.5
1.6
20.1
26.5
0.5
Total
54.5
Misantla
Cuencas del
Sureste
128.7%
103.9%
102.1%
65.7%
22.7% 26.4%
41.0%
50.3%
71.8%
77.1%
85.8%
107.6%
128.0%
The reserves
replacement
ratio has
been above
100 % for
2 years in
a row.
101.1% 104.3%
2.6
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: PEMEX
more in measurements each day as production decreases. They need to become more
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doing any drilling begins. DYGCSA helps them to become more produc-
Another area that the energy reform was created to address is en-
Hernndez.
In reference to a slew of energy sustainability regulations and funds introduced by the energy transition package, which contains laws promoting sustainability, Hernndez is optimistic about Mexicos
tems, and offers clients advanced power solutions associated with the
legislation will finally put an end to the diesel-spilling culture that pre-
vailed in the past when companies opted, for example, use the cheap-
our key challenges was convincing clients to use our products since
they were more on the premium side of power generation solutions
D E T E C T, A N A LY Z E , M E A S U R E
AND MONITOR
EPC projects for the oil industry Pipeline Hot Tapping & Cleaning Development and integration of
burner gas measuring systems using ultrasonic technology Design and integration of safety system
Supply of retrofittings Measurement operations support for process centers
www.dycgsa.com.mx
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s the reforms are well into their implementation phase and the industry prepares itself for
the wave of international investment and participation, many businesses are looking to professionalize
their organization. One way in which they are doing
so is by gaining internationally recognized certifications that would enable them to meet the requirements of international businesses.
Jos Miguel
A prime example of these is Catermar de MexAparicio,CEO
ico, a Mexican company founded in 1993, with the
Catermar de
purpose of providing world-class industrial catering
Mexico
and hospitality services to the terrestrial and maritime facilities of the Mexican oil industry.
With over two decades of experience under their belt, Jos Miguel
Aparicio Ferrer, CEO of Catermar de Mexico, explains that, since the
very beginning, we have been keen to building Catermar into a company capable of competing in the international arena. As a consequence,
we are the first Mexican company to in our field to earn ISO 9000 certification for quality management systems as early as 1998. Over the
years, our ambitions continued to be strengthened by improving installations, training and the services we offer to clients. In fact, we are
currently in the final stages of having integral certification that would
include ISO 14000 certification which addresses various aspects of environmental management, as well as OHSAS 18000 occupational health
and safety certification the ISO 22000 standards which addresses innocuity of food. These standards will all be integrated into our ISO 9000
certification to demonstrate our commitment to quality throughout the
organization.
Having embarked on a mission to professionalize Catermar and
gain international accreditation some two years ago, we are ecstatic
to have successfully reached our goal, revels Aparicio. When we first
started that process, many around us scoffed at our ambitions and
never saw the long term benefit. Today, we know that Pemex will soon
start mandate that its suppliers in our field have these very same certifications, giving us at least a couple of years head start over those that
chose not to invest in the development of their business. Sure, we have
had to sacrifice a good proportion of our profits, but this was done in
lieu of being there first.
others.
the world to service their needs and target various international ten-
Gustavo
Director of
Operational
ness, but has proven much more agile than its parent Services,
company, which has left it able to rapidly capitalize on COMESA
arena. Most often, the best strategy for any company to enter a new
APRIL 2015
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Velzquez,
country did not have enough money to invest in the General Director,
oil industry and in the development of new fields. Pe- GAID
mex required a lot of help in technically difficult and
complex areas, such as in the Gulfs deepwaters for instance. I can see
that companies all around the world have their eyes on Mexico. He is
hopeful that the reforms will mean positive developments for Comesa.
The conditions are ripe for a transparent relationship between us and
multinationals. The rules of the game are clear and the stage is being
set for a greater production of crude oil.
Although it might seem today as if the pre-reform Pemex had been
languishing in the dark ages when it came to innovation, there are great
examples to be found of the NOC leading the way. Jorge Luis Gonzlez
Velzquez, the brain behind Grupo de Analasis de Integridad de Ductos
(GAID), is credited with raising global industry standards thanks to a
project run together with Pemex for improving pipeline lifecycles.
Metallurgy has always been of great interest to me, Gonzlez explains, which ultimately led him to improve Pemexs oil and gas pipelines, which often corrode and crack due to the high levels of sulfur in
Mexican crude. The mathematical algorithms developed by GAID allow
for precise calculation of the remaining strength and life of pipelines,
which has allowed Pemex to save money and work more efficiently on
maintenance in the years since it was introduced as a standard test.
Gonzlezs novel model became a landmark in the relationship between academia and industry in Mexico, because the scientific methodology came to be regarded as a discipline now called integrity assessment, which nowadays is the worldwide standard for managing every
maintenance activity in the oil and gas industry as well as many other
fields, he explains.
Pemex also for many years before the reform worked with leading
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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
COMPANY
COMPANY/ADVERTISER INDEX
PAGE
Aberdeen Group
33
EnerCom Inc.
18
ACCC
14
EnerFi Capital
Acorn Energy
65
ENERGYNET
25
9,39
ENERTIA SOFTWARE
COMPANY
PAGE
53
COMPANY
PAGE
54
57
Marathon Oil
38
51
Mart Resources
55
Rystad Energy
16
53
14
14
65
ENI
28
Amber Resources
67
EnLink Midstream
15
Mayer Brown
48
51
67
67
14
EP Energy Corp.
52
45
69
53
53
Metroworth Consulting
49
51
Apache Corporation
38
EQT Corp.
14
Santonia Energy
55
Apollo
32
14
12
SBC
41
Aqualis Offshore
65
53
Midstates Petroleum
54
SBM Offshore NV
Artek Exploration
55
EQUITY METRIX
21
55
Schlumberger
69
EV Energy Partners LP
51
14
SEC
52
Evercore
55
69
68
15
Murphy Oil
52
15,30,68
Baker Hughes
19,64,69
ExxonMobil
13,68
16,38
Shell
31
49,69
51
48
12,28,45
55
68
12,28,54,68
14
64
64
NETHERLAND, SEWELL
& ASSOCIATES INC.
56,BC
54
FAA
15
FERC
Bennet Jones
65
55
26
68
31
Noble Energy
16
Statoil
54
BG Group
12
Flowserve Corp.
67
NSE
15
Sterne Agee
13
Blackstone
32,55
NUTECH
64
69
14,15
70-78
Sky-Futures USA
Southwestern Energy Co.
64
15,51
57
52
Occidental Petroleum
38
Strategy&
37
Bonanza Creek
55
64
31
53
64
OECD
37
Talisman
12
14
Tamarind Energy
67
12,18,28
Techint
65
Opportune LLP
64
Technip
65
14
BP
12,28,35
Braemar Engineering
14
FX Energy Inc.
52
65
GAID
72
67
51,53
64
69
OSX
31
C.I.C.S.A.
78
GlobalData
12
PacifiCorp Energy
68
53
69
Parker Drilling
69
CATERMAR DE MEXICO
75
53
CB&I
67
55
49
Department
CEAA
15
69
PEMEX
12
Chevron Corp.
12
Hess
54
53
64
56
Hilcorp Energy
56
Petrobras
31
Total
28
56
65
51
Tourmaline Oil
55
Cities Service
68
15
33
52
56
IChemE
34
67
65
54
UARB
15
PLS Inc.
54
UCLA
48
Premier Oil
68
64
Prices Waterhouse
67
US Census Bureau
49
69
QR Energy LP
53
35
55
ClearHedging
ConocoPhillips
16,28,38,68
IEA
57,80
13,28
IGas Energy
Continental Resources
54
IHS
15
14
55
32,56
53
INDUSTRIAS ENERGETICAS
70
Ineos
55
OPEC
67
57,80
80
14,57
53
67
IPAA
69
52
Jefferies LLC
57
Questar Corp.
68
USSI
65
67
J-W Operating Co
56
64
Drillinginfo
67
Kelt Exploration
55
Douglas Westwood
12
68
46
56
DYCGSA
76
KKR
32
Rabobank
28
56
Ecopetrol SA
12
54
Rackspace
67
54
EIA
41
KPMG LLP
67
64
Williams
15
Elf Aquitaine
68
65
52
Wood Group
67
Encana
31
Legacy Reserves LP
52
53
Wood Mackenzie
13
14
Lilis Energy
67
Woodside
14
53
Linn Energy
52,55
53
51
Lloyds Register
APRIL 2015
1504ogfj_79 79
65
IBC
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REGIONS FINANCIAL
53
15
11,69
52
14,57,64
79
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