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18 34
Wood Mackenzie analysis of Argentinas INDUSTRY
Vaca Muerta shale play Part 1 in a series about the increasing
importance, relevance of deals in the global

20 petroleum industry


Examining the commerciality
of recompletion
Automating business processes helps

improve efficiency and reduces risk and
impact on the bottom line

OGFJ spoke with Felix Energy president and LATEST SEC COMMENTS
CEO Skye Callantine and two members of his
executive team, Michael Horton, VP of land,
and Bill Arnold, VP of operations, following
the announcement that Devon Energy would
acquire the privately held, Denver-based E&P DEPARTMENTS
for $1.9 billion. 6 EDITORS COMMENT
39 New technologies helping companies 16 MIDSTREAM NEWS
facilitate more work with less overhead 48 DEAL MONITOR

50 OGFJ100P
Obama Administration adopts wide-ranging
natural resource management objectives
Felix Energy
president and CEO
Skye Callantine

Photo by
Mark Doolittle

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What people are talking about

AS THE JANUARY 2016 ISSUE of OGFJ goes The latest OPEC meeting yielded no change and no words
to press, I thought it might be worthwhile to about how the cartel is going to deal with the additional supply
bring up some of the things on the minds of from Iran next year. With no signs of non-OPEC producers such
people involved in the oil and gas business as the US and Russia cutting back, at least not voluntarily, the
and what industry experts are saying about near-term outlook for oil remains very challenging. The first
those topics. quarter is likely to be the most challenging of them all with rising
supplies from Iran combined with a seasonal increase in US in-
DON STOWERS ENDING THE USS 40-YEAR ventories leaving global inventory levels at high and to some extent
CRUDE OIL EXPORT BAN unsustainable levels. Ole Hansen, Saxo Bank
Lifting the outdated ban on oil exports is a significant step in our
national energy strategy that will grow our economy, strengthen COMMODITY SECTOR STRESS AND CREDIT QUALITY
Americans national security, and provide real benefits to consum- Moodys Investors Service says the global commodity downturn
ers. Allowing US crude oil to be sold on the world market levels is exceptionally severe in its depth and breadth and is expected
the playing field with oil exporting countriesStudy after study to be a substantial factor driving the number of defaults higher
has shown that lifting the ban will boost economic growth, lower in 2016. Commodity sectors are facing staggering adverse condi-
gas prices, and create new American jobs. Randall Luthi, tions driven by a potent mix of slower-than-expected global de-
president, National Ocean Industries Association mand and excess supply, says Mariarosa Verde, a Moodys Group
Allowing American producers to export their surplus US crude credit officer. The sheer volume of commodity-related debt poses
oil will keep our nations energy revolution moving forward, challenges because it means that credit losses from commodity
strengthening our energy security, and generating significant investments will be substantial to many investors. Daniel Gates,
savings for American families and consumers. The year-long push a Moodys managing director, adds, Many companies were
to get this critical priority across the finish line has not been easy... temporarily cushioned by hedging programs and fixed-price
This is a big win for our industry and for the American people. contracts in the early stages of the downturn. Others have been
Barry Russell, president and CEO, Independent Petroleum sustained by cash balances that are eroding. Diminishing liquidity
Association of America and restricted access to capital markets are now pushing more
The US is now the worlds largest producer of oil and natural firms closer to default.
gas, and Americans are enjoying an energy renaissance that has
produced abundant supplies of domestic energy resources. With TEXAS AND OIL AND GAS INVESTMENTS
the administrations push to allow Iran to export its oil to the global Amid all the chatter about when crude oil production may have
market, its time for US producers to have the same opportunity. peaked and rolled over in Texas and the US, the sentiment about
Our allies around the world are eager to reduce their reliance on prospects for recovery has become increasingly pessimistic which
energy from less-friendly nations. Jack Gerard, president and is to say, realistic as the year has progressed, says Karr Ingham,
CEO, American Petroleum Institute the economist who created the Texas Petro Index. He adds, It
Brent has traded at a premium to WTI for so long that weve seems the most optimistic outlooks expect the beginning of
begun to accept it as the norm. It isnt.And now that the US looks meaningful recovery to appear no sooner than the latter half of
nigh on certain to lift the export ban on US oil for the first time 2016. But we simply do not know how that will look at this point.
since the 1970s, we could be about to usher in a new era in the Texas remains the most attractive jurisdiction for oil and gas
battle for domination between the two global oil benchmarks. As investment in the world, according to a global survey of petroleum
a result, we have a seen a sharp deterioration in the premium that executives recently released by the Fraser Institute, an independent,
Brent crude has been commanding over WTI for several years. non-partisan, Canadian public policy think tank. Texas remains
WTI crude is better quality than Brent, so historically it has traded a beacon of stability in the oil and gas sector with its wealth of
at a $1/barrel premium. Ole Hansen, head of commodities proven reserves and clear and consistent regulatory environment,
strategy, Saxo Bank says Kenneth Green, Fraser Institute senior director and head
of the Global Petroleum Survey. In terms of regions, Canada
SAUDI ARABIA AND OPEC finished second to the United States followed by Australia and
I trust Saudi Arabia will act responsibly in line with its reputation. Europe. Meanwhile, countries in Latin America and the Middle
Its up to them to decide, but Saudi Arabias reputation is that it East continue to linger at the bottom of the survey. While coun-
provides comfort to the market and balances it. Fatih Birol, tries like Mexico and Brazil have shown some improvement in
executive director, Paris-based International Energy Agency. this years rankings, unstable and uncompetitive policies continue
In a comment to the Reuters news agency, Birol added, There is to deter oil and gas investment across much of the world, said
a lot of oil on the markets. Inventories are very high, but we expect Taylor Jackson, Fraser Institute policy analyst and survey co-
prices to rise and reach about $80 by 2020. author.


1601ogfj_REV_6 6 1/14/16 4:40 PM


Energy outlook 2016


NEARLY A YEAR and a half after oil prices began their march pressure or liquidity shortfalls should not count on a near-
from over $100 per barrel to current levels hovering near $40, term market recovery to rescue them from these issues.
no confident consensus has emerged on when the market
should expect a recovery or even what such a recovery might SIGNIFICANT UNCERTAINTY REMAINS IN THE UPSTREAM
entail. As demand growth has softened, supply and demand While producers have adapted to operating in the current en-
factors set the stage for near-term uncertainty and a poten- vironment, M&A activity in the upstream space remains de-
tially prolonged period of low prices. Energy traders and other pressed. Volatility in the commodity price outlook has tradi-
finance industry professionals have generally declined to call tionally driven a wedge between buyer and seller expectations
the bottom for commodity prices or to speculate about and inhibited their ability to reach acceptable deal terms. De-
when conditions will improve, as reflected in a forward oil spite more stability in oil and gas prices, the long-term outlook
curve that is essentially flat. It is within this environment that remains depressed with crude and natural gas not reaching
oil and gas producers and the companies that provide them $50 per barrel and $3.00 per MMbtu, respectively, until 2017.
with services and products must evaluate operating plans, as Producers would prefer to retain producing assets, particularly
well as financial and strategic options. if they hold acreage with derisked drilling opportunities, rather
Throughout the course of 2015, producers have come un- than part with an asset through a sale at this point in the cycle.
der increased pressure to be even more disciplined in capital As a result, midstream and infrastructure assets will likely re-
spending. The focus on returns has become more important main targeted for sale as valuations remain more attractive
as the hope of a quick recovery in commodity prices has van- relative to upstream assets. Near-term property sales are likely
ished. Producers have acted swiftly and decisively to cut capi- to be driven primarily by forced asset divestitures, geographic
tal expenditures, work with service providers to reduce oper- exits and distressed company sales. Owners may consider ac-
ating costs and adjust drilling plans to focus on the most quisitions by larger competitors to realize benefits of scale and
productive drilling areas. Funding for new projects faces ex- improved liquidity while retaining equity ownership to bridge
treme scrutiny and is dependent upon the economics of spe- a valuation gap and preserve upside potential.
cific areas of any region. As a result of increased efficiencies, While the market expected a wave of acquisitions led by
producers have found a way to make returns while sustaining healthier, better-capitalized companies, such activity has
production levels, despite a dramatic drop in the rig count. largely failed to materialize. Partially due to billions of dollars
While the land grab and fracturing optimization was done in of public capital raised in 1H-2015, many companies have li-
a $100 oil environment, operating efficiency coupled with im- quidity to extend the operating runway for the next 12 to 18
proved well productivity are supporting operations in a $50 oil months. The fall bank redeterminations of reserve-based
environment. If any sort of agreement has been reached with- credit facilities have proven not to be the catalyst for activity
in the industry, it is that companies facing severe earnings that many expected and resulted in only modest borrowing


10 1,800

Millions of barrels per day

8 oil rig 1,200
Oil rigs

7 1,000

US crude oil production 800


5 400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
2013 2014 2015



base cuts. However, as commodity hedge benefits are deplet- ceiving private letter rulings that added income from non-mid-
ed and public capital markets become choppy, reducing ac- stream activities. The space had seen steady growth in non-mid-
cess to lower-cost capital, more M&A transactions may be on stream MLPs that focus on segments such as upstream, oilfield
the horizon as corporate distress increases. Non-core assets services, refining and shipping. Oilfield service examples include
have generated interest from smaller producers, but seller ex- service providers such as water haulers and developers of infra-
pectations are rarely met. As producers continue to prioritize structure, such as saltwater injection wells. MLPs adhering more
limited capital to the highest rate of return projects, under- closely to traditional midstream activities, such as pipeline
funded assets that are unlikely to compete for capital in the transportation of oil and natural gas, are best-positioned within
foreseeable future in larger portfolios may be targeted for sale. the current market environment, though volume and price pres-
Higher quality assets that are part of a regional exit are more sures will be a concern. MLPs containing a greater proportion of
likely to test the market in 2016. At this point, healthier com- upstream-derived income are likely to face similar issues as gen-
panies will be better positioned to seize the opportunity to eral oilfield service providers.
consolidate market share and enter via acquisition. Abundant With margins squeezed for upstream producers, continue to
private equity capital is available to support these transac- watch for infrastructure asset sales and tariff renegotiations to
tions, as investors consider bolster producer returns in
the current environment a higher cost regions. Such
buying opportunity after sev- F2: WTI PRICES changes may have a corollary
eral years of heady valuations. 120 effect of spurring more up-
Reluctant acceptance of stream M&A activity. Mid-
the current environment is ex- 100 stream M&A activity may re-
pected to dominate the oper- main focused on simplifying
ating outlook for the foresee- 80 organizational structures or
able future. Drilling activity abandoning the MLP structure

will continue with a laser fo- 60 to reduce the cost of capital.

cus on cost, efficiency and re- MLP strategies that are sup-
turns. Drilling of core areas ported by future drop-downs
will likely continue at a mod- 20
are expected to be rewarded, as
erate pace, while the inventory many analysts believe the seg-
of drilled but uncompleted lo- 0 ment has been overly punished
cations is depleted. Despite 2013 2014 2015 2016 2017 2018 and consider the stronger MLP
reduced operating costs, mar- names to be compelling invest-
gins continue to be squeezed ment opportunities.
as attractively priced hedges roll off, resulting in debt metrics
likely ratcheting up in 2016. Many companies find themselves DOWNSTREAM WEATHERING THE STORM
in true financial distress when they try to maintain staff levels, Refineries and petrochemical companies benefiting from low
unprofitable locations or service lines beyond the time when crude prices, with no indication of near-term price increases,
it is evident that underutilization is draining the business of should continue to perform relatively well. According to the
much-needed cash. This is not meant to suggest that this is Energy Information Administration (EIA), Texas Gulf Coast re-
the new normal and things cannot improve, but it would be fineries represent nearly 30% of US crude refining capacity.
overly optimistic to set business strategies that are reliant While capacity has increased, the absolute number of operat-
upon improvement in commodity prices. ing refineries has remained stable, indicating that capacity in-
creases are the result of significant capital projects and up-
MIDSTREAM GROWTH OUTLOOK CONCERNS grades occurring at existing refineries.
While the midstream space held up better than upstream and US capital spending across petrochemical, refining and gas
oilfield service companies during the first half of 2015, master processing is projected to be up over 20% in 2015 and in excess
limited partnerships (MLPs) have more recently been nega- of $26 billion. The prime beneficiaries of this expansion will be
tively impacted with investors focusing on the issues chal- engineering and construction companies, fabricators, testing,
lenging producer growth, reflected in the Alerian MLP index inspection and certification businesses. With so much pres-
yielding near its highest levels since July 2009. The pace of sure on the upstream segment, private equity groups and ac-
equity issuance and the number of companies seeking initial quisition-hungry corporations are increasingly turning their
public offerings has dropped dramatically. Similar to upstream attention downstream. Much of the activity required to sup-
spending trends, MLP growth capital spending is expected to port ongoing operations of refineries is mandated by regula-
decline in 2016 and 2017. tion, providing the guarantee of recurring revenue for provid-
Over recent years, many companies formed MLPs after re- ers of those services.



EVOLVING CAPITAL ENVIRONMENT favorable prices. Ultimately, it is better to own a smaller piece of
Traditional banks are under substantial pressure from federal an appropriately capitalized business than a larger stake in a
regulators to trim energy industry exposure, regardless of the bankrupt one. Selling assets should be a last option as cash flow
perceived quality of individual loans. Many banks are effectively is weakened, loan-to-value ratios are damaged and paper invest-
prohibited from new lending, even to companies that appear to ment losses are realized.
be strong borrowers. Further, shareholders in public financial The general advice to business owners and decision-makers
institutions that fall outside the regulated banking umbrella are is to engage in early and frequent discussions with lenders. To
likewise encouraging reductions in oil and gas exposure. Man- preserve a constructive relationship, borrowers need to be forth-
agement teams need to view their lenders behavior through this right regarding the current state of the business and present an
prism and not be surprised by lending decisions that may not actionable plan. Initiating discussions with non-bank, capital
seem rational in a pure business sense. providers can help preserve lender confidence that manage-
Banks do not, however, want to take direct ownership of com- ment has such a plan in place should financial conditions dete-
panies or assets through foreclosures and are therefore poten- riorate. A passive approach in the current environment may in-
tially more willing to negotiate extensions and restructurings vite further lender involvement and oversight, removing control
with distressed businesses. Bank portfolio managers are well of the situation from managements hands.
aware that liquidating assets in the current price environment
means locking in loan impair- CONCLUSION
ments at a low point in the mar- Looking forward, the outlook
ket. In addition, if a company F3: NATURAL GAS PRICES for 2016 remains cautious as
borrowed money based upon 12
the industry works through
substantially higher oil (or other this downcycle. The industry
asset) prices, selling those assets 10 has reigned in the momentum
may leave the bank in a worse of capital programs in 2015
position with respect to the ratio 8 and may further reduce spend-

of remaining outstanding loan ing in 2016 as efficiency and

funds to collateral asset value. 6 returns dominate. Attractively
Unless a company is rapidly priced public market capital
burning cash, limited downside 4 may be less readily accessible,
exists from granting forbear- but private capital remains
ance periods and allowing bor- available for balance sheet re-
rowers the opportunity to opti- 0
pair and the pursuit of oppor-
mize operations, seek external 2013 2014 2015 2016 2017 2018 tunistic M&A. While a contin-
capital or attempt to take mar- ued lack of urgency to sell
ket share from competitors. assets persists, those that can
Fortunately, billions of dollars survive and take advantage of
of private capital has been raised by investment groups to take unique opportunities to acquire, should be best positioned to
advantage of the current environment. The early thesis was that benefit from a recovery.
private equity dollars would be deployed to acquire attractive as-
sets at low prices from companies that needed immediate li- ABOUT THE AUTHORS
quidity. However, such sales have generally failed to materialize Eric Swanson is a managing director at GulfStar
thus far and most of the available cash remains on the sidelines. Group. He has more than 16 years of investment
Capital is available for businesses that have stabilized and have banking and corporate finance experience that in-
reasonable visibility into near-term, development opportunities cludes mergers and acquisitions transactions, debt
with healthy returns. This capital has continued to migrate from and equity offerings and corporate finance advisory.
acquisitions to balance sheet improvement. These investors are He joined GulfStar from Morgan Stanleys investment
seeking opportunities to invest rescue capital into businesses banking group in Houston, where he spent eight years focused
to provide liquidity, repay senior debt (potentially at a discount on the E&P segment of the oil and gas industry.
to par, depending upon the financial health of the borrower) or
fund consolidations. Investments are likely to be structured as Bryan Frederickson is a managing director at GulfStar
some form of equity in order to minimize interest and principal Group. He has 18 years of investment banking and
payments that consume valuable cash flow. Existing sharehold- corporate finance experience that includes execution
ers would likely be diluted or have new, more senior securities in of merger and acquisition, financing, venture capital
the capital structure, yet retain the opportunity to participate in placement, recapitalization and restructuring
a market recovery and avoid the forced shedding of assets at un- transactions.


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Could M&A ramp-up refuel oversupply concerns?

YOU DONT WANT TO hear it again, I know, able to drill and develop assets could further stress the market by
but let me frame my column with what we refueling oversupply and reinvigorating the downward pressure on
already know: A three year period during which commodity prices.
crude oil prices hovered near US$100 has I took this concern back to Sherman and Clements for their
morphed into the gut-check that is the current thoughts as we enter the New Year. Given that oil and gas reserves
state of the industry. Also transpiring during are depleting assets, E&P companies must feed the beast, either
that time: Unprecedented production growth through acquisition or capital deployment to maintain both their
EDITOR OGFJ from the US, continued production growth balance sheets and cash flow. Capital deployment through the drill
from OPEC, and lower than expected demand bit is currently difficult to justify, so it is not surprising that the
came together to create an oversupplied mar- majority of oil and gas executives forecast that they will be acquisi-
ket. Lifting of Iranian sanctions is expected to add to supply tive in 2016 (probably looking for either cash flow based acquisitions
concerns. or upside assets that do not require much current capital to be
The irritating-on-many-levels phrase lower for longer has stuck preserved). The challenge for buyers will be finding assets of dis-
as forecasts continue to roll in. Moodys Investors Service added its tressed companies, or those that are trying to reposition their
thoughts in December when it sharply reduced its oil and natural portfolio, that work in this market considering the current cost of
gas price assumptions in light of continuing oversupply in both capital, they offered.
the global oil markets and the United States natural gas market. Seasoned energy investors and private equity firms have likely
Acknowledging widespread capital spending cuts and a decline learned their lessons from the last A&D cycle; the more likely risk
in the US rig count by more than half, Moodys pointed out that it is that an unprecedented amount of inexperienced (with respect
was only recently that US production began its decent. Outside the to E&P) domestic and foreign capital will bid-up acquisition pricing
US, both Saudi Arabia and Russia have increased production to in attempt to aggressively buy low based on historical crude pric-
levels not seen since the early 90s. We do not think global produc- ing. The more new entrants pay for reserves/acreage, the faster
tion will fall before the second half of 2016 at the earliest, when the they will have to drill to achieve their goal IRRs, which will prolong
effects of this years investment cuts lead to less new production to depressed commodity pricing absent significant changes in global
offset existing declines, Moodys declared, warning that the increase demand, OPEC production and/or the strength of the US Dollar,
in world oil supply continues to outpace demand. they continued.
So what happens when you add another variablethat of in- I posed the same question to Andy Brogan, EYs Global Oil &
creased M&A activityto the mix? Companies continuing to Gas Transactions Leader, upon receipt of the aforementioned EY
struggle with low prices are apt to sell assets in 2016 to patch gaps survey. His thoughts? A&D may lead to the emergence of some
in cash flow. While some companies may encounter difficulty larger better capitalized companies. Whilst these would have more
accessing capital, money is available, and there will be no shortage financial capacity to drill than their predecessors, they will also have
of potential buyers for key assets. Companies can smell a deal, a larger and more varied portfolio which will enable them to con-
right? centrate spending in the more cost effective plays. Therefore, A&D
Oil price volatility challenged the M&A space in 2015, but deal should accelerate the targeting of capital on the most productive
activity is expected to pick up in 2016. Almost 90% of oil and gas opportunities rather than encourage more indiscriminate
executives surveyed the October 2015 release of EYs Capital Con- development.
fidence Barometer said they expect the oil and gas deal market to The deal market may indeed heat up this year, but variables
improve over the next 12 months. More than two-thirds of the oil remain. As mentioned by Moodys in its forecast, many CAPEX
and gas executives surveyed said they expect to pursue an acquisi- budgets are on ice. A December update by Wunderlich Securities
tion during that same time. According to the survey, companies on a survey of 71 independent E&Ps and 10 large integrateds showed
plan to use the downturn to make opportune acquisitions, with CAPEX estimates down $17.1 billion from the previous check-in in
26% of capital allocated toward acquisitions, alliances and JVs. September. Given that some companies hadnt yet reported, the
Will those assets be tucked away until prices rebound, or will door was left open for even greater reductions, thus lower produc-
better-capitalized companies make quick plans for development? tion. Additionally, some growth will be offset by declining fields, the
Does that add to the threat of prolonged oversupply and continued analysts said, but that will take time. In the near-term, the signifi-
pressure on prices? cant spending reduction could lead to a shift from an oversupply
Looking back to mid-2015 and a June 2015 OGFJ article on capital to an under-supply of oil as fields decline and new investment
availability for E&Ps, Josh Sherman and Sean Clements, partner wanes.
and managing director, respectively, of Opportune LLP, pondered The stage is set for a reshuffling of the industry in 2016. The
one potential impact of increased M&A in the current climate. A fate of production as assets change hands will be something to
concern is that a feeding frenzy among the better-capitalized owners watch.


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BDO: ENERGY INDUSTRY EXPECTS These findings are from the BDO 2016 Energy
STORMY 2016 Outlook Survey, which examines the opinions of
BR I E FS Sixty percent of energy CFOs expect changes in 100 chief financial officers at US oil and gas ex-
oil and gas prices to be the single most important ploration and production companies. The nation-
W&T MAKES EWING factor dictating whether the industry recovers in wide survey was conducted from September
BANKS DISCOVERY the coming yearmore than double the number through November 2015.
W&T Offshore has expressing similar sentiments last year, according
made a discovery at
to results released from BDO USA LLPs 2016 Additional findings
Ewing Banks. Production
from the Ewing Banks Energy Outlook Survey. Though 2015 got off to Managing supply will be critical to industry
954 A-8 exploratory a tumultuous start for the sector, CFOs seemed rightsizing. With global oversupply continuing
well (anticipated at a cautiously optimistic in last years study that the to hold prices down, the CFOs surveyed expect
restrained gross rate of
oil price slump would be short-lived. However, to see supply cuts in the year ahead. For-
nearly 2.3 Mboe/d) is
slated for the first quarter the anticipated recovery has yet to materialize, ty-three percent believe the domestic supply
of 2016. Success at the and CFOs now expect the pain to continue well of oil will decreasea nearly threefold increase
954 A-8 exploratory well into 2016. over the number expecting declines in 2015
should further help WTI
Low oil prices have forced a number of up- and 17% plan to decrease their own exploration
navigate 2016 across a
backdrop of suppressed stream energy companies to reassess their current activities in an effort to improve profitability.
commodity prices, said portfolios and make strategic cuts in an effort to And as OPEC continues its game of oil price
Seaport Global Securi- save. With oil giants like Shell and Statoil an- brinksmanship by flooding the market with
ties analysts after the an-
nouncing plans to abandon major drilling proj- supply, 41% of CFOs say the organizations
nouncement. On Q3s
call, management spoke ects, it comes as little surprise that more than half actions will be the foremost influencer of com-
of potential plans to run of the CFOs surveyed (53%) say they have expe- modity price volatility in the next year.
a free cash flow neutral rienced project terminations or delays in the past Pricing and supply pressures extend to natural
program which greatly
year. This is up from 27% in last years study and gas. While the crash of the oil market remains
benefits from recent
large offshore projects is the highest proportion reporting cancellations top of mind for the industry, CFOs are also
coming online. Addi- since the last industry downturn. Of those respon- carefully watching natural gas inventory and
tional production from dents experiencing project disruptions, an over- prices. Oversupply and lower prices are
the 954 A-8 well should
whelming majority (96%) cite poor project eco- squeezing natural gas producers, with Decem-
further aid these efforts,
the analysts said. nomics as the leading cause. ber delivery prices on the New York Mercantile
2015 was a difficult year for the US energy Exchange hovering around $2 per million Brit-
sector as we exited the boom period and entered ish thermal units. As a result, only 40% of CFOs
a bust phase, says Charles Dewhurst, leader of expect the domestic supply of natural gas to
the Natural Resources practice at BDO. Though increase in the coming yeara decrease of
the industry has historically been able to bounce 38% from last years survey (64%). Nevertheless,
back fairly quickly, the duration of the current CFOs are somewhat optimistic that demand
price decline is forcing companies to step back will remain robust: Forty-six percent believe
and identify ways to survive with fewer resources global demand for natural gas will increase in
at their disposal and no clear end in sight. the next year, and more than half (54%) say
Aggravating the tenuous industry environment domestic demand will grow, as well.
is continued uncertainty about the economy and The looming general election highlights lin-
whether low prices will help move the oil demand gering regulatory concerns. When asked about
curve in the coming year. Fifty-six percent of CFOs their leading political concerns in 2016, nearly
say they feel worse about the US economy and one-third of CFOs said that the upcoming
its impact on demand for oil and gas products, general election worries them most, approxi-
in contrast to last year, when nearly two-thirds mately double the number expressing this
felt better about economic conditions. CFOs are concern last year. Meanwhile, 29% cite more
similarly pessimistic that demand will grow sub- restrictive government regulations, down from
stantially in 2016, with only 28% and 38% expect- 38% last year.
ing global and domestic oil demand to increase, Though concerns surrounding the regulatory
respectively. This aligns with recent projections environment nominally declined this year, the
from the International Energy Agency, which es- uptick in anxiety around the general election
timates global demand reaching just 900,000 highlights continued uncertainty throughout the
barrels per day through 2020. industry, says Clark Sackschewsky, partner with
BDOs Natural Resources practice. The Obama



administration has put numerous stakes in the act as the operator during the exploration period
ground on energy policy, from incentivizing al- and conduct exploration activities in the block
ternative energy production to rejecting the Key- mentioned above, in which all expenditures in- BR I E FS
stone XL pipeline, but it remains unknown which curred will be borne by Husky. Once entering the
policies and regulations the next administration development phase, CNOOC has the right to BP US LOWER 48
will affirm, reject or introduce. participate in up to 51% of the working interest ONSHORE BUYS
in any commercial discoveries of the block. After DEVONS SAN JUAN
CHEVRON CONFIRMS FIRST PRODUCTION signing the above-mentioned PSC, except for ASSETS
FROM MOHO BILONDO PHASE 1B those relating to CNOOCs administrative func- BP is expanding its
operations in the San
OFFSHORE THE REPUBLIC OF CONGO tions, CNOOC will assign all of its rights and
Juan basin, acquiring all
Chevron Corp. subsidiary, Chevron Overseas obligations under PSC to CNOOC China Limited, assets in the region from
(Congo) Ltd., and partners have started produc- a subsidiary of CNOOC Ltd. Devon Energy, through
tion from the deepwater development Moho its US Lower 48 Onshore
business. Following
Bilondo Phase 1b offshore the Republic of ANADARKO REACHES
government agency ap-
Congo. MOZAMBIQUE LNG MILESTONES provals, BP plans to take
Located approximately 46 miles off the coast Along with the concessionaires of Offshore Area over operation of the
of Pointe-Noire in water depths ranging from 1 and Offshore Area 4, Anadarko Petroleum has assets, located mostly
in the Northeast Blanco
2,400 to 4,000 feet, Moho Bilondo Phase 1b is signed a unitization and unit operating agreement
Unit, a plot of federal
part of the Moho Nord joint development project, (UUOA) for the development of the natural gas lands in New Mexico.
the largest-ever oil and gas project undertaken resources that straddle the two blocks. The unit, in San Juan
in the Republic of Congo. The Moho Bilondo Under the terms of the UUOA and previously and Rio Arriba counties,
holds 480 wells spread
Phase 1b project includes 11 wells tied back to announced Decree Law, the Prosperidade and
across 33,000 gross
an existing floating production unit and is ex- Mamba straddling natural gas reservoirs, which acres. The transaction is
pected to produce a total of 40,000 barrels of oil comprise the unit, will be developed in a separate expected to close in the
per day. but coordinated manner by the two operators first quarter of 2016.
The Phase 1b development targeted reserves until 24 tcf of natural gas reserves (12 tcf from
in the southern portion of the Moho Bilondo each area) have been developed. Subsequent
permit area. The Moho Nord subsea develop- development will be pursued jointly by the Area
ment, which will be the second phase of the Moho 1 and Area 4 concessionaires through a JV oper-
Nord joint development project, is in the northern ator (50/50 Anadarko and Eni). The UUOA is sub-
part of the area. ject to approval by the Government of
The Moho Nord development project involves Mozambique.
a tension-leg platform, a floating production unit In addition, Anadarko reached a memorandum
with a processing capacity of 100,000 barrels of of understanding (MOU) with the Government
oil per day, and a 50-mile pipeline to the onshore of Mozambique to provide natural gas from its
Djeno Terminal. Mozambique LNG development for domestic
Chevron Overseas (Congo) Ltd. has a 31.5% use. Under the terms of the MOU, Offshore Area
working interest in the Moho Bilondo permit area, 1 will provide initial volumes close to 50 MMcf/d
along with Total E&P Congo (53.5% working in- per train (100 MMcf/d) for domestic use in Mo-
terest and operator) and the national oil company, zambique. An additional 300 MMcf/d may be
Socit Nationale des Ptroles du Congo (15% sold in future years.
working interest). Anadarko is the operator of the Offshore Area
1 Block with a 26.5% WI. Co-venturers include
CNOOC SIGNS PSC WITH HUSKY the National Oil Company Empresa Nacional de
CNOOC Ltd.s parent company, China National Hidrocarbonetos (15%), Mitsui E&P Mozambique
Offshore Oil Corporation (CNOOC), has signed Area 1 (20%), Beas Rovuma Energy Mozambique
production sharing contract (PSC) with Husky Oil (10%), BPRL Ventures Mozambique (10%), ONGC
Operations (China) Ltd. for Block 15/33 in the Videsh (10%), and PTTEP Mozambique Area
South China Sea. 1(8.5%). Eni operates Area 4 with a 50% indirect
Block 15/33 is located in the Pearl River Mouth interest owned through Eni East Africa, which
Basin of the South China Sea. The block covers holds 70% of Area 4. Other partners are Galp
a total area of 155 square kilometers with a water Rovuma (10%), KOGAS Mozambique (10%), and
depth of 80-100 meters. ENH (10%). CNODC owns a 20% indirect partic-
According to the terms of the PSC, Husky shall ipation in Area 4 through Eni East Africa.



ENLINK TO ACQUIRE TALL OAK for residue gas and the OneOK NGL Pipeline.
SUBSIDIARIES FOR $1.55B Tall Oak announced development of the
BR I E FS Tall Oak Midstream LLC and its equity partner STACK Crude Oil System in May 2015. The initial
EnCap Flatrock Midstream said that a subsidiary crude oil system will consist of a storage and
TSO ACQUIRES of EnLink Midstream Partners LP and EnLink Mid- truck-unloading facility east of Okarche, OK, and
BAKKEN LOGISTICS stream LLC have signed definitive agreements a 20-mile pipeline that will provide connections
ASSETS FOR DROP- to acquire subsidiaries of Tall Oak Midstream for to multiple downstream markets.
DOWN approximately $1.55 billion. The subsidiary entities Tall Oaks CNOW Natural Gas System serves
In early December hold substantially all of Tall Oaks Oklahoma assets multiple producers targeting stacked pay zones
2015, Tesoro Logistics
which include the STACK Natural Gas System, in Creek, Logan, Lincoln, Noble, Payne and Paw-
LPs (TLPP) parent and
general partner TSO said the STACK Crude Oil System and the CNOW nee counties. Assets include 175 miles of natural
it plans to acquire Great Natural Gas System. gas gathering pipeline and three compressor
Northern Midstream LLC Under the terms of the definitive agreements, stations. An additional 50 miles of pipeline are
and its logistics assets in
approximately 84% of the combined acquisition under construction or in development. The
the Bakken and Williston
basin to then drop down will be acquired by the Partnership (EnLink Mid- CNOW System also includes the Battle Ridge
the assets to TLLP in stream Partners LP), and the remainder will be Plant, a cryogenic gas processing plant located
2016. Acquired assets acquired by the General Partner (EnLink Mid- in Payne County. The plant has a current capacity
include the BakkenLink
stream LLC) in exchange for ENLC common units of 75 MMcf/d and direct access to premium down-
crude oil pipeline, a
gathering system, a rail which will be issued at closing. The purchase price stream markets, including Southern Star Central
loading facility and a will be paid in installments, with the first install- Gas Pipeline, Enable Gas Transmission for residue
storage facility in Fry- ment of $1.05 billion paid at closing and the final gas and OneOK NGL.A 42-mile, 16-inch high-pres-
burg, North Dakota. The
installment of $500 million paid no later than the sure header pipeline is under construction to
Bakken assets are close
to TLLPs High Plains first anniversary of the closing date with the option connect the two systems.
Pipeline System and to defer $250 million of the final installment up The transaction, which is expected to close in
integration of the Great to 24 months following the closing date. The first 1Q16, is subject to customary closing conditions,
Northern Midstream as-
payment will be funded primarily through issuance including applicable regulatory approvals and
sets into TLLPs existing
assets will help supply of $750 million in convertible preferred units and the completion of Devon Energys acquisition of
TSOs West Coast refin- $250 million of ENLC common units to the sellers Felix Energy, which is expected to occur concur-
eries with advantaged and the second installment will be funded with rently with the Tall Oak closing.
crude oil and provide
non-core asset sales, preferred equity issuances, The deal illustrates the unique benefits of the
third-party producers
additional market access, or (less likely) addition common equity, noted Devon/EnLink relationship, said Raymond James
said Seaport Global Raymond James analysts. in a note following the announcement. This
Securities analysts. Oklahoma City, OK-based Tall Oak was estab- transaction expands EnLinks reach into Oklahoma
lished in January 2014. The companys manage- by diversifying the customer base and fits with
ment team will continue to pursue new midstream EnLinks longer-term plans within the region (i.e.,
opportunities across North America through Tall the multi-phase Oklahoma Express pipeline proj-
Oak Midstream II LLC. ect and the development of a crude oil gathering
system). Management expects the deal to be
STACK executed at ~7.5-8.0x projected consolidated
Tall Oaks STACK systems serve multiple oil and adjusted EBITDA of ~$300 million by 2018, re-
gas producers targeting the plays liquids-rich, sulting in DCF accretion. EnLink expects to remain
stacked pay zones in Blaine, Canadian, Kingfisher investment-grade, thanks in part to the deals
and Grady counties. The STACK Natural Gas structure, they noted.
System includes nearly 200 miles of gathering Citi is serving as sole financial adviser to Tall
pipelines with an additional 75 miles under con- Oak. Paul Hastings LLP serves as legal counsel
struction or in development, two compressor to Tall Oak Midstream. Thompson & Knight LLP
stations and the Chisholm Plant, and a cryogenic represents EnCap Flatrock Midstream.
gas processing plant located in Kingfisher County.
The plant was placed in service in October 2015 FITCH: MIXED OUTLOOKS FOR US
and has a current capacity of 100 MMcf/d. The MIDSTREAM SUBSECTORS, GIVEN
facility is currently being expanded by an addi- PERSISTENT HEADWINDS
tional 200 MMcf/d, which is expected to be com- Commodity price weakness continues with no
pleted in 3Q16. The facility connects to the Pan- relief in sight in the near term, according to Fitch
handle Eastern Pipeline, OneOK Gas Transmission Ratings. Despite this, the credit ratings and sector



outlooks for US pipeline and midstream assets in size from 2-inches to 12-inches in diameter and
are generally stable. However, Fitch remains neg- a cryogenic processing plant, which has capacity
ative on midstream services, particularly gathering of approximately 30 MMcf/d. The acquisition was BR I E FS
and processing which has a negative rating and financed with equity from Warburg Pincus, Navi-
sector outlook. tas private equity sponsor. RICE MIDSTREAM
Fitchs outlooks cover the crude oil and refined HOLDINGS SET FOR
products pipelines, midstream services, master KMI, BROOKFIELD TO ACQUIRE MYRIA $500M INVESTMENT
limited partnerships, and natural gas pipeline HOLDINGS MAJORITY INTEREST IN NGPL Rice Energy Inc. has
agreed to non-binding
segments. Kinder Morgan Inc. and Brookfield Infrastructure
terms with an energy
In the upcoming year, natural gas, crude oil Partners LP have a definitive agreement whereby infrastructure fund to in-
and refined product pipelines should generate they will jointly acquire, from Myria Holdings Inc., vest up to $500 million in
fairly stable cash flows given the lack of direct the 53% equity interest in Natural Gas Pipeline preferred equity in Rice
Midstream Holdings LLC
commodity price exposure. Given expectations Co. of America LLC (NGPL) not already owned
(RMH), a wholly owned
for lower domestic crude production, crude pipe- by them for a total purchase price of $242 subsidiary of Rice, and
line volumes are likely to fall in the mid-single million. common equity in a new
digits. Refined products pipelines are expected KMI will pay $136 million and increase its own- wholly owned subsidiary
of RMH, to be called
to have a modest uptick driven by demand for ership interest from 20% to 50%, and Brookfield
GP Holdings, which will
lower priced products such as gasoline. Natural Infrastructure will pay $106 million and increase be formed to hold the
gas pipelines should be insulated from production its ownership from 27% to 50%. The transaction common units, subordi-
and price changes, as well, given their contract values NGPL at a total enterprise value of $3.4 nated units and incentive
distribution rights in Rice
profiles, though re-contracting risk on underuti- billion, inclusive of existing debt.
Midstream Partners LP
lized systems remains a concern. Should com- Fitch Ratings expects the acquisition to be currently held by RMH.
modity prices remain under pressure over a lon- neutral to Kinder Morgan Inc. (KMI; BBB-/Stable
ger-term timeframe, Fitch would expect a pullback Outlook) and believes the deal does not materially At closing, Rice Energy
plans to utilize $375 mil-
or delay in spending on new infrastructure impact KMIs credit profile in the near term. The
lion, of which it intends
projects. multiple being paid for the increased interest in to use a portion to repay
For midstream services, continued low com- NGPL is reasonable, with the transaction valuing all outstanding borrow-
modity prices, increased counterparty risk, po- the pipeline at roughly 10x 2016 EBITDA (inclusive ings under RMHs revolv-
ing credit facility, and the
tential volume declines, constricted capital market of NGPL debt). Fitch does not expect its KMI
remainder to fund Rices
access and rising leverage could pressure ratings base case credit metrics to change materially as 2016 development of its
and Outlooks for midstream services issuers. a result of the transaction. Fitch continues to core Marcellus and Utica
Slower demand for midstream services will be expect leverage at KMI on a consolidated basis shale wells.
driven by moderating NGL production growth. will be high, above KMIs targeted range of be-
Analysts with Seaport
Fitch expects low NGL prices and falling demand tween 5.0x to 5.5x debt/EBITDA, for the next Global Securities said the
to drive negative headwinds for growth in the several years as KMI works through a high growth deal creatively utilizes
midstream services segment. spending backlog. However, Fitch expects near- the often overlooked val-
ue of RICEs midstream
Across all of the sectors, liquidity remains suf- term leverage to be below 6.0x (5.7x for 2016)
assets not held in RMP
ficient though reliance on revolver borrowings is and improve to the targeted range as projects to ensure that RICEs bal-
expected in the near to medium term. Debt ma- are completed. ance sheet stays in check
turity schedules are manageable. Access to capital Fitch would expect KMI to be supportive of in FY16 (deal should
plug any E&P cash flow
market access should remain sufficient though the pipeline and help fund any growth capital
more costly, particularly for low-investment-grade needs provided it is not deleterious to its own
and all high-yield issuers. credit profile. Failure to manage leverage down
to the targeted 5.0x to 5.5x on a sustained basis
NAVITAS MIDSTREAM BUYS GATHERING, would likely lead to a negative ratings action.
PROCESSING ASSETS FROM APACHE The additional investment in highly leveraged
Marking its second acquisition in the Midland NGPL does not resolve concerns around NGPLs
Basin region since September, Navitas Midstream stressed balance sheet or challenged operating
Partners has acquired natural gas gathering and environment. There are signs that the financial
processing assets serving Midland and Upton impact of compressed natural gas basis condi-
counties in Texas from a subsidiary of Apache tions on NGPL has waned. All of NGPLs higher
Corp. for an undisclosed sum. The assets acquired rate contracts have rolled over at this point and
include approximately 114 miles of low and high management does not expect any material down-
pressure natural gas gathering pipelines ranging side to revenue going forward.


WoodMac: Argentinas Vaca Muerta shale
play to double production by 2018
PRODUCTION FROM Latin Americas premier shale the Vaca Muerta, with the condensate window, including the Loma
play, the Vaca Muerta, is expected to double by 2018, Campana block, driving value.
said Wood Mackenzie following results of a develop-
ment study. Argentinas massive play continues to be VACA MUERTA OPERATORS
the most prospective tight oil play out-side of North
America. Well distribution SOUTH
While a marked ramp-up can be expected by 2020, by operators AMERICA
the study, released in mid-November, highlights that Apache Basin Area
Argenta Energia
oil and gas output in 2016 should be moderate with Chevron
year over year production at 10%. ExxonMobil FALKLANDS
Gas y Petroleo MALVINAS
Wood Mackenzie expects horizontal wells to be- del Neuquen
come the development of choice as operators are Medanito
increasingly able to target the most productive inter- Pan American
vals of the Vaca Muerta. Petrobras
Petrolera Entre Lomas
YPF and its JV partners continue to decrease drill- Pluspetrol
ing and completion costs aiming to move into ramp-up Roch
and development phases, noted Rio de Janeiro-based Total
Horacio Cuenca, a research director for Latin America YPF
at Wood Mackenzie. CHILE
In the Loma Campana block, the current average
horizontal IP30 rate is approximately 646 barrels of Geology Window
oil equivalent per day (boe/d), up from 443 boe/d in ARGENTINA Loma Campana
2014. In comparison, the first one hundred wells in Black oil
Light oil
the Karnes Trough of the Eagle Ford Shale in Texas Wet gas and condensate
had an IP30 rate of 420 boe/d (the average rate today Dry gas

is more than double). Source: ESRI Basemap; Wood Mackenzie

Said Cuenca, more joint venture deals will be nec-
essary to fully develop the Vaca Muer-
ta as YPF will need outside assistance VACA MUERTA PERCENT LIQUIDS
to develop the 6.3 million acres it
Loma Campana Buenos
holds. Aires
As companies prepare for full de- Argentina
velopment, Wood Mackenzie estimat-

ed a total capex of US$1.2 billion in Area

2016, but cautioned that the heavy shown
impact of unions on labor costs and
political uncertainty remain the larg-
est impediments to international Percent liquids IP30 (boe/d)
<25 <200
25-50 200-400
The firm expects fewer wells to be 50-75 400-600
brought online in 2016 than the esti- 75-100 600-800
mated 200 brought online in 2015 as 800-1200
vertical wells are phased down. There Geology Window
were approximately 460 producing Loma Campana
Black oil
wells around the time of the studys Light oil
Wet gas and condensate
release in mid-November. Dry gas
Wood Mackenzie noted a total re-
maining NPV10 of US$9.7 billion for Source: ESRI Basemap; Wood Mackenzie


Refracking the shale plays

REFRACTURING OF shale wells is a

popular topic since operators can apply
the latest technology to older wells,
thereby increasing production without
incurring all the costs of a new well.
Well results indicate that the resources
per well have doubled since 2012 for
the main plays (See Eagle Ford, Bak-
ken, Permian, December 2015 OGFJ),
making refracturing of shale wells a
logical development. Operators are
optimistically discussing the possibility
of refracked wells in several different
plays, but how have the results com-
pared to expectations so far?
To refrac a well an operator goes into
an old well, or underperforming well,
stops the production and recompletes
the well with new hydraulic stimula-
tion. While this is not a new technique,

Neonriver | Dreamstime.com
its application to horizontal shale wells
is still in the initial phase. As of August
2015, less than 1% of the total ~100,000
horizontal wells in the United States
have been refracked. Figure 1 shows
the number of USwells refracked each
year split by play. Currently, the 2015
value is incomplete due to delays from
state reporting, and the dotted line in- F1: NUMBER OF REFRACTURED HORIZONTAL WELLS BY PLAY,
dicates the full year expected number. AS OF AUGUST 2015
Compared to the overall drilling activity
that decreased 40% in 2015, there is a 300
clear interest in refrac opportunities as
indicated by the concurrent 30% in- 250 Barnett
crease. There have been targeted re-
Eagle Ford
fracks in almost all the plays, but the
200 Marcellus
majority of the activity has been in
Bakken, Barnett, and Eagle Ford. Fur-
150 Others
thermore, the chart only includes hori-
Full year
zontal refrac jobs; there has also been
a significant refrac campaign for verti- 100
cal wells, Devon Energy, for example,
refracked 150 vertical Barnett wells in 50
2015, where they report an average
production increase of 700%.
In theory, the cost of a refracked well 2011 2012 2013 2014 2015
should be similar to the cost of com-
pleting the well. On average, about 1/3 Source: Rystad Energy NASWellData and Rystad Energy analysis




400 Since 2013, the average cost has de-

creased for both categories with the
300 gap closing in 2015. If the trend contin-

ues, then refracks may become a more

profitable approach for operators. It is
also interesting to note that there is
not one specific operator leading in the
number of wells refracked, rather, ap-
proximately 30 operators are testing
0 the method.
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 Refracking older wells definitely in-
creases the recovery of the well, but
Source: Rystad Energy NASWellData and Rystad Energy analysis
given current results, it is generally
more profitable for operators to drill a
F3: DEVELOPMENT COST PER BOE FOR BAKKEN WELLS new well. Recompletion is still an im-
COMPARED TO REFRACK WELLS mature recovery technique but once
better results are replicable, refracked
wells could hold potential for low cost
35 $/boe new well production.
35 $/boe refrack
25 Per Magnus Nysveen is se-
20 nior partner and head of
19 analysis for Rystad Energy.
15 17 He joined the company in
10 12 2004. He is responsible for
valuation analysis of un-
5 conventional activities and is in charge
0 of North American shale analysis. Nys-
2013 2014 2015 veen has developed comprehensive
Source: Rystad Energy NASWellData and Rystad Energy analysis models for production profile estima-
tions and financial modeling for oil and
gas fields. He has 20 years of experience
of the development cost of a horizontal shale well goes to drilling, while the re- within risk management and financial
maining 2/3 is allocated to completion. This means, by refracking an older well, analysis, primarily from DNV. He holds
an operator can save the cost to drill the well. Currently, the Bakken is the play an MSc degree from the Norwegian
with the largest number of refracked horizontal wells. By examining the perfor- University of Science and Technology
mance of the roughly 300 refracked wells, it is possible to quantify the success so and an MBA from INSEAD in France.
far. Figure 2 shows the development of the production for the average Bakken
well, one year before and one year after recompletion. The x-axis shows the cu- Leslie Wei (Leslie.Wei@
mulative months from re-frac, with month 0 representing the first month of RystadEnergy.com) is an
production. On average, the process increases the production by more than four analyst at Rystad Energy.
times after the new stimulation, with higher production throughout the entire Her main responsibility is
first year. analysis of unconventional
By comparing the additional production from refracs to the additional costs, activities in North America.
it is possible to determine which method is more profitable. Figure 3 shows the She holds an MA in economics from
development cost per barrel (EUR) for each well type. The values are based on the UC Santa Barbara and a BA in eco-
the average capex per well, where the refrac wells incur 2/3 of the total well cost. nomics from the Pennsylvania State
State data and operator specific decline curves are used to determine the EUR. University.



Felix selling STACK assets to Devon




and the STACK play (also in Oklahoma). Early in 2015, we

EDITORS NOTE: On Dec. 7, Devon Energy Corporation, the sold our assets in Custer and Dewey Counties to focus our
sixth-largest US petroleum producer according to asset val-
ue, announced its $1.9 billion acquisition of Felix Energy, a
efforts and capital on the STACK.
privately held, Denver-based E&P company. Prior to the deal
closing, OGFJ spoke with Skye Callantine, president and CEO Not all our readers are familiar with the STACK, Skye.
of Felix Energy, and two members of his executive team Mi- Can you tell our audience a little about it? Also, your assets
chael Horton, vice president of land, and Bill Arnold, vice pres-
ident of operations.
are surrounded by companies like Devon, Newfield Explo-
ration, Cimarex Energy, and Continental Resources that
seem to use different words like STACK, SCOOP, and CANA
Woodford. What zones were you pursuing and how do the
OIL & GAS FINANCIAL JOURNAL: Congratulations to you zones differ from what other companies in the area are
and the whole team, Skye. Im assuming this was a win-win pursuing?
for Felix and Devon.
CALLANTINE: Oklahoma operators that make a new dis-
SKYE CALLANTINE: Without a doubt, Don. Our team ded- covery have traditionally used acronyms to describe the
icated countless hours assembling and proving up an industry particular geographic area of interest. Newfield discovered
leading position in the most economic portion of the STACK and named the STACK play in 2013 which is located in the
crude oil play in Oklahoma. Devons decision to acquire Felix three-county area of Blaine, Canadian, and Kingfisher Coun-
in this environment reaffirms our long-held belief that this ties, west-northwest of Oklahoma City. CANA in CANA-Wood-
is a world-class asset. The acquisition adds significant re- ford is shorthand for Canadian County, where the liquids-rich
source and very high-quality drilling inventory to Devons Woodford Shale was originally discovered in Oklahoma. The
legacy position in the STACK. With the addition of our assets, acronym STACK stands for Sooner Trend (oil field) Anadarko
Devon now owns 430,000 net surface acres in the STACK, (basin), Canadian, and Kingfisher (counties).
which I believe represents the largest and best position in We believe the core positions of STACK and CANA can
the most economic play in country. This is a cash and equity be used interchangeably as the plays overlap and both have
deal so we will soon be, and plan to remain, large Devon tremendous potential in the Meramec, Osage, and Woodford
shareholders. We strongly believe in the quality of Devons formations. The stratigraphic column in this area consists
asset base, their ability to execute on those assets, their of thousands of feet of potential pay and more than 10
leadership and financial security, and the long-term value of horizontal targets. Felix primarily focused on the 400- to
our equity position in Devon. 500-foot thick Meramec formation, drilling more than 30
horizontal wells in multiple benches, with additional tests
As a Rockies-based company, why did you choose in the Woodford and Osage zones. Within the core area of
the Mid-Continent for your operations, and particularly, STACK, the industry has drilled approximately 1,000 hori-
why the STACK crude oil play? zontal Woodford wells and 150 horizontal Meramec wells.

CALLANTINE: My partners and I started Felix in early 2013. You aggregated 80,000 net acres in the core of the
We evaluated and pursued opportunities in numerous basins STACK located in Canadian, Blaine, and Kingfisher Coun-
looking for projects that fit our core competencies and had ties, Oklahoma. And, youre producing more than 10,000
the potential to make a return for our investors. We found barrels of oil equivalent per day. How was Felix Energy able
that the Anadarko Basin in the Mid-Continent had more to grow to a large scale in a competitive play to assemble
quality opportunities and a lower cost of entry than most its current position? How expandable is it?
other basins. Staying true to our strategy to develop projects
of scale, we assembled positions in two different areas of the MICHAEL HORTON: When we started, I wasnt sure that
Mid-Continent a large position focused on Pennsylvanian wed even be able to put 10,000 acres together. Newfield had
sandstones in Custer and Dewey Counties (in Oklahoma) done a great job assembling its position, and the rest of the



On location while
Felix Energy drills the
Meramec formation.
Photo by Jamin Yeager



There appears to be some confu-

Drilling operations at a Felix Energy
well-site in Oklahoma. sion about the STACK. Most of the oil
Photo by Nicholas DeSciose and gas industry believes operators are
still early in the exploration phase. You
believe its in development mode. Why?

CALLANTINE: Although the play has

been around a relatively short time, the
spectacular results have attracted dis-
cretionary capital from all the large
independents you named earlier. This
capital, along with the high-level tech-
nical abilities of these independents,
has rapidly de-risked the play and ad-
vanced the industrys collective knowl-
edge. Over the past six months, nearly
all of the companies operating in the
basin have been testing spacing and
stacked laterals along with continued
optimization of lateral length and stim-
ulation design. The result is the STACK
play has become very predictable and
repeatable with excellent economic
returns in multiple pay zones.

The STACK play has a large

product mix range of oil, gas, and NGL,
including oil from 25% to as much as
90% on a BOE/D basis. What decision
processes product mix, well loca-
available leasehold in the area was so fractionated that it almost discouraged us, tion, drilling costs, etc. did you use
or anyone else for that matter, from entering the STACK play. However, the bro- to meet or exceed your well economic
ken-up acreage and ownership ended up creating opportunity since no one had targets?
significant scale outside of Newfield and the traditional CANA players. Once we
got started, we built momentum quickly as our message and commitment to honest CALLANTINE: First and foremost, the
dealing really resonated with the local community and industry. The volume of play is underpinned by high reservoir
deals was incredible. It took us over 200 transactions and thousands of leases to quality, which allows for large quantities
put together our position. Im very proud of our small team of five and what theyve of all hydrocarbons to be produced by
accomplished in partnership with our excellent service providers, notably Penterra each well. Our focus in the Meramec
Land Services, the PrayWalker Law Firm, and Associated Resources, Inc. has been around the volatile oil window
Through a lot of hard work, our team built scale effectively and efficiently where the reservoir is over-pressured,
and converted acreage into drillable locations in a remarkably short time. Going has a high percentage of oil, and excel-
forward, nearly all of the acreage is accounted for in the core of the STACK. To lent reservoir quality. This area is char-
this end, we believe acquisitions, similar to the Felix acquisition by Devon will acterized by high initial production (IP)
be the only opportunity for growth in the STACK. rates and moderate well costs, a fortu-

With the addition of our assets, Devon now owns 430,000 net surface acres in the STACK, which
I believe represents the largest and best position in the most economic play in country. This is
a cash and equity deal so we will soon be, and plan to remain, large Devon shareholders. We
strongly believe in the quality of Devons asset base, their ability to execute on those assets,
their leadership and financial security, and the long-term value of our equity position in Devon.
Skye Callantine



itous combination yielding the best

returns. The black oil window has slight- A drilling rig working
ly lower productivity but the well costs for Felix Energy.
are also lower yielding solid returns. Photo by Nicholas
Unlike other plays in Oklahoma, we
avoid the costly requirements associ-
ated with handling large water volumes
because no formation water is produced
from the Meramec or Woodford within
the Felix footprint.

How do stimulation design and

lateral length impact overall well per-
formance and economics?

CALLANTINE: As you point out, two

important variables in the productivity
and economics of all resource plays are
completion design and lateral length.
Specifically in the Meramec, we have
seen a 50% increase in the initial well
performance in 2015 from enhancement
to the completion design. We focus on
generating more complexity near our
wellbores by utilizing slickwater, more
proppant, more clusters and Hallibur-
tons diversion technology.
With respect to lateral length, both
5,000- and 10,000-foot laterals have
generated very strong returns even in
the current commodity price environ- In light of todays low oil prices, Felix undoubtedly has made some oper-
ment. We believe in many areas of the ational changes or implemented new ideas over the past year in an effort to
play, 5,000- or 7,500-foot laterals will improve your well economics. Can you describe what youve done?
ultimately generate the best returns
in the context of full development. Of BILL ARNOLD: Our primary approach to improve well economics has been to
note, our recent 5,000-foot laterals pursue better well productivity by aggressively pushing the envelope on our stim-
have initial rates ranging from 2,500 ulation strategy. We are utilizing a high-intensity style completion technique using
to 3,000 BOE/D with greater than 80% diversion material to achieve more near wellbore complexity. Other companies
liquids at an average cost of $5.5 mil- are using a different diversion approach to reduce well cost. They are using diversion
lion generating incredible rates of re- to increase frac-stage length, therefore reducing the total number of frac stages
turn. As the play evolves, understand- and the total cost of completion. We have yet to apply diversion in this manner
ing of post stimulation cleanup, testing but do believe this technique is an effective cost reduction tool.
of intermediate lateral lengths, and We have also observed that flowback methodology can have a significant impact
development layout will determine on well productivity. We believe there are several variables at play here for ex-
the optimal lateral length. ample, lateral length, pressure-volume-temperature (PVT) properties, and initial

When we started, I wasnt sure that wed even be able to put 10,000 acres together. Newfield
had done a great job assembling its position, and the rest of the available leasehold in the area
was so fractionated that it almost discouraged us, or anyone else for that matter, from entering
the STACK playThe volume of deals was incredible. It took us over 200 transactions and thou-
sands of leases to put together our position. Michael Horton



tionship. Tall Oak has done an excellent

job of staying ahead of the rapid growth
in the play and has exceeded our expec-
tations in every way. In the STACK, Tall
Oak laid approximately 200 miles of
gathering pipelines in-service, installed
multiple compression stations, and
brought on a 100 million cubic feet per
day (MMcf/d) cryogenic plant in Octo-
ber 2015. To support the growth of the
Felix asset along with the expected
third-party growth, Tall Oak has an ad-
ditional 200 MMcf/d of capacity planned
for the third quarter of 2016. Devon and
EnLink are simultaneously acquiring
world-class assets that are even more
valuable with their unique structure.

In terms of rigs running, per-

mitting, and other industry activity,
how has the STACK held up during
the commodity downturn compared
to other liquids plays in the US?


The core of the STACK play is located in the few plays that experienced an in-
Canadian, Blaine and Kingfisher Counties, crease in the rig count over the past 12
Oklahoma. Photo by Jamin Yeager months. As of December 2015, there
were approximately 25 rigs running in
the play. The significant improvement
pore pressure. Since making this observation, we very carefully watch flowback in well performance coupled with the
parameters and adjust accordingly. While our primary focus has been making a large reduction in well costs has made
better well, we have also been able to achieve significant cost savings due to in- for compelling returns on drilling, even
creased efficiency in our drilling and completion operations. Our drilling times are at current commodity prices. Every
top tier, and completion cycle times continue to improve despite the continuous acreage holder in the STACK has re-
increase in completion intensity. ported that the economics are among
the best in their portfolios, attracting
You formed a JV and entered into long-term gathering and processing discretionary capital spending to be
agreements with Tall Oak Midstream LLC. In a related transaction, EnLink reallocated from other basins and plays
Midstream Partners, Devons joint midstream partner, announced on the same into the STACK. As weve said publicly,
day as the Felix acquisition that the company would acquire Tall Oak Midstream. Felix is generating greater than 40%
How valuable was the Tall Oak Midstream partnership for Felix, and what does rates of return at strip prices below $40
it mean for Devon and EnLink going forward? per barrel.
CALLANTINE: Our midstream joint venture with Tall Oak created a synergistic
relationship with our upstream business similar to the Devon and EnLink rela-

Our primary approach to improve well economics has been to pursue better well productivity by
aggressively pushing the envelope on our stimulation strategyWhile our focus has been making
a better well, we have also been able to achieve significant cost savings due to increased efficiency
in our drilling and completion operations. Our drilling times are top tier, and completion cycle
times continue to improve despite the continuous increase in completion intensity. Bill Arnold



From left to right: Skye Callantine, president and CEO; Zack Holland, VP-Engineering; Bill Arnold, VP-Operations; Greg Anderson,
VP-Geoscience; Michael Horton, VP-Land; King Grant, CFO

What was Felixs overall response to the downturn demonstrated a number of core competencies, including
in commodity prices? subsurface technical rigor, excellent drilling and completion
capability, and sound commercial fundamentals. We believe
CALLANTINE: As with the entire industry, we are not immune our reputation in these areas, along with our financial re-
to the drop in commodity prices. First, we focused our effort sources, will attract companies looking for partners. Wed like
and energy on making our project economic at current service to hear from any of your readers looking to bring value forward
costs and commodity prices. The downturn allowed us to get on underappreciated assets in their portfolios.
the best people and services to reduce the marginal cost of
supply through efficiencies and improvements. Second, we Anything else youd like to add?
were opportunistic by aggressively growing our asset through
leasing and acquisitions. As others have been internally fo- CALLANTINE: I just want to say thank you again to my
cused on preserving cash, we were able to significantly in- partners, all of the additional people who have supported our
crease our leasehold in the core of the STACK play. Our hard growth, and our investors for their dedication over the last
work paid off. few years.

Assuming a successful closing with Devon and EnLink, Thank you for your time and best of luck on your
whats next for Felix? future endeavors.

CALLANTINE: We have closed on new equity funding and

are currently looking for our next opportunity. Our team has


OFS companies innovate to survive


AS 2016 BEGINS, oil and gas companies continue to grapple characterized company executives as believing that no cut is too
with the tumultuous environment that has plagued them through- small in the current environment, referencing some services
out this past year, and there is little relief in sight. Oil prices remain companies utilizing white rather than colored paint for their
depreciated to record levels, clocking in at as low as $37 per barrel, underwater equipment in an attempt to lessen expenses.
marking a 60% decline from the high in summer 2014. In addition to tightening their belts, many oilfield services
As oil stores continue to increase and prices continue to plum- companies are levering any tactics available to reduce their lia-
met, the aftershocks are being felt through every sector of the bilities and exposure to risk. For example, Halliburton is investing
energy industry. For oilfield services companies providing critical in new technologies aimed at reducing the capital, labor and
equipment, infrastructure, and services needed to extract and maintenance needed to sustain rig operations in order to facilitate
transport oil, the impact is especially deep. For example, Paal more work with less overhead. Some companies are also priori-
Kibsgaard, CEO of Schlumberger, told analysts in October that he tizing customer retention by offering current clients deep discounts
did not expect drilling activity to recover before 2017. Amid fewer to encourage them to uphold and renew lucrative contracts. While
available projects and increased competition, many services large firms may not get to this point, many middle market services
companies are undertaking myriad strategies in an attempt to companies have little choice but to concede to discount demands
hunker down and ride out the storm. in order to stay afloat. All of these measures are helping companies
cushion their balance sheets during lean times.
HOW ARE OFS COMPANIES As a last resort, many companies are shutting down lines across
NAVIGATING THE DOWN MARKET? the country. A recent Forbes article reports that more than 1,100
To help weather the current market and to protect themselves rig operations have been halted since the price downturn. Ac-
from the stagnant oil outlook predicted for 2016, oilfield services cording to a recent iteration of Baker Hughes weekly rig count,
companies are rapidly trimming down. Many oil companies are as of November 25, the count was down to 744, a total reduction
cutting their budgets by 10% to 15%, and these cuts will trickle to of 1,173 since November 2014. As a consequence of the continued
down to service company cuts as well. By decreasing spending collapse of the US oil rig count, layoffs are becoming increasingly
and considerably limiting cash flow, companies are attempting commonplace. In October, Schlumberger announced another
to keep their assets close and reduce overhead costs. Bloomberg round of massive layoffs, bringing its total reduction in workers
estimates that there have already been more than $6.5 billion in over the past year to more than 15% of its total staff. One of its
write-downs related to the price crash, and this number is likely major competitors, Halliburton, has downsized close to 18,000
to grow throughout the coming year. The Wall Street Journal has employees.


Photo by Liberty Oilfield Services


Despite all of the challenging forces at play, oilfield services com- Amid fewer available projects and increased
panies can still remain hopeful. Those companies that have strong competition, many services companies are under-
balance sheets, and those that are taking some of the bold measures taking myriad strategies in an attempt to hunker
mentioned here, should be able to wait out the downturn until down and ride out the stormOilfield services
commodities prices rebound. And there is reason to believe that companies that survive until the market normaliz-
they will the 2009 oil bust turned around remarkably quickly, and es will come out on the other side leaner, shrewd-
while its already obvious we cant expect the same speedy rebound er, and more efficient because of the measures
this time around, demand is likely to increase again and rig activity they are taking today.
should pick up in response. Also, as many firms begin to cut their
capital expenditure budgets and reduce operations and exploration, deal is estimated to provide Halliburton with $2 billion in synergies,
supply will decrease, which should help prices recover, as well. it will also saddle them with $7.5 billion in Bakers debt.
The industry may also expect to see boom and bust cycles
continue to shorten, and as companies adjust to this new dynamic, THE BOTTOM LINE
they may be better positioned to withstand future downturns. There are many reasons to hope that oil prices will bounce back.
Oilfield services companies that survive until the market normalizes The shortening boom and bust cycle offers optimism that prices
will come out on the other side leaner, shrewder, and more efficient will rebound, but it also means that oilfield services companies
because of the measures they are taking today. This is already will likely face this taxing situation again in the future. Companies
proving true for several operators partnering with start-up FlexGen, should be smart about their allocation of resources and continue
which developed a hybrid system that plugs into existing generators to cut costs and seek to mitigate risk in order to increase their
to convert and store energy from multiple sources while limiting stability. They should also focus on corecompetenciesand effi-
expenses and maintenance. ciencies to carry their businesses through lean times and to combat
Those companies that are having a harder time have some the inevitable ups and downs of the industry.
available options, as well. Since the market downturn, a crop of The best-run oilfield services companies will view the current
new buyers has sprung up, ready to buy out struggling oilfield condition of the marketplace as an opportunity to improve struc-
services companies. Most of these buyers are private equity funds, tures and processes. Despite continued volatility, the good news
including both large and middle-market funds. is that the oilfield services sector is developing innovative ways to
There is also a section of funds that has been set up specifically increase efficiencies, cut costs, become more nimble, and plan
to take advantage of the oil price environment. For example, Mas- ahead for the next inevitable downturn.
sachusetts-based Intervale Capital has brought its total amount
of funds raised to $1.3 billion by systematically investing in oilfield ABOUT THE AUTHOR
services companies across the United States. M&A is also an Clark Sackschewsky is tax principal and a member
available option, but realistically, only for companies that are large of the Natural Resources practice at BDO USA LLP.
and profitable enough to attract these deals, such as the highly He can be reached at csackschewsky@bdo.com.
anticipated acquisition of Baker Hughes by Halliburton. While this


Cecoffman | Dreamstime.com
Expansive new mitigation requirements



IN NOVEMBER, the Obama Administration adopted an expan- part of DOI), and US Forest Service (USFS, part of USDA). This
sive set of mitigation objectives for all its natural resource man- would overshadow the current procedural environmental review
agement agencies. Under the voluntary policy, the Environmental requirement mandated under the National Environmental Policy
Protection Agency (EPA), Department of the Interior (DOI), Act (NEPA) and significantly expand the costs and obligations
Department of Agriculture (USDS), Department of Defense associated with permitting and other federal authorizations.
(DOD), and National Oceanic and Atmospheric Administration In short, the mitigation policies are intended to establish a
(NOAA) will aim to avoid and then minimize harmful effects to net benefit goal or, at a minimum, a no net loss goal for natural
land, water, wildlife, and other ecological resources (natural re- resources the agency manages that are important, scarce, or
sources) caused by land- or water-disturbing activities, and to sensitive, or wherever doing so is consistent with agency mission
ensure that any remaining harmful effects are effectively and established natural resource objectives. This policy essentially
mitigated. takes the current statutorily-mandated and Executive Order-based
Depending on how it is implemented, this new policy will have requirements that the Corps uses for analyzing wetland impacts
the potential to impose substantive environmental action obli- (these being avoidance, minimization and mitigation, with mit-
gations not just on EPA, but also on agencies such as the Bureau igation seeking a result of no net loss of wetland functions and
of Land Management (BLM, part of DOI), US Army Corps of values) and applies those requirements to all natural resources.
Engineers (the Corps, part of DOD), National Park Service (NPS, This is an expansive additional set of analyses and mitigation


The net benefit goal carries with it its own set of questions.
This is an expansive additional set of analyses These include how the benefit is measured and how its achieve-
and mitigation obligations and has the potential ment is proven by the permittee. Separately, there is the question
to significantly expand these agencies permit- of the legal rationale the agencies will rely on to require entities
ting requirements and timelines. If implemented to create environmental benefits, since few, if any, of their existing
broadly, it could significantly enhance the cost and authorizing statutes or regulations require the consideration of
complexity of many permitting tasks, both on and let alone the achievement of net environmental gains.
off federal land. The policy also establishes a special category of irreplaceable
natural resources those resources recognized through existing
legal authorities as requiring particular protection from impacts
obligations and has the potential to significantly expand these and that because of their high value or function and unique
agencies permitting requirements and timelines. If implemented character, cannot be restored or replaced. For these resources,
broadly, it could significantly enhance the cost and complexity the preferred means of achieving either of these goals is through
of many permitting tasks, both on and off federal land. avoidance. This is because minimization and compensation
The resources and activities covered under the policy are measures, while potentially practicable, may not be adequate or
broadly described harmful effects to land, water, wildlife, and appropriate. As a result, the agencies [will] design policies to
other ecological resources (natural resources) caused by land- or promote avoidance of impacts to these resources.
water-disturbing activities. This scope covers a wide array of It is unclear how the agencies will identify these irreplaceable
environmental impacts, covering most of the resources regulated resources, and it begs the question whether the unfettered dis-
and protected by the environmental laws as a whole. It also cretion of the agency in designating and protecting these resources
applies to almost all of the activities approved by the affected can justify a refusal to grant an authorization that otherwise
agencies. As to these resources, the agencies are to each adopt meets the legal requirements.
a clear and consistent approach for avoidance and minimization Interestingly, the language is again similar to that found in the
of, and compensatory mitigation for, the impacts of their activities Clean Water Acts wetland law, which allows the EPA to prohibit
and the projects they approve. the discharge of fill into certain sites upon a determination that
Interestingly, the policy does not appear to limit the regulation the discharge of such materials into such area will have an un-
of specific resources to the agencies which have the technical acceptable adverse effect on municipal water supplies, shellfish
expertise with them. For example, while the US Fish and Wildlife beds and fishery areas (including spawning and breeding areas),
Service (part of DOI) regulates endangered species, the Corps wildlife, or recreational areas.
regulates wetlands, and the EPA permits projects which increase In addition to the obvious environmental protection rationale,
air emissions, the new policy does not address the jurisdictional the Administrations policy is motivated in part by the fact that
limits or expertise of any these agencies when it calls for them Federal agencies can. . .face barriers that hinder their ability to
to require mitigation. The policy leaves open the possibility that, use Federal resources for restoration in advance of regulatory
say, NPS might require mitigation for the impacts to water re- approval of development and other activities.
sources caused by construction of a pipeline over land it admin- As a result, the policy encourage[s] private investment in
isters, or the Corps might require mitigation for the methane restoration and public-private partnerships, and help[s] foster
emissions caused by emissions at a well pad among wetlands. opportunities for businesses or non-profit organizations with
Mitigation of these impacts follows the structure established relevant expertise to successfully achieve restoration and con-
under Section 404 of the Clean Water Act for mitigating wetland servation objectives. Thus, implementation of the policy across
impacts. First, impacts are to be avoided if practicable and then a range of agencies is intended to significantly increase the use
minimized to the extent they cannot be avoided. Only once these of conservation banking, encouraging the development and use
easy impacts have been eliminated are the remaining impacts of banks across a much broader range of resources than currently
to be allowed and then mitigated. For these remaining impacts, exists (conservation banks are currently focused primarily on
the Agencies mitigation policies should establish a net benefit mitigating impacts to wetlands and endangered species). By
goal or, at a minimum, a no net loss goal for natural resources relying on third parties and the free market to provide mitigation,
the agency manages that are important, scarce, or sensitive, or mitigation costs could vary widely across the country and even
wherever doing so is consistent with agency mission and estab- from project to project.
lished natural resource objectives. The potential for a rise in conservation banking is reinforced
This structure will surely complicate permitting. Agencies are by the Administrations concern with the temporal loss of the
now called upon to introduce a new mitigation analysis into covered resources (i.e., the time lag between resource impacts
existing permitting procedures, but without recognizing the limits and the mitigation of those impacts). As a result of this concern,
of their jurisdiction and expertise and without a specific legal the agency policies [will] seek to encourage advance compen-
underpinning that defines the scope of what the agency can sation, including mitigation bank-based approaches, in order to
require through mitigation as a lever in the permitting process. provide resource gains before harmful impacts occur. The com-


bination of reliance on third parties and concern about temporal within one year from issuance (which will be just before Election
loss means that the Administration will be looking to the private Day, 2016), with the Forest Service to adopt its documents within
sector to create conservation banking and other similar mitigation 180 days. It does not appear that public comment will be taken
efforts across the range of resources sought to be protected by on most of these guidance documents before they are finalized,
the policy. although the Forest Service will be adopting a rule within two
The last notable aspect of the policy is that, as it has for the years which will follow the typical rulemaking process, including
past seven years, the Administration is placing a high value on public notice and comment.
public involvement. Here, this takes the form of a requirement
that the agencies take action to increase public transparency in ABOUT THE AUTHORS
the implementation of their mitigation policies and guidance. Lowell M. Rothschild is senior counsel in Bracewell
This could take the form of additional public notice and comment & Giuliani LLPs Austin office. His practice focuses
processes, which would further slow permitting timelines. At a on natural resource issues such as wetlands, endan-
minimum, it will involve alerting the public to projects their gered species, and environmental review. He can be
mitigation requirements, and their success in achieving those reached at lowell.rothschild@bgllp.com.
requirements the policy states that agencies should identify,
and make public, locations on Federal land of authorized impacts Kevin A. Ewing is a partner in Bracewells Washing-
and their associated mitigation projects, including their type, ton, DC office. He advises chiefly energy and infra-
extent, efficacy of compliance, and success in achieving perfor- structure companies concerning natural resources
mance measures. and environmental issues arising from new regula-
As to the timing and method of adoption of these new miti- tions and agency policies, corporate risk manage-
gation requirements, the process is to be memorialized at each ment, and major incidents. He can be reached at
agency through the creation of a specific manual and handbook kevin.ewing@bgllp.com.
guidance. Most of these guidance documents are to be finalized



NAPE SUMMIT integrates domestic and international

prospects, capital providers and service providers into
one opportunity-packed exhibit hall, creating an
environment to establish strategic alliances for doing
business and initiating oil and gas deals.

Look for the new INTL drop to easily identify

international exhibitors on our 14-acre show floor.


Alphaspirit | Dreamstime.com
M&A in the global petroleum industry



EDITORS NOTE: This is the first in a series of articles by Profes- One plus one makes three: this equation is the special alchemy
sor Khartukov about the increasing importance and relevance
of mergers and acquisitions in the global petroleum industry.
of a merger or an acquisition. The key principle behind buying
Part 2 will run in the February issue of OGFJ. a company is to create shareholder value over and above that
of the sum of the two companies. Two companies together are
more valuable than two separate companies at least, thats
MERGERS AND ACQUISITIONS in the petroleum industry the reasoning behind M&A.
refers to the aspect of corporate strategy, corporate finance, This rationale is particularly alluring to companies when
and management dealing with the buying, selling, dividing, and times are tough. Strong companies will act to buy other com-
combining of different petroleum companies and similar entities panies to create a more competitive, cost-efficient company.
that can aid, finance, or help an enterprise grow rapidly in its The companies will come together hoping to gain a greater
sector or location of origin or a new field or new location without market share or to achieve greater efficiency. Because of these
creating a subsidiary, other entity, or using a joint venture. The potential benefits, target companies will often agree to be
distinction between a merger and an acquisition has become purchased when they know they cannot survive alone.
increasingly blurred in various respects (particularly in terms Takeover is a corporate action whereby a company (bidder)
of the ultimate economic outcome), although it has not com- acquires a publicly traded company (target) by purchasing its
pletely disappeared in all situations. outstanding shares. Takeovers may be classified into friendly


and hostile takeovers. A friendly takeover involves direct nego-
tiation with the target management, which in turn recommends It is normal for M&A deal communications to take
its shareholder to approve the transactions. In hostile takeovers, place in a so-called confidentiality bubble where-
the bid (unsolicited offer) is directly made to the target share- in the flow of information is restricted pursuant to
holders either without notice of the management or upon their confidentiality agreements. In the case of a friend-
rejection of the bid. A hostile offer thereby seeks to completely ly transaction, the companies cooperate in negoti-
bypass management from direct negotiation. This peculiar ations. In the case of a hostile deal, the board and/
nature of such unsolicited offers raises multilateral practical or management of the target company is unwilling
issues of conflicts between the target management and to be bought or the targets board has no prior
shareholders. knowledge of the offer. Hostile acquisitions can,
Any attempt to devise a regulatory regime for takeovers and often do, ultimately become friendly, as the
encounters an impulsive need of balancing these interacting acquirer secures endorsement of the transaction
core issues; fair possibilities of entrenchment motivations of from the board of the target company. This usually
directors in employing defensive strategies, interests of the requires an improvement in the terms of the offer
company and principle of shareholders freedom to decide upon and/or through negotiation.
the merits of the offer. These efforts have led to divergent opin-
ions about the role of directors in hostile takeovers. One hy-
pothesis favors shareholders choice and proposes that directors for employees but may benefit the companies involved finan-
should not be allowed to take any defensive measures. Another cially by eliminating redundancies between the two
hypothesis argues that those directors should play a central organizations.
role in deciding companys response to a hostile offer with an
objective to maximize shareholders value. Other advantages:
In general, takeover regulations in the United Kingdom are Increased sales and revenue,
based on the former hypothesis and the United States follows Increased market share,
the latter. In the UK, management is specifically prohibited Economies of scale,
from taking any action to undermine the shareholders discretion A decrease in competition (assuming the companies are in
and to frustrate any tender offer without shareholder approval. the same industry),
On the flip side, the US has adopted a completely different And a reduction of overcapacity in the industry.
system, wherein the principal decision about the bid is taken
by the board of directors without any general requirement of Disadvantages include:
post bid shareholder approval. Although the rigors of business Reduced competition and choice for consumers (dou-
judgment rule and directors fiduciary duties has helped to ble-edged sword - good for the company, bad for
regulate this wide discretion of directors, there is still substantial consumers),
scope for directors to determine the fate of a takeover bid. Job cuts (as explained before),
A takeover is business jargon meaning the purchase of a Hidden liabilities,
company (the takeover target) by another company (the bidder And the cost of a takeover to the bidding company.
or acquirer). Usually, as larger companies are usually public
companies listed on a trading stock exchange, takeover also A merger occurs when one firm assumes all the assets and
means the acquisition of these types of companies. You can all the liabilities of another. The acquiring firm retains its identity,
have hostile takeovers, friendly takeovers, and reverse takeovers, while the acquired firm ceases to exist. A majority vote of
i.e. when a private company takes over a public company. This shareholders is generally required to approve a merger. A merger
action is usually seen as a back-door strategy or technique for is just one type of acquisition. One company can acquire another
a private company to be floated on the stock market, bypassing in several other ways, including purchasing some or all of the
the cost of time and money of an Initial Public Offering (IPO). companys assets or buying up its outstanding shares of stock.
Companies will take over other companies for a variety of An acquisition (often called a takeover) is the purchase of
reasons. Small companies may become a takeover target if they one business or company by another company or other business
fill a niche in the market that the bidder operates within. This entity.
is especially true if the smaller company has proven its profit- Consolidation occurs when two companies combine to form
ability. The larger company may see synergistic needs or other a new enterprise, and neither of the previous companies survives
potential with the smaller such as sharing resources and cutting independently. Acquisitions are divided into private and pub-
costs. Taking over other companies may also be an avenue for lic acquisitions, depending on whether the acquiree or merging
larger acquiring companies to grow their company. company (also termed a target) is or is not listed on public stock
There are many advantages and disadvantages in a takeover, markets. An additional dimension or categorization consists
and perspective plays a role. For example, job cuts may be bad of whether an acquisition is friendly or hostile.


Achieving acquisition success has proved to be very difficult. shares at a bargain price, usually half the market price. Dual
Various studies have shown that 50% of acquisitions were un- class recapitalizations distribute a new class of equity with
successful. The acquisition process is very complex, with many superior voting rights. This enables the target firms managers
dimensions influencing its outcome. to obtain majority control even though they do not own a
Whether a purchase is perceived as being a friendly one majority of the shares.
or a hostile depends significantly on how the proposed ac- Other preventative measures occur after an unsolicited offer
quisition is communicated to and perceived by the target com- is made to the target firm. The target may file suit against the
panys board of directors, employees, and shareholders. It is bidder alleging violations of antitrust or securities laws. Alter-
normal for M&A deal communications to take place in a so- natively, the target may engage in asset and liability restructuring
called confidentiality bubble wherein the flow of information to make it an unattractive target. With asset restructuring, the
is restricted pursuant to confidentiality agreements. In the case target purchases assets that the bidder does not want or that
of a friendly transaction, the companies cooperate in negotia- will create antitrust problems, or sells off the assets that the
tions. In the case of a hostile deal, the board and/or management suitor desires to obtain. Liability restructuring maneuvers in-
of the target is unwilling to be bought or the targets board has clude issuing shares to a friendly third party to dilute the bidders
no prior knowledge of the offer. Hostile acquisitions can, and ownership position or leveraging up the firm through a leveraged
often do, ultimately become friendly, as the acquirer secures recapitalization making it difficult for the suitor to finance the
endorsement of the transaction from the board of the target transaction.
company. This usually requires an improvement in the terms Other post-offer tactics involve targeted share repurchases
of the offer and/or through negotiation. (often termed greenmail) in which the target repurchases
the shares of an unfriendly suitor at a premium over the current
HOSTILE ACQUISITIONS market price and golden parachutes which are lucrative
The replacement of poor management is a potential source of supplemental compensation packages for the target firms
gain from acquisition. Changing technological and competitive management. These packages are activated in the case of a
factors may lead to a need for corporate restructuring. If in- takeover and the subsequent resignations of the senior execu-
cumbent management is unable to adapt, then a hostile acqui- tives. Finally, the target may employ an exclusionary self-tender.
sition is one method for accomplishing change. With this tactic, the target firm offers to buy back its own stock
Hostile acquisitions generally involve poorly performing at a premium from everyone except the bidder.
firms in mature industries and occur when the board of directors A privately owned firm is not subject to unfriendly takeovers.
of the target is opposed to the sale of the company. When this A publicly traded firm goes private when a group, usually in-
occurs, the acquiring firm has two options to proceed with the volving existing management, buys up all the publicly held
acquisition a tender offer or a proxy fight. A tender offer stock. Such transactions are typically structured as leveraged
represents an offer to buy the stock of the target firm either buyouts. LBOs are financed primarily with debt secured by the
directly from the firms shareholders or through the secondary assets of the target firm.
market. In a proxy fight, the acquirer solicits the shareholders A merger occurs when one company is legally absorbed into
of the target firm in an attempt to obtain the right to vote their another and the surviving company takes over all of the assets
shares. The acquiring firm hopes to secure enough proxies to and liabilities of the absorbed company. There cannot be any
gain control of the board of directors and, in turn, replace the separate transfer of assets or liabilities to other third parties
incumbent management. and a certificate of merger must be filed in the state where the
Management in target firms will typically resist takeover new business will incorporate. The absorbed company share-
attempts either to get a higher price for the firm or to protect holders are not bought out and therefore the merger is, in
their own self-interests. This can be done a number of ways. essence, treated as a stock transaction for federal tax purposes.
Target companies can decrease the likelihood of a takeover The shareholders of both of the merged companies exchange
though charter amendments. With the staggered board tech- their original stock for new stock in the surviving company. The
nique, the board of directors is classified into three groups, with companys board of directors and shareholders must approve
only one group elected each year. Thus, the suitor cannot obtain the merger.
control of the board immediately even though it may have
acquired a majority ownership of the target via a tender offer. Acquisitions can occur in two ways:
Under a supermajority amendment, a higher percentage than Buy the assets of the company,
50% generally two-thirds or 80% is required to approve a Or, buy the companys shares from the stockholders.
Other defensive tactics include poison pills and dual class Under the acquisition scenario, the shareholders of the com-
recapitalizations. With poison pills, existing shareholders are pany being bought can, in most instances, take their money
issued rights, which, if a bidder acquires a certain percentage and ride off into the sunset. The terms of the payment can be
of the outstanding shares, can be used to purchase additional either incash or stock of the purchase (which is as good as cash


for publicly traded companies). The acquisition is different from
a merger in that the selling shareholders do not own stock in In practice, actual mergers of equals dont hap-
a new, combined enterprise. The buyer can select targeted pen very often. Usually, one company will buy
assets or liabilities to take and others to discard which the seller another and, as part of the deals terms, simply
must accommodate. For example, the buyer does not have to allow the acquired firm to proclaim that the action
assume the debt of the company being bought although in is a merger of equals, even if its technically an ac-
most cases it does. quisition. Being bought out often carries negative
In mergers and acquisitions, tax and net income consider- connotations. Therefore, by describing the deal as
ations of both the buyer and seller are a major factor in deter- a merger, deal makers and top managers try to
mining how the deal is ultimately structured. The selling share- make the takeover more palatable.
holders participating in acquisition of asset deals may have to
pay significant taxes on gains unless the transaction is structured
in a way that allows the taxes to be deferred. Types of tax de- from the target company regardless of whether they have veto
ferrable transactions include statutory mergers, stock-for-stock rights over key operating plans. Most buyers who take this level
swaps, and stock-for-equity swaps. of equity ownership usually structure the deal to give them a
If the purchase price paid for the assets exceeds its fair market path to control at a later date. This can be the right of first refusal
value, the excess payment is treated as goodwill under current to buy additional equity or a guaranteed future majority share
accounting rules. The goodwill is then amortized over a period at an agreed upon price or method to calculate the price.
of generally five to seven years, and the annual amortization An equity position of greater than 50% most often means
amount is taken as a charge against the buyers net income. the buyer has control of the day-to-day running of the business
Consequently, if a buyers shareholders are very focused on net and, therefore, will consolidate the total revenue of the target
income growth, purchasing assets in excess of fair market value company to its financial statements as well as its portion of
presents an obstacle. In addition, the goodwill expense is not profits and losses. However, as discussed above, if the minority
deductible for federal tax purposes (unlike other items such as shareholder(s) are given veto rights that clearly prevent the
depreciation). majority shareholder from exercising full control over the op-
One way to bypass the goodwill amortization issue is to erations of the business, then revenue consolidation is disal-
structure the transaction as a pooling of interest. The infor- lowed but the percentage of earnings is not.
mation below shows the difference between the purchase and
pooling structure. Merger and acquisition transaction types are normally executed
in one of the following formats:
The percentage equity ownership that a buyer takes in a target Exchange of stock for stock
company can have material effect on its reported financial Purchase of assets for stock
statements. The nature of the impact varies according to the Purchase of stock for cash
following: Purchase of assets for cash
Less than 20% ownership
Greater than 20% ownership, but less than 50% A statutory merger involves two companies merging their
Greater than 50% ownership businesses and generally the shareholders receive payment in
At the less than 20% equity ownership level, the buying stock. The deal is non-taxable and can be done as either a
company is not required to consolidate any portion of the purchase or a pooling of interest.
revenue or net income of the selling company to its financial Exchange of stock for stock deals occur when the selling
statements. This can be a very important consideration if the shareholders sell their company to the buyer and receive shares
selling company is expected to experience losses at once and in the buyers company as the security for payment. The trans-
in the near future as it grows its business. The buying company action is usually non-taxable and can be done as a purchase or
does not need to dilute its earnings because of its obligation to pooling of interest.
consolidate its share of the losses since its investment is a Purchase of assets for stock. In this type of transaction, an
relatively small minority. asset or a group of assets (such as selected plants or reserves)
However, there is an exception to this rule. If the buying and not the entire company of the seller is purchased. In some
company, as a condition of its investment, has significant veto cases, only the corporate shell of the seller remains which can
power over key business decisions made by the selling company, be liquidated at a later date. The currency used to fund the
then they are deemed to have operating control and would act purchase is stock of the buyers company. This transaction is
more like a majority investor. also non-taxable and can be treated as a purchase or pooling
If the acquirer has an equity interest between 20% and 50%, of interest.
they are required to consolidate their share of profits or losses Purchase of stock for cash. This type of transaction is fairly


common and occurs when the shareholders sell their stock for DISTINCTION BETWEEN MERGERS AND ACQUISITIONS
cash to a buyer. The buyer will thenhave majority or full control Although they are often uttered in the same breath and used
depending on the number of shareholders who sell. This type as though they were synonymous, the terms merger and acqui-
of deal is taxable to the shareholders of the selling company if sition mean slightly different things.
they realize a gain from selling their shares. This type of trans- When one company takes over another and clearly establishes
action is treated as a purchase only and pooling of interest itself asthe new owner, the purchase is called an acquisition.
benefits does not come into play. From a legal point of view, the target company ceases to exist,
Purchase of assets for cash. This transaction is similar to a the buyer swallows the business, and the buyers stock con-
purchase of assets for stock, except that the assets are paid for tinues to be traded.
with cash and not stock. This transaction is also taxable to the In the pure sense of the term, a merger happens when two
selling shareholders and can only be done as a purchase and firms, often of about the same size, agree to go forward as a
not a pooling of interest. singlenew company rather than remain separately owned and
A freeze-out merger is a technique by which one or more operated. This kind of action is more precisely referred to as a
shareholders who collectively hold a majority of shares in a merger of equals. Both companies stocks are surrendered and
corporation gain ownership of remaining shares in that new company stock is issued in its place. For example, both
corporation. Daimler-Benz and Chrysler ceased to exist when the two firms
The majority shareholders incorporate a second corporation, merged, and a new company, DaimlerChrysler, was created.
which initiates a merger with the original corporation. The In practice, however, actual mergers of equals dont happen
shareholders using this technique are then in a position to very often. Usually, one company will buy another and, as part
dictate the plan of merger. They force the minority stockholders of the deals terms, simply allow the acquired firm to proclaim
in the original corporation to accept a cash payment for their that the action is a merger of equals, even if its technically an
shares, effectively freezing them out of the resulting acquisition. Being bought out often carries negative connota-
company. tions. Therefore, by describing the deal as a merger, deal makers
and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs
agree that joining together is in the best interest of both of their
companies. But when the deal is unfriendly that is, when the
target company does not want to be purchased it is always
regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition
ARTICLES FOR DISTRIBUTION really depends on whether the purchase is friendly or hostile
Use published editorial content to and how it is announced. In other words, the real difference
validate your marketing initiatives. lies in how the purchase is communicated to and received by
the target companys board of directors, employees, and share-
Repurpose editorial content for distribution
Electronic Reprints Eugene M. Khartukov is Professor of Economics at
the Moscow State University for International Re-
High-Quality Glossy Handouts
lations, General Director of the Center for Petro-
Personalized Direct Mail Products leum Business Studies, Chief of the World Energy
Analysis & Forecasting Group, and Vice President
Cross Media Marketing ( for Eurasia) of Petro-Logistics SA. Prof. Khartukov
is an international expert on Russian and ex-Soviet oil and gas
Plaques & Framed Prints issues. Since 1980, he has taught world oil and energy markets
research at Moscow State University for International Relations.
Since 1984, he has consulted on oil and gas economics and
For additional information, please contact policies, including energy pricing, to various Soviet/Russian
   ministries, international agencies, foreign governments, private
for Oil & Gas Financial Journal. oil and gas companies, consulting firms and financial institu-
tions, as well as to the Gorbachev, Yeltsin, and Putin adminis-
Call 866.879.9144 or trations. He can be reached at khartukov@gmail.com.


Abdullatif Omar | Dreamstime.com
Meeting compliance challenges


REGULATORY COMPLIANCE continues to be one of the greatest public oil and gas companies 10-K filings. And new compliance
challenges for oil and gas producers. Not only is the oil and gas concerns are emerging on an ongoing basis. Fracking, for example,
industry highly regulated, but regulations are evolving and changing is still a relatively new practice with a unique set of environmental
on an ongoing basis. Staying compliant with the latest regulations and safety concerns that are still being established by government
is doubly difficult because the standards you had to meet yesterday agencies. While federal and, especially, state regulators continue
may be even more stringent today. In addition, the cost of compli- to scrutinize E&P environmental and business practices, the un-
ance consistently has a huge impact on the bottom line, and failure certainty associated with how to comply with new regulations is
to meet compliance standards can incur even more expenses in high. For example, one in four companies in the BDO Report cited
fines and reparations. horizontal drilling as a regulatory concern.
The best way to meet the requirements of regulators is through Oil and gas producers not only have to ensure compliance with
comprehensive data tracking. If you can monitor and report on multiple agencies in multiple jurisdictions, they also have to worry
every aspect of your operation, you can be sure you will be in about compliance across multiple disciplines. These companies
compliance at all times, and you will have an audit trail ready to have to comply with regulations for facilities, financials, operations,
access when you need it. environmental practices, and more. In the area of health, safety,
According to BDOs annual Oil & Gas Riskfactor Report, regu- and environment (HSE), spending among global E&P companies
latory compliance consistently ranks as number one among the is estimated to climb from $35 billion in 2011 to $56 billion in 2030
risk factors cited by the 100 top E&P producers. Federal, state, and a 60% increase driven mostly by increased regulatory scrutiny.
international regulations are the most frequently cited risks in The risk factors and associated costs vary depending on the


company and its industry segment, but wherever you are in the
production value chain, the cost of non-compliance is increasing. According to BDOs annual Oil & Gas Riskfactor
For example, recent changes to HR 2845: Pipeline Safety, Regulatory Report, regulatory compliance consistently ranks
Certainty and Job Creation Act of 2011, have extended pipeline as number one among the risk factors cited by
records to be included as part of the regulation, including geospatial the 100 top E&P producers. Federal, state, and
and oil flow lines, as well as other types of non-petroleum materials international regulations are the most frequently
such as hazardous liquids, chlorine, and biofuels. This means there cited risks in public oil and gas companies 10-K
are more records to maintain and failure to comply with safety filings.
regulations can result in a fine of $1.75 million.
As part of HR 2845, the National Safety Transportation Board
recommends using a central database to ensure timely access to integrated across the value chain and that it provides real-time
oil and gas records in the event of an emergency. Automating visibility into operations. Using cloud-based ERP systems, for ex-
business processes and centralizing them using an Enterprise ample, enables easier access to data from anywhere, including
Resource Planning (ERP) system is your best strategy to consolidate mobile devices. This helps to resolve issues quickly and efficiently
record-keeping, monitor operations for compliance, and prepare while still creating a centralized audit trail.
for an audit to avoid additional fees and penalties.
THE VALUE OF ERP In order to use ERP systems to power compliance, you need to
No matter what type of operation you have in the E&P process, eliminate all paper processes. Any data that is not automatically
ERP technology can consolidate operations monitoring and man- captured by the ERP system has to be entered manually or main-
agement into a single system that gives you end-to-end control of tained separately for auditing and compliance, which creates added
business systems. ERP systems are used in manufacturing, pro- risk. Paper processes are prone to errors and harder to manage
duction, maintenance and transportation for both upstream and and track, so your best strategy is to eliminate paper altogether
downstream companies, providing control over processes, reducing and consolidate business processes using a fully automated
costs, and delivering an end-to-end view of operations. system.
ERP systems for oil and gas have a number of applications Undoubtedly, there are legacy systems and processes in your
including: value chain that still rely on paper. Invoices, bills of materials,
Cost control and tracking shipping manifests, delivery receipts, and other paperwork are still
Equipment tracking and management being processed by hand. Manual data entry, for example, requires
Document management time and resources and is fraught with errors and risk of lost pa-
Financial tracking and projections perwork. Even processes where paper-based forms are scanned
Production planning and reporting and distributed electronically to make them part of the ERP systems
Financial management, cash management, and accounts re- still have to be managed manually, as if they were paper.
ceivable management. Automating all business processes and eliminating paper saves
An ERP system also allows companies to create an integrated the cost of manual data entry and creates more efficient systems.
data repository containing everything from customer contacts to For example, paying an analyst to process paper invoices manually
inventory to invoicing. E&P companies that have implemented incurs overhead costs in labor and processing time. You not only
ERP systems have shown an increase in profitability of at least 10% have to pay for the data entry time, but also for additional man-
due to improved operational efficiency. agement time to review the paperwork for accuracy and make
ERP systems offer a number of advantages for compliance as corrections. Then there can be the hidden cost in the delays incurred
well, such as localization of accounting. Regulations are enforced in processing paper invoices, as well waiting for checks and pro-
by state, national, and international agencies, and the ERP system cessing paper payments. In addition, this kind of paper process is
helps distinguish financial records by geography. Using ERP, you more difficult to audit. Since invoices have to be filed and payments
can configure accounting for financial compliance in different logged into the financial system, there is a lot of room for error
regulatory environments, including auditing. with this kind of manual process.
For asset management, ERP systems can provide real-time Automating the end-to-end system, even by using PDF invoices
information about geographic location and machine use for equip- for electronic transmission, is easier to track with less room for
ment anywhere in the system. If the company is performing regular error. Centralizing financial records, for example, makes it easier
maintenance as part of compliance, the ERP dashboard can see to keep track of customized contracts, discounts, payments, pur-
the exact status of all the equipment, complete with an audit trail chase orders, and other transactions. The ERP system logs every
of maintenance and repair. step in the workflow for auditing. There is even customized ERP
ERP systems come in various deployment models, including software specific to the oil and gas industry to manage transactions,
on-premise software and software-as-a-service. Whatever approach such as three-way purchase order matching, royalty check stubs,
you choose, you want to be sure that your ERP technology can be run tickets, joint interest billing (JIBs), and shared billing costs.


Once you go paperless, you are ready to automate and track all litigation. Your ERP controls and manages documents in a way
your business interactions. that should be compliant with ISO, Sarbanes Oxley, and other
regulations that could require auditing. In fact, your ERP system
AUTOMATION SIMPLIFIES AUDITING promotes regulatory compliance in a number of ways:
By eliminating paper processes, you are migrating to a completely Data and asset security The system maintains control as
automated workflow. All transactions between partners and cus- well as a log of data access showing who has access to what
tomers become digital and are managed and tracked by the same records and assets. The ERP system can restrict information
ERP infrastructure. Every step in the end-to-end workflow is man- access to only authorized employees and maintain a record of
aged and logged by the ERP system, which means every transaction all personnel who access specific records.
and relationship can be monitored for compliance and accessed Compliance Most regulatory compliance initiatives are
in the event of an audit. typically related to privacy, control, and requests for information.
One of the advantages of automating workflows is that it often The ERP system makes it possible to redact personal information
simplifies business processes by eliminating steps. With manual in documents and transactions to protect privacy, and ensures
data entry and business processes, there are more checks and the ability to produce any required information quickly and
balances built into the workflow to eliminate errors. These addi- efficiently.
tional steps not only slow business processes but also make them Document control Processes such as reviews and approval
inefficient. With automated business processes, workflows are of documents can be automated and standardized to maintain
streamlined for greater operating efficiency and easier auditing. total control in accordance with ISO and government
For example, one of our customers went to paperless operations regulations.
and they were able to simplify their invoicing workflow from 60 Records management The automated system includes
steps to 12 steps. In addition to reducing invoice processing time retention plans and guidelines so as new documents and trans-
from 30 days to three days, they also were able to simplify auditing actions are added to the system, they are coded accordingly.
since they only have to track 12 steps rather than 60. That way records are retained and not prematurely purged or
The benefit of using ERP for managing operations is that the erased. The system also maintains an audit trail of records access
ERP system tracks business relationships as well as transactions. if there are any questions.
For example, the ERP system can maintain data about state safety Legal hold Using a centralized document and transaction
regulations, sales tax payments, drilling rights, contracts, licenses, repository also simplifies implementing a legal hold in the event
supply chain records, and more. The ERP system becomes the of litigation. Secure files can be securely stored to prevent them
central repository for authorization for expenditures (AFE), division from being altered during litigation while digital copies of those
of Interest (DOI), allocation of costs per well or per owner, and documents are still available for review.
reporting of gross and net revenues. There was a time when a new government rule or regulation
By funneling all business processes and transactions through would create chaos in systems management, requiring changes
the ERP database, you not only create the means to generate any in record keeping and workflows to ensure compliance. Automated
type of audit trail, but you gain a holistic view of operations. You business systems have changed all that. By eliminating paper and
can use historical data to manage projections and budgeting or automating all transactions and workflows, oil and gas companies
make strategic decisions to improve operations. ERP also gives gain total control over record keeping and can adapt easily to any
you an overview of the end-to-end supply chain at a glance. You new regulatory requirements. Any type of data can be accessed
can access inventory and assets, such as equipment, at any time. quickly and easily for auditing or analysis. And companies save a
You also have a data repository you can mine for analytics, including fortune in the process because of the efficiencies inherent in pa-
big data, to help you plot the growth of the company. perless processes.
Centralizing business data also helps you contain your compli- Every business runs on information, and effectively managing
ance costs by providing total transparency into operations. Using business processes and automation is the best way to harness that
the ERP system to map transactions, assets, and operations to local information to power your company toward a successful future.
regulatory requirements makes it easy to spot anomalies or issues
that could lead to non-compliance.
ERP AND RISK AVOIDANCE Richard Slack is president and CEO of Oildex. He has
A well-designed ERP system simplifies regulatory compliance more than 30 years of experience developing, mar-
across the board. The ERP system becomes the companys insur- keting, and selling software products and services to
ance policy and the centralized resource to promote risk the oil and gas industry. He holds a bachelors degree
avoidance. in geology from the University of California and a
Using digital transactions and tracking to manage the entire masters degree in geophysics from the University of
operation means that your staff and legal representatives have Houston.
immediate access to information they might need for an audit or


SEC comments


When sorrows come, they come not single spies, but in battalions.
William Shakespeare, Hamlet (Act IV, Scene V)

There are moments when everything goes well, but dont be frightened, it wont last.
French author Jules Renard

THE STEEP DECLINE in crude oil and natural gas prices begin- Corporation Finance of the Securities and Exchange Commission
ning in October 2014 generated a depressed price environment (SEC), the group responsible for reviewing public E&P companies
that continued throughout 2015. The weakened market condition filings and monitoring their compliance with the oil and gas
has seriously impacted many exploration and production (E&P) disclosure rules of the SEC.
companies and their employees, shareholders, lenders, customers This article is the latest in a series of articles summarizing
and suppliers. It has also impacted the work of the Division of the Divisions staff reviews of E&P companies SEC filings. The


staff expresses its views on how reporting E&P companies are (6/21/15); Emerald Oil (5/22/15); Royal Dutch Shell (11/10/14);
complying with the SECs oil and gas disclosure rules in comment Isramco (9/17/14)), and (ii) specific disclosures about material
letters it issues to the companies. These comment letters (and changes in their PUDs over the prior year, addressing investments
the companies responses to those comments) are made publicly and progress (including capital expenditures) made to convert
available on the SECs EDGAR system, but not sooner than at PUDs into proved developed reserves (see, e.g., Atlas Resource
least 20 business days after the date that the staff has completed Partners LP (5/22/15); Petrobras Argentina SA (1/6/15); Black
its review of the filing. Ridge Oil & Gas (12/30/14); Eagle Rock Energy LP (12/29/14);
Roughly speaking, this article covers comment letters and Warren Resources (9/24/14); Statoil ASA 9/19/14)).
company responses made publicly available during the period Where a companys PUDs had increased 37% in a year, but
beginning in the late summer of 2014 and continuing into Oc- its projected future development costs had increased only 3%,
tober 2015. the staff requested clarification (Hydrocarb Energy (3/18/15);
see also, Marathon Oil (6/14/14), where the company had re-
HIGHLIGHTS OF 2014-15 REVIEW PERIOD ported a slight decrease in future development costs while its
Staff comments during 2014-15 were, for the most part, typical estimated PUD quantities had increased). The staff also raised
of comments issued in prior periods. However, there were two questions where companies held a significant amount of unde-
notable developments during 2014-15: veloped acreage under leases that would expire within a short
First, the decline in commodity prices appeared to drive the time. In those instances, the staff inquired as to the extent to
content of many staff comments in late 2014 and throughout which PUDs had been assigned to locations on the undeveloped
2015. Increasingly, the staff asked companies to provide ad- acreage that were scheduled to be drilled after the subject leases
ditional disclosures about potential impacts of the lower expired (see, e.g., Pioneer Natural Resources (7/15/15); Matador
commodity prices on their results of operations, financial Resources (6/20/15); Stone Energy (9/28/14); LRR Energy LP
condition, proved reserves and the carrying values of their (9/8/14); Laredo Petroleum (8/20/14); Resolute Energy (7/28/14)).
oil and gas properties. Surprisingly, there continued to be many comments identi-
Secondly, the staff issued numerous comments to companies fying, and asking companies to reconcile, discrepancies between
that had disclosed recurring changes to their development information disclosed in the text of companies filings and in-
plans for their proved reserves. Whenever it appeared that a formation contained in the accompanying third-party reserves
company continued to modify development plans for its report (e.g., Evolution Petroleum (3/18/15); VOC Energy Trust
proved undeveloped reserves (PUDs) from period to period (9/24/14); Isramco (9/17/14); Resolute Energy (7/28/14)).
without explanation, the staff called into question whether
the estimated PUDs on the companys books at a fiscal year IMPACT OF REDUCED COMMODITY PRICES
end had truly been estimated to have reasonable certainty Impact of lower prices on reserve estimates and impairment
that they would be economically producible and drilled within testing
the next five years. A key area of concern for the staff during 2015 was the extent
These two developments are described separately in more to which reduced prices for oil and gas production had weakened
detail below. the financial condition of E&P companies.
Since 2010, companies development of their PUDs has been During the year, the staff asked companies to provide addi-
the principal disclosure topic addressed by the staff, and 2014-15 tional disclosure about potential impacts of the lower oil and
proved to be no exception (see, e.g., Apache (6/29/15); Vanguard gas price regime on their (i) results of operations, financial
Natural Resources LLC (6/29/15); Matador Resources Co. condition, cash flows, liquidity and capital resources; (ii) proved
(6/25/15); Warren Resources (9/24/14); TransAtlantic Petroleum reserve quantities and the value of those reserves; and (iii) pe-
Ltd. (9/17/14)). riodic testing for impairment of carrying values of their oil and
SEC rules permit undrilled locations to be classified as having gas properties for financial accounting purposes.
undeveloped reserves only if a development plan has been ad- Importantly, many of these comments requested companies
opted indicating they are scheduled to be drilled within five to quantify the impact of the low commodity prices on their
years, unless specific circumstances justify a longer time. Un- estimated proved reserves and the standardized measure of
drilled reserves that have remained booked as PUDs for more discounted future net cash flows relating to those reserves (the
than five years, as well as newly added PUDs that will not be standardized measure). Many companies initially resisted any
drilled in five years, should not be included in the proved quantification, contending that estimating the impact of lower
category. prices on proved reserves and carrying values would be imprecise
A related topic for many comments during 2014-15 was the and subjective, and based only upon abstract estimates of future
requirement under SEC rules and financial accounting standards prices, production, costs and other factors.
for companies to provide (i) a tabular presentation in sufficient In rebutting these arguments, the staff relied on an SEC 2003
detail on the various causes for the changes in their proved re- interpretive release that provides guidance for companies pre-
serves from year to year (see, e.g, Berry Petroleum Company LLC paring the Managements Discussion and Analysis of Financial


Condition and Results of Operations (MD&A) section of their assumptions. The company suggested using a simple average
periodic reports filed with the SEC. MD&A disclosures are in- price calculated over a 12-month period, based upon actual
tended to provide a narrative explanation of companies financial commodity prices available for the nine months preceding
statements that enables investors to see the company through the particular reporting date, and prices reasonably available
the eyes of management. after the end of that reporting period held constant for the
In their comments, the staff highlighted particular portions remainder of such 12-month period (EXCO Resources (re-
of the release that encouraged a company to (i) provide an in- sponse letter 7/9/15)).
troductory section in its MD&A summarizing the most important Another company disclosed in the MD&A in its 2015 second
matters on which its management focuses in evaluating financial quarter report that it anticipated a ceiling test writedown in
condition and operating performance; (ii) identify known trends, its 2015 third quarter. It stated that by changing the 12-month
demands, commitments, events and uncertainties and assess average price to an estimated third quarter-ending average
their impact on the companys liquidity, capital resources or price (holding July 2015 prices constant for the remaining
results of operations; and (iii) address uncertainties associated two months), it would recognize a 2015 third-quarter impair-
with assumptions underlying the companys critical accounting ment of approximately $300 million, partially caused by a
estimates. decrease in its PUDs of approximately 23% (Unit Corp. (re-
A typical staff comment requesting quantification in accor- sponse letter 8/13/15)).
dance with this release asked whether the subject company had Chesapeake Energy Corp. reported in its 2015 second quarter
considered providing more extensive discussion (including report that as of June 30, 2015, it had incurred a ceiling test
quantification) of the impact of current commodity prices on impairment charge of $5.015 billion. In response to ongoing
its liquidity, capital resources and results of operations, partic- staff comments, the company also disclosed in its second
ularly addressing its drilling plans and accounting estimates quarter report its expectations for the commodity prices to
related to its ceiling test and reported reserves volumes (Gulfport be used in the calculation of discounted future net revenues
Energy (3/30/15)). for 2015s third quarter (Chesapeake Energy (response letter
In response to these comments, companies provided the staff 8/18/15)).
with estimates illustrating quantified effects of lower commodity Based on first-of-the-month index prices for July and August
prices, principally by applying modified pricing assumptions. 2015 and the then-current strip prices for September 2015,
For example, to illustrate the effect of continuing low prices, the company estimated a decrease of approximately $12.31
some companies proposed using sensitivity-analysis type per barrel of oil and $0.33 per Mcf of natural gas in the prices
disclosures in their MD&As that would substitute New York it would use to calculate estimated future net revenue of
Mercantile Exchange (NYMEX) commodity strip prices as of its proved reserves at September 30, 2015. These expected
a more recent date in lieu of the SEC-required average of the price decreases were expected to reduce the present value
first-day-of-the-month prices for the prior fiscal year. of estimated future net revenues of its proved reserves by
One company stated that if the relevant NYMEX commodity approximately $4.1 billion in the third quarter, and would
strip price as of December 31, 2014 had been used instead likely be a significant factor in the amount of impairment
of the average price for 2014, the estimated future net rev- to be recorded at September 30, 2015. It also said it expected
enues of the companys proved reserves and estimated a further reduction of approximately 8% in its estimated
proved reserve volumes as of December 31, 2014 would proved reserves in 2015s third quarter, solely related to
have decreased by approximately 43% and 6%, respectively price declines.
(Breitburn Energy Partners LP (response letter dated See also, Cimarex Energy (7/13/15); Halcn Resources
7/30/15)). (2/26/15).
Another company amended its 2014 annual report and Another company disclosed in its 2014 Form 10-K that con-
added disclosure in its MD&A to report that if the company tinued low oil and gas prices could reduce the amount of
had used year-end 2014 NYMEX calendar year forward hydrocarbons it could produce economically. The staff asked
contract strip prices instead of the average price for 2014, the company to provide quantitative disclosure addressing
the present value (applying a 10% discount) of estimated the impact of low prices to its reserves that would reflect
future net revenues of its proved reserves would be approx- potential scenarios it deemed reasonably likely to occur. The
imately 63% less, and its total proved reserve equivalent company suggested proposed disclosures showing the impact
volumes would be about 24% smaller ((Penn Virginia (re- to proved reserves at year-end 2014 of a $1.00 per MMbtu
sponse letter dated 6/23/15)). decline in natural gas prices and a $6.00 per barrel decline in
After much correspondence back and forth, a company agreed crude oil prices. The staff replied that in its view, the companys
that going forward, whenever ceiling test impairments were proposed disclosure did not reflect potential scenarios that
expected and its proved reserves were to be revised downward, its management deemed reasonably likely to occur (Vanguard
it would provide disclosures in its periodic reports illustrating Natural Resources LLC (7/20/15)).
the effects of the change in prices by applying updated pricing In response, the company added disclosures in its 2015


second quarter report ( filed in August 2015), which disclosed assumptions used in formulating the companys PUD devel-
a quantified decrease in its total proved reserves as of June opment schedule (Apache (6/29/15)).
30, 2015 by applying the 5-year NYMEX forward strip prices The company replied that it had rescheduled 561 PUD lo-
as of July 20, 2015 (Vanguard Natural Resource LLC (response cations to future periods as a result of its planning process,
letter 8/6/15)). and that due to the volatile oil price environment, its de-
The staff asked a company to explain whether it had taken velopment schedule had utilized several pricing assumptions
steps to address risks associated with the volatility in com- to assess availability of capital and drilling activity. It con-
modity prices, and to describe the types of its derivative firmed to the staff that in future filings, whenever future
contracts intended to mitigate its exposure to the price chang- development plans for undeveloped reserves assumed in-
es, the duration of those contracts, how current market con- creases in commodity prices, it would disclose that assump-
ditions could affect its ability to enter into similar instruments tion and present the volumes that would not be developed
and the potential impact those circumstances may have on if the price increases did not occur (Apache (response letter
its future revenues (Black Stone Minerals LP (4/2/15)). In 9/25/15)).
response, the company disclosed in an amendment to its
registration statement the percentages of budgeted oil and Impact on credit facilities
natural gas production for 2015 covered by costless collars The staff often requested expanded disclosures where a company
and fixed-rate swaps, and their weighted-average floor and had disclosed potential impacts of continuing low commodity
weighted-average fixed prices, but cautioned that revenues prices on its credit facilities.
from its production not currently hedged could decline sig- One company was asked to provide quantitative disclosure
nificantly if market prices for oil and natural gas did not recover about the expected impact of lower prices on its borrowing
(Black Stone Minerals LP (response letter 4/10/15)) base, and the steps the company intended to take to address
Other companies receiving comment letters in 2015 requesting uncertainties with respect to its liquidity (Black Stone Minerals
additional information (including quantitative disclosure) about LP (4/2/15)).
the expected impact of lower commodity prices include the Where another company disclosed possibilities of a reduction
following: Energy XXI Ltd.; EQT; Continental Resources; Legacy in the borrowing base under its revolving credit facility if the
Reserves LP; BP plc; Cobalt International Energy; Cabot Oil & decline in commodity prices continued, the staff asked the
Gas; Matador Resources; Apache; Gran Tierra Energy and Eclipse company to provide additional disclosure addressing the
Resources. In their comments, the staff did not differentiate extent to which the borrowing base could decrease based on
between companies using the successful efforts method of ac- expected oil and gas reserve values and other relevant factors
counting (see, e.g., Continental Resources; Penn Virginia; Cabot (Energy XXI Ltd. (4/3/15)).
Oil & Gas) or those using the full cost method (see, e.g., Cimarex A 2014 Form 10-K MD&A disclosed that a credit rating down-
Energy; Apache; Chesapeake Energy; Halcn Resources). grade could result in the companys counterparties requiring
it to post additional collateral under its existing contracts.
Impact on capital expenditures and development plans The staff asked whether the company had considered dis-
The staff also asked companies that had disclosed reduced closing information about the nature of the contracts, the
capital expenditure budgets for 2015 due to the lower-price collateral posted and the incremental collateral requirements
environment to provide disclosures about PUDs that would not that would result from a downgrade. In reply, the company
be developed as a result of the changes in economics. stated that it had concluded its liquidity was sufficient to
A typical comment asked whether a companys reduced cover the additional collateral that could be required, but
capital spending plan had been based on the assumption that that it would, beginning with its 2015 third quarter report,
commodity prices would stay at current levels, and requested disclose information addressing this risk in its MD&A, and
explanation of how a continuation of the low-price environ- provide additional detail about its collateral requirements,
ment would impact the companys ability to convert its PUDs including the types of information requested by the staff
in a timely manner. EQT (8/3/15); see also, Berry Petroleum (Black Hills (response letter 9/29/15)).
Company LLC (7/21/15); Cimarex Energy (7/13/15); Eclipse
Resources (5/20/15); Gulfport Energy (3/30/15). Recurring Modifications to Development Plans
The staff noted that one companys 2014 Form 10-K had Where companies changed their development plans for their
disclosed significant reductions in its drilling activities and PUDs from period to period without adequately disclosing their
capital expenditures planned for 2015, but that despite those reasons for doing so in other words, PUDs attributable to
reductions, it had apparently not removed any of its PUDs different drilling locations being moved into and out of the
during 2014. The staff asked whether any of the companys companies estimated proved reserves from year to year with
PUDs reported at 2014 year-end included quantities that had no explanation the staff called into question whether the PUDs
been delayed, deferred or re-scheduled to future periods as a when booked had truly been estimated as having reasonable
result of the planned reductions. It also requested pricing certainty that they would be economically producible and


drilled within five years. The definition of proved oil and gas 2013 and 2012, respectively (Atlas Resource Partners LP
reserves contained in the SECs Regulation S-X requires that (5/22/15)).
reserves be estimated with reasonable certainty to be econom- The staff requested an explanation of the companys pro-
ically producible from that date forward, from known reservoirs cesses in preparing its annual reserves estimates, including
and under then-existing economic conditions, operating methods processes intended to ensure that PUDs were claimed only
and government regulations, and prior to lease or concession for locations where a final investment decision had been
expiration. made, and processes that took into consideration changes
For an undrilled location to be classified as having undevel- to previously-adopted development plans and the reason-
oped reserves that can be booked as PUDs, the SEC requires able certainty criteria.
that there be a development plan adopted by the company in- In its response, the company provided the staff with a
dicating that the location will be drilled within five years, unless reconciliation of the reserve volumes that had been removed
specific circumstances justify a longer time. Staff guidance each year to the amount of the affected volumes in the
provides that the mere intent to develop those PUDs by itself respective fiscal years in which those volumes had been
does not constitute adoption of a development plan, and by initially disclosed. The company also replied that its removal
itself would not justify recognition of reserves. According to the of PUDs from locations in one of its shale plays had been
staff, adoption of a development plan requires a final investment the result of more favorable well economics related to new
decision made by the producer. PUD locations it had acquired during the most recent year,
In 2014-15, the staff issued a number of comment letters to compared to the now less-favorable well economics of the
companies that apparently had made numerous changes to older shale play locations (Atlas Resource Partners LP
their development plans, interpreting those changes as a lack (response letter 6/30/15)).
of commitment by those companies to their previously approved The Form 10-K for a companys fiscal year ended June 30,
plans and calling into question the reasonable certainty of their 2014 indicated low annual conversion rates for its PUDs for
reported reserves. In many of these letters, the staff also requested each of the prior five fiscal years. The staff requested infor-
whether the companies internal controls over their reserves mation about the extent to which the company had historically
estimation process were effective. rescheduled the drilling of its PUD wells (Energy XXI Ltd.
For example, one company was asked about the processes 12/12/14)). It also noted the companys reduced capital ex-
through which its historical PUD conversion rates and the penditure budget and its potential liquidity constraints over
changes to its previously adopted PUD development plans the term of the development schedule. In later comments,
had been taken into account when determining whether its the staff asked the company how the impact of the changes
current years PUD quantities had met the reasonable certainty to its development schedule that it had assumed for its June
criteria. In response, the company modified the internal 30, 2014 reserve report, and the factors that caused these
controls it used in its reserve estimation process and described changes (such as well economics and the five-year rule for
those changes in its 2014 Form 10-K, which included imple- PUD development), had been considered in order to ensure
mentation of a PUD Review Committee comprised of senior that its reported PUDs were limited to quantities that were
executives and its reservoir engineering manager (Petroquest reasonably certain to be developed within five years of their
Energy (response letter 3/2/15)). initial booking (Energy XXI Ltd. (5/29/15)).
According to the company, the PUD Review Committee In another companys 2014 annual report, the staff noted that
would review all PUD locations in terms of technical and the drilling schedules for a significant majority of the com-
financial merit, but it also would apply a more robust eval- panys PUD locations included in its reserves totals for 2012
uation of the timing and reasonable certainty of the com- and 2013 had been changed at least once, and in some cases
panys development plan in light of all known circumstances, up to four times, over the periods they had been included as
including its budget, the market outlook and the location booked PUDs. The staff also observed that in each of fiscal
of ongoing drilling programs. The Committee would evaluate 2011, 2012 and 2013, the companies development activity
the reasonable certainty of the companys development with respect to its PUDs, expressed as a percentage of total
plan by assessing near-term drilling plans for its PUDs, and PUD volumes disclosed as of the beginning of that year, had
reviewing deviations to its previously adopted development been very low (Penn Virginia (4/24/15)). Also noted were
plans and its historical PUD conversion rates. See also, inadequacies in the information the company had provided
Eclipse Resources (4/22/15). its audit committee upon completion of its year-end reserve
In another companys 2014 Form 10-K, the staff noted down- report, because it addressed only high-level material changes
ward revisions to the companys PUDs for each of its 2014, to its development plans. The company amended its 2014
2013 and 2012 fiscal years. In the staff s view, these revisions annual report, providing additional disclosures about its PUDs
represented reversals of the companys prior investment development plan and internal controls procedures.
decisions for its PUDs for approximately 39%, 24% and 27% The company described several factors that had impacted
of the total PUDs it had disclosed at the beginning of 2014, its PUDs conversion rates. The drop in oil prices in the


second half of 2014 had significantly affected its Eagle Ford they resulted in material changes in its previously reported
development plan, which resulted in the companys deferring reserves or its standardized measure. The company so
the development of certain PUDs in order to concentrate complied in its 2014 Form 10-K filed with the SEC on Feb-
its capital on locations having potential for higher economic ruary 27, 2015 (Gulfport Energy (response letter 3/3/15)).
returns. The staff appeared to be more sympathetic where third party
It also disclosed that it had implemented internal controls operators had the power to make changes to a companys
procedures for its personnel to provide its audit committee development plan for its non-operated properties. There, the
and board of directors with detailed information about staff asked the company to add disclosure regarding the
expected material changes to its PUDs resulting from de- circumstances surrounding the third-party operators deci-
velopment plan changes, including an accounting of PUD sions and the extent to which the companys management
locations that were deferred or written off as a result of the expected that the same circumstances may occur again in
changes (Penn Virginia (response letter 6/23/15)). the future (Vanguard Natural Resources (10/6/14)).
Another company contended that its management was ca-
pable of making real-time adjustments to its development ABOUT THE AUTHOR
plans that modified both the identification of PUD locations Marc Folladori serves as Senior Counsel at Haynes
and the timing for their scheduled drilling. It asserted that it and Boone LLP in Houston. He has represented
needed to periodically re-optimize its development plans business clients in transactional matters for more
and make alterations based on factors such as new data from than 40 years, focusing on securities law, mergers
recently completed wells, changes in projected commodity and acquisitions and corporate governance.
prices and infrastructure availability. These arguments were
not persuasive to the staff (Gulfport Energy (1/29/15)). The author wishes to acknowledge the contributions made in
connection with the preparation of this article by Judithe Little,
The staff asked the company to expand its disclosures to Counsel, at Haynes and Boone LLP in Houston.
identify and discuss the effects of its adjustments whenever












Owned & produced by: Presented by: Supported by:














Devon strikes again at years end

with $2.5 billion in buys

THE US UPSTREAM MARKET experienced an upswing in Rosetta ($12,500/acre), Diamondback/Cobra ($25,000/acre)

deal activity heading toward years end, led by $2.5 billion in and Yantai Xinchao/Tall City ($8,500/acre).
acquisitions from Devon Energy. Devon gave the deal markets Felixs well results demonstrate why the STACK play may
a similar boost toward the end of 2013 when it acquired Geo- be able to compete with the Permian. Almost all of Felixs
Southerns Eagle Ford assets for $6.0 billion, but this time it is leasehold is concentrated in the oil window of both the Mera-
upgrading existing positions to become the industrys leading mec and the Woodford, de-risked and in full development
leaseholder in Oklahomas emerging STACK play and Wyo- mode. In an August presentation, Felix touted its 2015 pro-
mings Parkman/Turner play. gram as consistently achieving IRRs above 40% with its last
In the STACK deal, Devon is acquiring the best-in-class three wells showing RORs from 35% to 70% based on $50 oil
assets of privately held Felix Energy for $1.9 billion, marking and $3 gas. Its first 13 operated Meramec wells had IP rates
the third-largest deal this year in the US upstream sector, after averaging 1,341 boe/d (83% liquids) from 1-mile and 2-mile
Noble Energys $3.9 billion acquisition of Rosetta Resources laterals, tracking a 1.36 MMboe EUR (75% liquids).
and WPX Energys $2.8 billion RKI E&P buy. Devon estimates Nonetheless, Devon CEO Dave Hager said the deal would
it is paying $20,000 per acre for Felixs 80,000-net-acre Wood- not have been possible if Devons midstream MLP affiliate En-
ford and Meramec position after allocating $33,300 per boe/d Link Midstream wasnt simultaneously agreeing to acquire
for 9,000 boe/d in existing production. In 2015s stilted deal Midcontinent gathering company Tall Oak Midstream for
market, PLS Inc.s proprietary valuation analytics indicate that $1.55 billion. Felixs entire acreage position is dedicated to Tall
only the core of the core of resource plays, heavily weighted Oaks gathering and processing assets. We leveraged the mid-
to the Permian, have commanded value for undrilled acreage. stream relationship to secure the Felix transaction, Hager
Examples of Permian acreage values in 2015 include Noble/ said on a conference call. And the EnLink relationship gave us

PLS INC. MONTHLY DEAL MONITOR 11/17/15 - 12/16/15


Date Value
Announced Buyer Seller ($MM) Asset Location Deal Type O/G
10-Dec-15 Otto Energy Byron Energy $17 Gulf of Mexico: Shelf Farm-In/Farm-Out Oil + Gas
9-Dec-15 Parsley Energy PetroCore $149 Texas: Permian Property Oil + Gas
7-Dec-15 Devon Energy RKI $600 Rockies: Wyoming Property Oil
7-Dec-15 Devon Energy Felix Energy $1,900 Mid-Con: STACK Play Property Oil + Gas
IOG Capital;
2-Dec-15 National Fuel Gas $380 Pennsylvania: Marcellus JV Gas
Fortress Investment Group
Total $3,046


Date Value
Announced Buyer Seller ($MM) Asset Location Deal Type Asset Type
New Source Energy
16-Dec-15 Erick's Holdings $45 US: Multiple Asset Production Services
30-Nov-15 Quatrro E&P SRD Innovations $3 Canada Corporate Seismic Services
26-Nov-15 Shawcor Flint Field Services $27 Canada Asset Pipe inspection
Total $75
Prepared by PLS Inc. For more information, email memberservices@plsx.com
Validity of data is not guaranteed and is based on information available at time of publication.



a strategic advantage in this transaction. We would not have WPX announced it was acquiring RKI in July, it said the Pow-
been able to place the value on Felix we did unless EnLink der River assets would not be part of the deal but rather would
controlled the midstream. Both Felix and Tall Oak are backed be divested or spun off prior to closing.
by private equity firm EnCap Investments. To fund the cash portion of these acquisitions and strength-
The acquisition by EnLink provides an unusually quick en its financial position, Devon is planning $2-3 billion in asset
turnaround for EnCaps Tall Oak investment. The gathering sales next year including its Access pipeline system in Canada
firm launched in early 2014 with a $100 million initial equity (in which Devon has $1 billion invested) and non-core up-
commitment from EnCap Flatrock Midstream, a JV formed in stream properties producing 50,000-80,000 boe/d (~50% liq-
2008 between EnCap and Flatrock Energy Advisors. That uids). Upstream assets being considered for divestment in-
commitment was later increased to $400 million. The com- clude Carthage field in East Texas, the Mississippi Lime, the
pany has two gathering and processing systems serving west- Granite Wash and portions of the Midland Basin. On the con-
central Oklahomas STACK play and the Central Northern ference call, Hager noted that Devon repaid all the debt taken
Oklahoma Woodford or CNOW play, both supported by long- on for its GeoSouthern acquisition within one year using non-
term, fixed-fee contracts with acreage dedications averaging core divestment proceeds.
15 years. Felix is the largest of Tall Oaks 15 customers. Devon has already executed one of these non-core sales
In Wyoming, Devon is acquiring 253,000 net acres in the less than two weeks after announcing the program. Coming
Parkman oil fairway with wells producing 7,000 boe/d (85% back into the buyside of the market, BP agreed to buy Devons
oil) for $600 million. After attributing $100 million of the deal assets in the San Juan Basin. The bulk of the acquisition con-
value to acquired midstream assets and backing out produc- sists of Devons operated stake in the Northeast Blanco Unit, a
tion at $30,000 per boe/d, Devon estimates it is paying $1,100 33,000-acre coalbed methane project with 480 wells on federal
per acre for undeveloped leaseholdnotable in a 2015 deal land in San Juan and Rio Arriba counties, New Mexico. The
market where assets have often sold for the value of their ex- deal adds to BPs existing 550,000-acre position in the area
isting production alone. where it has been active since the 1920s. Market watchers will
Devon will pay $300 million cash to sellers NewWoods Pe- note that this marks the first acquisition in more than seven
troleum, Renos Land & Minerals and REMI Midstream and years for BPs Lower 48 onshore unit, which began operating
issue shares valued at $300 million to NewWoods, according as a separate business headquartered in Houston early this
to an SEC filing. NewWoods is a portfolio company of First year.
Reserve and the successor of Permian driller RKI E&P. When


Date Value
Announced Buyer Seller ($MM) Asset Location Deal Type O/G
10-Dec-15 Raging River Exploration Anegada Energy $93 Canada: Viking Corporate Oil + Gas
4-Dec-15 Edge Natural Resources Canamax Energy $61 Canada: Multiple Corporate Oil + Gas
24-Nov-15 Rockhopper Exploration Falkland Oil & Gas $93 Falkland Islands Corporate Oil + Gas
23-Nov-15 BG Group Noble Energy $165 Cyprus Property Gas
19-Nov-15 Bowleven Aminex, Solo $28 Tanzania Property Oil + Gas
Total $440


Date Value
Announced Buyer Seller ($MM) Asset Location Deal Type Asset Type
16-Dec-15 Tallgrass Energy Partners LP Whiting Petroleum $75 US: Rockies Asset Water Handling
7-Dec-15 EnLink Midstream Tall Oak Midstream $1,550 US: Oklahoma Corporate Gathering/Processing
1-Dec-15 Snam Statoil $137 Europe Asset Pipeline
Kinder Morgan; Brookfield
30-Nov-15 Myria Holdings $242 US: Multiple Corporate Pipeline
24-Nov-15 SemGroup Undisclosed $29 Canada: Alberta Asset Gathering/Processing
Total $2,033


Private company update

INDEPENDENT RESEARCH firm IHS has provided OGFJ with were well aware of the value of their acreage. However, it is becoming
updated production data for the OGFJ100P periodic ranking of more difficult for smaller players to reinvest capital given lower
US-based private E&P companies. The rankings are based on oper- cash flows, longer payback periods, and costly borrowing options.
ated production only within the US. As a result, they are being forced to choose between taking on more
expensive debt or divesting their assets. As more choose the latter,
TOP 10 additional opportunities could present themselves in the Midland
Since the October 2015 installment of the OGFJ100P, there has Basin, the analysts said.
been little movement in the Top 10 by BOE production. The same Effective September 15, Comancheria Energy Resources LLC
holds true when you break out the Top 10 private gas producers. acquired Leor Resources LLC and its subsidiary companies. Terms
J-W Operating Co. moved up one spot from its previous rank as of the deal were confidential, but Comancherias president and
the No. 8 gas producer to No. 7. Coincidentally, the Texas-based CEO, Kenton Holliday, offered that the acquisition affords the
company moved up one spot in the overall BOE list from No. 20 company an excellent, balanced portfolio, continuing that the oil
to No. 19. Walter Oil & Gas Corp. dropped out of the Top 10 gas and gas properties have value with respect to a balance of different
producers list, where it previously held the No. 10 spot. More activ- play types, a balance of product types, and balance regarding a
ity took place in the liquids arena. Mewbourne Oil Co. and Hilcorp range of target depths. The East Texas location of the Leor proper-
Energy Co. dropped in the list of Top 10 private liquids producers ties fall into Comancherias primary focus on East Texas opportuni-
from their previously held No. 2 and No. 3 positions, respectively. ties. Comancheria, whose founding members comprise the former
Mewbourne now rests at No. 3 in the liquids space, and Hilcorp upper management team of Leor Resources, is based in Houston,
holds the No. 4 spot. Petro-Hunt moved up from its previous No. TX.
4 spot in the Top 10 liquids producer list to the current No. 2 seat.
The biggest liquids mover is Slawson Exploration Co., which moved AGREEMENTS
from No. 10 in October to No. 5 in this installment. Merit Energy In mid-October 2015, Repsol and privately-held Armstrong Oil &
Co. rounds out the Top 10 in the liquids space, while Sheridan Gas Inc. announced their agreement to realign interests in their
Production Co. LLC fell below the list of Top 10 liquids Alaska North Slope exploration and development venture. The
producers. confidential agreement included a combination of cash, operational
control, drilling commitments, and contractual adjustments for
M&A monetary considerations in excess of $800 million. Per the restruc-
Private companies are beginning to feel the squeeze, said Wun- tured agreement, Armstrong acquired a 15% working interest (to
derlich Securities analysts in a mid-November report following add to its 30%) in the initial development area near the Colville
news of RSP Permians $137 million acquisition of oil and gas River Delta where the majority of exploratory and appraisal drilling
producing properties in the Midland Basin from Wolfberry Partners activities have been carried out.Armstrong has the option to acquire
Resources LLC. At the time, Wunderlich analysts noted, RSP Perm- an additional 6% and assume operatorship in the development
ians most recent deals involved private parties. Many of the sellers area. Armstrong also acquired a 45% working interest (to add to


100P 100P
Rank Rank Company Gas (Mcf) Rank Rank Company Liquid (bbl)
1 2 Chief Oil & Gas LLC 205,079,198 1 4 LLOG Exploration Co. 13,385,371
2 1 Hilcorp Energy Co. 156,854,926 2 8 Petro-Hunt Group 8,644,392
3 3 Samson Investment Co. 134,339,766 3 6 Mewbourne Oil Co. 8,467,027
4 5 Merit Energy Co. 80,532,751 4 1 Hilcorp Energy Co. 8,443,246
5 6 Mewbourne Oil Co. 61,423,701 5 11 Slawson Exploration Co. 7,556,986
6 4 LLOG Exploration Co. LLC 47,683,210 6 14 Citation Oil & Gas Corp. 7,174,352
7 19 J-W Operating Co. 45,505,072 7 17 Hunt Oil Co. 6,316,638
8 7 Yates Petroleum Corp. 44,449,604 8 7 Yates Petroleum Corp. 6,286,200
9 16 Templar Energy LLC 37,312,898 9 9 Endeavor Energy Resources LP 6,273,352
10 21 Indigo Minerals LLC 31,097,607 10 5 Merit Energy Co. 5,878,297
Source: IHS Source: IHS



MAY 17-19, 2016

20 International Conference on Petroleum Data MARRIOTT HOUSTON WESTCHASE
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its 30%) and operatorship in the jointly owned exploratory lands announced a joint venture with Tulsa, OK-based Nadel and Guss-
(750,000+ acres). It is anticipated that Armstrong, after exercising man LLC, combining the two companies acreage and reserves in
its 6% option, will own 51% and Repsol 49% in the development southern Eddy and Lea counties in New Mexico. The combined
area, and Armstrong 75% and Repsol 25% in the exploration area. position consists of an acreage footprint of 50,000 net acres, and
As part of the agreement, the planned 20152016 winter appraisal 5,500 boe/d of operated production.
drilling campaign has been deferred. Over the last four years, the BC will assume operatorship of the combined acreage including
venture has drilled 16 wildcat and appraisal wells on the North all existing wells. The position has multiple targets in the Permian
Slope. Basin including Wolfcamp, Avalon, Delaware, and Bone Spring
Armstrong and Repsol are in the early stages of developing their production. BC expects to run at least one drilling rig in 2016 and
new discoveries in the Colville River Delta area located between expects to add more acreage.
the 3.5-billion-barrel Kuparuk River Field and the 700+-million- BC and Nadel and Gussman are both privately held. BC is the
barrel Alpine Field. Permitting work is ongoing for a three-pad operating company for and owned equally by Crump Energy
development. Field production rates are estimated to be on the Partners II LLC and Crown Oil Partners V LP. Crump is supported
order of 120,000 barrels of oil per day. by Quantum Energy Partners; Crown is financially partnered with
In late November 2015, Midland, TX-based BC Operating Inc. Post Oak Energy Capital and Wells Fargo Energy Capital.


Rank Company BOE Total wells Largest field

1 Hilcorp Energy Co. 34,585,734 3,432 Caillou Island

2 Chief Oil & Gas LLC 34,181,090 251 unknown

3 Samson Investment Co. 27,069,191 3,266 Ignacio-Blanco

4 LLOG Exploration Co. LLC 21,332,573 38 Mississippi Canyon Block 0546

5 Merit Energy Co. 19,300,422 5,267 Painter Reservoir East

6 Mewbourne Oil Co. 18,704,311 1,903 Pan Petro

7 Yates Petroleum Corp. 13,694,467 3,079 unnamed

8 Petro-Hunt Group 11,220,512 448 Clear Creek

9 Endeavor Energy Resources LP 9,812,108 5,154 Spraberry

10 Sheridan Production Co. LLC 8,918,892 4,060 Fuhrman-Mascho

11 Slawson Exploration Co. Inc. 8,783,520 415 Big Bend

12 Bass Companies 8,764,175 1,014 Wildcat

13 Texas Petroleum Investment Co. 8,480,452 1,616 Atchafalaya Bay

14 Citation Oil & Gas Corp. 8,340,389 2,660 Sho-Vel-Tum

15 Fasken Oil and Ranch Ltd. 8,290,059 1,182 Spraberry

16 Templar Energy LLC 8,192,385 895 Stiles Ranch

17 Hunt Oil Co. 8,116,231 840 Eagleville

18 Walter Oil & Gas Corp. 7,899,663 705 Ship Shoal Block 0189

19 J-W Operating Co. 7,662,511 1,202 Caspiana

20 CrownQuest Operating LLC 6,855,684 682 Spraberry

21 Indigo Minerals LLC 5,481,383 707 Bethany Longstreet

22 Valence Operating Co. 4,967,131 633 Carthage

23 Reliance Energy Inc. 4,551,446 417 Spraberry

24 Kaiser-Francis Oil Co. 4,479,644 1,237 Silo

25 Castex Energy Inc. 4,440,092 47 Atchafalaya Bay

26 Vantage Energy LLC 4,228,629 230 Newark East

27 Zavanna LLC 4,214,750 102 Williston

28 Ballard Exploration Co. Inc. 3,890,809 67 Yellow Rose


Rank Company BOE Total wells Largest field

29 Red Willow Production Co. 3,433,451 364 Ignacio-Blanco

30 Border To Border Exploration LLC 3,422,138 92 Beech Grove

31 Square Mile Energy 3,191,842 42 Glasscock

32 Pruet Production Co. 3,044,957 220 Brooklyn

33 Jetta Operating Co. Inc. 2,992,462 399 Two Georges

34 Alta Mesa Holdings LP 2,945,132 186 Weeks Island

35 Ankor Energy LLC 2,935,696 117 Ship Shoal Block 0230

36 BASA Resources Inc. 2,836,503 3,039 East Texas

37 Tidelands Oil Production Co. 2,779,920 515 Wilmington

38 MacPherson Oil Co. 2,768,952 481 Round Mountain

39 Stonegate Production Co. LLC 2,746,270 109 Eagleville

40 White Oak Energy LP 2,731,693 910 Beccero Creek

41 Tana Exploration Co. 2,731,440 135 Pine Prairie

42 J. Cleo Thompson & James Cleo Thompson, Jr. 2,690,525 1,108 Wolfbone

43 Summit Petroleum LLC 2,566,413 449 Spraberry

44 Burnett Oil Co. Inc. 2,558,195 347 Loco Hills

45 GeoSouthern Energy Corp. 2,551,895 142 Eagleville

46 Stephens Production Co. 2,542,717 817 Gragg

47 Tellus Operating Group LLC 2,454,437 396 Baxterville

48 Renaissance Offshore LLC 2,431,942 99 Ship Shoal Block 0230

49 Laredo Energy IV 2,363,874 53 Owen

50 Pantera Energy Co. 2,332,750 1,062 Texas Hugoton

51 DCOR LLC 2,328,465 246 Dos Cuadras

52 Berexco Inc. 2,254,492 1,583 Cushing

53 Murex Petroleum Corp. 2,210,311 208 Stanley

54 CML Exploration LLC 2,150,022 280 Pearsall

55 E&B Natural Resources Management Corp. 2,039,733 1,801 Poso Creek

56 Wagner Oil Co. 1,996,973 567 La Sal Vieja Dist 4

57 Texland Petroleum LP 1,931,305 693 Fullerton

58 Courson Oil & Gas Inc. 1,892,226 368 Pan Petro

59 Petro Harvester Oil & Gas LLC 1,876,275 396 Pine Prairie

60 New Dominion LLC 1,859,584 340 Sylvian Northeast

61 Venture Oil & Gas Inc. (Laurel, Mississippi) 1,749,378 100 Winchester South

62 Sklar Exploration Co. LLC 1,749,112 88 Brooklyn

63 Vernon E. Faulconer Inc. 1,711,654 520 Samano

64 Sanguine Gas Exploration LLC 1,706,058 152 Mills Ranch

65 Killam Oil Co. Ltd. 1,697,994 427 Umbrella North

66 Aruba Petroleum Inc. 1,665,575 227 Newark East

67 Great Western Oil & Gas Co. 1,603,687 357 Wattenberg

68 Foundation Energy Co. LLC 1,558,013 1,571 Republican

69 Murchison Oil & Gas Inc. 1,529,361 195 Triple X West

70 Murfin Drilling Co. 1,508,052 1,049 Daisy

71 True Oil LLC 1,454,559 220 Spraberry

72 Enduro Resource Partners LLC 1,440,952 577 Newburg


Rank Company BOE Total wells Largest field

73 Cheyenne Petroleum Co. 1,435,402 78 Eagleville

74 Bayswater Exploration & Production LLC 1,419,975 363 Wattenberg

75 Vess Oil Corp. 1,375,174 1,293 Kurten

76 Patriot Resources Inc. 1,368,728 57 Wolfbone

77 Texas American Resources Co. 1,359,613 232 Pearsall

78 Finley Resources Inc. 1,268,297 445 Windy Ridge

79 Forge Energy LLC 1,229,781 73 Shafter Lake North

80 Stephens & Johnson Operating Co. 1,197,153 689 K-M-A

81 R. Lacy Inc. 1,177,492 252 Carthage

82 Strat Land Exploration Co. 1,151,375 290 Pan Petro

83 West Bay Exploration Co. 1,131,670 91 Napoleon

84 Henry Resources LLC 1,126,830 149 University 31 West

85 Burk Royalty Co. Ltd. 1,123,180 257 Fort Trinidad

86 Ward Petroleum Corp. 1,115,771 206 unnamed

87 Signal Hill Petroleum Inc. 1,096,774 205 Long Beach

88 Wolverine Gas and Oil Corp. 1,096,099 24 Covenant

89 Camterra Resources Inc. 1,073,215 511 Booneville

90 Cook Inlet Energy LLC 1,073,145 18 Fork North

91 Husky Ventures Inc. 1,072,506 63 Sooner Trend

92 Dugan Production Corp. 1,066,819 909 Basin

93 EnergyQuest II LLC 1,057,176 437 Bayou Sale

94 Choice Exploration Inc. 1,050,953 27 Cottonwood North

95 Cobra Oil & Gas Corp. 1,020,657 162 Flat Rock

96 Buffco Production Inc. 998,813 205 Briscoe Ranch Dist 1

97 McGowan Working Partners 988,471 300 Shuler

98 Nadel & Gussman LLC 972,640 341 Clyde Reynolds

99 Rosewood Resources Inc. 933,392 1,097 Waverly

100 JM Cox Resources LP 924,211 701 Spraberry

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.


Rank Company BOE City State Top executive officials

Michael McCabe, VP, CFO; Mike Ellis, chair, COO; Hal Chappelle,
34 Alta Mesa Holdings LP 2,945,132 Houston TX
pres, CEO
35 Ankor Energy LLC 2,935,696 LA Denton Copeland, pres, CEO

66 Aruba Petroleum Inc. 1,665,575 Plano TX James Poston, CEO; Jim Lovett, CFO; Ole Sandal, COO

28 Ballard Exploration Co. Inc. 3,890,809 Houston TX A. Ballard, pres, CEO, owner

Robert Marshall, VP ops; Sandra Wallace, CFO; Lary Knowlton, co-

36 BASA Resources Inc. 2,836,503 Dallas TX
founder, EVP; Michael Foster, pres, co-founder
Mitchell Roper, pres; W. McCreight, VP Land; H. Muncy, VP exp;
12 Bass Companies 8,764,175 Fort Worth TX
John Smitherman, VP prod
Lynn Belcher, COO; Steve Struna, pres, CEO; Don Barbula, VP ops;
74 Bayswater Exploration & Production LLC 1,419,975 Denver CO
David Brewster, VP exp


Rank Company BOE City State Top executive officials

52 Berexco Inc. 2,254,492 Wichita KS Adam Beren, pres, chair

30 Border To Border Exploration LLC 3,422,138 Austin TX John Gaines, CFO; Matthew Telfer, CEO

96 Buffco Production Inc. 998,813 Longview TX Frank Bufkin, pres

Steven Stults, VP prod; David Kimbell, chair, pres; Michael Elyea, VP

85 Burk Royalty Co. Ltd. 1,123,180 Wichita Falls TX
finance, treas
Philip Boschetti, VP, CFO; Andrew Grubb, Drilling, prod; Anne
44 Burnett Oil Co. Inc. 2,558,195 Fort Worth TX
Marion, chair, owner; William Pollaru, pres

89 Camterra Resources Inc. 1,073,215 Marshall TX Paul Marchand, pres; Zach Carlile, CEO

25 Castex Energy Inc. 4,440,092 Houston TX John Stoika, pres

73 Cheyenne Petroleum Co. 1,435,402 OK Stephen Ives, pres; Tom Henthorn, VP finance
John Hinton, SVP, CFO; Russell Parker, president; Trevor Rees-
2 Chief Oil & Gas LLC 34,181,090 Dallas TX
Jones, founder, CEO; Steven Haworth, SVP, gen counsel

94 Choice Exploration Inc. 1,050,953 Arlington TX Jon Martin, pres; David Brooks, founder, COO, VP ops

Curtis Harrell, pres, CEO; Robert Kennedy, SVP bus dev, land;
14 Citation Oil & Gas Corp. 8,340,389 Houston TX
Christopher Phelps, SVP, CFO; Steven Pearson, SVP ops
William Temple, prod mgr; Lee Staiger, ops mgr; Kenneth Nelson,
54 CML Exploration LLC 2,150,022 Kingwood TX
Jeff Dillard, pres; Robert Osborne, VP, co-owner; Richard Haskin,
95 Cobra Oil & Gas Corp. 1,020,657 Wichita Falls TX

90 Cook Inlet Energy LLC 1,073,145 Anchorage AK David Hall, CEO; J. Wilcox, pres; Troy Stafford, CFO

58 Courson Oil & Gas Inc. 1,892,226 Perryton TX Kirk Courson, VP; Harold Courson, pres, chair, founder, owner

Robert Floyd, pres; Timothy Dunn, Principal, CEO; Ken Beattie,

20 CrownQuest Operating LLC 6,855,684 Midland TX
COO, SVP; Charles Wetzel, CFO
Jeffrey Warren, VP; William Templeton, pres, managing member,
51 DCOR LLC 2,328,465 Ventura CA

92 Dugan Production Corp. 1,066,819 Farmington NM Thomas Dugan, pres; John Alexander, VP ops

Jeff Blesener, SVP, LA Basin div, Midwest div; Jeff Jones, VP, Eastern
E&B Natural Resources Management San Joaquin div; Bill Moody, SVP, Gulf Coast; James Tague, SVP,
55 2,039,733 Bakersfield CA
Corp. finance, corp planning; Stephen Layton, pres; Joyce Holtzclaw, VP,
Western San Joaquin div

9 Endeavor Energy Resources LP 9,812,108 Midland TX Autry Stephens, CEO, founder, partner;

Jonny Brumley, pres, CEO, mgr; John Arms, co-founder, mgr;

72 Enduro Resource Partners LLC 1,440,952 Fort Worth TX
Kimberly Weimer, CFO

93 EnergyQuest II LLC 1,057,176 Houston TX Wayne Greenwalt, founder; Jerry Crews, founder

15 Fasken Oil and Ranch Ltd. 8,290,059 Midland TX Norbert Dickman, VP, GM

Clinton Koerth, VP acq, land; James Finley, CEO, owner; Stephen

78 Finley Resources Inc. 1,268,297 Fort Worth TX
Clark, CFO; Brent Talbot, pres
Barry Winstead, co-founder, pres, CEO; Arnold Nall, co-founder,
79 Forge Energy LLC 1,229,781 San Antonio TX
EVP ops; Daniel Boone, co-founder, VP bus dev

68 Foundation Energy Co. LLC 1,558,013 Dallas TX John Wetzel, CFO; Eddie Rhea, CEO; Richard Payne, VP ops, eng

45 GeoSouthern Energy Corp. 2,551,895 TX George Bishop, pres, owner
Rich Frommer, pres, CEO; Jeremy Conger, SVP ops; Thomas
67 Great Western Oil & Gas Co. 1,603,687 Windsor CO
Mandula, CFO

84 Henry Resources LLC 1,126,830 Midland TX Jim Henry, CEO

Shelbie DeZell, SVP, CFO; John Barnes, SVP, E&P Alaska; Jeffery
1 Hilcorp Energy Co. 34,585,734 Houston TX Hildebrand, founder, chair, CEO; Greg Lalicker, pres; Jason Rebrook,
Steve Suellentrop, pres; Paul Habenicht, EVP ops, dev; Travis
17 Hunt Oil Co. 8,116,231 Dallas TX Armayor, VP corp dev; Dennis Grindinger, CFO; Jess Nunnelee, VP
prod; Adam Bishop, SVP exp
91 Husky Ventures Inc. 1,072,506 OK Charles Long, pres


Rank Company BOE City State Top executive officials

Becky Bayless, CFO, EVP; Keith Jordan, pres; William Pritchard,

21 Indigo Minerals LLC 5,481,383 Houston TX
chair, CEO
J. Cleo Thompson & James Cleo
42 2,690,525 Dallas TX James Thompson; Christy Thompson, dir; Linda Gordon, dir
Thompson, Jr.

33 Jetta Operating Co. Inc. 2,992,462 Fort Worth TX Gregory Bird, pres, CEO, owner; John Jarrett, VP, CFO

100 JM Cox Resources LP 924,211 Midland TX John Cox, pres, CEO

19 J-W Operating Co. 7,662,511 Addison TX Tony Meyer, pres

Henry Kleemeier, EVP, COO; Don Millican, CFO, VP; George Kaiser,
24 Kaiser-Francis Oil Co. 4,479,644 Tulsa OK
pres, CEO
David Killam, managing partner; Radcliffe Killam, partner, corp
65 Killam Oil Co. Ltd. 1,697,994 Laredo TX

49 Laredo Energy IV 2,363,874 Houston TX P. Richard Gessinger, VP, CFO; Glenn Hart, pres, CEO

Scott Gutterman, pres, CEO; Tim Lindsey, SVP, prod/ops; Philip

4 LLOG Exploration Co. LLC 21,332,573 Houston TX
LeJeune, CFO, treas; Randy Pick, managing dir, A&D
Santa Donald MacPherson, pres, CEO; Scott MacPherson, SVP, COO;
38 MacPherson Oil Co. 2,768,952 CA
Monica Steve Wilson, CFO
Joseph McGowan, VP; James Phyler, VP; David McGowan, partner;
97 McGowan Working Partners 988,471 Jackson MS
John McGowan, managing GP; David Russell, pres, CEO
Meghan Cuddihy, VP, IR; Kevin Ryan, VP, CFO, CCO; William
5 Merit Energy Co. 19,300,422 Dallas TX
Gayden, pres, CEO, chair, founder
Kenneth Waits, COO, EVP; J. Roe Buckley, CFO, EVP; Curtis
6 Mewbourne Oil Co. 18,704,311 Tyler TX
Mewbourne, pres, CEO, owner
John Murchison, chair; Shannon Hall, EVP, CFO; JD Murchison, pres;
69 Murchison Oil & Gas Inc. 1,529,361 Plano TX
Andrew Nguyen, dir of ops; Michael Daugherty, COO

53 Murex Petroleum Corp. 2,210,311 Houston TX Waldo Ackerman, founder, pres, CEO; Robert Foss, VP, CFO

Robert Young, CFO, sec, treas; William Murfin, chair; David Murfin,
70 Murfin Drilling Co. 1,508,052 Wichita KS
chair, CEO; Leon Rodak, VP prod
Stephen Heyman, partner, LLC mgr; Wayne Hamilton, CFO; James
98 Nadel & Gussman LLC 972,640 Tulsa OK
Adelson, pres, partner, LLC mgr

60 New Dominion LLC 1,859,584 Tulsa OK Jean Antonides, VP, exp; Susan Keary, CFO; Kevin Easley, pres, CEO

50 Pantera Energy Co. 2,332,750 Amarillo TX Scott Herrick, VP; Jason Herrick, pres;

76 Patriot Resources Inc. 1,368,728 Midland TX Ben Strickling, pres; Ted Collins, CEO, chair

Joe Schimelpfening, COO; Dennis Justus, CFO; Gareth Roberts,

59 Petro Harvester Oil & Gas LLC 1,876,275 Plano TX
chair; Scott King, VP exp, dev; William Griffin, pres, CEO
Thomas Nelson, VP finance; Douglas Hunt, acq dir; Charles Rigdon,
8 Petro-Hunt Group 11,220,512 Dallas TX
VP ops; Bruce Hunt, pres

32 Pruet Production Co. 3,044,957 Jackson MS J. Hilton, VP prod; Randy James, pres

81 R. Lacy Inc. 1,177,492 Longview TX Jamey Walker, VP exp; Walt Tehan, VP ops; Mike Chery, pres

29 Red Willow Production Co. 3,433,451 Ignacio CO Robert Voorhees, pres, COO; Bill McFie, VP ops; Stephen Goff, CFO

B. Jack Reed, CFO; Gary McKinney, pres, CEO, owner; J. Party, VP,
23 Reliance Energy Inc. 4,551,446 Midland TX
Jeff Durrant, VP, exp, dev; Skip Ward, VP ops; Mike Koenig, VP land,
48 Renaissance Offshore LLC 2,431,942 Houston TX
bus dev; Jeffrey Soine, CEO; Brian Romere, CFO
Linda Tucker, VP admin, finance; Mark Montie, VP exp; Nathan
99 Rosewood Resources Inc. 933,392 Dallas TX
Mayer, pres, CEO; Billy Washington, VP, bus dev

3 Samson Investment Co. 27,069,191 Tulsa OK Philip Cook, EVP, CFO; Randy Limbacher, CEO; Richard Fraley, COO

64 Sanguine Gas Exploration LLC 1,706,058 Tulsa OK Randolph Nelson, pres; Thomas Fuller, VP, finance, treas;

Matthew Assiff, EVP, CFO; James Bass, pres, CEO; Lisa Stewart,
10 Sheridan Production Co. LLC 8,918,892 Houston TX exec chair, CIO; Mark Miertschin, VP, bus dev; Mark McCool, VP,
Craig Barto, pres, CEO; David Slater, EVP, COO; Sean McDaniel, VP,
87 Signal Hill Petroleum Inc. 1,096,774 Signal Hill CA
prod, ops; Jeffrey Ocheltree, SVP, CFO
Howard Sklar, owner, CEO; David Barlow, VP, COO; Chris Farrell, VP,
62 Sklar Exploration Co. LLC 1,749,112 Shreveport LA
CFO; Cory Ezelle, VP exp


Rank Company BOE City State Top executive officials

11 Slawson Exploration Co. Inc. 8,783,520 Wichita KS Todd Slawson, pres; Kathy Atkins, VP, CFO; Steve Slawson, VP, ops

31 Square Mile Energy 3,191,842 Houston TX Gary Loveless, chair, CEO

80 Stephens & Johnson Operating Co. 1,197,153 Wichita Falls TX Fred Stephens, pres

46 Stephens Production Co. 2,542,717 Fort Smith AR WR Stephens, pres, CEO

39 Stonegate Production Co. LLC 2,746,270 Houston TX Michael Harvey, chair, CEO; Michael Wieland, SVP, corp dev, CFO

82 Strat Land Exploration Co. 1,151,375 Tulsa OK Larry Darden, pres, CEO, owner

Ryan Hamilton, VP ops, eng; Matt Johnson, pres, COO; Mark

43 Summit Petroleum LLC 2,566,413 Midland TX Bruehl, VP finance; Dennis Johnson, chair, CEO; Tom Fago, VP exp;
James Behrmann, VP, gen counsel

41 Tana Exploration Co. 2,731,440 Dallas TX Scott Gladden, pres

47 Tellus Operating Group LLC 2,454,437 Ridgeland MS Richard Mills, pres, mgr; Charles May, COO; Thomas Wofford, CFO

16 Templar Energy LLC 8,192,385 OK David Le Norman, pres, owner

77 Texas American Resources Co. 1,359,613 Austin TX Mark Klingseisen, VP bus dev; David Honeycutt, pres, CEO

13 Texas Petroleum Investment Co. 8,480,452 Houston TX H Sallee, pres, co-founder; Wiliam Crawford, co-owner, principal

Frank Kyle, CFO; Gregory Mendenhall, VP ops; Jerry Namy, co-

57 Texland Petroleum LP 1,931,305 Fort Worth TX
owner; James Wilkes, pres, co-owner; Bryan Lee, VP exp
Don Foster, controller; Michael Domanski, pres, CEO, GM; Mark
37 Tidelands Oil Production Co. 2,779,920 Long Beach CA
Kapelke, VP ops, eng
David True, partner; Diemer True, partner; Ron Severson, treas; H.
71 True Oil LLC 1,454,559 Casper WY
True, partner

22 Valence Operating Co. 4,967,131 Kingwood TX Steve Manning, pres; Douglas Scherr, CFO,sec; Walter Scherr, CEO

Roger Biemans, co-founder, chair, CEO; Thomas Tyree, co-founder,

26 Vantage Energy LLC 4,228,629 Englewood CO
pres, CFO; Mike Kennedy, EVP, COO

61 Venture Oil & Gas Inc. 1,749,378 Laurel MS Jay Fenton, pres; Jarvis Hensley, VP ops

Tom Markel, VP, acct, CFO; Vernon Faulconer, CEO; Jean Crawley,
63 Vernon E. Faulconer Inc. 1,711,654 Tyler TX
VP, land, admin; David Enright, pres
Barry Hill, CEO; Ronnie Nutt, COO; J. Michael Vess, chair; Brian
75 Vess Oil Corp. 1,375,174 Wichita KS
Gaudreau, VP, land, acq
Bryan Wagner, pres, owner; William Lesikar, VP, CFO; HE Patterson,
56 Wagner Oil Co. 1,996,973 Fort Worth TX

18 Walter Oil & Gas Corp. 7,899,663 Houston TX Joseph Walter, pres, chair, CEO; Ron Wilson, VP; CJ Looke, VP eng

David Stone, VP, exp; Michael Hodges, CFO; Lew Ward, chair;
86 Ward Petroleum Corp. 1,115,771 Enid OK
Gilbert Tompson, VP land; William Ward, pres, CEO
Traverse Harry Graham, VP exp; Robert Tucker, pres, owner; David Rataj, VP
83 West Bay Exploration Co. 1,131,670 MI
City finance, treas
Scott Nonhof, VP bus dev; Mark Etheredge, VP exploitation; Mike
40 White Oak Energy LP 2,731,693 Houston TX
Rayburn, EVP; Thomas Isler, pres
88 Wolverine Gas and Oil Corp. 1,096,099 MI Gary Bleeker, VP; Sidney Jansma, pres, CEO
John Yates Sr., chairman emeritus; John Yates Jr., pres; Douglas
7 Yates Petroleum Corp. 13,694,467 Artesia NM
Brooks, pres, CEO, dir; John Perini, EVP, CFO; James Brown, COO
Nugent Brasher, chair; William Coleman, pres; Carole Slinkard, CFO;
27 Zavanna LLC 4,214,750 Denver CO
Robert Eller, VP ops
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.



Parsley Energy Inc. has agreed to acquire certain undeveloped Douglas-Westwood and Hannon Westwood have united as
acreage and producing oil and gas properties located adjacent part of the ESIA group of companies. The addition of Doug-
to the companys existing operating areas in Upton, Reagan, las-Westwoods consulting, research and analytical services will
and Glasscock Counties, TX in the Permian basin for $148.5 extend ESIAs reach into the oilfield services market and add
million in cash from private equity-backed PCORE Exploration DWs capabilities in renewable and conventional energy. Hannon
& Production LLC. The assets include 238 net horizontal drilling Westwood delivers strategic business development projects
locations across 5,274 net surface acres with net production to the upstream oil and gas industry, spanning E&A, field pro-
during the month of November 2015 from three producing duction, export options, fiscal studies and corporate
horizontal wells estimated at near 1,000 barrels of oil equivalent acquisitions.
per day. The acquisition also includes one drilled horizontal
well that is anticipated to be completed by the seller prior to ACCENTURE ACQUIRES CIMATION
the closing of the transaction, scheduled for early January 2016. Professional services company Accenture has agreed to acquire
The deal was done at a favorable $19.6K/acre, said Seaport Cimation, an operations consulting company and provider of
Global Securities following the announcement, adding we technology solutions to the global energy and chemicals in-
like managements use of equity to fund the acquisition while dustries. The transaction supports the integration of enterprise
preserving its strong liquidity position (~$698MM pro forma IT systems and operational technology (OT) used by resources
for its borrowing base redetermination). Canaccord Genuity industries for automation solutions, production optimization,
analyst Sam Burwell said We maintain our belief that PE is asset analytics and ICS cyber security. Cimations approximately
very well positioned to ramp production and increase cash 200 people, most of whom are located in the US and Canada,
margins in 2016 and beyond. The newly-acquired acreage will join the Accenture Asset and Operations Services group.
overlaps nicely with the companys current position in Reagan Terms of the transaction were not disclosed.
County, where it has achieved very strong results in the Wolf-
camp A/B. PE also paid what we consider a reasonable valuation PAR PACIFIC LEADS INVESTMENT FOR LARAMIE
(by Permian standards). Concurrent with the acquisition, PE TO ACQUIRE PICEANCE BASIN ASSETS
announced a public offering of 8.5 million common shares, with Par Pacific Holdings Inc. is leading an investment by which
an over-allotment option of 1.275 million shares. The offering, Piceance Energy LLC, d/b/a Laramie Energy Co., has entered
noted Stifel analyst, should fully cover the acquisition purchase into an agreement to acquire certain properties in the Piceance
price, allowing PE to keep its top-tier balance sheet intact. Basin for $157.5 million. Laramie Energy has commitments to
fund the transaction with $57.5 million of borrowings under its
TALLGRASS ENERGY PARTNERS BUYS REDTAIL WATER amended reserve based revolver, $30 million of preferred equity
BUSINESS FROM WHITING issued to a major financial institution, and $70 million of common
Tallgrass Energy Partners LP, through its subsidiary BNN Water equity investment including $55 million from Par Pacific. The
Solutions, has closed on the $75 million acquisition of Whiting assets consist of 89 MMcfe/d of existing production during
Oil & Gas Corp.s Redtail Saltwater Disposal and Fresh Water November, 283 bcfe of proved developed producing reserves
Transportation and Storage System in Weld County, Colorado. as of November, and more than 53,000 net operated acres and
The acquisition includes a freshwater delivery and storage more than 18,000 net non-operated acres. A portion of the
system and a produced water gathering and disposal system operations acquired are adjacent to existing Laramie operations.
that together comprise 62 miles of pipeline, along with asso- The transaction is expected to close on or before March 1,
ciated freshwater ponds and disposal wells. The purchase 2016, and once complete, Laramie will assume ownership and
agreement with Whiting includes a five-year freshwater service operatorship of the purchased properties. As part of the ac-
contract and a nine-year gathering and disposal contract, each quisition financing, the companys ownership interest in Laramie
of which includes annual minimum volume commitments in is expected to increase from 32.4% to 42.3% as a result of its
line with Whitings currently expected volumes. Whiting also $55 million common equity investment.
dedicated approximately 148,000 acres to the Redtail Water
System. Following the announcement, Stifel analysts called the NEW SOURCE SELLS ERICK FLOWBACK SERVICES,
sale modestly positive for Whiting given that it was done for RODS PRODUCTION SERVICES
a reasonable price amid the challenging price environment. New Source Energy Partners LPs subsidiary, MidCentral Energy
We now forecast YE15 debt/TTM EBITDA of 4.2x versus 4.3x, Partners LP (MCLP), has sold all of the outstanding membership
previously. A much more meaningful potential sale of the interests in Erick Flowback Services LLC (EFS) and all of the
companys gas plants, however, has likely been complicated outstanding membership interests in Rods Production Services
by declining oil and natural gas prices, the analysts LLC (RPS) to Ericks Holdings LLC. The transaction closed on
continued. Dec. 16. EFS and RPS specialize in providing services to oil and



natural gas exploration and production companies that increase proposal to merge Woodside and Oil Search through a scheme
the safety and efficiencies in pressure-related processes during of arrangement. Oil Search rejected Woodsides proposal to
the completion phase of a well, with a specific focus on well acquire all the shares in Oil Search for a consideration of one
testing and flowback services. EFS and RPS operate primarily Woodside share for every four Oil Search shares held, saying
in Oklahoma, Texas, Pennsylvania, and Ohio. The total purchase that the proposal was opportunistic and that it undervalued
price for the transaction was $44.9 million, consisting of cash Oil Search. Woodside says that it is not pursuing any alternative
consideration of $5 million, a promissory note from Ericks transactions to combine the businesses.
Holdings in favor of MCLP in the amount of $8 million, and the
assumption and elimination of $31.9 million of certain liabilities ENXP FILES FOR CHAPTER 11; OPERATIONS TO CON-
of MCLP and its subsidiaries and affiliates. New Source Energy TINUE DURING RESTRUCTURING
Partners is engaged in the production of its onshore oil and Fort Worth, TX-based Energy and Exploration Partners Inc.
natural gas properties that extends across conventional resource (ENXP) has filed a voluntary petition under Chapter 11 of the
reservoirs in east-central Oklahoma and in oilfield services US Bankruptcy Code. To fund its operations during the restruc-
related to drilling and completion processes. turing process, ENXP secured commitments for up to $135
million of new debtor-in-possession financing from a group of
WELLDOG LAUNCHES CARBON SERVICES DIVISION its existing senior lenders, subject to court approval. The filing
WellDog has established a new carbon services division ded- converts the previously announced involuntary petition for
icated to applying the companys downhole products and ENXP Operating LP filed by certain vendors into a voluntary
services to ensuring carbon dioxide can be sequestered safely petition. In conjunction with the Nov. 7 filings, the company
and efficiently in geological formations. The companys product requested customary relief to support its royalty owners, part-
portfolio includes the worlds only technical service capable of ners, and employees during the process.As part of this relief,
practical, direct measurement of carbon dioxide or methane the company asked the Court for permission to continue em-
injected in underground depleted oil and gas and saline for- ployee programs and mineral interest owner payments without
mations. The company simultaneously announced a partnership interruption.Prior to this voluntary filing, ENXP initiated a re-
with the University of Queensland, funded by a grant from the duction in staffing and several senior executives resigned to
Australian National Low Emissions Coal Research & Develop- pursue other interests. Those include executive vice president,
ment, to expand application of WellDogs technology to track business operations and development, Robert Karpman; ex-
trace gases that may be sequestered alongside carbon dioxide. ecutive vice president of A&D, David Patty; COO, John Richards;
The one-year ANLEC grant, which started in October, supports CAO, Jim Howel; and CFO, Brian Nelson. John Castellano of
using WellDogs Raman technology to establish the key sensor AlixPartners LLP was named interim CFO. ENXPs legal advisor
signatures that result from trace gas reactions with formation is Bracewell & Giuliani LLP, and the company has engaged
geology. Since 1999, WellDog has provided a range of downhole AlixPartners LLP as its restructuring advisor. Evercore has been
reservoir characterization and monitoring products and services retained as ENXPs investment banker.
to oil, gas, and mining operators.
WARBURG PINCUS INVESTS UP TO $300M IN RUBICON National Oilwell Varco (NOV) plans to eliminate another 900
OILFIELD INTERNATIONAL jobs from its Norwegian workforce, Reuters reported in early
WarburgPincus, a global private equity firm, has agreed to a December 2015. The layoffs will involve permanent jobs. The
line-of-equity investment of up to $300 million in RubiconOil- latest cut follows NOVs layoff announcement in June, when
field International, a startup oilfield services company. Rubicon it said it would cut 900 permanent jobs and 600 contractor
intends to acquire, integrate, and enhance small and medi- positions from its Norwegian workforce. Following this latest
um-sized businesses in the upstream oilfield technology sec- round of job cuts, NOV will have reduced its staff in Norway by
torwith a focus on proprietary downhole tools, products, and approximately half, Reuters reported.
technologies. Rubicon comprises five founding members led
by CEO Michael Reeves, who most recently served aspresident HARVEST RECEIVES CONTINUED NOTICE LISTING
ofSandvik drilling and completions.John Griggs, formerly a On Dec. 2, Harvest Natural Resources Inc. received notification
managing director at CSL Capital Management, serves as from the New York Stock Exchange (NYSE) that the company
CFOof Rubicon. had fallen below the NYSEs continued listing standard, which
requires a minimum average closing price of $1 per share over
WOODSIDE WITHDRAWS MERGER PROPOSAL 30 consecutive trading days. Houston, TX-based Harvest is an
Woodside has informed Oil Search Ltd.s board of directors independent energy company with principal operations inVen-
that Woodside has withdrawn its proposal to merge the two ezuelaand Gabon.
businesses. On Sept. 3, Woodside provided Oil Search with a



HOLLUB NAMED COO OF OCCIDENTAL ecutive of the Oil and Gas Innovation Centre, Phillips
ON THE PATH TO CEO held a number of positions in the UK oil and gas in-
Occidental Petroleum Corp. has promoted Vicki A. dustry, including vice president of project development
Hollub to president and COO and appointed her to at Ramco Energy and project director at BP. Latterly,
the Board. As part of the previously disclosed succes- his career has focused on innovation in carbon capture
sion plan, the board of directors noted that Hollub and storage, with roles including founding director of
Hollub will succeed Stephen I. Chazen as Occidentals CEO CO2DeepStore and business development director
effective at the companys 2016 annual shareholder at Pale Blue Dot Energy.
meeting. Hollub was appointed senior executive vice
president of Occidental and president Oxy Oil and HACKLEY JOINS BABST CALLAND
Gas, earlier this year. She has 35 years of experience Grant Hackley joined Babst Calland as an associate
in the oil and gas industry, holding technical and in the Energy & Natural Resources Group. Hackleys
leadership roles, both domestic and international. In practice focuses on energy law, counseling clients on
2013, she was appointed vice president of Occidental a wide array of issues related to ownership of and title
Petroleum Corp. and executive vice president, US to oil and gas, including the preparation of oil and
Thornock Operations, Oxy Oil and Gas. She previously served gas title opinions, title examination, litigation and
as executive vice president, California Operations; contractual issues. He is a graduate of the University
and as president and general manager, Permian Basin of Pittsburgh School of Law.
operations. Chazen will be nominated to the board
for an additional term following his service as the CHALABALA TO COVER E&P FOR STRH
companys CEO. Karl Chalabala has joined SunTrust Robinson Hum-
phrey as a director, working with senior energy analyst
WELLDOG NAMES THORNOCK GROUP CFO Neal Dingmann, to cover the Exploration & Production
Trenton Thornock has joined WellDog, an energy-fo- space out of Houston. Chalabala has more than eight
cused technical services company, as group CFO. years of experience as an energy desk specialist and
Based in Houston, Thornock will oversee WellDogs as a senior publishing research analyst. He earned a
finance operations globally. Prior to joining WellDog, bachelors degree from the University of Delaware.
he was senior vice president and CFO of Scientific
Drilling International. Thornock currently serves as a EQT NAMES SCHLOTTERBECK AS PRESIDENT
board member at Breitling Energy Corp. He holds a EQT Corp. has appointed Steven T. Schlotterbeck as
Bachelors of Accounting and Masters of Professional president, succeeding David Porges in the role. Porges
Accountancy from University of Utah and is a Certified will remain chairman and CEO of EQT and Schlotter-
Public Accountant, not in public practice. beck will retain his title of president of exploration
and production. Schlotterbeck joined EQT in 2000. In
SPE ABERDEEN SECTION APPOINTS 2008, he was promoted to vice president of EQT and
PHILLIPS AS NEW CHAIRMAN and president of production. He became senior vice
The Society of Petroleum Engineers (SPE) Aberdeen president of EQT and president of exploration and
Section board has elected Ian Phillips, chief executive production in 2010, and was then appointed executive
of the Oil and Gas Innovation Centre (OGIC), as its vice president of EQT in 2013. Schlotterbeck is also a
new chairman. Phillips assumes the role from Shankar director of EQT GP Services LLC, the general partner
Bhukya, who has stepped down ahead of a move to of EQT GP Holdings LP.
Singapore. Phillips, an MBA-qualified chartered pe-
troleum engineer with more than 30 years of experi- SANTOS CEO TO ASSUME POST IN FEBRUARY
ence in the oil and gas industry, has participated in Australias Santos Ltd. has appointed Kevin Gallagher
the growth of the SPE Aberdeen Section over the last as the companys new managing director and CEO.
30 years. With the SPE Aberdeen Section, he has held Gallagher will commence his duties on February 1,
positions including chairman, treasurer, and Continu- 2016. He previously served as CEO of Clough Ltd. His
ing Education Committee chair. In addition, he has appointment was announced in November.
served as the North Sea regional director on the SPE
International Board. Most recently, he has been the TPH MAKES MANAGEMENT CHANGES
director on the SPE Aberdeen board and has held Tudor, Pickering, Holt & Co. (TPH) has made manage-
responsibility for the Sections Offshore Achievement ment changes to further enhance both its capital
Awards. Prior to his current full-time role as chief ex- markets and securities research service offerings and



execution capabilities. Jeff Tillery, previously manag- senior vice president, Underwater Vehicle Technolo-
ing director and co-head of research, transitioned to gies. McDonalds career spans 26 years with Oceaneer-
become co-head of capital markets. He brings nearly ing. He most recently served as vice president and
15 years of senior energy equity research experience general manager of Oceaneerings ROV operations
to his new role, the last five of which also included in the Eastern Hemisphere from 2006.
serving as head of research for TPH. He will co-head
the expanded capital markets team with John Ken- SANCHEZ APPOINTS KOPEL SVP, GENERAL Tillery
nedy. In conjunction with this transition, W. Mark COUNSEL
Meyer, managing director and current co-head of Sanchez Energy Corp. has appointed Greg Kopel as
research, assumed the role of head of research. He senior vice president and general counsel, effective
joined TPH in February to help lead the firms research Dec. 14. Prior to this appointment, Kopel served as
effort and brings almost 30 years of combined energy vice president and associate general counsel at Bre-
experience to the table, including the last 16 as a lead itburn Energy Partners LP. He has also served in cor-
sell-side E&P analyst and buy-side portfolio manager. porate legal positions at Occidental Petroleum Corp.
In addition, Byron K. Pope, managing director and and LINN Energy LLC. Kopel earned a bachelors
previous co-head of oil sservice research, now serves degree in government at the University of Texas at
as head of oil service research. Pope, who joined TPH Austin, and a juris doctor degree at the University of
predecessor firm Pickering Energy Partners as a found- Houston.
ing member in 2004, brings both sell-side and buy-side
experience to his lead analyst role. RANDHAWA JOINS D.A. DAVIDSON
Sonny Randhawa has joined investment firm D.A.
OPENLINK NAMES NEW CEO Davidson & Co.s institutional research team to
OpenLink, a provider of trading and risk management provide coverage of the oilfield service and
solutions to the energy, commodities, corporate, and equipment sector. He will work from the firms
financial services industries, has named John OMalley offices in Lake Oswego, Oregon. Previously,
to succeed Mark Greene as CEO as Greene announced Randhawa was a senior oilfield service analyst with
his intention to retire. Greene will continue to serve Banc of America Securities after beginning his
on the OpenLink Board as an independent director. energy research career at Friedman Billings Ramsey.
Most recently, OMalley was an operating partner for Prior to that, he was a senior consultant in the
Thoma Bravo after being hired as CEO of Digital In- financial and M&A advisory segments at both
sight. Previously, he held the role of CEO at Panini, a Arthur Andersen and KPMG. Randhawa earned an
global provider of payment technology. A programmer MBA from the Jesse H. Jones Graduate School of
by training, OMalley has experience in technology, Management at Rice University and a BBA from the
software product management, and professional ser- University of Texas.
vices. He has previously led global financial services
and technology companies in treasury, capital markets, FROST BROWN TODD OPENS IN PITTSBURGH
retail banking, payment processing, global finance Frost Brown Todd is opening its an office in the down-
and guidance systems in companies such as Fiserv, town area of Pittsburgh, Pennsylvania, with the addition
Hogan Systems, Lockheed Martin and J.H. Harland of 10 attorneys formerly with the law firm Burleson
and Company. LLP. With the opening, Frost Brown Todd enhances
its energy industry practice. Kevin Colosimo, formerly
ENSCO NAMES NEW COO with Burleson LLP, is the member-in-charge of the
Carey Lowe has been named COO of offshore drilling Pittsburgh office. Andrew Jenkins joins Frost Brown
services provider Ensco plc. Based in London, Lower Todd as a member after having led the litigation
succeeds Mark Burns, who is retiring from the com- practice at Burlesons Pittsburgh office. Along with
pany. Lowe has held various executive management litigation, the move brings the mergers, acquisitions,
positions at Ensco since joining the company in 2008. and due diligence team from Burleson to Frost Brown
Oceaneering International Inc. has appointed Martin HOULIHAN LOKEY EXPANDS, HIRES A&D TEAM
J. McDonald as senior vice president, Remotely Op- Houlihan Lokey has expanded its Oil & Gas Exploration
erated Vehicles (ROVs), effective Jan. 1, 2016. He re- and Production Group to include an Acquisitions and
places Kevin F. Kerins, who will become Oceaneerings Divestitures (A&D) team with experience in the oil and



gas sector. As part of the expansion, the firm has appointed Ramones II and La Bufa Wind, and has led teams for the firms
Kirk Tholen as managing director and head of the A&D practice First Caribbean Power & Midstream and SunEdison Reserve
in Houston. Tholen joins from Credit Agricoles Corporate and investments. He holds a bachelors degree from Georgetown
Investment Bank, where he was a managing director and group University, School of Foreign Service, and an MBA degree from
head of A&D, Americas, for the past three years. With close to New York University. He is based in Greenwich.
25 years of experience in the sector, Tholens experience spans Shockley originally joined First Reserves Private Equity Funds
nearly every aspect of the oil and gas industry. Tholen holds a as an associate in 2004, returning as a vice president in 2008
Bachelor of Science degree in chemical engineering from the after earning an MBA. For the Private Equity Funds, he focused
University of Louisiana at Lafayette and an MBA from the primarily in the power and equipment, manufacturing, and
University of Houston. services sectors, and was a member of the team that executed
the PrimeLine Utility Services investment for First Reserve Fund
CABOT OIL & GAS ELECTS NEW DIRECTORS XII. In 2014, he moved to the energy infrastructure funds where
Cabot Oil & Gas Corp. has elected Dorothy M. Ables and he led the firms efforts with FR Warehouse and other investment
Robert S. Boswell to its board of directors.The addition brings opportunities. He holds a bachelors degree from Kalamazoo
the board total to seven directors, with six qualifying as inde- College and an MBA degree from Kellogg School of Manage-
pendent directors. Ables is chief administrative officer of Spectra ment at Northwestern University. He is based in Greenwich.
Energy Corp., a position she has held since 2008.She has held Since joining the firm in in 2011, Fidler has been a member
positions of increasing responsibility during her 30 years at of the energy infrastructure teams for Renovalia Reserve, Pet-
Spectra Energy and predecessor companies. She also serves roFirst Infrastructure Ltd., and La Bufa Wind. Fidler has also led
on the board of directors for Spectra Energys publicly traded the firms process for managing currency and other hedging
MLP, Spectra Energy Partners.Ables has a BBA in accounting programs across its energy infrastructure funds. He holds a
from the University of Texas at Austin. Boswell is chairman and bachelors degree from the University of British Colombia, and
CEO of Laramie Energy II LLC, a privately held oil and gas is a CFA Charterholder. He is based in London.
exploration and production company headquartered in Denver, The firm has promoted three in the private equity funds
Colorado. Laramie Energy II LLC was formed in June 2007, after team.
the sale of its predecessor company, Laramie Energy I. Before Peter Petrov has been promoted to director. He joined First
starting Laramie I in 2004, Boswell was chairman and CEO of Reserve in 2007 as an associate and returned as a vice president
Forest Oil Corp. Prior to his 14 years with Forest Oil, Boswell in 2012 after earning his MBA degree. He has contributed to
spent most of his career with Adams Affiliates as CFO and First Reserves efforts in the Equipment and Services sector, as
ultimately as its COO and president. He has a Bachelor of well as in the resources sector, and worked on portfolio invest-
Engineering degree in chemical engineering from Vanderbilt ments Ansaldo, Abengoa, and Glencore. He holds a BBA from
University and a Master of Business Administration degree from Texas Christian University and an MBA degree from London
the University of Texas.He is currently a director of Enerflex Business School. He is based in London.
Ltd. Michael Scardigli has been promoted to director. He joined
First Reserve in 2008 as an associate and returned as a vice
FIRST RESERVE PROMOTES SEVEN president in 2012 after earning his MBA degree. Scardigli has
First Reserve, a private equity and infrastructure investment contributed to First Reserves efforts in the equipment and
firm focused on energy, has promoted seven investment services sector, and worked on portfolio investments Dresser,
professionals across its global private equity and energy Acteon, Dixie Electric, and Diamond S Shipping. He holds a
infrastructure teams. BA degree from Georgetown University and an MBA degree
James Berner, Adi Blum, Ryan Shockley and Ed Fidler have from the Wharton School of Business. He is based in
been promoted to managing directors in the energy infrastruc- Greenwich.
ture funds team. Juan Diego Vargas has been promoted to director. He joined
Since joining the firm in 2011, Berner has held leadership First Reserve in 2007 as an associate and returned as a vice
roles in First Reserves investments in North American Power I president in 2012 after earning his MBA degree. Vargas has
(and its various follow-on investments), Fort Detrick Energy, contributed to First Reserves efforts in the equipment and
and most recently Kingfisher Wind. He holds a bachelors degree services sector, as well as the resources sector, and has worked
from Cornell University, an MBA from the Wharton School of on portfolio investments CHC Helicopter, PrimeLine Utility
Business, and a masters degree from the School of Advanced Services, and Barra Energia. Vargas holds a BBA degree from
International Studies, Johns Hopkins University. He is based in the University of Notre Dame and an MBA degree from London
the firms Greenwich, Connecticut, office. Business School. He is based in Houston.
Blum joined the office in 2011 and most recently led the
firms investments with industry partners in Mexico, such as Los


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/ADVERTISER INDEX

Accenture 58 ENERGY NAVIGATOR INC. 19 Lockheed Martin 61 Rice Energy Inc. 17

Adams Affiliates 62 Energy XXI 45 LRR Energy 43 RKI E&P 49
AlixPartners LLP 59 ENERGYNET IFC MACQUARIE GROUP LTD. 13 Rods Production Services LLC 58
American Petroleum Institute 6 ENERTIA SOFTWARE 7 Marathon Oil 43 Rosetta Resources 48
Anadarko Petroleum 15 EnLink Midstream 16,48 Matador Resources 43 Royal Dutch Shell 43
ANLEC 59 Enron 64 Merit Energy Co. 50 Rubicon Oilfield International 59
Apache Corp. 17,43 Ensco plc 61 Mewbourne Oil Co. 50 Rystad Energy 20
Armstrong Oil & Gas Inc. 50 ENXP 59 Moodys Investors Service 6,12 Sanchez Energy Corp. 61
Arthur Andersen 61 EPA 30 Morgan Stanley 10 Santos Ltd. 60
Atlas Resource Partners 43,46 EQT Corp. 45,60 Moscow State University 34 Saxo Bank 6
Babst Calland 60 Erick Flowback Services LLC 58 Myria Holdings Inc. 17 Schlumberger 28
Baker Hughes 28 ESIA 58 Nadel and Gussman 52 Scientific Drilling International 60
BC Operating Inc. 52 Evercore 59 NAPE EXPO LP 33 Seaport Global Securities 14,58
BDO USA LLP 14,28,39 EXCO Resources 44 National Ocean Industries Association 6 SEC 42,49
Berry Petroleum 43 EY 12 National Oilwell Varco 59 Sheridan Production Co. LLC 50
Black Ridge Oil & Gas 43 Felix Energy 22,48 National Park Service 30 Slawson Exploration Co. 50
Black Stone Minerals 45 First Reserve 49,62 Natural Gas Pipeline Co. of America LLC 17 Societe Nationale des Petroles du Congo 15
BLM 30 Fiserv 61 Navitas Midstream Partners 17 SPE 60
Blue Whale 48 Fitch Ratings 16 New Source Energy Partners LP 58 Spectra Energy Corp. 62
BLUEROCK ENERGY CAPITAL 5 Flatrock Energy Advisors 49 Newfield Exploration 22 Statoil 43
BOK FINANCIAL 1 FlexGen 29 NewWoods Petroleum 48 Stifel 58
Bracewell & Giuliani LLP 30,59 Forest Oil Corp. 62 NOAA 30 SunTrust Robinson Humphrey 60
Breitburn Energy Partners 44,61 Fraser Institute 6 Noble Energy 48 TAILWATER CAPITAL LLC BC
Breitling Energy Corp. 60 Friedman Billings Ramsey 61 NYMEX 14,44 Tall City Exploration 48
Brookfield Infrastructure Partners LP 17 Frost Brown Todd 61 NYSE 59 Tall Oak Midstream 16,48
Burleson LLP 61 GeoSouthern 48 Occidental Petroleum Corp. 60 Tallgrass Energy Partners LP 58
Cabot Oil & Gas Corp. 45,62 Gran Tierra Energy 45 Oceaneering International Inc. 61 Tesoro Logistics LP 16
Canaccord Genuity 58 Great Northern Midstream LLC 16 Oil Search Ltd. 59 Texas Petro Index 6
Chesapeake Energy Corp. 44 Gulfport Energy 45 Oildex 39 Thompson & Knight LLP 16
Chevron Corp. 15 GulfStar Group 8 OPEC 6,14 Total 15
Cimarex Energy 22,44 Halcn Resources 44 OpenLink 61 TransAtlantic Petroleum 43
Cimation 58 Halliburton 28 Opportune LLP 12 TUDOR, PICKERING, HOLT & CO. 31
CNOOC Ltd. 15 Hannon Westwood 58 Pale Blue Dot Energy 60 Tudor, Pickering, Holt & Co. 60
CO2DeepStore 60 Harvest Natural Resources 59 Par Pacific Holdings Inc. 58 Tyco 64
Cobalt International 45 Haynes and Boone LLP 42 Parsley Energy Inc. 58 Unit Corp. 44
Cobra 48 Hilcorp Energy Co. 50 Paul Hastings LLP 16 US Army Corps of Engineers 30
Comancheria Energy Resources LLC 50 Hogan Systems 61 PCORE Exploration & Production LLC 58 US Fish and Wildlife Service 32
Continental Resources 22,45 Houlihan Lokey 61 Penn Virginia 44 US Forest Service 30
Credit Agricole 62 Husky Oil 15 Petrobras Argentina 43 USDS 30
Crown Oil Partners 52 Hydrocarb Energy 43 Petro-Hunt 50 Vanguard Natural Resources 43
Crump Energy Partners 52 IEA 6,14 Petroquest Energy 46 W&T Offshore 14
CSL Capital Management 59 Intervale Capital 29 Pickering Energy Partners 61 Walter Oil & Gas Corp. 50
DA Davidson & Co. 61 IPAA 6 Pioneer Natural Resources 43 Warburg Pincus 17,59
Devon Energy Corp. 15,20,22,48 JH Harland and Company 61 PLS Inc. 48 Warren Resources 43
Diamondback Energy 48 JW Operating Co. 50 Preng & Associates 64 WellDog 59
Digital Insight 61 Kinder Morgan Inc. 17 PWC 11 Wells Fargo Energy Capital 52
DOI 30 KPMG 61 Quantum Energy Partners 52 Whiting Oil & Gas Corp. 58
Douglas-Westwood 58 Laramie Energy 58,62 Ramco Energy 60 Wood Mackenzie 18
Eagle Rock Energy 43 Laredo Petroleum 43 Raymond James 16 Woodside 59
Eclipse Resources 46 Legacy Reserves 45 REMI Midstream 49 WorldCom 64
EIA 9 Leor Resources LLC 50 Renos Land & Minerals 49 WPX Energy 48
Emerald Oil 43 Liberty Oilfield Services 29 Repsol 50 Wunderlich Securities 12,50
EnCap Flatrock Midstream 16,49 LINN Energy LLC 61 Resolute Energy 43



BOD: Who has a seat at the table?

AS MY PARTNERS AND I at Preng & Associates The shortfall with the friends-and-family approach was that
complete our 35th year, we are reminded again corporate governance procedures, day-to-day decisions, and even
of the extreme cyclicality of the oil and gas in- accounting practices did not always meet the highest standards.
dustry. My view is biased. I have spent my entire More importantly, the checks-and-balances process could break
career in the oil and gas industry. My sons and down. Some organizations made mistakes, missed strategic op-
daughter work in the oil and gas business. We portunities, and in some cases, intentionally or unintentionally
know the challenges that executives and boards broke the law.
DAVID PRENG face every day to generate cash flow and net Cue the corporate and accounting scandals WorldCom, Enron,
income to build their businesses. Tyco and others. These events cost investors on Wall Street and
Our clients are energy executives and boards. They repeatedly employee 401(k) retirement plans billions of dollars. This lack of
tell us their most important asset is people: employees, colleagues, confidence in corporate governance and accounting practices sent
peers, and partners. Their biggest challenge is not finding the next shock waves through the stock market. The US government believed
Marcellus or Wolfcamp or creating the newest completion technol- stronger laws were needed, so in 2002 Sarbanes-Oxley (SOX) was
ogy that unlocks millions of barrels. Its finding and retaining the passed, placing greater responsibility and legal liability on corporate
right people who are motivated and talented enough to make the boards.
organization better. SOX led the next evolution of the board. Companies now look
In the boardroom, our clients seek diverse views to get deeper for what we call the professional director. Corporations need
consensus on critical issues facing executives as the complexity of directors who know the rules and can assure they meet or exceed
the energy business increases. Executives running 21st century oil SOX requirements. Organizations have greatly improved director
and gas companies instinctively know they need, and quite frankly evaluations and have hired former public accounting partners,
want, more experience in the C-suite and the board room to make academicians, and retired law partners. In my opinion, the pen-
better decisions. They have embraced the idea that the long-term dulum swung a little too far after SOX passed. Companies wanted
success and ultimately the highest value of the company will only experts that knew accounting standards and corporate governance
be achieved through diversity of skills and thought and incorporating criteria, but many lacked an in-depth understanding of the par-
ideas of inclusion to arrive at the right decision. A balanced board ticular industry.
brings different perspectives, backgrounds, skill sets and experiences Enter the shale revolution. The use of horizontal drilling and
all of which should help the company make better decisions. hydraulic fracturing to produce quantities of hydrocarbons once
Assembling a well-balanced, high-performing board or manage- thought impossible, pushed companies to make better, smarter
ment team with the desired skill sets is no easy task. Thats one of and faster decisions to stay ahead of peers. Companies were forced
the reasons I founded Preng & Associates in 1980. I wanted to help to think differently about strategy and value creation and needed
management and boards in the energy industry attract exceptional a board that could support this new way of thinking. Today, I believe
talent that would deliver long-term value to stakeholders. the energy industry has found a happy medium. Boards now have
Today its not uncommon to see an energy board made up of experienced technical talent, skillful financial experts, knowledge-
diverse skills and experiences. Many have experienced petroleum able industry executives and even a few relevant outside the
scientists, skillful financial experts, and knowledgeable executives, industry experts that provide unique perspectives to help the
most of whom have spent their entire careers in oil and gas. Pro- organization thrive.
posals and actions made by the executive team can be checked- Just as the demographics of the boards have changed over time,
and-balanced by the board and vice versa. Its a symbiotic relation- so has the role they are asked to play. Board members ensure
ship, vital for an organization to be successful. But it hasnt always transparency and bring sound financial discipline, but they are
been this way. also being asked to identify opportunities in a rapidly changing
Up until 2002, regardless of the industry, many companies took energy environment.
the friends-and-family approach when selecting directors. An ef- In the past 10 years, the industry has moved from developing
fective director in the 1980s, 1990s, and early 2000s was a friend conventional resources to focusing more on unconventional targets.
from college, a fellow member of the country club, a former industry With management teams focused on day-to-day operations, boards
colleague, or a member of church. Even athletes and celebrities are now providing higher-level insight. Going forward, companies
made their way into the boardroom. Im not saying these were that can develop and leverage the combined and diverse experi-
incompetent people many of these directors had successful ences of the board will more effectively and efficiently develop
businesses of their own and could provide guidance to the man- assets and outperform peers.
agement team. As long as the CEO and the executive team had
decent heads on their shoulders, corporations stayed afloat and
often prospered. David Preng is founder and president of Preng & Associates.



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Edward Herring 300 Crescent Court, Suite 200 Jason Downie

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Phone: 214.269.1183