Shell announces a successful exploratory well at Vicksburg in the deepwater Gulf of Mexico. The well is located 75 miles (120 kilometers) offshore in the De Soto Canyon Block 393 in 7,446 feet (2,269 meters) of water. It was drilled to a total depth of 26,385 feet (8,042 meters) and encountered more than 500 feet (152 meters) of net oil pay.
In total, the Vicksburg “A” discovery is estimated to hold potentially recoverable resources of more than 100 million barrels of oil equivalent (mmboe). It adds to the more than 500 mmboe of potentially recoverable resources that have already been discovered and appraised at the nearby Appomattox discovery. Vicksburg “A” is a separate accumulation from both Appomattox and the 2007 Vicksburg “B” discovery.
“The results of the Vicksburg well strengthen our existing deepwater Gulf of Mexico exploration portfolio and should contribute to the nearby Appomattox discovery,” said Mark Shuster, Executive Vice President Shell Upstream Americas Exploration.
Shell (the operator with a 75% interest) and Nexen, a wholly-owned subsidiary of CNOOC Limited, (25% interest), are following up the Vicksburg “A” well with a sidetrack well to test the Corinth prospect, a separate fault block from the Vicksburg discovery. Further exploration drilling targeting tie-backs to Appomattox will follow.
Press Release, July 03, 2013; Image: Shell
Woodside advises that Daewoo International Corporation has accepted an offer by Woodside to farm-in to the Production Sharing Contract for Block AD-7 in the Rakhine Basin, located in the western offshore area of the Republic of the Union of Myanmar.
The offer is for a 40% participating interest in the Production Sharing Contract, and is subject to execution of fully-termed agreements, completion of due diligence, and necessary government and other approvals. Daewoo will remain operator of the PSC.
The proposal provides the opportunity for Woodside and Daewoo to undertake a 3D seismic acquisition program during the period 2013-2014. The transaction also provides the option to drill an exploration well in a subsequent exploration period.
Woodside CEO Peter Coleman said the offer demonstrated the company’s commitment to secure international growth opportunities in frontier and emerging basins that leverage Woodside’s core capabilities, especially in deepwater exploration.
“The Rakhine deep water basin is an exciting frontier exploration area and Block AD-7 is adjacent to the Daewoo-operated Shwe field development,” Coleman said.
“We are looking forward to finalising this opportunity and building a new partnership with Daewoo.”
- Woodside strikes agreement in Burma (news.com.au)
- Woodside Plans to Join Daewoo in Myanmar Exploration Venture – Bloomberg (bloomberg.com)
- Myanmar army may get invite to US-Thai exercise (kansascity.com)
CNOOC Limited and Nexen Inc. announced that they have entered into a definitive agreement under which CNOOC Limited will acquire all of the outstanding common shares of Nexen for US$27.50 per share in cash.
The purchase price represents a premium of 61% to the closing price of Nexen’s common shares on the NYSE on July 20, 2012, and a premium of 66% to Nexen’s 20 trading-day volume-weighted average share price. Total cash consideration of approximately US$15.1 billion will be paid for Nexen’s common and preferred shares, and Nexen’s current debt of approximately US$4.3 billion will remain outstanding. The transaction, which will be completed by way of a plan of arrangement, is expected to close in the fourth quarter of 2012.
The acquisition of Nexen expands CNOOC Limited’s overseas businesses and resource base in order to deliver long-term, sustainable growth. Nexen will complement CNOOC Limited’s large offshore production footprint in China and extends CNOOC Limited’s global presence with a high-quality asset base in many of the world’s most significant producing regions – including Western Canada, the U.K. North Sea, the Gulf of Mexico and offshore Nigeria – focused on conventional oil and gas, oil sands and shale gas. In addition, Nexen management’s current mandate will be expanded to include all of CNOOC Limited’s North American and Caribbean assets.
Nexen had average production of 207 mboe/d (after royalties) in Q2 2012. In accordance with SEC rules, Nexen had 900 mmboe of proved reserves and 1,122 mmboe of probable reserves as of December 31, 2011. In addition, as of December 31, 2011, Nexen had best estimate contingent resources of 5.6 billion boe in accordance with Canadian National Instrument 51-101, predominantly in the Canadian oil sands.
The transaction will be funded by CNOOC Limited’s existing cash resources and external financing.
Mr. Wang Yilin, Chairman of CNOOC Limited said, “The acquisition reflects our strong belief in Nexen’s rich and diverse portfolio of assets and world-class management and employees. This is an exciting opportunity for us to build on our existing joint venture relationship with Nexen in Canada, and to acquire a leading international platform in the process. We strongly believe that this acquisition will create long-term value for CNOOC Limited’s shareholders.”
Commenting on the acquisition, Mr. Barry Jackson, Chairman of the Board of Nexen, said, “This transaction delivers significant and immediate value to Nexen shareholders. The Nexen Board is unanimous in its view that the transaction is in the best interest of Nexen and recommends shareholders vote in favor of the transaction.”
(Reuters) – Aubrey K. McClendon is one of the most successful energy entrepreneurs of recent decades. But he hasn’t always proved popular with shareholders of the company he co-founded, Chesapeake Energy Corp., the second-largest natural gas producer in the United States.
McClendon, 52, helped cause Chesapeake shares to plummet amid the financial crisis when he sold hundreds of millions of dollars in stock to raise cash for himself. Later, to settle a lawsuit by shareholders, he agreed to buy back a $12 million map collection that he’d sold to Chesapeake.
His approach to running his company also is renowned: Among other employee perks, on-site Botox treatments are available at its headquarters in Oklahoma City, Oklahoma.
Now, a series of previously undisclosed loans to McClendon could once again put Chesapeake’s CEO and shareholders at odds.
McClendon has borrowed as much as $1.1 billion in the last three years by pledging his stake in the company’s oil and natural gas wells as collateral, documents reviewed by Reuters show.
The loans were made through three companies controlled by McClendon that list Chesapeake’s headquarters as their address. The money is being used to help finance what could be a lucrative perk of his job – the opportunity to buy into the very same well stakes that he is using as collateral for the borrowings.
The size and nature of the loans raise concerns about whether McClendon’s personal financial deals could compromise his fiduciary duty to Chesapeake investors, according to more than a dozen academics, analysts and attorneys who reviewed the loan agreements for Reuters.
“If Mr. McClendon has $1 billion in debt through his own companies — companies operating in the same industry as Chesapeake — he has or could have a high degree of risk for conflicts of interest. As in, whose interest will he look out for, his own or Chesapeake’s?” said Joshua Fershee, an associate professor of energy and corporate law at the University of North Dakota.
The revelation of McClendon’s bout of borrowing comes as he is scrambling to help Chesapeake avert a multi-billion-dollar cash shortfall amid a plunge in natural gas prices.
It also exposes a potentially serious gap in how U.S. regulators scrutinize corporate executives, a decade after those rules were tightened in the wake of major accounting scandals.
The loans portend a number of possible problems, the analysts said. McClendon’s biggest lender is simultaneously a major investor in two units of Chesapeake. That connection raises questions about whether Chesapeake’s own financing terms could be influenced by its CEO’s personal borrowing.
Another concern: A clause in the deals requires McClendon “to take all commercially reasonable action” to ensure that other owners and operators of the wells – including Chesapeake – “comply with…covenants and agreements” of the loans. Such clauses are common in energy-finance deals. But it is rare for the CEO of a major energy company to be personally subject to one involving the corporation that he runs. That means McClendon could have an incentive to influence Chesapeake to act in the interest of his lenders, rather than of his shareholders.
“Basically what you have here is a private transaction that could potentially impact a public company, depending on the manner in which the clause is interpreted and applied,” says Thomas O. Gorman, a partner at law firm Dorsey & Whitney in Washington, D.C., and a former special trial counsel at the Securities and Exchange Commission (SEC). “That may create a conflict of interest.”
As a result, the loans should have been fully disclosed to Chesapeake shareholders, the academics, attorneys and analysts said.
Both McClendon and Chesapeake say the loans are purely private transactions that the company has no responsibility to disclose or even to vet. And they disputed the view that the deals could create a conflict of interest.
“I do not believe this is material to Chesapeake,” McClendon said in an email response to questions. “There are no covenants or obligations in my loan documents or mortgages that bind Chesapeake in any way.”
Chesapeake general counsel Henry Hood said in a statement that the clause in the loan agreements questioned by analysts – called “Compliance by Operator” – is “typical boilerplate language” used in oil and gas mortgages. It requires borrowers to exercise their rights with operators of wells, such as Chesapeake, on behalf of the lender.
Neither the existence of McClendon’s loans nor their terms create the possibility of a conflict of interest, Hood said, in part because the company has a first lien on McClendon’s share of company wells. That would mean Chesapeake gets paid before all other creditors in the event that McClendon defaults on his debt.
“Any loans are Mr. McClendon’s personal business and not appropriate for review or monitoring by the company or public comment,” Hood said.
The company has many checks to protect against conflicts, Hood said. Among them: Some of the world’s largest energy companies own a share of Chesapeake wells and “monitor the actions of the Company” via well audits, government filings and participation in development plans, Hood said.
He added that Chesapeake now employs more than 13,000 people and drills more than 2,000 wells per year, “all of which minimizes the ability of any one person” – McClendon included – “to influence actions on any single well.”
Less than four years ago, a personal transaction by McClendon did negatively influence the company.
To buy more Chesapeake stock, McClendon borrowed money from his brokers – what’s called “buying on margin.” In October 2008, just after the financial crisis erupted with the bankruptcy of Lehman Brothers, he was forced to sell more than 31 million Chesapeake shares for $569 million to cover margin calls from those brokers. The company’s stock fell nearly 40 percent the week of McClendon’s share sales. McClendon issued an apology but the company’s credibility with many shareholders suffered significantly.
Chesapeake’s board of directors is aware that McClendon has borrowed against his share of company wells, Hood said, but “the board did not review or approve the transactions.” Nor did the company vet the loan terms for possible conflicts. “If there were any conflicts of interest,” Hood said, “they would have surfaced by now.”
Chesapeake board members contacted declined to comment. Marc Rome, Chesapeake’s vice president for corporate governance, did not respond to requests for comment.
WELL INVESTMENT PLAN
The loans reveal how McClendon is using an unusual corporate incentive as collateral. The perk, known as the Founder Well Participation Plan, grants Chesapeake’s billionaire co-founder a 2.5 percent stake in the profits – and makes him pay 2.5 percent of the costs – of every well drilled during each year he decides to participate.
Today, Chesapeake is the only large publicly traded energy company to grant its CEO the opportunity to take a direct stake in wells it drills. Chesapeake says the well plan is a uniquely powerful incentive because it aligns McClendon’s personal interests with those of the company’s.
The well plan does not allow McClendon to select the wells in which to invest; Chesapeake says the program is an all-or-nothing proposition so that McClendon can’t cherry-pick only the most profitable wells.
“He has to eat his own cooking here,” said company spokesman Michael Kehs.
But because McClendon is using the loans to finance his participation in the well plan, he defrays his risks. Two of McClendon’s lenders, both private equity firms, in turn spread the loan risks to other investors by raising money from state pension funds and other investors to fund them. Those insights emerge from a February 2011 document detailing a meeting between McClendon’s largest personal lender and a prospective investor.
“If he hasn’t had to put up any of his own money, how is that alignment” of McClendon and Chesapeake’s interests, asked Mark Hanson, an analyst with Morningstar in Chicago.
Chesapeake said McClendon’s loans are “well disclosed” to company shareholders. General Counsel Hood cited two references in the company’s 2011 proxy. In them, the firm refers to McClendon’s personal “financing transactions,” including one in a section entitled “Engineering Support” that discusses McClendon’s use of Chesapeake engineers to assess well reserves.
Nowhere in Chesapeake proxy statements or SEC filings does the company disclose the number, amounts, or terms of McClendon’s loans. Veteran analysts of the company said they were never aware of the loans until contacted for this article.
“We believe the disclosures made by the company have been appropriate under the circumstances, particularly since the disclosure of the loans is not required in any event,” Hood said in a statement.
THROUGH THE CRACKS
Legal experts say the size and terms of McClendon’s borrowing are unusual – and highlight a gap in regulatory scrutiny of American corporate executives.
In the past, major Wall Street banks formed separate companies – or special purpose vehicles, just as McClendon has – to allow select employees to borrow from the employer and make investments. The WorldCom accounting scandal was, in part, fueled by more than $1 billion in loans taken out by former chief executive Bernard Ebbers that were secured by his shares of company stock. And energy giant Enron used off-balance-sheet entities to hide debt from investors. New accounting and corporate governance laws and regulations banned such transactions or required their disclosure.
In September 2006, the SEC revised its related-party transaction rules to require companies to disclose when executives pledged corporate stock as collateral for loans. “These circumstances have the potential to influence management’s performance and decisions,” the SEC wrote.
McClendon’s loans – backed not by stock but by stakes in company wells – aren’t covered by the SEC rule. “Because they have decided to compensate him with a business interest, it kind of falls through the cracks,” says Francine McKenna, an accounting expert and author of the accounting-related blog re: The Auditors.
As a result, no SEC regulation precludes McClendon from using his well plan stake as loan collateral. The SEC declined to comment on the McClendon loans.
Tall and thin, McClendon is a tireless booster for the oil and gas industry – and of his company. At an energy conference in November in Houston, he sported a tie printed with tiny drilling rigs. His daring deals and stirring speeches to investors have attracted some adoring followers.
During one speech last September, McClendon said opponents of a controversial drilling technique called hydraulic fracturing were interested in “turning the clock back to the Dark Ages.”
“What a great vision of the future!” he said sarcastically. “We’re cold, it’s dark, and we’re hungry!”
McClendon’s investor presentations are standing-room-only. But he often bristles when his business model is questioned by analysts, frequently arguing that Wall Street does not understand the company.
That tension has intensified as Chesapeake scrambles to shed more than $10 billion in debt through the rapid-fire sale of assets amid the lowest natural gas prices in a decade. This year, it has done a series of deals to try to close a cash shortage estimated by analysts to be as high as $6 billion.
McClendon continues to treat his employees well. In recent years, he built a 50-acre red-brick campus in Oklahoma City as Chesapeake headquarters. It boasts a 72,000 square-foot state-of-the art gym, visiting doctors who provide lunchtime Botox treatments for employees, and dentists to whiten teeth.
A part owner of the NBA’s Oklahoma City Thunder and supporter of charitable causes in the state capital, McClendon holds considerable sway in Oklahoma. Former U.S. Senator Don Nickles and former Oklahoma Governor Frank Keating, both Republicans, are members of the Chesapeake board.
McClendon’s close relationship with the board hasn’t left him immune to tensions with stockholders.
After Chesapeake’s board agreed to buy McClendon’s map collection in 2008 for $12.1 million, shareholders sued. The lawsuit was settled in November 2011, when McClendon agreed to refund the $12.1 million, plus interest, and hold stock worth 500 percent of his annual salary and bonus. Chesapeake also agreed to hire Rome, the vice president of corporate governance, and an executive compensation consultant to evaluate corporate pay packages.
The well participation plan, which was approved by shareholders in 2005 and cannot be discontinued until 2015, has remained unaffected.
Disgruntled investors continue to launch challenges. On March 13, New York Comptroller John C. Liu and the $113 billion New York Pension Funds called on Chesapeake to let large long-term shareholders put up their own nominees for the board of directors.
Key aspects of McClendon’s loans remain hidden from shareholders. Because promissory notes underpinning the loan agreements are private, the interest rate, the exact amount borrowed and other terms of the transactions are not publicly known.
But the loan agreements demonstrate the extent to which McClendon has leveraged his interests: He has pledged as collateral almost every asset associated with his share of Chesapeake wells. Oil, gas and land interests, platforms, wells and pipelines, hedging contracts, geological and business data, and intellectual property are among scores of well-related assets that can be seized should McClendon default.
Chesapeake said it would be “unaffected by any dispute” between McClendon and a lender in the event of a default because of its first lien on oil and gas production, equipment and land leases.
The company also said that McClendon’s share of “related assets” pledged as collateral – such as business data and hedging contracts associated with wells – is completely separate from similar assets owned by Chesapeake. That means Chesapeake would not become entangled should McClendon default, the company said.
Chesapeake “does not have an interest in the (McClendon’s) related assets … and Mr. McClendon does not have an interest in the company’s related assets,” general counsel Hood said in a statement.
In explaining why Chesapeake’s board isn’t obligated to monitor McClendon’s personal loans, Hood cited a September 2003 decision by a Delaware Chancery Court. The ruling in Beam v. Stewart found the board of Martha Stewart Living Omnimedia did not breach its fiduciary duty to shareholders by failing to monitor her personal investments. (Stewart served five months in prison in 2004 following her conviction for obstruction of justice in an unrelated insider-trading case.)
Given the size, scope and complicated terms of the loans, their particulars constitute important stockholder information and therefore should be more fully disclosed, said David F. Larcker, a professor of accounting at Stanford University’s Graduate School of Business.
Some shareholders agree. “While recognizing (McClendon’s) right to privacy, the more information the company releases to shareholders the better – particularly when it’s such a large amount of money and related to the oil and gas business,” said Mike Breard, oil and gas research analyst at Hodges Capital Management in Dallas, which owns Chesapeake shares.
As with a mortgage on a residential home, state law requires that ownership rights to physical property be recorded with county clerks.
Reuters found McClendon’s loan agreements by following the trail of well and land lease transfers from Chesapeake to three companies that list McClendon as their corporate representative, according to state deed records.
In county courts in Louisiana, Texas, Arkansas, Pennsylvania and Oklahoma, where Chesapeake operates thousands of wells, the company regularly files a form called a conveyance. In keeping with the corporation’s well participation program, the conveyance grants McClendon a 2.5 percent share of each well and of the leased land on which it is drilled.
For years, Chesapeake has distributed 2.5 percent shares in wells and land to three McClendon-controlled companies – Chesapeake Investments LP, Larchmont Resources LLC and Jamestown Resources LLC.
Since he co-founded Chesapeake in 1989, McClendon has frequently borrowed money on a smaller scale by pledging his share of company wells as collateral. Records filed in Oklahoma in 1992 show a $2.9 million loan taken out by Chesapeake Investments, a company that McClendon runs. And in a statement, Chesapeake said McClendon’s securing of such loans has been “commonplace” during the past 20 years.
But in the last three years, the terms and size of the loans have changed substantially. During that period, he has borrowed as much as $1.1 billion – an amount that coincidentally matches Forbes magazine’s estimate of McClendon’s net worth.
The $1.1 billion in loans during the past three years breaks down this way:
In June 2009, McClendon agreed to borrow up to $225 million from Union Bank, a California lender, pledging his share of wells as collateral.
In December 2010, he borrowed $375 million from TCW Asset Management, a private equity firm.
And in January 2012, McClendon borrowed $500 million from a unit of EIG Global Energy Partners, a private equity firm formed by former TCW executives.
It is unclear how much, if any, of those loans have been repaid.
Randall Osterberg, a senior vice president at Union Bank who signed the loan agreement, declined to comment. TCW and EIG also declined to respond to questions.
At first blush, what the company tells shareholders suggests the well plan is a money-loser for McClendon.
In its proxy statements, Chesapeake says McClendon lost $116 million in 2009, and $141.9 million in 2010.
It’s unclear whether McClendon has suffered any real losses, however. Asked about the calculations, Hood said McClendon’s net loss is a byproduct of his drilling costs being “front end loaded,” while his revenues accrue over many years.
“If they are showing that kind of negative cash flow, the wells don’t have value,” said Phil Weiss, oil analyst at Argus Research who has a sell rating on the company’s shares. But given that McClendon has borrowed more than $1 billion based on the value of his well stakes, “I really don’t think (the company’s disclosures) tell me much,” Weiss said.
Chesapeake has resisted attempts by regulators to get more information on McClendon’s well-participation plan before. In 2008, the SEC requested more information about McClendon’s benefits from the well plan as part of a review of the company’s 2007 annual report.
From May to October that year, Chesapeake and SEC officials exchanged at least eight letters and held negotiations on the issue. After first refusing to provide more information, Chesapeake ultimately agreed to provide shareholders a chart detailing well plan revenues and costs, a review of the letters shows.
Chesapeake’s Hood said in a statement that the company’s disclosures are “fully compliant with all legal and regulatory requirements.” The chart and other SEC filings contain “all material facts that Chesapeake was required to disclose,” he said.
A spokesman for the SEC declined to comment.
McClendon’s biggest personal lender, EIG, has been a big financer for Chesapeake, too.
In November, Chesapeake raised $1.25 billion from a group of investors including EIG through the sale of “perpetual preferred shares” in a newly formed entity, Chesapeake Utica LLC, which controls about 800,000 acres of oil and gas-rich land in Ohio. The sale offers lucrative terms to EIG investors, paying an annual dividend of 7 percent and royalty interests from oil and gas wells, according to analysts.
On April 9, the company announced a nearly identical deal to raise another $1.25 billion from EIG and other investors, in another new subsidiary called CHK Cleveland Tonkawa.
Dividends on preferred shares are controversial because they are paid before regular dividends owed to common shareholders. “Basically it’s a form of more expensive debt,” Morningstar’s Hanson said. “It makes it appear that it’s not debt, but it sits on top of obligations to the common shareholder.”
The fact that McClendon’s largest personal lender received favorable terms on its Chesapeake investments caused some Wall Street analysts to call for more information about McClendon’s loans.
“I think the company should disclose this information. One reason is that the CEO is taking out loans from at least one entity, EIG, which recently provided financing to Chesapeake,” said Joseph Allman, oil and gas industry analyst at JPMorgan in New York, who reviewed the loan agreements. “In the same way that investors want to know the counterparty to significant Chesapeake transactions, they would want to know if one of those firms has significant private dealings with the CEO.”
Chesapeake’s Hood acknowledged there could be “some theoretical possibility of a conflict of interest” with the company and its CEO borrowing from the same lender. But because Chesapeake does not believe there is “an actual conflict of interest,” more disclosure is not required, Hood said.
CLOSING A GAP
McClendon’s personal loans highlight a gap in current SEC rules governing disclosures of related-party transactions, say accounting experts. The SEC requires disclosure of any transaction over $120,000 involving a company and a related party, such as the CEO, directors and certain family members, “with direct or indirect material interest.”
Chesapeake said the SEC’s related-party rule doesn’t apply to McClendon’s loans – only to his participation in the well plan. That’s because Chesapeake believes the loans “do not constitute a material transaction with Chesapeake or even involve Chesapeake,” Hood said.
That disclosure gap may be closing. A proposed new standard, released for public comment by the Public Company Accounting Oversight Board on February 28, would require auditors to identify and evaluate “significant unusual transactions” with executives connected to publicly traded firms. The board defined such transactions as those “outside the normal course of business or that otherwise appear to be unusual due to their timing, size or nature.”
Board chairman James R. Doty described the proposal as a way to scrutinize transactions that have played “a recurring role in financial failures.” The oversight board declined to comment on McClendon’s loans.
For now, said analyst Weiss, Chesapeake and McClendon are pushing the limits. “If Chesapeake were trying to make things muddy and unclear without breaking the law, this would be a good way to do it.”
(Reporting by Anna Driver in Houston and Brian Grow in Atlanta; additional reporting by Joshua Schneyer in New York; editing by Blake Morrison and Michael Williams)
- Chesapeake CEO Aubrey McClendon predicts natural gas market growth (newsok.com)
- Low natural gas prices leave energy companies in search oil (newsok.com)
- Chesapeake CEO courts Asians for US$100B resource (business.financialpost.com)
- Chesapeake’s CEO Shopping for New Owners (CHK, CEO, TOT, CQP) (247wallst.com)
- Low prices force Chesapeake Energy Corp. away from natural gas (newsok.com)
Focused on supporting natural gas fueling in North America, investors, including Boone Pickens, have invested a total of $150 million in Clean Energy Fuels Corp., North America’s leading provider of natural gas fuel for transportation.
The investments resulted from the exercise of Mr. Pickens’ warrants to purchase 15 million shares of the company’s common stock at $10 per share. Mr. Pickens purchased 1.5 million shares and transferred the balance to existing investors RRJ Capital, Seatown Holdings and Chesapeake Energy Corporation, as well as Chief Capital LP, an investment vehicle wholly owned by energy investor Trevor Rees-Jones.
“These investments bring the total invested or committed to Clean Energy to $450 million during 2011,” said Andrew J. Littlefair, President and CEO of Clean Energy. “We see this as a tremendous affirmation of both Clean Energy as the leader in natural gas vehicle fueling in America and our America’s Natural Gas Highway initiative that is expanding natural gas fueling infrastructure in cities throughout the country.”
“We have a significant program underway to develop CNG and LNG fueling stations serving fleets in the long-haul, regional and port trucking markets, as well as for solid waste, transit, airport and municipal transportation nationwide,” noted Littlefair.
Currently priced up to $1.50 or more per gallon lower than diesel or gasoline (depending upon local markets), the use of natural gas fuel reduces costs significantly for vehicle and fleet owners, and reduces greenhouse gas emissions up to 30% in light-duty vehicles and 23% in medium to heavy-duty vehicles. Additionally, natural gas is a secure North American energy source with 98% of the natural gas consumed produced in the U.S. and Canada.
- USA: Clean Energy Gets USD 150 Million Investment
- USA: Clean Energy Supports Proposed Federal Legislation That Would Expand Use of Gas Fuel for Transportation
- USA: Clean Energy Partners with Quarles Petroleum to Add Gas Fueling Service
- USA: Clean Energy Supports 2011 NAT GAS Act
- USA: Clean Energy CEO Says Supporting Gas for Transportation Will Create Over 400,000 New Jobs
- Compressed natural gas plans may spur vehicle growth (newsok.com)
- Natural gas fueling plans may spur vehicle growth. (azdailysun.com)
- Noble Energy Discovers Significant Gas Discovery Offshore Cyprus (mb50.wordpress.com)
Sabrina Fang | 202.682.8114 | firstname.lastname@example.org
WASHINGTON, November 10, 2011 – The American Petroleum Institute blasted the White House for delaying the approval of the Keystone XL pipeline, putting an indefinite hold on the creation of 20,000 new jobs next year:
“This decision is deeply disappointing and troubling. Whether it will help the president retain his job is unclear, but it will cost thousands of shovel-ready opportunities for American workers,” said API President and CEO Jack Gerard. “There is no real issue about the environment that requires further investigation, as the president’s own State Department has recently concluded after extensive project reviews that go back more than three years. This is about politics and keeping a radical constituency opposed to any and all oil and gas development in the president’s camp in November 2012.
“Besides creating thousands of jobs almost immediately for Americans, this project would also have helped strengthen our energy partnership with Canada and helped reduce America’s reliance on oil from less stable sources,” he said.
A recent poll found that nearly 80 percent of Americans favor more oil from Canada, already our number one supplier of foreign oil, according to API.
The Keystone XL pipeline has the support of organized labor, business, mayors and veterans groups from across the country as well as many members of Congress from both sides of the aisle.
API represents more than 480 oil and natural gas companies, leaders of a technology-driven industry that supplies most of America’s energy, supports 9.2 million U.S. jobs and 7.7 percent of the U.S. economy, delivers more than $86 million a day in revenue to our government, and, since 2000, has invested more than $2 trillion in U.S. capital projects to advance all forms of energy, including alternatives.
Helge Lund (left), CEO of Norwegian energy company Statoil, speaks with Statoil Joint Venture Manager Cesar Alvarez (facing away) and Talisman Energy Frac Specialist Nabila Larsen (right) at a Talisman Energy fracking site near Cotulla, Texas. Statoil is working with Talisman energy to develop oil and gas ventures in the Eagle Ford shale formation in south central Texas. (Photo: JOHN DAVENPORT/SAN ANTONIO EXPRESS-NEWS)
LA SALLE COUNTY – Helge Lund, CEO of Norway’s Statoil, likes to say his company is more than just a financial investor in shale gas fields in the U.S., and he made that abundantly clear one morning last week.
Up before dawn, the tall, soft-spoken Norwegian ate breakfast tacos and endured a long drive on bumpy dirt roads before arriving at a remote well site, about 100 miles south of San Antonio, where mesquite and prickly pear blanket the dusty landscape and deer, jackrabbits and rattlesnakes are the primary residents.
His mission was to get an up-close look at an operation in the Eagle Ford shale formation, where the company launched a joint venture last year, and he spent several hours in the sweltering South Texas sun doing just that.
“The key point for us is we do not look at this as a short-term investment,” said Lund, 48, wearing thick red coveralls, steel-toe boots and a hard hat. Rather, he said, it is an important part of the company’s future.
Last fall, Statoil announced it would pay $1.3 billion for properties in the Eagle Ford shale formation and team up with Canada’s Talisman Energy to develop them. Two years earlier, the Norwegian oil giant paid roughly the same amount for a stake in Marcellus shale properties in the Northeast U.S. operated by Chesapeake Energy.
Statoil is among a number of foreign oil companies including France’s Total, China’s Cnooc and Australia’s BHP Billiton that are paying huge sums to enter U.S. shale rock formations, where recent breakthroughs in drilling and extraction technology – pioneered by small U.S. producers – have put massive quantities of natural gas within reach.
A push to diversify
But Statoil, two-thirds owned by the Norwegian government, faces special pressure to diversify its production beyond Norway, where mature offshore fields in the North Sea are in decline and taxes are high.
As such, it has focused on North America, where it also is a major leaseholder in the Gulf of Mexico, has exploration acreage in Alaska, operates an oil sands project in Canada and is drilling off the Canadian eastern coast.
“The next 10 years, we will probably have steeper growth in North America than in any other region of the world,” said Lund, who expects a fivefold increase by the end of the decade in Statoil’s North American production, now roughly 100,000 barrels of oil equivalent per day.
Sharp increase is goal
The company has a broader goal over the same period to boost global output to 2.5 million barrels per day from about 1.9 million barrels today, as fields also come online in Brazil and elsewhere.
Statoil also might consider partnerships to explore in the Arctic, like one announced late last month by Exxon Mobil Corp. and Russia’s Rosneft.
“I cannot rule that out,” said Lund, noting that the Arctic will be another focus area for the company moving forward.
But he is the first to acknowledge that while Statoil is a skilled offshore operator, particularly in harsh climates, it still has much to learn in the onshore unconventional gas business. That’s why Talisman is taking the lead in operating wells in the Eagle Ford, while Statoil serves as understudy.
Statoil will begin operating wells under the joint venture by as early as the end of next year, though details of how the two companies will divide things up remain in discussion, Lund said.
The Eagle Ford shale, which is 450 miles long and 50 miles wide and runs in a crescent-shaped band below San Antonio, has been attractive to oil companies because, in addition to gas, it contains more valuable supplies of oil, condensate and natural gas liquids.
Houston’s Marathon Oil Corp., for instance, inked a $3.5 billion deal in June to acquire 285,000 acres in the formation, while Shell, ConocoPhillips and others also have positions.
But it can be challenging to develop the Eagle Ford’s deep high-pressure wells, and the mix of gas or liquids can vary widely from zone to zone.
Scales and fangs
Then there’s the matter of the neighbors.
“Rattlesnakes are really bad out here,” said David Peterson, a safety consultant to Talisman at the well site.
Sven del Pozzo, an industry analyst with IHS-Herold in Stamford, Conn., said such challenges will be difficult to navigate for companies like Statoil with little experience in shale plays.
“This is new for them,” he said. “It’s going to take some time to get it right.”
Since December, Talisman has drilled 22 wells under the joint venture, said Chris Jeske, manager of Talisman’s Eagle Ford unit. It’s run from The Woodlands, where half a dozen Statoil employees are working and more are coming.
The joint venture now has eight rigs in the formation, will increase that to 14 by the end of next year and then has plans to drill up to 200 wells a year, Jeske said.
The partnership controls roughly 170,000 acres across La Salle, McMullen, Live Oak, Bee, Karnes and DeWitt counties.
While Statoil is focused first on becoming an operator in the Eagle Ford and sees more opportunity for shale acquisitions in the U.S., “we are looking at opportunities outside North America as we mature our approach,” Lund said.
Possible areas for expansion could include Asia, South America and Europe.
He said Statoil also has had talks with China National Petroleum Co. on a possible joint venture to develop shale acreage in China, though he declined to discuss specifics.
- Sanchez Energy IPO Filing, An Eagle Ford Shale Winner (SEN, CHK, ECA, MRO) (247wallst.com)
- Devon sees great potential with Tuscaloosa Shale oil play in Louisiana (mb50.wordpress.com)
- New Frontiers: the attention turns to some up-and-coming plays (mb50.wordpress.com)
- Emerging Shale Oil Plays (mb50.wordpress.com)
- Statoil Raises Oil Estimates (online.wsj.com)
If 2008 was the Year of the Shales, 2011 is shaping up to be the Year of Liquids-Rich Plays–and there are still four months to go.
A major recurring theme in second-quarter conference calls was oil companies’ news of positions amassed or initial test wells drilled in new shale and unconventional fields containing oil and natural gas liquids.
Plays such as the Tuscaloosa Marine Shale, Mississippi Lime, Lower Smackover/Brown Dense and Utica shales–both in Ohio and to the west in Michigan–are lining up to be the emerging fields of 2012 and 2013, analysts said.
“We’ll see a movement in some of these plays and it’s not going to slow down–if anything, it will be a pretty tight market for services, fracturing crews and pipeline access,” Michael Bodino, head of energy research for Global Hunter Securities, said.
Arguably, the Utica Shale was the showpiece of the quarter, particularly because its cachet resembles that of Northwest Louisiana’s giant Haynesville Shale, which took Wall Street by storm when Chesapeake Energy trumpeted it in March 2008.
Chesapeake again took the lead in showcasing the Utica late last month, relating the news that the play economically “looks similar, but is likely superior to the Eagle Ford Shale in South Texas…because of the quality of the rock and location of the asset” near eastern US population centers, CEO Aubrey McClendon said.
Like the Eagle Ford, which stands out as one of the US’ most sizzling shale plays at present, the Utica has oil and “dry” natural gas and “wet gas” (gas liquids) windows, he said.
Jeff Ventura, chief operating officer at Range Resources, which pioneered the Marcellus Shale in Pennsylvania, said his company already has drilled two Utica wells. At least on its acreage, Utica is at the bottom of a pancake stack of three play zones, with the Upper Devonian Shale on top and the Marcellus in the middle. The Upper Devonian shales contain about as much gas in place as the Marcellus zone, Ventura said, adding that the Marcellus gas field has been called one of the US’ largest.
Both Range and Chesapeake also have scored success in Northern Oklahoma’s Mississippi Lime play. “In the past year it has become more clear that we have a major play on our hands,” said McClendon, with Chesapeake holding 1.1 million acres there, running six rigs, aiming for 10 rigs by year-end and 30 to 40 by end-2014 or 2015.
Range’s Ventura suggested the play, found at relatively shallow depths of 5,000-6,000 feet, is also highly profitable; it boasts a 100% rate of return at $100/b oil, and he added that even at $90/b it yields a roughly 80% return. Range, which has completed seven horizontal wells, sees its main near-term activity there as nailing the optimal lateral length and well spacing.
Ventura said liquids make up 70% of a well’s recoverable hydrocarbons. McClendon estimated 415,000 barrels of oil equivalent per well, at an average finding cost to date of roughly $11/b, which he called “very, very attractive results.”
Meanwhile, in its late July conference call, Southwestern Energy CEO Steven Mueller said his company has acquired 460,000 net acres in an unconventional horizontal play targeting the Lower Smackover Brown Dense formation.
“This happens to be almost the exact same number of acres we had when we announced the Fayetteville Shale play back in August 2004,” Mueller said. That news kicked off an industry rush to that gas play, Mueller said.
But having reviewed the results of more than 70 wells that penetrated the Brown Dense zone, “we currently have more data about [it] than we had on the Fayetteville Shale when it was announced,” he said.
Mueller said the Brown Dense is an oil reservoir in Northern Louisiana and Southern Arkansas, at 8,000-11,000 foot depths and below the Haynesville Shale which is also a gas play. Brown Dense is “extensive over a large area and ranges in thickness from 300 to 530 feet,” he said.
Southwestern plans its first Smackover/Brown Dense well in Columbia County Arkansas, before the end of September, with a second well later in the year in Claiborne Parish, Louisiana.
In addition, Goodrich Petroleum in early August said it had begun drilling the Buda Lime, beneath the Eagle Ford. The small company averaged a respectable 900 boe/d oil from those wells, against 800 boe/d from its 11 Eagle Ford wells so far.
Rob Turnham, Goodrich chief operating officer, also touted the Tuscaloosa Marine Shale, along the horizontal Mississippi-Louisiana border, where both Encana and Devon Energy have large positions and are drilling wells. Tuscaloosa “has a lot of similarities to the Eagle Ford–similar permeability and porosity” of the rocks, he said. Goodrich will begin drilling in early 2012.
He said nine older wells in the play have flowed oil but “none of them have been properly stimulated.” If the vertical wells were to be taken horizontally several thousand feet, fractured with current technology, and properly stimulated, “we’re very optimistic,” said Turnham.–Starr Spencer in Houston