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July 2013

David Havens

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the industry

INSIDE
Forecasting shale Analyzing cash flow Protect against fraud Q&A with UAE minister OGFJ100P quarterly report

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CONTENTS

ON THE COVER:
Crdit Agricole managing director David S. Havens.

14

V10/#7

COVER STORY:
In an interview with OGFJ, Crdit Agricole managing director David Havens talks oil markets and investment indicators.

FEATURES

20 Forecasting shale oil


To forecast shale oil production, look at the detailed geology of the formations, the empirical production data at well level, and company budgets and spending plans.

23 UAE Minister
Suhail Mohamed Faraj Al Mazrouei talks about the rapid growth of the UAE and its diversifying energy portfolio.

26 Fraud protection
With every oil boom, comes fraud. Most of the attention centers on fraudulent stock scams. What doesnt garner as much notice is fraud against oil and gas companies themselves.

29 Legacy lawsuits
Louisiana legacy lawsuits create unknown risks for some E&P companies.

DEPARTMENTS

5 Editors Comment 6 Capital Perspectives 10 Upstream News 12 Midstream News 32 Deal Monitor 34 OGFJ100P 42 Industry Briefs 45 Energy Players 64 Beyond the Well

31 Canadian shale
Canada is in the early stages of developing its unconventional resources. A large portion of the nations production potential has yet to be unlocked.

48 Special Report: Denmark

Oil & Gas Financial Journal (ISSN: 1555-4082) is published 12 times per year, monthly by PennWell, 1421 S. Sheridan Rd., Tulsa, OK 74112. Periodicals Postage Paid at Tulsa, OK, and additional mailing offices. POSTMASTER: Send address changes to Oil & Gas Financial Journal, 1421 S. Sheridan Rd., Tulsa, OK 74112. Change of address notices should be sent promptly with old as well as new address and with ZIP or postal code. Allow 30 days for change of address. Copyright 2013 by PennWell. (Registered in US Patent & Trademark Office.) All rights reserved. Permission, however, is granted for libraries and others registered with the Copyright Clearance Center Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, Phone (508) 750-8400, Fax (508) 750-4744, to photocopy articles for a base fee of $1 per copy of the article, plus 35 cents per page. Payment should be sent directly to the CCC. Federal copyright law prohibits unauthorized reproduction by any means and imposes fines up to $25,000 for violations. Requests for bulk orders should be sent directly to the Editor. Back issues are available upon request.

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Editors Comment

Cheap domestic energy is driving US economy


Don Stowers Editor-OGFJ Carbon emissions actually reached a 20-year low in 2012, according to Pursell, managing director and head of securities at TPH. He says this is a long-term trend that is due in part to less expensive natural gas replacing dirtier coal for power generation. We are producing more natural gas, and we are doing it with fewer rigs, said Pursell. For years we couldnt grow natural gas production, and now we are doing it with fewer and fewer rigs. This is the best thing that has happened to the US economy, especially in the manufacturing sector driven by natural gas and electricity, making it cheaper and globally competitive. US law prohibits the export of domestic crude, but increased supply, combined with the export ban, means there will be a disconnect between the pricing of oil in the US and everywhere else. As US crude becomes less expensive, refiners can export refined product, which is good for refineries and for the areas where they are located. Producers are becoming victims of their own success, making less money due to the increased supply of oil and natural gas, Pursell said. The people who will profit are companies that transport and refine it. Tom Hargrove, managing director with GulfStar Group, discussed capital markets and their impact on the energy industry. An estimated 80% of wells are now non-vertical, and from a capital standpoint, horizontal drilling requires more equipment, services, and people than vertical drilling, he said. The Gulf of Mexico has recovered from the Deepwater Horizon spill with increased activity in deepwater exploration. We see new rigs moving into the market and once-rare deepwater production platform orders are now on backlog. Hargrove noted that there is a huge demand for capital from pipeline service companies. New pipelines are needed to transport product from the unconventional oil and gas fields to processing facilities, he said. Pipeline construction miles are projected to increase to approximately 41,000 in 2013, up from 36,000 in 2012, and total pipeline construction expenditures are expected to reach $41 billion in 2013 a $7 billion increase from 2012. In addition, an estimated $95 billion worth of processing plants are planned domestically, according to a Dow Chemical executive. James Wallis, a vice president at Lime Rock Partners, talked about private equity and noted that a renaissance in the US oil and gas industry is underway. Weve all heard the news, he said. The industry has reversed a decadeslong trend of declining crude oil production, and natural gas production continues to grow despite a significant drop in its pricing and the number of rigs drilling for it. Recent advancements such as simultaneous fracking, real-time microseismic monitoring, nanoscale reservoir analysis, and pad drilling individually are evolutionary rather than revolutionary, but combined have made a big impact on the industrys understanding of tight reservoirs and its ability to develop bad rock more efficiently, Wallis added. The end result is a dramatic increase in the amount of oil and gas resources that can be profitably developed today. Decreased dependence on energy imports will lower our foreign trade deficit, strengthen the US dollar, and will have implications on foreign policy, he added. The US is becoming more self-reliant. Our technologies and techniques will be exported, and tight oil will fill a really big gap in future global supplies that existed previously. It is turning into a big solution for the US and the world and thats good for everybody. OGFJ 5

uess what? The US manufacturing industry that has been proclaimed dead by economists, analysts, and editorial writers for decades is making a comeback. And the domestic energy industry can claim partial credit for this amazing turnaround. The BoyarMiller law firm recently held a conference in Houston that examined this dramatic reversal and the impact that abundant, low-priced natural gas has had on the manufacturing sector. One takeaway from the event is that while investors are injecting more capital into energy, particularly the oil and gas business, the lack of a sensible long-term energy policy and fragile global economies elsewhere continue to have an effect on investor confidence. The energy industry is a significant driver for Houstons growth and an important part of our practice, said Bill Boyar, the law firms founder and former chairman. We host the energy forum each year providing current trends and developments to help our clients stay ahead of the curve and make smart, informed business decisions. One of the speakers, David Pursell of Tudor, Pickering, Holt & Co., called for the administration to approve construction of the Keystone XL pipeline. Reversing the flow in segments of existing pipeline rather than building new pipe according to specifications is insufficient, he said. A significant amount of the heavy crude from Canada is already being transported to the Gulf Coast by rail and will continue to do so for the next decade.

July 2013 Oil&GasFinancialJournal www.ogfj.com

Capital Perspectives

The value of petroleum resources: analyses of cash-flows and uncertainties


Imre Szilgyi Exploration geologist and petroleum economist Budapest, Hungary
NOTE FROM THE AUTHOR: Following guidelines from the Society of Petroleum Engineers (SPE), most oil companies disclose 1P and/or 2P Reserves. It is, however, ascertainable that cash-flow forecasts based on these reported volumes are less than what investors can expect on the grounds of the probability theory. Furthermore, the uncertainty of the estimations is apparently ignored as an investment risk due to the fact that resources, regardless of their uncertainties, are discounted by the same rates. This article analyses the consequences of these two oddities on the valuation of petroleum resources.

that estimation of recoverable volumes is uncertain. However, is that the best way to manage such risks? Evaluation of the uncertainty of resource estimates is one of the most important issues affecting the petroleum industry, but interestingly it does not have any effect on resource valuation. Nevertheless, it is the conclusion to be drawn from the fact that recoverable resource volumes, regardless of the uncertainty, are discounted at the same rate. Is it really true that appraisal, green and brown field development projects, are characterized by the very same investment risk? To have the answers, we have to see the details.

n economic evaluations, cash-flow forecasts are normally based on the Mean values of the variables determining future revenues, expenditures, and costs, while the associated investment risk is taken into account in the cost of capital. To assist investors in assessing their cash-flow and risk expectations, oil and gas companies disclose all the information related to the fundamentals on what the actual asset pricing is taking place. In this view, the Reserves are the most important fundamentals of upstream business ventures.

Probability-driven reserve reporting and the expected value


Most publicly-traded oil companies follow the Petroleum Resources Management System (PRMS) guidelines for petroleum resources categorization. The PRMS defines the technically recoverable volume of a discovered petroleum accumulation as a random variable with lognormal distribution (See Figure 1). Under the terminology used by the PRMS, the P50 is the estimated quantity of petroleum for what there should be at least 50% probability that the quantities actually recovered

Questions on resource evaluations


The disclosure of reserves is meticulously elaborated in the regulations and guidelines of the Securities and Exchange Commission (SEC) and SPE with the outspoken objective of the protection of investors security interests. Led by this rationale, the listed oil companies are obliged to report those portions of undeveloped and developed resource volumes for what the commerciality is thought unquestionable. However, volumes of discovered resources subject to appraisal are not reported as reserves despite the fact that the positive NPV of the appraisal projects should obviously add to the companys value. How much value can investors attribute to the appraisal projects if they have no information on the discovered volumes to be appraised? On the other hand, the reported reserves are always based on a technically recoverable volume that is less than the Mean value of the estimate. Presuming the proportionality of the recoverable resources and the cash-flow expectations of the field development projects, we can conclude that the cashflows based on the Mean would be more than those based on a less recoverable volume. The current practice seems like a precautionary measure that serves to diminish investor risk that arise from the fact 6

Fig. 1: Probalistic Resources Categorization Model of the Petroleum Resource Management System
100% 90% 80% 70% 60%
Probability density function Cumulative probability function

P;p

50% 40% 30% 20% 10% 0% 10 30 P90 MIN 50 70 P50 P50 Mean 90 P10 P10 110 130 150 170 Quantity of recoverable resources MAX

P90

www.ogfj.com Oil & Gas Financial Journal July 2013

Capital Perspectives
will equal or exceed the estimate. P90 Fig. 2: Relative deviation of the Mean and the Best and P10 are the minimum quantiEstimate of the recoverable resources in the function ties with at least 90% and 10% probskewness and fatness of the Probability Density Function abilities, respectively. Deterministically approached, the probabilistic P90, P50 35% and P10 are replaced by the Low, Best and High Estimates (LE, BE and HE). 0.1 30% The Reserves are the commercial (economic and marketable) subsets 0.2 of the resources. The Proved (1P) 25% Reserves are derived from the P90/LE 0.3 volumes, the Proved and Probable (2P) 0.4 20% Reserves are subsets of the P50/BE estimates, while the Proved, Probable 0.5 and Possible (3P) are given based on 15% the P10/HE resource category. Annual 0.6 reports most often present the 2P Reserves and some companies disclose 0.7 10% the 1P, too. 0.8 That is fine, but.once we start 5% thinking about the lognormal behavior 0.9 of the random variable recoverable resource volumes (Figure 1) the obvi0% ousness of taking the P50/BE estimate 1,0 1,2 1,4 1,6 1,8 2,0 2,2 2,4 2,6 2,8 3,0 for the base of economic evaluation Skewness [(MAX-BE)/(BE-MIN)] is questioned. It is found that the Expected Value (Mean) of the recoverable volumes differs from the P50/BE. The separation of the 2-15% difference is relevant. P50/BE and the Mean is attributed to the right-hand side Logically, if the Mean of the recoverable resource is more skewness of the lognormal Probability Density Function. than the BE/P50 estimate the Reserve based on the Mean From one point it seems correct to consider the P50/BE would be more than the 2P. Assuming the proportionalbecause this is the volume that is most likely forecasted to pro- ity between resource volumes, reserves, and cash generation duce. However, that may not be correct because the Mean is estimations, we can conclude that the Mean-based cashthe quantity of petroleum that is in fact expected to recover. flows might be 2-15% more than those of the 2P-based. The An argument on behalf of using the Mean instead of the BE/ conclusion suggests that the prevailing (2P) reserve reporting P50 could be that in future predictions usually the statistical practice may devaluate the investors cash-flows at the NPV Mean is relied upon if the distribution of the random variable calculations. The devaluation is even more if cash-flow expecis other than normal (e.g. Poisson, binomial or exponential). tations are set based on the 1P reports. In the case of probabilistic analyses, the Mean is autoIn special circumstances, there may be logic behind matically calculated. In deterministic estimations, it can well relying upon a value that is less than normally expected. be assessed using the Swanson formula where it is given as The rationale behind this consideration might obviously the weighted average of the Low, Best and High Estimates be a kind of risk aversion. Cash-flow is usually cut back (Mean 0.3xLE + 0.4xBE + 0.3HE). if the investor perceives extra risk over the market risk. As shown in Figure 1, due to the lognormality the Mean, I think in our case the logic is false. The uncertainty of it is always more than the BE/P50. Is the difference relevant? the resource volume estimations is as natural as it is It depends on the flatness and the skewness of the Prob- for example the uncertainty of estimates made on prices, ability Density Function of the distribution. (Flatness can revenues, or costs. Therefore it seems a bit of unnecesbe given as the ratio of the Minimum and the Best Estimate; sary precaution to devaluate cash-flows just because the while Skewness is the ratio of the Maximum minus Best estimations of resource volumes are uncertain. Estimate and the Best Estimate minus Minimum differences). Figure 2 presents that the difference of the Mean and the Resources subject to appraisal BE/P50 ranges between 2-15% in a flatness and skewness So far we have been talking about recoverable resources that domains being typical of recoverable resources. I think a are ready for field development. Are the assumptions above
Relative deviation of Mean and Best Estimate

July 2013 Oil & Gas Financial Journal www.ogfj.com

Flatness (MIN/BE)

Capital Perspectives
extendable for those resources that have been discovered but Considering the uncertainty, it may be better to use the still require appraisal? As these volumes also have a lognorterm randomness that we humans in general feel somemal behavior the P90/LE, P50/BE and P10/HE recoverable thing the more uncertain the greater deviations we can quantities, as well as the Mean can be given. perceive from the average. In financing and engineering, as The PRMS characterizes these resources that are immature well as in the natural and social sciences, the measure of the for field development and therefore suggests categorizing uncertainty (randomness) is always the variance (or its square them as contingent resources. The approach is apparently root, the standard deviation). Why is it not like that in the correct, but the appraisal project targeting these resources field of petroleum resources management? must have a positive NPV, otherwise management would The variance could easily be determined, but unfortunot approve them. If the NPV is there, it adds to the comnately it would not be very informative on the uncertainty pany value. Should we want the investors to valuate these of the actual recoverable volume. If we had a global database NPV during the asset pricing, exercising the disclosure of of petroleum accumulations populated with the variances, the recoverable resources subject to appraisal seems to be it would be very easy to set up an objective uncertainty justified. categorization guideline. However, no such database is Resources subject to appraisal are attributed with relevant available, and therefore a variance figure alone tells us little uncertainties and about the overall risks, including uncertainty of a Fig. 3: Maturity driven resource uncertainty categorization resource volume. but not limited to their comAlthough we Appraisal Field Early Mature production production development merciality, but can quantify that, I doubt those in fact we are uncertainties relying on our should block perceptions when the disclosure. I we classify the think the invesuncertainty. In High uncertainty resources tors will be able the case of recovdecide whether erable volumes Medium uncertainty and how the risks of discovered resources and uncertainpetroleum accuties should be mulations, our Low uncertainty treated. perception on resources the uncertainty Correlation is connected to Maturity of uncerthe quantity and tainty and quality (reliability investment and relevancy) risk of the available information on the reservoir and the fluWhen talking about risks I want to clearly separate project ids. Once a discovery is made by a wildcat well, the actual and investments risks. Technical, economic, and commercial purpose of the resource evaluation is to decide what the next risks are project risks that are managed by well-known evalua- step reasonably should be. tion methodologies and are quantifiable with a standard senIf we perceive that the available data in terms of quantity sitivity analyses resulting in several types of thresholds. Under and/or quality are insufficient to start the field development, the scope of this study, I am dealing with the investment risk we propose to capture additional data and information in that is interpreted in the investors portfolio context. The hopes that our uncertainty will lessen. The project to start proper question is whether the uncertainty of the resource at this point is the appraisal. Once the uncertainty of the estimations represents an investment risk or not. resource estimation is perceived low enough to launch the Regarding the uncertainty of the resources, the PRMS field development, we propose that. advises companies to determine the P90/P50/P10 or the LE/ Upon completion of the field development after a certain BE/HE. In fact, it is a genuine categorization of the recover- period of production with a careful onward monitoring, we able resource volume of an accumulation, but it may not be may try to perform a new resource evaluation by reservoir a proper answer for the question as to how much risk, based simulation or by a non-volumetric estimation method (mateon the volume estimations uncertainty we face against our rial balance, decline curve analyses). Obviously the uncerinvestments. tainty of these estimations is much lower than it is prior to or 8
Uncertainty

www.ogfj.com Oil & Gas Financial Journal July 2013

Capital Perspectives
in the course of the early production. In light of the above assumptions, I conclude that the uncertainty categorization of the recoverable resources is in fact based on a perception of the uncertainty. Our perception relies on the quality and quantity of the available information, with other words on the maturity. In this regard, three uncertainty categories may be proposed as follows (Figure 3): High Uncertainty Resources are those discovered volumes that are subject to further appraisal before the field development may commence. Medium Uncertainty Resources are volumes subject to field development and/or are under early (immature) production. The term early refers to the judgment that the captured production information may not result in considerably lower uncertainty than that perceived prior to the field development phase. Low Uncertainty Resources are volumes estimated on the ground of a non-volumetric production forecast method in the mature production stage. The term mature refers to the judgment that the captured production data allows the relevant reduction of uncertainty compared to the earlier immature production phase. In line with the antecedents above, the quantities of the High, Medium, and Low Uncertainty Resources are the respective Mean values. In my approach the Means are subject to economic analyses, and the cash-flows of the given projects represent the investors expectations. Now we have arrived at the question as to whether the resource estimation uncertainty has any effect on the risk of upstream project investment. Currently, in a company with the same weighted average cost of capital (WACC), this estimation is applied to the NPV calculations regardless of the project maturity status (appraisal, field development, or mature production). It suggests that investors may find all three upstream project types equally risky. Is it an agreement based on common sense, or is it just a slap-dash routine? Some arguments may be aligned to challenge the approach above. We should consider that the exposure of the appraisal projects might be much higher to economic cycles or to oil price expectations than that of the field development projects (and, accordingly, field development projects might be more sensitive to market variations than the mature production projects are). In other words, investments made into appraisals seem riskier than the field development projects, which are riskier than the investments in mature production. If that be the case, higher risks should see higher costs of capital. The cost of capital is the function of the beta being the indicator of the investments relevant risk (the higher the beta is the more sensitive the investment is to market variations). Should we accept that the uncertainty of resources estimations triggers a kind of relevant risk, we might conclude that it is be reasonable to introduce different project betas for the different uncertainty categories. The project betas may July 2013 Oil & Gas Financial Journal www.ogfj.com increase with the growth of resource uncertainty. The other option to modify the cost of capital might be the introduction of a risk premium. Should we accept that the currently applied discount rate matches the risk of normal field developments targeting Medium Uncertainty Resources, the High Uncertainty Resources (subject to appraisal) might be discounted by a rate with a positive premium while in case of the Low Uncertainty Resources (subject to mature production) the premium could be negative. I must admit here that at the moment I can quantify neither the project betas nor the magnitudes of risk premium. My assumptions are merely theoretical. Empirical evidences would be of a great importance. Unfortunately, if companies continue reporting their 1P and/or 2P Reserves only, and the Mean values of the Low, Medium and High Resources remains shadowed the evidences shall never be surfaced.

Summary and conclusions


Most publicly-traded oil companies report reserves according to the guidelines laid down in the SPEs Petroleum Resources Management System. In the study above, I demonstrated that besides Reserves the disclosure of the Mean value of the technically recoverable resources may better assist investors in setting cash-flow expectations. Discussing the uncertainty of resource estimations I conclude that in fact it is connected to the maturity status of the actual project. Under this categorization approach, resources subject to appraisal are named as High Uncertainty Resources. Accordingly, recoverable volumes subject to field development and early production are referred as Medium Uncertainty Resources while the category name for the quantities of mature production could be Low Uncertainty Resources. The correlation between the resource estimations uncertainty and the investment risk of the appraisal, field development, and mature production projects is still questionable. The dissimilar sensitivity of the different project types to economic cycles suggests that the correlation exists. However, empirical evidence would be gained if oil companies would disclose the High, Medium, and Low Uncertainty resource volumes, allowing the investment community to properly valuate them. OGFJ About the author Imre Szilgyi is an exploration geologist and petroleum economist based in Budapest, Hungary. He currently works as an independent advisor and lecturer. Szilgyi recently completed a study dealing with petroleum resources valuations. He holds an MS degree in geology from Etvs Lornd University of Budapest and an MBA from Budapest University of Technology and Economics. He can be reached at im.szilagyi@hotmail.com.

Upstream News
Chesapeake, foreign partners set for big US shale spend in 2013
nalyzing Evaluate Energys recently released 2013 capital expenditure and average well cost data for the major US shale plays, it becomes clear that foreign companies will have a huge infuence on how the industry develops over the coming year. Joint ventures involving foreign investors, which have been entered into over the past few years, have budgeted to spend big this year, and will be amongst the biggest spenders in the country for the second year in a row. It will be a big year in particular for Chesapeake Energy (CHK), a company with foreign joint venture partners in fve US plays. The company and its various partners are estimated to be the biggest spenders among companies with available drilling plan data in three of those fve plays in 2013. Marcellus This play is still very much a US stronghold in terms of ownership, and this years drilling CAPEX budget graph (Fig. 1) still shows this. However, Chesapeakes arrangement with Norwegian Major Statoil (STO) is estimated by Evaluate Energy to the biggest budgeted spender in the play for the second year in a row, and to be drilling the most wells. These, and especially Chesapeakes, may seem high spends in the current climate for what is primarily a gas play, but the Marcellus has seen lots of drilling completed and data collected in the past 5 years, meaning the play has become a very low-risk environment close to a crucial demand center, with reasonably low average well costs. Range Resources Corp. (RRC), despite being the lowest of the big-spenders on the above 10

Fig. 1: Marcellus 2013 Capex budgets


Chesapeake/Statoil EQT Corp. Antero Resources Noble Energy Southwestern Cabot Oil & Gas Range Resources 0
Source: Evaluate Energy

US/foreign JV US company

200

400

600

800

1000

1200

1400

US$ Millions

chart, are drilling at an average cost of $5 million per completed well, $2.7 million cheaper than the average for the play, as estimated by Evaluate Energy. Eagle Ford The Eagle Ford has seen far more foreign activity in the M&A market over the last few years than the Marcellus, and these investors are clearly not set to sit back for a gentle ride over the next year. Chesapeake again have the highest spend budget (Fig. 2), along with Chinese state-owned CNOOC this time, and fellow Asian companies Reliance Industries (RIL) and GAIL also have signifcant plans for the year ahead with their respective partners. Joint venture agreements with foreign companies make up almost half of the top 10 estimated/reported budgets for the play in 2013. Big spends here are to be expected, as they were last year, due to the high oil content in large areas of the formation. Chesapeakes joint venture CAPEX budget with CNOOC is the big change from last year in the play, and the outstanding statistic, being almost three times larger than the estimated budget in 2012. Carrizos (CRZO) new agreement with Indian NOC, GAIL, is also noteworthy as it has enabled an increase of around

Fig. 2: Eagle Ford 2013 CAPEX budgets


Chesapeake/CNOOC EOG Resources Marathon Anadarko Talisman/Statoil Pioneer/Reliance ConocoPhillips SM Energy Rosetta Resources Carrizo/GAIL 0
Source: Evaluate Energy

US/foreign JV US company

500

1000

1500 2000 US$ Millions

2500

3000

3500

www.ogfj.com Oil & Gas Financial Journal July 2013

Upstream News
$200 million on the companys spend last year, squeezing the joint venture into the top 10 budgets for the year, from available data. Utica The Utica in Ohio is another play where Chesapeake and its foreign joint venture partner are planning a big year. The data here is even more striking (Fig. 3), with Chesapeake and French major Total (TOT) estimated to be spending over four times more than the second highest reported budget in 2013. Chesapeake will maybe feel they have a point to prove in this play. In 2011, the company sparked a rush for land in Ohio after initial well results from Chesapeake predicted large oil content in the play, however well data from the Ohio Department of Natural Resources has since shown that, in the main, the play has been producing gas. This is probably the main reason behind the low CAPEX budgets set by other companies in the play, as new gas wells, especially at the relatively high average well cost for 2013 in the Utica of around $10 million, are not something many companies will be drilling in the current climate of low prices and already abundant supply. But Chesapeake and its partner Total will defnitely be leading the way in trying to turn the fortunes of this play around, if it is at all possible. Following the disappointing results in the Utica, this year could well turn out to be pivotal for Chesapeakes future. The joint ventures budget in the Utica of around $2.2 billion is a large estimated outlay for Chesapeake, even if the 60% drilling carry from Total is taken into account, for wells that will be primarily gas prone. The company, and of course its partners, will be hoping that large spends in the lower cost environments of the Marcellus and the Eagle Ford the plays have an average completed well cost for 2013 of around $7.7 million and $7.5 million respectively will reap enough reward to cover potential hardship should the data from Ohio continue in this disappointing trend. This report was created using Evaluate Energys collection of approximately 200 estimated and reported US and Canadian shale play capital expenditure budget fgures, drilling plans and average well costs for 2013. The data covers 11 plays: Bakken, Barnett, Duvernay, Eagle Ford, Fayetteville, Haynesville, Marcellus, Montney, Niobrara, Tuscaloosa Marine and the Utica. All fgures correct as of May 1st, 2013.

Noble Energy makes new offshore discoveries

oble Energy Inc. has discovered natural gas at the Karish prospect offshore Israel and oil at Gunfint in the Gulf of Mexico (GoM). The discovery well offshore Israel was drilled to a total depth of 15,783 feet and encountered 184 feet of net natural gas pay in lower Miocene sands. The Karish well, located in the Alon C license approximately 20 miles northeast of the Tamar feld, is in 5,700 feet of water. Discovered gross resources, combined with the de-risked resources in an adjacent fault block on the license, are estimated to range between 1.6 and 2.0 trillion cubic feet (Tcf) with a gross mean of 1.8 Tcf. The Karish discovery is the ffth discovered feld with an estimated gross mean resource size over 1 Tcf. It is also the seventh consecutive feld discovery for Noble Energy and its partners in the Levant Basin. With the addition of Karish and the recent increase in resource estimates at Tamar and Leviathan, total discovered gross mean resources in the Levant Basin are now estimated to be approximately 38 Tcf. Noble Energy is the operator of the Alon C license with a 47.06% interest. Co-owners are Avner Oil and Delek Drilling each with a 26.47% interest. The company also confrmed deepwater oil at Gunfint in GoM on Mark Young, Evaluate Energy June 25. The second appraisal well at the Gunfint feld found 109 ft of net oil pay. The Mississippi Canyon 992 No. 1 well, 1 mile west of the original Fig. 3: Utica 2013 CAPEX budgets discovery well, was drilled to a total Chesapeake/Total depth of 32,800 ft in a water depth of 6,100 ft. Results of drilling, wireline Hess/CONSOL logs, and reservoir data have confrmed Gulfport an estimated gross resource range of 65 Halcon to 90 MMboe in the primary strucUS/foreign JV ture. Noble Energy operates Gunfint Antero Resources US company with a 31.14% working interest. Other PDC Energy partners in the project are Ecopetrol America Inc. (31.5%), Marathon Oil 0 500 1000 1500 2000 2500 (18.23%), and Samson Offshore LLC US$ Millions (19.13%). Source: Evaluate Energy 11

July 2013 Oil & Gas Financial Journal www.ogfj.com

Midstream News
Crosstex offers additional solutions to Utica producers, expands Riverside
rosstex Energy LP has re-activated its Black Run rail loading terminal and completed the Phase II expansion of its Riverside facility, offering additional midstream solutions to producers. Located in Frazeysburg, Ohio, on the Ohio Central Railroad (OHCR), the Black Run rail loading terminal allow the export of Utica Shale light oil condensate production. The Black Run facility is a state-of-the-art 20-car rail rack with tracking gangways designed to top load multiple products, including light oil condensate and various grades of crude oil, at a rate of 24,000 barrels per day. The Black Run rail terminal is the first facility to move light oil condensate out of the region to premiumpriced refinery and petrochemical markets. The re-activation of our Black Run rail facility enables us to offer producer customers in the Utica Shale an immediate midstream solution to export their products to out-of-region markets to maximize value for our customers, said Barry E. Davis, Crosstex president and CEO. The OHCR is a 70-mile short line freight railroad that interchanges with the Columbus and Ohio River Railroad, CSX Transportation, Norfolk Southern, Ohio Southern Railroad and Wheeling and Lake Erie Railway. The Black Run terminal, adjacent to the partnerships oil gathering pipeline, will leverage the partnerships existing tankage and piping, as well as the capabilities of its truck fleet in the Ohio River Valley. Additionally, the company has recently increased its Riversides crude oil transloading capacity with the completion of the southern Louisiana facilitys Phase II expansion. The Riverside facilitys capacity to transload crude oil from railcars to the partnerships barge facility has increased to approximately 15,000 barrels of crude oil per day. Phase II additions to the Riverside facility include a 100,000 barrel-per day above-ground crude oil storage tank, a rail spur with a 26-spot crude railcar unloading rack, and a crude offloading facility with pumps and metering as well as a truck unloading bay. As part of the Phase II expansion, Riverside also was modified so that sour crude can be unloaded in addition to sweet crude. Devon expects the MLP to file a registration statement with the Securities and Exchange Commission (SEC) in the third quarter of 2013. Subject to market conditions, an offering of partnership units in the MLP would follow registration with the SEC. Devon will own the general partner of the MLP, all of its incentive distribution rights, and a majority of its common units following completion of the initial public offering. Devon expects to utilize proceeds from the sale of MLP common units to fund its continuing operations.

Enterprise, Western Gas form JV for ownership of NGL fractionation trains

nterprise Products Partners LP announced June 12 that it has entered into a joint venture (JV) with Western Gas Partners LP, to own natural gas liquid (NGL) fractionation trains 7 and 8, which are currently under construction at Enterprises complex in Mont Belvieu, Texas. Western Gas has acquired a 25% minority ownership interest in the JV, and Enterprise retains the remaining 75% ownership interest. Trains 7 and 8 have a design capacity to fractionate approximately 170,000 barrels per day (BPD) of NGL, and are expected to begin commercial operations in the fourth quarter of 2013. Enterprise Products Partners LP is a North American provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products and petrochemicals. Western Gas Partners LP, is a Delaware master limited partnership formed by Anadarko Petroleum Corp. to own, operate, acquire and develop midstream energy assets.

Constitution Pipeline seeks FERC approval to construct Marcellus connection

Devon Energy to form midstream MLP


evon Energy Corp. has approved a plan to form a publicly traded midstream master limited partnership (MLP). The MLP is expected to initially own a minority interest in Devons US midstream business. This business includes natural gas gathering and processing assets located in Texas, Oklahoma, and Wyoming. 12

onstitution Pipeline Company LLC, a limited liability company owned by subsidiaries of Williams Partners LP, Cabot Oil & Gas Corp., Piedmont Natural Gas Co. Inc., and WGP Holdings Inc., has filed an application with the Federal Energy Regulatory Commission (FERC) seeking approval to construct a 122-mile pipeline connecting domestic natural gas production in northeastern Pennsylvania with northeastern markets by spring 2015. The Constitution Pipeline has been designed to transport up to 650,000 dekatherms of natural gas per day (enough natural gas to serve approximately 3 million homes) from Williams Partners gathering system in Susquehanna County, Pa., to the Iroquois Gas Transmission and Tennessee Gas Pipeline systems in Schoharie County, N.Y. The capital cost of the project is estimated to be $683 million. Since last spring Constitution Pipeline Company has been involved in the FERC pre-filing July 2013 Oil & Gas Financial Journal www.ogfj.com

Midstream News
process, soliciting input from citizens, governmental entities and numerous other interested parties to identify and address issues with the proposed pipeline alignment. The pipeline route filed with the FERC this month reflects changes to more than 50% of the original pipeline alignment most as a direct result of stakeholder input. The 30-inch underground transmission pipeline would stretch from Susquehanna County, PA, into Broome County, NY, Chenango County, NY, Delaware County, NY, and terminate in Schoharie County, NY. Williams Partners owns a 41% share of Constitution Pipeline and, through its affiliates, will provide construction, operation and maintenance services for the new pipeline. Through their subsidiaries, Cabot owns a 25% share, Piedmont Natural Gas owns a 24% share and WGL owns a 10% share of the company. Ali Moshiri, president of Chevron Africa and Latin America Exploration and Production Company. Angola LNG plans to use associated natural gas produced from existing crude oil operations operated by Chevron and other partners as well as new non-associated gas from other offshore fields. The project is expected to reduce natural gas flaring and greenhouse gas emissions from offshore producing areas, and support continued offshore oil field development. Chevrons subsidiary, Cabinda Gulf Oil Co. Ltd., has a 36.4% interest in the joint-venture, along with Sonangol with a 22.8% interest and subsidiaries of Total, BP and ENI, each with a 13.6% interest.

Second phase of Sadara integrated chemicals project financing signed

he second phase of the financing for the construction of Sadara Chemical Companys integrated petrochemicals production complex in Jubail Industrial City II, Saudi Arabia was signed on June 16, raising an aggregate of US$12.5 billion. Sadara is a joint venture nergy private equity firm First Reserve and a between The Dow Chemical Company and Saudi Arabian veteran management team have formally launched Oil Company. This financing is the largest ever multiCentury Midstream LLC, a new energy company focused on the development, acquisition and expansion of sourced project financing in the petrochemicals sector and midstream assets across North America, with an emphasis among the largest project financings undertaken in the on emerging liquids and liquids-rich shale plays. First Re- EMEA region. This integrated hydrocarbon and chlorineserve will support Century with up to US$500 million of based production complex will include 26 manufacturing equity capital to co-found the company. The new Hous- units (notably a mixed feed steam cracker and an aromatics plant) as well as three on-site third party process units, ton, TX-based company will be led by Joseph A. Blount, and extensive supporting infrastructure. This phase of Jr. as CEO with John Howard serving as president and COO. Blount and Howard are joined by Jim Avioli, Jr. as the financing involved the participation of seven export credit agencies, including COFACE (of France), Euler senior vice president of business development and Brian Hermes (of Germany), FIEM (of Spain), K-Exim and Raber as senior vice president of engineering. Blount K-sure (both of Korea), UK Export Finance (of the previously served as president and COO of NiSource United Kingdom) and US Ex-Im Bank (of the US). The Midstream & Minerals Group. lenders included Saudi Arabias Public Investment Fund, Chevron confirms first as well as Saudi and international commercial banks and cargo from Angola LNG Islamic institutions participating in Wakala and Procurement facilities. Located in the Eastern Province of Saudi hevron Corp.s subsidiary Cabinda Gulf Oil Arabia, the complex is projected to be the worlds largest Company Ltd. confirmed that initial production integrated chemical compound ever built in a single phase of liquefied natural gas (LNG) has commenced with a capital cost of around US$19 billion. First producat the Angola LNG project. Angola LNG is one of the tion units are expected to come on line in the second largest energy projects on the African continent. The $10 half of 2015, with all production units coming on line in billion project will collect and transport natural gas from 2016. Milbank acted as international counsel to all of the offshore Angola to an onshore liquefaction plant on the lenders as well as to the joint lead managers of Sadaras coast near the Congo River. The project has the capacearlier US$2 billion Sukuk issuance. Dow Chemical is ity to produce 5.2 million metric tons per year of LNG, advised by Shearman & Sterling LLP, and Saudi Aramco 63,000 barrels per day of natural gas liquids for export by White & Case LLP. The Law Office of Abdulaziz H. and 125 million cubic feet per day of natural gas for Al Fahad are Saudi Arabian counsel to the lenders, and domestic consumption. The project represents the first Hatem Abbas Ghazzawi & Co. are Saudi Arabian counsel LNG project in Angola, and it is expected to contribute to Dow Chemical. OGFJ to the development of Angolas natural gas industry, said

First Reserve helps establish Century Midstream with investment up to $500M

July 2013 Oil & Gas Financial Journal www.ogfj.com

13

INTERVIEW WITH DAVID S. HAVENS, MANAGING DIRECTOR, Crdit Agricole

Drilling operations in PCDs Wattenberg Field Photo courtesy of PCD Energy

Crdit Agricole analyst discusses

oil markets, investment indicators


Don Stowers, Editor OGFJ OIL & GAS FINANCIAL JOURNAL: How did you get into the business of being a research analyst? Would you tell our readers a little about your background? DAVID S. HAVENS: I started in the business in 1999 at Morgan Stanley in their equity research group down in Houston. I was with them a little more than eight years. While there, I spent five years on the sell side covering oilfield services as an associate analyst, and then I went over to the proprietary trading desk for three years, and I traded the energy book there until we all got clobbered [in the recession]. More recently, I was over at Citadel on the buy side covering oilfield services and equipment. And I came to Crdit Agricole in July of 2012 covering the sell side. 14 OGFJ: What about your education? HAVENS: I went to Vanderbilt and graduated from their engineering school. At that time, going into finance with an engineering background was pretty simple. There were a lot of opportunities. Today, I think its a different landscape if youre straight out of college. You might want to consider getting a masters or MBA to improve your chances [of landing a job]. OGFJ: Are you from Tennessee? You dont have a Southern accent. HAVENS: No, Im from Philly [laughs]. It was a bit of a cultural shock going down to Nashville for four years, www.ogfj.com Oil & Gas Financial Journal July 2013

but I thoroughly enjoyed it. Vandy is a wonderful school, a great institution. OGFJ: Would you tell our readers what an analyst does? Can you describe a typical day for us? HAVENS: That will differ greatly among analysts. To me, what I spend a great deal of time on, particularly in the morning, is just trying to figure how where the markets head is at. Whats the set-up for the stocks? What is the consensus? What are the key catalysts that should either disprove the consensus or support it? And then we spend a great deal of time talking about management teams to make sure we keep our pulse on the company. Each week we try to touch at least two management teams, whether we cover them or not, just to make sure we have a consistent overview of whats being said out there. The afternoon will get a little bit quieter, and we run through the models a lot. To me, if you dont have a very good pulse of whats in your models and understand really what the financials and the sensitivities are the sensitivities being more from a cash-flow perspective and a balance sheet perspective its very tough to be an effective analyst. I think thats generally where people tend to fall short on the sell side versus the buy side. On the sell side, your models can get very stale very quickly. No fault to the analysts themselves because their schedules generally have a lot more marketing and things of that nature. On the buy side, you dont have the same issues, and I think thats a big difference between the two. So, to sum it up, I spend a lot of my day figuring out where the markets head is at, whats the consensus, what are the key variables, making sure Im in touch with the management teams, and fine-tuning the models to keep them current. OGFJ: You specialize in the oilfield services sector, right?

OGFJ: Lets move on to the impact that shale development has had on North America. I know people who say that you cannot overestimate the impact that this dramatic increase in production has had on the energy sector. First in gas and now in oil and liquids. It has truly been a game-changer. How long do you think we can sustain this level of production? Is this a long-term trend? HAVENS: Oil or gas? OGFJ: Oil. HAVENS: The way I look at the group, I tend to rank the major global markets around the world by the opportunities present. If you look at the US and the opportunities in crude production, I think it is going to be longer term. I think its probably one of the better opportunities because of its size of the reserve and because of the pace of the cash conversion among E&Ps. That is, the pace at which they spend money, recollect cash, and reinvest it in capital expenditures to my guys. So, to answer your question, I think this is going to be a long-term phenomenon. It has the appeal, first, of being in the US, second, of having the highest rate of return on invested capital, three, one of the fastest cash-conversion cycles, and, four, one of the biggest reserves in the world. Ultimately, that generates a higher degree of certainty and a higher degree of probability of success, which attracts capital. So, yes, I think we are going to spend a great deal of money in this country for the next decade-plus. And I think it will prove ultimately to be one of the highest return markets within the entire energy complex worldwide. OGFJ: Are investors eager to invest in the United States because it is less risky than other countries?

HAVENS: In part, but lets not forget the [drilling] moratorium in the Gulf of Mexico in 2010. That was HAVENS: Yes, since 1999. unexpected and was a blow to many companies operating there, especially the smaller ones. We may think that geoOGFJ: Dont you have to keep up with trends and political risk is the only concern, but in the US we have to whats happening on the E&P side, too, in order take into account regulatory risk, whether its new regulato make forecasts about companies that serve that tions for hydraulic fracturing or constraints on offshore sector? drilling and production. Still there is more consistency or transparency of law in the US. To answer your question HAVENS: I find that to be an effective oil services anafrom an engineering perspective, which is where I come lyst, you really have to have an almost equal if not greater from, whats the biggest pivot in the US for the last 10 pulse on the E&P companies because thats our bread years? Its the fact that the inertia of supply has dramatiand butter. We need to know about things such as shifts cally reversed. Its re-set how non-OPEC production can in capital expenditures. We have to be in tune so we know be viewed. about any major strategic shifts or capital outlay changes among the E&Ps because that will move our stocks signif- OGFJ: Another thing that has changed is drilling icantly. So you almost need to cover two sectors in order efficiency. The US has achieved this record producto do your job effectively. tion using fewer rigs. How has that impacted the service industry? July 2013 Oil & Gas Financial Journal www.ogfj.com 15

operators Ive talked to is that prices breaking below $80 wont crush the opportunities. However, once you get down to that $65 level, then we have to remember what happened to gas. A lot of these shales wouldnt have been drilled if it werent for higher oil prices. Frankly, the technology that had to be deployed demands a much higher return. OGFJ: Sustained low gas prices seem to have caught the industry by surprise. Even the CEO of ExxonMobil said recently that he didnt expect gas prices to stay this low this long. Thats quite an admission coming from someone of his stature. How likely is it that crude prices will plummet due to oversupply and stay down for some time? HAVENS: I think the difference between gas and oil is that when you clip the pace of drilling in gas the key word there being the pace of drilling because it has become more of a manufacturing process it was augmented by oil. When you cut the pace of drilling in oil, its not augmented by anything. Itll drop like a brick. Obviously there will be a lag time because there are wells that havent been completed and that are being brought online, but thats the biggest difference between oil and natural gas. Natural gas got the double-whammy, if you will. OGFJ: Several people have told me that the cost of completing a well today equals or exceeds the drilling cost. Is that an accurate statement?

Enerplus operations in the Marcellus shale. Photo courtesy of Enerplus.

HAVENS: Oilfield services has become a polynomial, meaning that there used to be a very tight correlation of revenue versus rig count. Now there are several other data points that influence revenue. So as opposed to a linear relationship with the rig count, you have rig count plus how many horizontal wells youre drilling plus the length of the lateral, which all comes down to the intensity of the well. A higher intensity well means higher revenue intensity. Efficiencies are going up. We increased rig efficiency by more than 15% last year, and well probably see a similar increase this year. So were drilling more wells with the same number of rigs, which creates more opportunities for service companies. We have more wellbores being drilled, plus you have a higher revenue content per well. Margins can be a bit of a different story. Given the returns we were earning back in the 2010-2011 time frame, we attracted a lot of capital for land rigs and frack equipment, so profitability will probably be a little more measured. But the revenue opportunities will be continually increasing.

HAVENS: Ten years ago, the average cost of a well was about $2 million, although this varied somewhat from region to region. The actual drilling rig and mobilization would have been between 40% and 50% of the total cost of the well. Today its about 10% to 13% of the cost of the well. Total well costs have gone up to about $6 million to $8 million, and the primary delta in that number is largely frack related. If you look at a Bakken well, the drilling cost has come down from about $8 million to close to $6 million, but the frack cost of drilling that well can be upwards of $2 million to $3 million. Youre looking at 30- to 36-stages and even up to about 40. Back in the day, about 10 years ago, we were drilling mostly vertical wells. If you fracked, you fracked it once, maybe twice. The multi-stage fracking that is widely used today is mainly what has driven up costs. Id say that the completions component of drilling a well has increased to OGFJ: Crude oil prices are sufficiently high right a par with the drilling costs, if not above. The major cost of now to sustain development. What happens if we cre- drilling a well today is not the drilling rig. So if youre going ate an oversupply and prices fall, say, to below $80 a to cut a drilling program, youre going to go out there and barrel? What is the breakeven point for crude prices in just slash the rig. You dont care because the penalty is fairly some of the major shale plays, like the Bakken and the insignificant relative to the overall cost of drilling that well. Eagle Ford? OGFJ: What is happening in the oil services sector HAVENS: I dont have a great breakeven for the Baktoday? Are we seeing much M&A activity, industry ken or some of the other shale plays. The consensus among consolidation, or new companies being created? 16 www.ogfj.com Oil & Gas Financial Journal July 2013

HAVENS: One of the trends is public offerings from private equity firms. Private equity is investing in oil services for one major reason the amount of capital needed is generally smaller than what is needed by E&P companies. For E&Ps, youre buying a lot of acreage and it has to occur over a long period of time. So the funds investors are going to be out a lot of money for a considerable time. With oilfield services, youre basically investing in fracking, which has a payback period of less than a year in many cases. Youre tying up significantly less capital. And youre able to get into and out of the investment much faster. I believe youre going to see a lot more private oil service companies go public. I dont think M&A will be as big as public offerings from PE firms over the next year or two. Any M&A will involve relatively small companies getting acquired. I dont expect to see any major $10 billion-type transactions. OGFJ: Water is a major factor in hydraulic fracturing. Talk a little about how this oil services sector has grown in recent years. HAVENS: It has turned into a pretty major business segment. Its really ballooned in the past five years. Whether its transportation or disposal or filtering, the opportunities are quite big. Frankly, Im a little surprised we havent seen even more participants in that business. Water management is one of the larger growth opportunities, but it has yet to reach its full potential. It looks to me as if a lot of potential market participants are still looking to see exactly what the right market opportunity is for them. OGFJ: It looks as if the current administration in Washington is starting to approve LNG export facilities on a case-by-case basis. These are capital-intensive projects, but they may finally give US gas producers access to foreign markets and help revitalize a struggling industry segment. Given that our gas reserves in North America are huge, is this another gamechanger for the energy industry? HAVENS: It is certainly incrementally important because if you look at the US natural gas market, the inertia of supply was quickly reversed with the development of shale. We have come to the position where we can add significant capacity thats behind pipe within about a six- to eight-month time frame. However, the demand for natural gas in the US really hasnt changed. Low prices do impact demand, but it takes a while. IndusJuly 2013 Oil & Gas Financial Journal www.ogfj.com

trial users of gas dont go out and build $500 million plants based on one or two years of low gas prices. And increased usage of natural gas for electric power generation is so slow, its glacial. I believe the first LNG export facility is scheduled to start up in 2016-2017. That may actually occur simultaneously with additional industrial demand and transportation demand. I wouldnt call it a game-changer, but every incremental source of demand for US natural gas is extremely important. OGFJ: Weve talked a lot about shale development, but how important is offshore to Americas energy future? Companies are spending billions to develop the deepwater Gulf of Mexico, and there has been a revival of sorts in the shallow waters of the shelf as well. HAVENS: Its hugely important. I think were going to see multiple trends that were all born from one simple fact that is, the probability of success in the deepwater has increased by over 1,000 basis points in the last 10 years. If you looked at any ultradeepwater well in the Gulf of Mexico 10 years ago, those engineers would have applied somewhere between a 27% and 30% probability of success. Now you are talking about upwards of a $1 billion project. Look at the advancements weve made in seismic, largely 3D; directional drilling, which significantly improved the placement I tend to rank the major global markets around the world by the opportunities present. If you look at the US and the opportunities in crude production, I think it is going to be longer term. Its one of the better opportunities because of the size of the reserve and because of the pace of the cash conversion among E&Ps the pace at which they spend money, recollect cash, and reinvest it in capital expenditures.

of wells for better production efficiency; completion technology; production technology, which also includes seismic with 4D all in the last 10 years. If you look at all of these in aggregate, it has increased the probability of success by about 10 percentage points. So when that same engineer comes forward with a $1 billion project with a 40% chance of success rather than 30%, it tends to get a little more traction. This has translated into a mushrooming of deepwater opportunities, which are now playing 17

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PROPOSED / UNDER CONSTRUCTION

ABBREVIATIONS
Corpus Christi

NUECES

APC BDE CHEVCORP CRSTEX ENTPP ETC JLDAVI PNRI REGENCY SPECTRA

Anadarko Petroleum Corporation Blue Dolphin Energy Company Chevron Corporation Crosstex Energy Inc. Enterprise Products Partners LP Energy Transfer Partners LP J.L. Davis Pioneer Natural Resources Inc. Regency Energy Partners LP Spectra Energy Corporation

Oil

Wet Gas Dry Gas Shale

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Supplement to PennWell Co. Publications This map includes information copyrighted by PennWell's MAPSearch. This information is provided on a best efforts basis and PennWell Corporation does not guarantee its accuracy, nor warrant its fitness for any particular purpose. Such information has been reprinted with the permission of PennWell Corporation. Data used to create this map are available in GIS as well as other digital formats from PennWell MAPSearch.

BERG

0 3 6

12

18

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out. Obviously this has been a boon for the oil services sector as well, including the rig construction business. OGFJ: How do these trends apply outside the US and the Gulf of Mexico? HAVENS: Given that weve had sustained high oil prices and broad geopolitical support, meaning that we actually have access to these reserves, I think were going to see significant growth outside the traditional Golden Triangle, which is the Gulf of Mexico, West Africa, and Brazil. Were going to see lots more activity from East Africa, the Red Sea, more intensity in Norway, more intensity in Southeast Asia. These areas are going to become an integral part of the energy complex over the next 20 years, and it is all a result of the improved probability of success, which has in turn attracted more capital. OGFJ: Most of the areas you just named are offshore opportunities. Since three-quarters of the earths surface is water, it seems obvious that there would be more hydrocarbons beneath the sea than on the 25% of the globe that is land. On the other hand, its a lot more expensive to drill in the ocean.

from Japan, from India, from all over. Why do you think this is happening? HAVENS: Same answer as before probability of success. The shale plays in North America offer as much as a 90% degree of success, so this is a fairly safe investment with a healthy return on capital. Capital tends to flow to lower risk, higher return assets, and the US has been derisked a lot more than most international markets. Look at the biggest incremental investors ExxonMobil, for example. We can all debate their timing [in acquiring XTO Energy in a $41 billion deal back in late 2009] and entrance into the domestic natural gas market, but at the end of the day they did it because it was a lower risk, higher return opportunity. If you look at the crude oil side of the business, where else but the US are you going to get (1) this type of access; (2) service infrastructure, which is the best in the world; (3) capital conversion at the pace in which it is done; and (4) the returns. We knew the reserves were there all along, it was just a matter of developing the technology to recover them. Bottom line: were going to continue to see outside oil and gas companies coming to the US because the best opportunities are here.

OGFJ: Final question: Is there HAVENS: Lets look at the Gulf anything in particular we should of Mexico back in 2001. There watch for to indicate there is were 155 jackups in the Gulf of trouble ahead for the oil and gas Mexico, 80% of which were directed Statoil Carkuff drilling operations in the industry in North America? towards natural gas. Look at the Gulf of Mexico today its less than Bakken preparing to run surface casing. HAVENS: One of the things I 15%. Its largely a function of low look at pretty intensely is reinvestment. If you see reingas prices, but also the opportunities on onshore land. The vestment increase, it tells you there is a high degree of risk and cost that you bear to drill offshore relative to the conviction among the operators. Good, right? But on the opportunities onshore, which has a much higher probflip side in the US, there is the possibility of overbuildability of success with a lower capital commitment, its far ing. Right now, incremental investment in the US may more appealing to go for the onshore. But if you look at provide some near-term confidence, but we have to be the international markets, you dont have the same choices. concerned about longer-term profitability. We also need Security is also a problem in some areas, such as the Middle East, West Africa, and even Mexico. However, given the new to keep an eye on oil prices and the pace of production technology and the increased probability of success, the risk in the US, although I think for the next few years were still going to be hampered by lack of takeaway capacity is tolerable even in places that are less secure than the US for pipelines. To my way of thinking, reinvestment is the or Canada. And the industry responds to this. Weve built main indicator, particularly if companies are trying to 200 new deepwater rigs in the last decade. Thats a major grab market share. Generally that tends to bring growth, expansion. but Im not convinced the US market is going to take another leg up in the absence of gas price recovery. OGFJ: Weve run several stories in OGFJ in recent months about the capital flow from outside the US OGFJ: Thanks very much for your time. OGFJ into the US. Its coming from Europe, from China, 18 www.ogfj.com Oil & Gas Financial Journal July 2013

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Forecasting shale oil production


Per Magnus Nysveen, Rystad Energy, Oslo, Norway

hale oil production in the US and Canada added one million barrels to domestic production over the last year. Current activity may bring North American shale oil supply from 3.5 million to 8 million barrels per day before 2020 (see OGFJ, May 2013). Such rapid growth from new oil wells has not been seen since Saudi Arabia increased its oil production capacity in the early 1970s. The timing for the world economy is ideal: the global oil supply balance was stretched to its limits in 2007-2008; Saudi expansion since then has mostly been to balance decline from northern Ghawar, and BRIC demand and Iraq supply now appear increasingly fragile. We believe the world would be headed into an oil-driven recession without the North American shale oil revolution. In order to make an accurate forecast for shale oil production, we need to assess the profitability of every existing well and future well location, and to make forecasts of the industrial capacity to drill and complete new wells on the prospective acreages. Three different types of information are needed: detailed geology of the target formations; empir-

ical production data at well level; and company budgets and spending plans.

Play analysis
The key subsurface parameters determining profitability for shale oil plays are: hydrocarbon content (total organic content, thermal maturity, gas/oil/water saturation), formation structure (folds, faults, natural fractures), frackability (silica/calcite, minimum stress planes), formation pressure (depth, gas expulsion, pressure gradient) and drillability (hardness/integrity/pressure of the target formation and shallower packs). Some parameters have large variability over the acreage area (thickness, depth, thermal maturity, structures), other parameters vary more vertically (TOC, silica/ calcite), and some parameters are more formation-specific with less local variations (kerogen type, depositional environment). Figure 1 shows the horizontal distribution of two key parameters for the Bakken: thickness and depth of the Middle Bakken. Combined thickness of the Bakken/Three

Fig. 1: Map of Statoil/Brigham and Continentals acreage in Bakken with Middle Bakken isopach and depth curves
Saskatchewan Manitoba

Bakken Continental Resources


Source: NASMaps by Rystad Energy

0 Miles

40

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Depth

Thickness

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www.ogfj.com Oil & Gas Financial Journal July 2013

Forks is also a key factor. Sweet spots in the northern and eastern parts of the play (Mountrail County) are primarily driven by thickness, whereas depth and pressure (high thermal maturity, gas expulsion) contributes to a larger extent to the high production rates observed in the western part of the play,

Fig. 2: Estimated well curve based on given IP , Di and b value for Statoil acreage in the Rough Rider area Bakken. The type curve is compared with state data.
1,400 1,200
Estimated well curve Production from state data

Production, kboe/d

Well curves
Shale oil wells typically decline 10% to 15% faster than shale gas wells over the first year (Fig 2). In the high-pressure zone of the Bakken, decline rates above 90% over the first year of production are common. But since the decline is also highly hyperbolic, the ultimate reserves can still correspond to more than 500 days of the initial production rate. Artificial lift by using pump-jacks also contributes to long flat tails as the downhole pressure falls. Hyperbolic decline curves, with IP from 400-2,000 boe/d, Di from 2-5% per day and b values of 1.5-2.5 fits nicely with most normalized curves from wells within one specific area, and the fit improves when adjusting for the number of stages. The discounted net present value for the wells and the acreage is highly sensitive to small variations in these parameters. The shape parameters are also strongly correlated; a high IP typically implies a high initial decline and also a higher hyperbolic b value. A detailed analysis of heat maps and empiric well production rates are crucial to achieve accurate forecasts.

1,000 800 600 400 200 0


0 10 20 Month 30 40

Source: NASWellData by Rystad Energy

Rystad works bottom-up from individual wells for all shale analysis and pays close attention to individual subsurface characteristics and official production data. In our analysis, we truncate the hyperbolic curves when the reserves reach a limit we feel confident about. This usually occurs after 10 to 30 years of production, depending on the maturity of the play and confidence provided by

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the empirical well data. The industry commonly applies a terminal constant decline rate of 5% to 10% per year. The time of transition between the initial hyperbolic shape and terminal exponential decline is a topic for debate. Also the fit of alternative curves, i.e. various versions of quasi-linear loglog curves, is also argued by academics (Duong method). It is worthwhile to note the physical justification for the two different regimes (hyperbolic, exponential), i.e. transient dominated flow (pre bubble point) and boundary dominated flow (post bubble point) in oil plays, corresponding to free gas versus absorbed gas in gas wells. Both in the Bakken and Marcellus, the transient phase is considered to last more than five years, thanks to overpressure and gas saturation in the Bakken and the presence of a matrix of natural microfractures in the Marcellus. In reality, the flow pattern will be a combination of both regimes, and the transition will happen gradually; also the physical effect of artificial lift is poorly documented by shale oil decline analysis. However, a constant b value over the life cycle is an over-simplification

and forecast models should allow adjustments for this in the tail-end phase.

IP learning curve
Bakken statistics show an average increase of 24-hour initial production rates from 600 to 800 boed/d over 2009-2012 as the completion techniques were fine-tuned (Fig 3). The average number of stages increased from 19 to 27 over the same period, while the average rate of production per stage decreased from 36 to 25. Also, the frack intensity for each stage and the fracking pressure increased, proppants and fluids were improved, and accurate microseismics provided better understanding of the fracture dynamics. The IP learning curve has now apparently peaked, the technology is optimized, and some of the sweetest locations have already been drilled. Over 2012 and 2013, the average IP rate has decreased from 800 to 700 boe/d. The decreasing IP comes from down-spacing wells in the Mountrail (EOG), drilling on the shallower Bakken in the west (Continental), experimental wells in the deeper and high-permeability/lowpressure wells in the southern part of the play (Whiting). We expect IP rates to fall by 5% p.a. after the drilling activity peaks on the acreages.

Fig. 3: Average initial Bakken production by year of completion.


1,200

Average initial production (boe/d)

1,000 800

Drilling schedule

Number of wells

Once the various well-curves are established for the different portions of the acreage, we need to estimate the expected/ risked well locations and a realistic drilling schedule (Fig 4). 600 To determine the risking factor, we take into account average well spacing, acreage quality and diversity, share of proved 400 to unproved well locations, absolute size of the undeveloped 200 acreage, and overall development maturity of the play. Base decline is determined from official data and in-house 0 estimates. Company guiding and activity outlooks are con2008 2009 2010 2011 2012 2013 sidered for the estimate of well count for 2013, whereas from Williams McKenzie Divide 2014 our own independent assessment takes precedence. Our Mountrail Dunn Source: NASWellData by Rystad Energy consistent assessment on long-term drilling and completion activity on individual acreages depends on oil price assumptions, Fig. 4: Drilling profle for typical acreage in infrastructure constraints, financial capacity, and availability of rigs and of fracking fleets. Efficiency gains are considered to Bakken (125,000 net acres, well-spacing estimate well count and well costs for 2013, but not beyond. 320 acres, 312 risked net wells) In the Bakken the average spuds per rig-year have increased 70 from 9 to 15 wells per year as operators move from exploratory 60 drilling and HBP drilling into pad-based development drilling. Also increased use of open-hole completions and sliding sleeves 50 in the Middle Bakken has reduced time to completion to a few days, whereas the traditional plug & perf operations typically 40 last for a week on cemented long laterals. OGFJ
30 20 10 0

Source: NASReport by Rystad Energy

About the author Per Magnus Nysveen is senior partner and head of data analysis at Rystad Energy. He has 20 years of experience within risk management and financial analysis. He holds an masters degree from the Norwegian University of Science and Technology and an MBA from INSEAD. www.ogfj.com Oil & Gas Financial Journal July 2013

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AN INTERVIEW WITH SUHAIL MOHAMED FARAJ AL MAZROUEI, MINISTER OF ENERGY, UNITED ARAB EMIRATES

Rapidly growing UAE modernizing and diversifying its energy portfolio


Crystelle Coury, Focus Reports for OGFJ OIL & GAS FINANCIAL JOURNAL: As the youngest and only Arab OPEC minister to have experience at a foreign company, could you please introduce yourself to the readers of OGFJ? SUHAIL MOHAMED FARAJ AL MAZROUEI: I earned my Bachelor of Science degree in petroleum engineering in 1996 from Tulsa University in the United States. I gained a technical and management background in reservoir engineering, production operations, and project management from managing the production and facilities engineering for five operating companies of the Abu Dhabi National Oil Company (ADNOC). Within that period, I was seconded to Shell EP in the Netherlands where I focused on diversifying my portfolio from an international point of view working on a number of projects in Nigeria, the North Sea, Brunei, and the Netherlands. Subsequently, I returned to the UAE and was given the responsibility of looking after all of Abu Dhabis five offshore companies. In my capacity as a manager of production and facilities engineering, I managed and coordinated a collective daily production of more than one million barrels; almost half of the countrys total production at that time. I was involved in major upgrades of Abu Dhabis Marine Operation Company (ADMA OPCO) and Zakum Development Company (ZADCO) that amounted to multi-billion dollar projects. Moving away from these technical aspects, I joined Mubadala in 2007 where together with a small team I contributed to establishing what is now known as Mubadala Petroleum. I was responsible for the growth and business development of the company that is now present in 12 countries. Through my six-year practice at Mubadala, I was exposed to a commercial perspective of the industry until I was eventually appointed as Minister of Energy in March of 2013. portfolio to ensure that we strike that balance. Take the example of the introduction of nuclear energy, a key milestone that will contribute up to 25% of Abu Dhabis electricity consumption. Without that, we would be more dependent on our natural resources and burning more of it. The gradual elimination of the consumption of liquid fuel for energy is also an initiative to maximize the UAEs benefit and reduce our environmental footprint. Almost all of our electricity today is generated by gas and we only tap into insignificant amounts of fuel oil or diesel sources when required. The challenge lies in linking this with what is facing us in the future. One of my aims is to devise a new strategy that will tackle all of these challenges relating to the growth of local demand as well as our role as an OPEC member supplying the world with oil and gas. We intend to continue that critical role. I recently highlighted the need to revamp and increase our export capacity to 3.5 million bpd. There are a number of on-going projects aimed at realizing this ambition and we are on track to realizing this capacity production by 2017, as noted by ADNOCs managing director. OGFJ: Despite the countrys vast proven gas reserves, rapid growth in domestic energy demand over the past few years has caused the UAE to become a net-importer of natural gas prompting the country to renew its focus on exploiting its gas reserves. What challenges are you facing in exploiting the reserves and what role can foreign partners play in addressing these?

AL MAZROUEI: I believe we are well developed within that space. Even in the more challenging areas, you can see that we welcome the introduction of the latest technologies. Al Hosn, the relatively new joint venture in Abu Dhabi working on the Shah sour gas project, is a good illustration of that readiness to work with the providers of technology OGFJ: The modernization and economic development who can help us to enhance the development of our gas of the UAE has been a double-edged sword. Progress resources. The underlying issue here is not the abundance of the resource. Instead, the challenge is one of technology is obviously good for the nation and its people, but and of forward thinking and planning before demand spikes it means energy usage has soared, and greater energy consumption means less to sell overseas. How are you which lead to dramatic actions such as the importation of more expensive options such as LNG. dealing with this issue? In any case, if you must choose between burning fuel and the more expensive option, I believe the latter would AL MAZROUEI: This depends on the strategies we be more favorable. This is especially true if you are faced devise to balance and tackle the future of the countrys energy considerations. At this given moment, I believe we with a cyclical demand for energy as we do in the UAE have made good progress towards diversifying our energy between the summer and winter. July 2013 Oil & Gas Financial Journal www.ogfj.com 23

OGFJ: Abu Dhabi has embarked on an ambitious growth plan in terms of oil production capacity, which is set to increase to 3.5 million bpd by 2017. Specifically what investments does this entail and what opportunities do they create for existing and prospective partners?

ics and how we can continue to best balance the market to both protect the consumers and the interests of its member countries. History has taught us that every spike in the price of oil is subsequently followed by a decrease. That instability is not our ultimate interest regardless of whether member countries realize a short-term benefit. We are more interested AL MAZROUEI: A lions share of that capacity growth will in stabilizing the market to enjoy a degree of predictability stem from the major operating companies within Abu Dhabi. in growth so that we can respond to it more effectively. The ADCO, along with its partners, is steadily progressing towards aforementioned flexibility in production capacity is one of the achieving its new capacity targets, as are the ADMA OPCO measures that will allow the OPEC members to manage onand ZADCO joint ventures. There is a difference between going market dynamics. capacity and actual production which is interrelated with our role as an OPEC member in supplying the market with equi- OGFJ: American oil production has risen to its highest librium amounts of oil. Of course, as a member of OPEC, we level in decades due to technological developments that are committed to ensuring a good balance between price and have enabled economic production from shale and other supply. tight oil formations. Canada is rapidly developing its oil Broadly speaking, the investments we are observing today sands, a long-term resource for that country. Both coundemonstrate that there is a need for those countries endowed tries are developing LNG export facilities. How is the with the major resources to have that addiUAE responding to the shale gas and tional capacity and flexibility to respond oil revolution in North America? Do to the changing environment. No one, you see any of this as a threat to your for instance, anticipated that the turbucountry? lence in the Middle East would evolve so rapidly. That had a significant impact AL MAZROUEI: On the contrary, I see on supply conditions. Moreover, despite an opportunity there. As a net importer the economic slowdown in Europe, the of gas, I think the fair price of gas will be price of oil remained at record high levels. dictated by market forces. How much of Under normal circumstances, we would the gas can or will be exported from the have expected to see a different price United States is a question for the indusreaction. Key suppliers must have the try to answer, rather than the regulators. capacity and flexibility to respond to such Similarly, another question and challenge developments. relates to the investments required in Canada to export their gas to the market and determining the price that will be deemed as reasonable by investors. As you The challenge is one of technology and of forcan see, gas has three key prices depending ward thinking and planning before demand spikes on where that gas is discovered. which lead to dramatic action such as the imporIn my view this is not entirely a negative considering the tation of more expensive options, such as LNG. industrys responsiveness to the pull and push of technology. The evolution of technology and infrastructure in the US is something that would help securing the gas to accommodate the rapid growth of certain countries as in China, for instance. OGFJ: The UAE is one of the OPEC members that We know that the resources exist, however at what cost will realized a record oil income in 2012. However, recently, they be extracted and supplied to the consumers? Is that some industry observers have said that OPEC is increastechnology barrier or infrastructure barrier reasonable enough ingly irrelevant. How would you respond to that to encourage investment despite the knowledge of future gas statement? prices? I believe these are the major challenges investors are facing today. AL MAZROUEI: I do not believe that is a fair statement and must disagree. OPEC has played, and will continue to play, a key role in the balancing of the market. Just as with any OGFJ: It is fair to say that today the UAE is an oil and other organization, there are challenges, but they will certainly gas nation. However, a few points lead us to believe the energy mix of your country is evolving. As you have just not make OPEC an obsolete or inactive body. pointed out, nuclear energy is expected to account for up What we need to focus on moving forward as an orgato 25% of power generation by 2021. In addition, the nization is maintaining our unity and strategizing around UAE recently inaugurated the worlds largest solar plant, the original goal of OPEC. We need to develop a common Shams 1, and you also recently publicly stated that we strategy on how we tackle the evolving market dynam24 www.ogfj.com Oil & Gas Financial Journal July 2013

want to seize the opportunities presented by clean energy technologies. Could you elaborate as to which energies will form the core of the UAEs future mix, and which energies will play a more complementary role?

where will the country fit in this rapidly evolving world energy map?

AL MAZROUEI: This goes back to the UAEs founder, the late Sheikh Zayed bin Sultan Al Nahayan, who during the AL MAZROUEI: For the time being, gas will continue to countrys early history cared tremendously about its environbe the core source of energy for the UAE. Looking ahead, we ment. The Supreme Petroleum Council - the highest authorare working on a communicated percentage increase in terms ity responsible for the petroleum affairs in the Emirate of Abu of the contribution of alternative and more sustainable sources Dhabi - was encouraging ADNOC and its partners to adopt of energy. We are in the initial chapter of developing and a zero flaring policy and the reduction of emissions. From an implementing renewable sources but we do have the aspiraenvironment perspective, I think the UAE is demonstrating tion to attain reasonable percentages in the future. an international level of awareness and care that lead to our The challenge in the use of renewables relates to regulaleading role in hosting the headquarters of the International tions. That is, sustainable energy sources are rather well devel- Renewable Energy Agency (IRENA) in Abu Dhabi. The foroped in Europe and a number of other countries due to the mation of IRENA heralds a new era of international cooperalack of oil subsidies. The issue we are facing locally is the heavy tion to address the pressing issues of climate change, global subsidy of some forms of energy as opposed to renewables, warming and energy security. In addition to this, the agency which may be unfair. is tasked with facilitating access to all relevant information You need to look at this issue from the future perspective. on the potentials for renewable energy, best practices, effecIf you are a net importer of energy, would you choose to tive financial mechanism and state-of-the-art technological import gas? Or do you develop a renewable source? Which expertise. In this context, we are trying to support most of the one is more cost effective given the given gas price? This is initiatives that make sense in that space. what we are working towards here at the Ministry to devise a Simultaneously, we are balancing this goal with our role strategy and guideline around that. In addition, we are aiming as a major supplier of hydrocarbons. Both are of the utmost to develop principle regulations that will take into considimportance to us and I think it is difficult to find many exameration all forms of energy in an unbiased manner. From a ples of countries that are trying to achieve both at the same regulatory point of view, these topics are well developed in time. Some are more focused on the production of hydrocarEurope and we are using them as a benchmark to be ready to bons, while other are more focused on developing alternaadapt to the future. tive sources of energy. We are trying to strike that balance in We do not yet have a clear answer on the UAEs future between these two poles which is no easy feat. These characenergy mix beyond what has already been announced by Abu teristics of the UAE serve as a differentiator for our country. Dhabi and Dubai but that is precisely what we are working Norway is an excellent example of both a significant hydrocartowards. For the time being, Dubai for instance has combons producer and a front runner in sustainable energies. mitted to having a 5% contribution of renewables by 2030, The major challenges we are therefore facing is the lack or 1,000MW, while Abu Dhabi is working towards a 7% of awareness on the importance of energy conservation and contribution by 2020. Ultimately, what we lack is a holistic its proper use as well as the related high level of subsidies the strategy on a federal level to tackle those issues that could lead government is providing. This is a common challenge for the to stronger commitments. GCC countries where the energy is heavily subsidized resultOn the other hand, looking at the technological aspect, I ing in a very high per capita usage. If we succeed in reducing recently visited the Masdar Institute of Technology and was that, I believe we will be conserving our environment while proud of the renewable R&D technologies being developed helping the government to better serve its people by channelthere. These efforts are aimed at making all forms of such ling the subsidies to more beneficial initiatives and projects. energies a reality, from the lab all the way up to the implementation stage through collaboration with commercial organiza- OGFJ: What is your final message for our readers? tions. I believe this initiative that the Abu Dhabi government sanctioned is undoubtedly a step in the right direction and if AL MAZROUEI: The UAE is opening up. We are an open we continue gaining the local governments support then we economy and continue to encourage the sort of partnerships can achieve significant milestones in developing these technol- that make sense. From this prospective, we need all the help ogies. Although realistically gas will continue to be the central we can get to tackle the challenges related to the development energy source for the time being, I am very optimistic about of our gas resources. I believe that the SPC and ADNOC the future of the advancements being made in the renewable in Abu Dhabi are approaching this with an open mind. The sphere. As we move to the future, renewables will play a more UAE government is also highly supportive of initiatives complementary role while increasingly gaining a share of the designed to improve the technologies to advance other enerUAEs energy mix. gies. In order to support these ambitions, it is important that we tackle these issues from a number of fronts including the OGFJ: How do you foresee the Emirates in 10 years and regulatory, R&D, and investment perspective. OGFJ July 2013 Oil & Gas Financial Journal www.ogfj.com 25

Protect your company from field-level fraud in the oil patch


Megan McFarland, CPA, Hein & Associates LLP, Dallas

ith every oil boom, comes fraud. Most of the attention centers on fraudulent stock scams, which hit the courts regularly in every state, especially those home to the big energy plays. What doesnt garner as much notice is fraud against oil and gas companies themselves. Its not a small problem. Although we are unaware of statistics particular to the oil and gas industry, the Association of Certified Fraud Examiners estimates in its annual survey that a typical business loses five percent of its revenues to fraud each year. In the oil and gas business, reporting rules require safeguards on corporate reporting and audit of financial statements, but what about operations? For oil and gas companies, field operations are likely more vulnerable to fraud than any other part of the business. 26

There are enough varieties of field-level fraud that we have either heard about or experienced in our practices that could easily inspire song lyrics to dozens of She done me bad; I done her worse, country western songs. First Ill look at some various types, and then give a typical but mythical example of the most prevalent types of field fraud. Finally, there are some steps companies can take to fight field-level fraud in the oil and gas business.

Two main types of field fraud


Field fraud varies significantly, but you can divide it into two main categories. The first is vendor fraud. Examples include: phony invoicing for unperformed or under-delivered goods and services; billing for undelivered rental equipment; billing ghost hours or even fabwww.ogfj.com Oil & Gas Financial Journal July 2013

ricating ghost employees; billing more than the going rate; and getting companies to commit to a high rate when there is no competition and then not re-bidding the job when more competitors come in. The second type of fraud is more expensive because it involves collusion from employees at the oil company. Most of these frauds involve kickback schemes. The employee responsible for bidding a service or supply has the vendor charge a fictitious amount, siphon off a portion of the profit, and pay the employee. The kickback can come in different ways, and may not be in the form of cash. Gift cards are a popular way to pay a kickback, as is extravagant entertaining. Some of the craftier fraudsters set up a business and have the vendor write a check to their company. They may pay wives or girlfriends as if they had worked for them. There are even numerous instances of vendors charging the energy company for used oilfield pipe, and using that pipe to build fencing for a ranch or lot. With todays prices for pipe, those fences arent cheap. According to a presentation by John F. Lipka, USA security advisor for Encana Oil & Gas Inc., there are other types of non-cash kickbacks. The vendor arranges to provide services to the employee, such as pouring driveways, road work, or other heavy equipment services. It could involve home repairs or improvements

such as landscaping, patios or patio covers, barbecue pits and roping arenas. Some vendors buy the employee boats, cars, trucks, airplanes, motorcycles, golf carts, travel trailers, motor homes or horse trailers. They may even buy the employee or a spouse a personal item such as jewelry, furs, clothing, liquor, golf clubs, firearms or customized cowboy boots. In the travel and entertainment arena, kickbacks can include gambling trips; excessive or frequent restaurant and night club bills; transportation and expenses for the employees vacation; unusual hunting, fishing, golf, or ski trips not offered by the vendor to other companies as a normal course of business; and finally it can mean the purchase of sexual favors for the employee, Lipka says. Commonly, field fraud takes up to 18 months for companies to discover. Usually these types of thefts, once discovered, are not reported by companies to the authorities. Company officials almost always just fire the employee. They may be embarrassed by the theft or believe that it would cost more to prosecute than they would recover. The company can try and recoup losses from the vendor, but that can produce mixed results. More often than not, companies take it in the teeth and walk away. The amount of money stolen is not usually material enough to report to shareholders.

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However, over time, if you add all of the field fraud up, it can be significant to the company. Field fraud continues to be a problem because finding qualified workers is tough, which leads to shortcuts in hiring. Many times, companies may not check references or call the fraudsters past employer, and if they do, that employer might be reluctant to divulge information for fear of legal trouble. The fraudulent field employee usually knows many people in the industry and can find work, because as we said, qualified employees are tough to find.

wife finds out whats going on and turns him in to his company via its fraud hotline. The fraud isnt prosecuted; Good ol Boy is fired, but has since found new employment in Louisiana.

Steps to take to prevent field fraud

If you want to avoid the Harry Hustlers and Good ol Boys of the world, consider the following steps: Separate the bid and approval process. Be sure the person who is responsible for bidding is not also responsible for approving invoices. The purchasing department should solicit and select bids while the Field fraud: An example field supervisor approves invoices. Lets look at a typical oil and gas field fraud. Although Check references when hiring. Normal job reference fictional, our tale is influenced by real events we have checks are not typically performed in this industry. learned of as accountants and consultants. We focus Make the call, do a little homework and you might our story on Good ol Boy, the field supervisor at a get lucky with some solid information. $300-million exploration company Rotate vendors and use a discioperating in the Barnett Shale. plined, competitive bid process. RotatWater used in the drilling process ing vendors can be a logistical hassle, has to be recovered and taken to a but companies should know that when processing site for cleaning and re-use. you become too dependent on one One day, Good ol Boy notices that vendor, relationships become too close. his water hauler, a guy by the name Going through the bidding process of Harry Hustler, is charging him ten for each job insures youll avoid being loads a day, about $10,000, when overcharged. Harry is really only hauling eight loads Compare field tickets to a day. This has been going on for six invoices received. This step is skipped months. Good ol Boy calls Harry on too often. A representative of the his cell phone, and asks him about the operating company gets together with the field supervisor to compare field tickets to invoices. Dont pay invoices In the oil and gas business, reporting rules that arent supported with signed field require safeguards on corporate reporting and tickets. audit of financial statements, but what about Create an approved vendor list. operations? For oil and gas companies, field Use a vendor application process, check the vendors operations are likely more vulnerable to fraud with other operators to learn of their experiences, than any other part of the business. and ensure your field personnel only use vendors from this list. Perform analytical reviews from a financial perspecdiscrepancy. Harry immediately offers Good ol Boy in tive. Internal audit staff or outside consultants comon the action, and promises him that no one will notice pare what you are paying versus the industry norm. such a small amount of money. Additionally, perform vendor audits after the work After thinking about it and justifying it because was completed, taking into consideration price and Good ol Boy thinks he should be making more money performance. he agrees to set up a limited partnership as a water Field fraud in the oil and gas industry is widespread disposal company. They create two separate invoices for and not talked about. Is it happening to you? OGFJ the water hauling contract; one from Harry that is legit and another to Good ol Boy Water Hauling Ltd. Now About the author Good ol Boy is married, but he also happens to have Megan McFarland is the National Energy Practice a girlfriend, Norma Rae. He lists Norma as the prinLeader for Hein & Associates LLP, a full-service public cipal of the partnership and sets her up in a trailer not accounting and advisory firm with offices in Denver, far from the oil fields, all at the companys expense, of Houston, Dallas and Orange County. She specializes in course. This goes on for two years, amounting to more SEC and other complex reporting requirements and has than $350,000 stolen from Good ol Boys employer. significant experience assisting companies with the impleThe scheme only gets discovered after Good ol Boys mentation and reporting of internal controls. 28 www.ogfj.com Oil & Gas Financial Journal July 2013

Louisiana legacy lawsuits create unknown risks for some E&P companies
Adam B. Zuckerman, Baker Donelson, New Orleans

ouisiana legacy litigation involves hundreds of lawsuits claiming environmental harm caused by oil and gas exploration and production activities. For landowners, these lawsuits have been likened to winning the lottery. In some instances, plaintiffs have sought hundreds of millions or, even billions, of dollars in damages when their property is valued at a fraction of those amounts. They generally posit that the property should be restored beyond regulatory standards to its original condition. Oftentimes, the cost of original condition restoration is exponentially higher than restoration to regulatory standards, and landowners aver they get to pocket the difference. Moreover, they argue that the market value of the property is irrelevant to the cost of the restoration. For oil and gas companies, legacy litigation often represents a potential substantial liability that, until they are served with a lawsuit, was previously unknown. This is, in part, because the lawsuits often allege successor liability for operations that occurred decades ago by predecessors. Moreover, the assets at issue were often divested years prior to the litigation, leaving an oil and gas company uncertain as to the activity that took place on an oil and gas lease after it was sold or assigned. Compounding the problem for oil and gas companies, and consistent with historic industry practice, operators likely will have transferred their operational files to subsequent operators, further creating a gap in knowledge about pertinent operations. Historically, oil and gas companies have attempted to mitigate risk, in part, by including various defense and indemnify provisions in an asset purchase agreements or other transfer documents. In legacy lawsuits, defense and indemnity provisions can be enforceable; however, regardless of how ironclad they seem, such provisions may end up being of little value because of the financial status of the buyer years after the deal is closed, or because the parties to the agreements litigate their meaning until the bitter end, creating a great deal of uncertainty when headed into a trial where a plaintiff is seeking substantial sums. More recently, some oil and gas companies have begun mitigating risk by creating site specific trust accounts (SSTAs) when divesting property. SSTAs are authorized pursuant to the Louisiana Oilfield Site Restoration Law, La.R.S. 30:88. In sum, SSTAs are a statutory mechanism by which oil and gas properties being transferred are inspected by State-approved contractors prior to the transfer. The purpose of the inspection is to determine the site restoration requirements existing at the time of the transfer. La.R.S. 30:88(B). Based upon the site restoration requirements, a July 2013 Oil & Gas Financial Journal www.ogfj.com

funding proposal is reviewed, and, if satisfactory, approved by the Louisiana Department of Natural Resources (the DNR), Office of Conservation. La.R.S. 30:88(D). Funding of the site-specific trust account includes a contribution to the account at the time of transfer. La.R.S. 30:88(C). Importantly, after the SSTA is funded, [t]he party acquiring the oilfield site shall thereafter be the responsible party for the purposes of this Part. La.R.S. 30:88(F). Thus, to the extent permitted under the law, once established and fully funded, an SSTA will generally release a transferor and prior responsible parties for regulatory liability for site restoration costs, and make the transferee the responsible party in the eyes of regulators. Landowners, however, generally argue that, regardless of whether an SSTA was created, oil and gas companies remain liable for their leasehold obligations, which they aver include restoration to original condition. The scope of potential liabilities discussed above were not necessarily readily apparent in Louisiana until at least 2003, when the Louisiana Supreme Court handed down its ruling in Corbello v. Iowa Production, 850 So. 2d 686 (La. 2003). In Corbello, landowners were permitted to recover substantial damages for remediation that were not tethered to the value of the land, and were not required to use the damages to actually restore the property. Id. Legacy litigation increased significantly after the Corbello decision, with hundreds of such suits now pending. In 2006, the Louisiana legislature responded to Corbello, and enacted legacy legislation commonly known as Act 312. See M.J. Farms, Ltd. v. Exxon Mobil Corp., 998 So. 2d 16, 36 (La. 2008); see La. R.S. 30:29. Act 312, in practice, provided little relief to the oil and gas industry. Among other things, Act 312 did not streamline litigation or expressly curtail the amount of damages a plaintiff could recover for environmental damage, and it has been interpreted to allow a trial before the DNR can opine on an appropriate standard of remediation. In 2012, additional legislation was enacted that purports to resolve some of the issues not resolved by Act 312. One of the more significant changes to Act 312 opens the door to DNR involvement in creating a remediation plan before the parties go to trial if limited admissions of liability for all or part of the environmental damage at issue are made. In such cases, the matter should be referred to the DNR to determine an appropriate remediation plan. Each party that files a limited admission is responsible for certain costs incurred by the DNR. A minimum $100,000 deposit is required by an admitting party. 29

Ostensibly, a DNR-approved remediation plan coupled with evidence of the cost to implement the plan could help a finder of fact determine an appropriate measure of damages, assuming liability. However, a judge or jury may be deprived of this information unless the parties admit regulatory liability, which admission plaintiffs may attempt to use at trial to argue liability for exponentially greater damages to restore property to its original condition. Moreover, even after the 2012 amendments to Act 312, the landowners position generally remains that a trial should proceed simultaneously with the DNR proceedings, potentially creating a rush to verdict without the benefit of the DNRs recommendation for remediation. In a closely watched decision, on January 30, 2013, the Louisiana Supreme Court issued its opinion in State of Louisiana, et al. v. The Louisiana Land & Exploration Co., et al., 2012-0884 (La. Jan. 30, 2013); 2013 WL 360329, interpreting Act 312 on the issue of a landowners right to be awarded damages beyond the cost of the regulatory remediation plan. The Court affirmed the appellate courts ruling denying partial summary judgment to the defendants, who argued that plaintiffs had no right to seek remediation damages in excess of those found necessary to fund the plan for remediation mandated by Act 312 absent an express provision in the lease. Finding that the statute was procedural in nature and did not affect the

substantive rights of landowners, the Court concluded that, by its clear language, Act 312 allowed recovery of damages by a landowner in excess of the cost of the approved feasible remediation plan. It remains to be seen if there will be a significant increase in legacy litigation following this ruling. In sum, legacy lawsuits continue to remain a potentially substantial liability for companies that own or previously owned or operated oil and gas assets in Louisiana. OGFJ About the author Adam Zuckerman is a shareholder at Baker Donelson. He represents clients in a variety of commercial litigation matters, including contract and business tort litigation, oil and gas litigation, environmental litigation arising out of oil and gas exploration and production activities, natural gas pipeline expropriation proceedings, and construction litigation. He represents creditors in bankruptcy and other collection proceedings, and represents clients throughout the federal and state appellate process. Zuckerman served as Bankruptcy Law Clerk to the United States Trustee for the Eastern District of Louisiana, and also served as Judicial Law Clerk to Chief Justice Pascal F. Calogero, Louisiana Supreme Court. He earned a BS from the University of Georgia and earned his JD from Loyola University School of Law.

Visit our Unconventional Resources Center on OGFJ.com

orth American shale plays such as the Eagle Ford, Barnett, Haynesville, Marcellus, Bakken, and Woodford are all noteworthy formations, but unconventional resources include more than shale. They also include tight gas, coalbed methane, oil sands, and heavy oil. Get up-to-date information on the most talked about formations in the unconventional resources space all in one place. Reports from Don Warlick of Warlick International provide insight into the top 5 US shale plays and the 7 factors driving the shale business. E&P companies are shifting budgets to high-BTU, liquidrich plays. Benteks Rusty Braziel provides expert analysis. Find shale rankings, top producers, the latest shale news,
Bakken
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Conasauga Chattanooga

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Go to www.ogfj.com <http://www.ogfj.com/> and click Unconventional Resources www.ogfj.com Oil & Gas Financial Journal July 2013

Canadian shale update

ompared to its neighbor to the south, Canada is in the early stages of developing its unconventional resources, especially tight oil. For Canadian producers, this means that a large portion of that nations production potential has yet to be unlocked. In watching the development of these emerging shale plays, it is generally acknowledged that it is crucial that only the most lucrative liquids-rich plays be developed. Tight oil is expected to play an increasing role in Canadas overall production mix. The identified liquidsrich plays in the Western Canada Sedimentary Basin have become increasingly relevant due to new horizontal drilling and hydraulic fracturing and completion technologies employed in the development of these unconventional plays, which has made production economic at least as long as oil prices remain high. The Duvernay formation in Alberta, which has been compared to the Eagle Ford shale play in South Texas, has drawn the most intense focus to date. In evaluating well results in the Duvernay, Wood Mackenzies research analysts noted the play has the potential to become one of North Americas most attractive liquids-rich shale plays. Still in its infancy in terms of development, the Duvernay is a large play that covers much of west-central Alberta. Because of its potential, it has attracted companies like Encana, Talisman, Chevron, and ExxonMobil that already hold large acreage positions. Here is a brief description of several other prominent and emerging plays in Canada and the latest news from each: Liard Basin (British Columbia) Apache has called the Liard the best and highest quality shale gas reservoir in North America. It is located in a remote and largely unexplored part of northeastern British Columbia. Apache says its Laird Basin wells are the most prolific in the world, based on the volume of gas three test wells are producing. Based on the production from those wells, Apache announced it has 48 tcf of marketable gas within its Liard Basin properties. By way of comparison, all companies active in the Horn River Basin, one of three other major shale gas basins in the province, have marketable gas of 78 tcf, giving one company alone a natural gas find that is two-thirds the size of the entire Horn Basin. One well alone produced 21 million cubic feet of gas a day over a 30-day test period. Horn River Basin (British Columbia) Gas is produced from the siliceous shale of the Horn River formation in the Greater Sierra field, north of Fort Nelson. Horizontal drilling and fracturing techniques are used July 2013 Oil & Gas Financial Journal www.ogfj.com

to extract the gas from the low-permeability shales. The original gas-in-place volumes are estimated to be up to 500 tcf, making it the third-largest North American natural gas accumulation discovered prior to 2010. Companies operating in the region include Encana, Apache, EOG, Stone Mountain Resources, ExxonMobil, Quicksilver Resources, Nexen, and Devon Energy. Montney (Alberta and British Columbia) Gas is produced from the Montney formation in the Peace River country in British Columbia and Alberta, and oil is produced from the formation in northern Alberta. Gas rich silty shales occur in the northern and western fringes of the deposit. Investor interest in the Montney has surged due in part to a reduction in royalty rates by the provincial government of Alberta. More than 25 E&P companies are operating in the area, and strong developmental growth in the shale has rewarded leading producers such as Encana with high-quality natural gas. South Africas Sasol Ltd. owns a 50% stake in Talisman Energys Montney assets in the Farrell Creek project that Talisman operates. Other participants in the play include Royal Dutch Shell and PetroChina. Utica (Quebec) The Utica shale is a black calcareous shale, from 150 to 700 feet (210 m) thick, with from 3.5% to 5% by weight total organic carbon. The Utica Shale play focuses on an area south of the St. Lawrence River between Montreal and Quebec City. Interest has grown in the region since Denver-based Forest Oil Corp. announced a significant discovery there after testing two vertical wells. However, there is significant opposition to hydraulic fracturing in the province, which may discourage operators due to concern about a fracking ban. Frederick Brook (New Brunswick) An emerging play in the maritime province of New Brunswick in eastern Canada, the Frederick Brook shale is located near Sussex in the province. Apache Canada was one of the first companies (in 2010) that began drilling horizontal wells to tap the Lower Carboniferous shale deposit. Muskwa (British Columbia The Devonian Muskwa shale of the Horn River Basin is said to contain 61012 cu ft (170109 m3) of recoverable gas. Major leaseholders in the play are EOG Resources, Encana, and Apache. The government of British Columbia has already received billions of dollars in lease proceeds, with the majority of the proceeds coming from shale gas prospects. The British Columbia government has granted royalty credits to companies for drilling and infrastructure development in the area. OGFJ

31

Deal Monitor

EP Energy takes center stage as deal markets remain on the slow side
Brian Lidsky, PLS Inc., Houston

LS reports that from May 17 to June 16, 2013, the pace of US oil and gas deal activity slowed to just 27 deals for $2.5 billion (versus 45 deals for $2.1 billion last month). Canada has stalled with only 10 deals for $35 million, yet international markets are improving having struck 39 deals for $5.5 billion compared to 12 deals for $1.6 billion last month. At press time as of June 20, global deal markets in Q2 totaled just $17.6 billion (169 deals) putting the markets within range of eclipsing the low-water mark (since 2007) of quarter deal value of $20.9 billion (188 deals) struck in Q1 2013. The US total is $6.5 billion, Canada $1.8 billion and international is $9.3 billion. This month EP Energy takes center stage in the US deal markets where it sold $1.3 billion of assets in a series

of deals. For perspective, EP Energy was born out of the transaction that occurred back in October 2011 when Kinder Morgan paid $37.8 billion to buy El Paso Corporation. Subsequently, Kinder Morgan sold off the upstream assets of El Paso to a private equity led consortium of Apollo, Riverstone, Korea National Oil Corporation and Access Industries for $7.15 billion just a little over a year ago in February 2012. At the time of the private-equity purchase, EP Energy had 2.8 Tcf of gas reserves and 201 MMbbls of oil reserves producing 746 MMcfpd and 22,300 bopd respectively. The current series of deals represent roughly 18% of the original purchase price, 23% of original reserves and 24% of original production. According to EP Energy, the sales represent an important step toward transforming and concentrating the portfolio to
05/17/13 - 06/16/13

PLS Inc., Monthly Deal Monitor Select transactions US Transactions


Date Announced
9-Jun-13 9-Jun-13 2-Jun-13 31-May-13 28-May-13 20-May-13

Buyer
Atlas Resource Partners Atlas Energy Kodiak Oil & Gas Wapiti Energy NorthWestern Energy EnerVest Management Partners

Seller
EP Energy EP Energy Liberty Resources Layline Petroleum Devon Energy Laredo Petroleum

Asset Location
Coalbed Methane Coalbed Methane Bakken Multi Region Rockies Mid-Continent

Total Transaction value Number of Transactions

International Transactions
Date Announced
14-Jun-13 13-Jun-13 11-Jun-13 27-May-13 23-May-13 23-May-13 17-May-13

Buyer
Banco BTG Pactual SA Centrica Surge Energy Inc Pine Cliff Energy Osaka Gas Parkmead Group Plc Tuscany Energy

Seller
Petrobras Cuadrilla, AJ Lucas Group Cenovus Energy Undisclosed Seller Horizon Oil Lochard Energy Group Plc Diaz Resources

Asset Location
Nigeria United Kingdom Saskatchewan Alberta Papua New Guinea UK North Sea Multi Canada

Total Transaction value Number of Transactions


PLS Inc. Validity of data is not guaranteed and is based on information available at time of publication. Prepared by PLS Inc. For more information, email memberservices@plsx.com.

32

www.ogfj.com Oil & Gas Financial Journal July 2013

Deal Monitor
focus on high-margin oil plays while retaining the largest gas asset in the Haynesville shale. In the largest deal of the EP Energy deals, Atlas Resource Partners (ARP) picked up 119 MMcfpd of coalbed methane production and 466 Bcf of reserves for $733 million. The assets (93% PDP) nearly double ARPs existing production and are split between New Mexicos Raton basin (320 Bcf), Alabamas Black Warrior basin (141 Bcf), and Wyomings County Line region (6 Bcf). The metrics for this 100% gas deal are $1.57 per proved Mcf and $6,160 per daily Mcf. Deemed to be transformative by ARPs CEO Edward Cohen, the deal will immediately be accretive to cash fow and ARP increased its 2014 distribution guidance up by 27% to $2.60 per unit. The second buyer, by way of agreement with ARP, is ARPs parent, Atlas Energy, L.P. (ATLS) who picked up 45 Bcf of EP Energys coalbed methane assets in the Arkoma basin in southeastern Oklahoma for $67 million. These assets are 100% natural gas, 100% proved developed, 97% operated and have current annualized EBITDA of ~$10 million. Production is 13 MMcfpd from over 550 wells and the metrics on this deal are $1.53 per proved Mcf and $5,150 per daily Mcf. On June 17 (one day after the timeframe in the Table below), EP Energy announced two more deals totaling $500 million. Privately-owned Wildhorse Resources II bought conventional Ark-La-Tex and North Louisiana assets while an undisclosed buyer purchased EP Energys
Non Proved Reserve Value ($MM)
$133.9 -

legacy conventional South Texas gas package. These two deals were struck at a combined $1.26 per proved Mcf (398 Bcf of reserves) and $6,024 per daily Mcf (total of 83 MMcfpd of net production). In total, EP Energy sold 909 Bcf of conventional and CBM gas reserves and 215 MMcfpd of production at valuations of $1.43 per Mcf and $6,050 per daily Mcf. These metrics provide a good valuation market data point for todays natural gas PDP-oriented deals. Elsewhere in the US markets, Kodiak struck a $660 million deal to buy out Liberty Resources Bakken position adding 42,000 net acres and 6,000 boepd of production. Privately-held Wapiti Energy paid $375 million, with funding from Wells Fargo and Carlyle, for producing assets in Texas, Louisiana and North Dakota from Layline Petroleum. In other deals, Petrobras sold a 50% interest in its African assets to BTG Pactual for $1.5 billion and in Canada, Surge Energy bought Shaunavon tight oil assets in Saskatchewan from Cenovus for $235 million. New large deals hitting the markets include a $1.5 billion asset sales target from Freeport McMoRan Copper & Gold following the completion of its acquisition of Plains E&P and McMoRan Exploration and Halcon Resources selling four conventional US packages totaling 4,500 boepd. Occidental is reportedly looking to sell Middle East assets and in Canada, Penn West has started a process to review all strategic alternatives. OGFJ

Proved Reserve Value ($MM)


$733.0 $67.0 $526.1 $375.0 $70.2 $438.0

Reserves (MMBoe)
77.7 7.5 23.2 10.8 28.5

Production (Boe/D)
19,833 2,167 5,700 2,557 9,625

Reserves ($/Boe)
$9.44 $8.93 $16.16 $6.52 $15.37

Production ($/Boe/d)
$36,959 $30,918 $92,300 $27,454 $45,506

Reserves ($/Mcfe)
$1.57 $1.49 $2.69 $1.09 $2.56

Production ($/Mcfe/d)
$6,160 $5,153 $15,383 $4,576 $7,584

$2,209.3 6

$133.9

Median Mean

$9.44 $11.28

$36,959 $46,627

$1.57 $1.88

$6,160 $7,771

2P Reserve Value ($MM)


$1,525.0 $228.3 $33.0 $22.8 $31.0 $6.0

Non 2P Reserve Value ($MM)


$133.1 $7.1 $51.2 -

2P Reserves (MMBoe)
8.5 3.3 2.3 2.3 1.0

Production (Boe/D)
26,300 2,880 689 1,090 287

2P Reserves ($/Boe)
$26.87 $9.98 $10.00 $13.48 $6.24

Production ($/Boe/d)
$57,985 $79,264 $47,866 $28,450 $20,732

2P Reserves ($/Mcfe)
$4.48 $1.66 $1.67 $2.25 $1.04

Production ($/Mcfe/d)
$9,664 $13,211 $7,978 $4,742 $3,455

$1,846.0 7

$191.5

Median Mean

$10.00 $13.31

$47,866 $46,859

$1.67 $2.22

$7,978 $7,810

Note: Canada transactions assume 20% royalty, unless disclosed.

July 2013 Oil & Gas Financial Journal www.ogfj.com

33

OGFJ100P

OGFJ100P company update

ndependent research frm IHS Herold Inc. has provided OGFJ with updated production data for our periodic ranking of US-based private E&P companies. The rankings are based on operated production only within the United States. Here, we take a look at some of the transactions in the private company space since the April 2013 issue and the last installment of the OGFJ100P.

Top 10
In this, the last data set for 2012, there were a few notable changes in the Top 10 listing. Dropping out of the overall Top 10 by BOE were Citation Oil & Gas Corp. and Petro-Hunt Group. Citation dropped from its previous position at No. 9 to its current No. 11 spot, and Petro-Hunt Group dropped from No. 8 in the April issue to No. 16 in this installment. Breaking into the Top 10 is LLOG Exploration Co. LLC. The company jumped two spots from its previous No. 11 spot to enter the Top 10 at No. 9. The largest jump was that of Sheridan Production Co. LLC. The company landed in the Top 10 at No. 7 in this issue, up ten spots from its previous position at No. 17. Not only did Sheridan break into the overall Top 10, but the Permian Basin-focused company fnds itself as a Top 10 liquids producer, jumping into the group at No. 5, and rounding out the gas producers list at No. 10.

WildHorse Resources also moved itself into a Top 10. With a focused presence in the Terryville Field in Lincoln and Claiborne Parishes, Louisiana, overall No. 18 WildHorse comes in at No. 8 in the list of Top 10 private gas producers. The addition of Sheridan and WildHorse to the Top 10 gas producers list displaced Chief Oil & Gas LLC and Citrus Energy Corp. in this installment. Another change to the Top 10 private gas producers list is the removal of Dynamic Offshore Resources. The company was acquired by SandRidge Energy Inc. for $680 million in cash and approximately 74 million shares of SandRidge common stock in April 2012. Based on the closing price of SandRidge common stock of $7.11 per share on April 16, 2012, the acquisitions aggregate consideration is valued at approximately $1.206 billion.

Capital
Unranked Maverick Brothers Energy LLC recently received a commitment of $35 million in equity capital from investment partnerships managed by Post Oak Energy. Funding will be used for Enid, Oklahoma-based Mavericks drilling program and acreage acquisitions. Post Oak funded $12 million at closing, with the remaining $23 million available to support future develop-

Top 10 private gas producers


Rank 1 2 3 4 5 6 7 8 9 10 100P Rank 2 1 3 5 6 4 15 18 10 7 Company Samson Investment Co. Merit Energy Co. Hilcorp Energy Co. Yates Petroleum Corp. Mewbourne Oil Co. GeoSouthern Energy Corp. J-W Operating Co. WildHorse Resources LLC Walter Oil & Gas Corp. Sheridan Production Co. LLC Gas (Mcf) 230,672,097 186,594,085 158,102,146 98,445,107 76,545,286 74,180,750 59,267,373 43,531,267 42,368,015 39,852,824

Top 10 private liquids producers


Rank 1 2 3 4 5 6 7 8 9 10 100P Rank 4 3 1 11 7 13 8 9 10 6 Company GeoSouthern Energy Corp. Hilcorp Energy Co. Merit Energy Co. Citation Oil & Gas Corp. Sheridan Production Co. LLC Slawson Exploration Co. Inc. Endeavor Energy Resources LP LLOG Exploration Co. LLC Walter Oil & Gas Corp. Mewbourne Oil Co. Liquid (bbl) 16,619,925 14,090,613 13,137,475 12,055,936 10,927,227 9,798,994 9,796,443 8,388,240 7,471,878 6,889,620

Source: IHS Herold

Source: IHS Herold

Software for Oil & Gas Commercial Operations


34

www.qbsol.com

www.ogfj.com Oil & Gas Financial Journal July 2013

OGFJ100P
ment activities on leasehold acreage and other growth initiatives. Maverick has accumulated a contiguous acreage position of more than 10,000 gross acres in Dewey County, Oklahoma and has completed four horizontal gas wells in the Mississippian Osage formation. Mavericks leadership team includes Bret Brickman, president and CEO, and Bart Brickman, vice president. 1.18 MMboe (~88% oil/liquids) with a PV-10 of $15.9 million, PDP net reserves of 178 Mboe with a PV-10 of $6.9 million, and a multi-year development program with 96 Eagle Ford horizontal PUDs. The assets hold current production of 6,000 gross/135 net boe/d (84% oil/liquids), average net operating cash fow of $223,337/month (for the trailing three-months ending March 2013), and 41 horizontal producing wells (36 Eagle Ford and 5 Pearsall wells).

Sale
WildHorse Resources puts yet another stamp on this issue of the OGFJ100P as the buyer of certain Ark-La-Tex assets from EP Energy LLC. As noted in Deal Monitor, p. 33 of this issue, EP Energy LLC agreed to sell conventional gas assets in East Texas and North Louisiana to WildHorse Resources II LLC. Offering up its non-operated Eagle Ford properties is privately-held Kirkpatrick Oil & Gas LLC. The Oklahoma Citybased company is looking to sell certain non-operated oil and gas interests located in La Salla and Frio Counties, TX with the help of E-Spectrum Advisors LLC as its exclusive agent. The assets up for sale include total net proved reserves of

Growth
No. 4-ranked GeoSouthern Energy Corp. has set its sights on a new offce building in The Woodlands, TX. The company, specializing in production of Austin Chalk and Eagle Ford unconventional formations with large acreage positions in Gonzales and Lavaca counties, TX, plans to relocate to Wildwood Corporate Centre, a three-story building slated for completion in January 2014. According to The Houston Business Journal, the company will lease roughly half of the 127,794-square-foot building. OGFJ

2012 Year-to-date production ranked by BOE


Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Company Merit Energy Co. Samson Investment Co. Hilcorp Energy Co. GeoSouthern Energy Corp. Yates Petroleum Corp. Mewbourne Oil Co. Sheridan Production Co. LLC Endeavor Energy Resources LP LLOG Exploration Co. LLC Walter Oil & Gas Corp. Citation Oil & Gas Corp. Bass Companies Slawson Exploration Co. Inc. Hunt Oil Co. BOE 44,236,489 44,197,043 40,440,971 28,983,383 20,535,153 19,647,168 17,569,364 15,481,128 14,885,848 14,533,214 14,274,985 11,729,616 11,100,068 10,544,504 Total wells 5,641 4,020 2,657 287 3,590 1,495 3,918 5,282 39 76 2,616 986 323 644 Largest feld Painter Reservoir East Ignacio-Blanco Judge Digby De Witt Powder River Basin Coal Bed Lipscomb Fuhrman-Mascho Sprayberry Mississippi Canyon Block 0503 West Delta Block 0112 Sho-Vel-Tum Quahada Ridge Southeast Van Hook Eagleville

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Rank 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Company J-W Operating Co. Petro-Hunt Group Fasken Oil and Ranch Ltd. WildHorse Resources LLC Texas Petroleum Investment Co. Kaiser-Francis Oil Co. Chief Oil & Gas LLC Citrus Energy Corp. Red Willow Production Co. Valence Operating Co. Indigo Minerals LLC Ankor Energy LLC Black Elk Energy LLC Ballard Exploration Co. Inc. Castex Energy Inc. Stephens Production Co. Zenergy Inc. BASA Resources Inc. Alta Mesa Holdings LP Pruet Production Co. Sanguine Gas Exploration LLC New Dominion LLC MacPherson Oil Co. DCOR LLC FIML Natural Resources LLC Reliance Energy Inc. Laredo Energy IV Killam Oil Co. Ltd. Pisces Holding Co. Venture Oil & Gas Inc. Burnett Oil Co. Inc. Tana Exploration Co. Jones Energy Holdings LLC Murex Petroleum Corp. CML Exploration LLC Milagro Oil & Gas Inc. Summit Petroleum LLC Henry Resources LLC BOE 10,015,170 8,835,212 8,364,605 7,928,446 7,257,519 7,038,597 6,554,756 6,505,731 6,484,259 5,959,695 5,674,665 5,541,631 5,296,507 5,263,256 5,026,664 4,800,756 4,450,425 4,317,554 4,234,979 4,087,313 4,086,007 3,928,171 3,804,164 3,740,295 3,723,440 3,711,986 3,690,876 3,646,181 3,628,703 3,591,773 3,516,918 3,494,576 3,471,617 3,459,069 3,428,597 3,373,338 3,302,998 3,148,785 Total wells 809 400 913 722 1,381 1,342 54 26 400 560 312 114 202 66 48 800 226 2,981 202 217 126 326 427 258 919 153 91 459 36 96 324 85 244 183 252 535 292 207 Largest feld Elm Grove Charlson Sprayberry Terryville Luling-Branyon Ashland Dimock Mehoopany Ignacio-Blanco Carthage Caspiana South Marsh Island Block 0073 Galveston Block 0389 Yellow Rose Atchafalaya Bay Gragg Banks East Texas Weeks Island Brooklyn Mills Ranch Oklahoma City Round Mountain Dos Cuadras Sprayberry Sprayberry Owen Cuba Libre West Cameron Block 0076 Winchester South Loco Hills Timbalier Bay Centrahoma Sanish Madisonville West Magnet Withers Sprayberry Sprayberry

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OGFJ100P
Rank 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 Company Jetta Operating Co. Inc. J. Cleo Thompson & James Cleo Thompson, Jr. Antero Resources LLC Legend Natural Gas LP Tellus Operating Group LLC Vantage Energy LLC Berexco Inc. CrownQuest Operating LLC Deep Gulf Energy LP Square Mile Energy Petro Harvester Oil & Gas LLC Texland Petroleum LP Parsley Energy Co. Battalion Resources Holdings LLC Tidelands Oil Production Co. Border To Border Exploration LLC Stephens & Johnson Operating Co. Manti Resources Inc. Vernon E. Faulconer Inc. Finley Resources Inc. West Bay Exploration Co. Eagle Oil & Gas Co. Gary, Samuel Jr & Associates Inc. Wolverine Gas and Oil Corp. Davis Petroleum Corp. E&B Natural Resources Management Corp. Vess Oil Corp. Wagner Oil Co. White Oak Energy, LP Choice Exploration Inc. Sklar Exploration Co. LLC R. Lacy Inc. Le Norman Operating LLC Cobra Oil & Gas Corp. Ward Petroleum Corp. Crawley Petroleum Corp. Rosewood Resources Inc. Sanchez Oil & Gas Corp. BOE 3,130,732 3,112,357 3,029,717 2,982,596 2,921,635 2,909,594 2,853,706 2,834,617 2,759,543 2,698,874 2,688,628 2,674,129 2,666,276 2,645,319 2,616,466 2,613,280 2,567,610 2,501,394 2,440,208 2,428,251 2,405,326 2,299,952 2,295,861 2,219,376 2,219,006 2,207,316 2,167,523 2,145,719 2,112,406 2,102,196 2,059,962 1,938,669 1,931,443 1,894,626 1,857,106 1,819,363 1,792,674 1,788,008 Total wells 412 953 134 358 403 214 1,651 177 2 35 429 641 233 1,584 486 46 752 47 584 654 96 78 141 23 81 1,102 1,314 241 429 22 70 257 39 159 212 458 1,105 189 Largest feld Big Mineral Creek Wolfbone Reams Southeast Garcias Ridge Baxterville Newark East Cushing Sprayberry Green Canyon Block 0448 Leleux Laurel Fullerton Sprayberry Powder River Basin Coal Bed Wilmington Magnolia Springs Oklahoma City Hospital Bayou Watonga-Chickasha Trend Ford West Napoleon Converse Marceaux Island Covenant Lac Blanc Poso Creek Kurten La Sal Vieja Dist 4 Belle Isle Southwest Cottonwood North Brooklyn Carthage Lard Ranch Sprayberry Talihina Northwest Strong City District Waverly Hargill

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OGFJ100P
Rank 91 92 93 94 95 96 97 98 99 100 Company Augustus Energy partners Muskegon Development Co. Rice Energy LLC Strat Land Exploration Co. McGowan Working Partners Ricochet Energy Inc. Helis Oil & Gas Co. LLC JM Cox Resources LP Dan A. Hughes Co. Murfn Drilling Co. BOE 1,742,598 1,734,269 1,695,176 1,672,738 1,664,504 1,634,944 1,622,676 1,619,458 1,551,076 1,547,885 Total wells 981 1,323 13 328 320 105 8 817 122 946 Largest feld Vernon Antrim Amity Lipscomb Shuler Roleta Galveston Block 0350 Sprayberry Pearsall Williamson

Source: IHS Herold; For more information about IHS Herolds Private Company Database, visit herold.com/research.herold.contact_us Production totals based on latest fgures as reported to and recorded by individual state agencies and tabulated by IHS at time of publication. Some agencies are delayed by as many as several months in releasing data which may impact rankings.

2012 Year-to-date production alphabetical listing


Rank
33 26 55 91 28 32 12 66 59 27 68 45 29 21 82

Company
Alta Mesa Holdings LP Ankor Energy LLC Antero Resources LLC Augustus Energy partners Ballard Exploration Co. Inc. BASA Resources Inc. Bass Companies Battalion Resources Holdings LLC Berexco Inc. Black Elk Energy LLC Border To Border Exploration LLC Burnett Oil Co. Inc. Castex Energy Inc. Chief Oil & Gas LLC Choice Exploration Inc.

BOE
4,234,979 5,541,631 3,029,717 1,742,598 5,263,256 4,317,554 11,729,616 2,645,319 2,853,706 5,296,507 2,613,280 3,516,918 5,026,664 6,554,756 2,102,196

City
Houston New Orleans Denver Billings Houston Dallas Fort Worth Denver Wichita New Orleans Austin Fort Worth Houston Dallas Arlington

State
TX LA CO MT TX TX TX CO KS LA TX TX TX TX TX

Top executive offcials


Michael McCabe, VP, CFO; Mike Ellis, chair, COO; Hal Chappelle, pres, CEO Denton Copeland, pres, CEO; Michael Anderson, exp mgr; W. Folsom, ops mgr Paul Rady, chair, CEO; Glen Warren, pres, CFO; Kevin Kilstrom, VP, prod; Steven Woodward, VP, bus dev Steve Durrett, pres, CEO; Robert Fisher, VP exp; Duane Zimmerman, VP ops A. Ballard, pres, CEO, owner Robert Marshall, VP ops; Sandra Wallace, CFO; Lary Knowlton, co-founder, exec VP; Michael Foster, pres, co-founder Mitchell Roper, pres; W. McCreight, VP land; H. Muncy, VP exp; John Smitherman, VP prod Keith Knapstad, pres, COO Adam Beren, pres, chair John Hoffman, pres, CEO; James Hagemeier, CFO John Gaines, CFO; Sam Allen, exp mgr; Matthew Telfer, CEO Philip Boschetti, VP, CFO; Anne Marion, chair, owner; William Pollaru, pres Kevin Ikel, bus dev mgr; John Stoika, pres John Hinton, sr VP, CFO; Sam Fragale, sr VP ops; Logan Magruder, pres, CEO; Trevor ReesJones, founder, chair Jon Martin, pres; David Brooks, founder, COO, VP ops

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Rank
11 22 49 86 88 60 99 77 38 61 78 74 8 17 39 72 75 4 97 52 3 14 25 54

Company
Citation Oil & Gas Corp. Citrus Energy Corp. CML Exploration LLC Cobra Oil & Gas Corp. Crawley Petroleum Corp. CrownQuest Operating LLC Dan A. Hughes Co. Davis Petroleum Corp. DCOR LLC Deep Gulf Energy LP E&B Natural Resources Management Corp. Eagle Oil & Gas Co. Endeavor Energy Resources LP Fasken Oil and Ranch Ltd. FIML Natural Resources LLC Finley Resources Inc. Gary, Samuel Jr & Associates Inc. GeoSouthern Energy Corp. Helis Oil & Gas Co. LLC Henry Resources LLC Hilcorp Energy Co. Hunt Oil Co. Indigo Minerals LLC J. Cleo Thompson & James Cleo Thompson, Jr. Jetta Operating Co. Inc. JM Cox Resources LP Jones Energy Holdings LLC J-W Operating Co.

BOE
14,274,985 6,505,731 3,428,597 1,894,626 1,819,363 2,834,617 1,551,076 2,219,006 3,740,295 2,759,543 2,207,316 2,299,952 15,481,128 8,364,605 3,723,440 2,428,251 2,295,861 28,983,383 1,622,676 3,148,785 40,440,971 10,544,504 5,674,665 3,112,357

City
Houston Castle Rock Kingwood Wichita Falls Oklahoma City Midland Beeville Houston Ventura Houston Bakersfeld Dallas Midland Midland Denver Fort Worth Denver The Woodlands New Orleans Midland Houston Dallas Houston Dallas

State
TX CO TX TX OK TX TX TX CA TX CA TX TX TX CO TX CO TX LA TX TX TX TX TX

Top executive offcials


Curtis Harrell, pres, CEO; Robert Kennedy, sr VP bus dev, land; Christopher Phelps, sr VP, CFO; Steven Pearson, sr VP ops David Oberbrockling, VP; Lance Peterson, pres William Temple, prod mgr; Lee Staiger, ops mgr; Kenneth Nelson, mgr Jeff Dillard, pres; Robert Osborne, VP, co-owner; Richard Haskin, CFO Stephen Hatfeld, pres; James Crawley, chair, founder; James Drennen, VP Robert Floyd, pres; David Crass, VP exp dev; Timothy Dunn, principal, CEO Dan Hughes, pres, partner; Dan Hughes, VP Thomas Hardisty, VP land, bus dev; Daniel Hawk, exec VP, CFO; Michael Reddin, pres, CEO Jeffrey Warren, VP; William Templeton, pres, managing member, principal Dave Huber, co-founder; Tom Young, VP bus dev Francesco Galesi, chair; James Tague, VP fnance, planning; Stephen Layton, pres Warren Ayres, exec VP, CFO, dir; Pat Bolin, chair, CEO; Darrell Lohoefer, pres, COO; Bill Fairhurst, VP exp, land Autry Stephens, CEO, founder, partner Norbert Dickman, VP, gen mgr; Dexter Harmon, exp mgr; Jimmy Davis, ops mgr; Mark Merritt, oil gas mgr Mark Bingham, dir Clinton Koerth, VP acq, land; James Finley, CEO, owner; Stephen Clark, CFO; Brent Talbot, pres Samuel Gary, pres, treas, founder; Jeff Lang, VP ops; Craig Ambler, COO, partner; Lonnie Brock, CFO George Bishop, pres, owner Michael Schott, VP, CFO; David Kerstein, pres Lindsay Solis, mgr; Jim Henry, CEO Jeffery Hildebrand, CEO, chair; Greg Lalicker, pres; Jason Rebrook, exec VP, A&D; Lee Beckelman, exec VP, CFO Steve Suellentrop, pres; Thomas Cwikla, exec VP exp; Paul Habenicht, exec VP ops, dev; Travis Armayor, VP corp dev; Dennis Grindinger, CFO; Jess Nunnelee, VP prod Becky Bayless, CFO, exec VP; Keith Jordan, pres; William Pritchard, chair, CEO James Thompson, pres, CEO, managing partner Greg Bird, pres, owner; Jeanette Clark, VP, controller, treas; Rick Cornelius, VP contracts; John Jarrett, CFO, VP; Shannon Nichols, VP land; Mike Richardson, exec VP; Gordon Roberts,VP bus dev Ben Stickling, ops mgr; John Cox, pres, CEO Hal Hawthorne, VP exp; Mike McConnell, pres, COO; Craig Fleming, exec VP, CFO; Jonny Jones, CEO, chair Tony Meyer, pres

53 98 47 15

3,130,732 1,619,458 3,471,617 10,015,170

Fort Worth Midland Austin Addison

TX TX TX TX

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OGFJ100P
Rank
20 42 41 85 56 9 37 70 95 1 6 50 48 100 92 36 65 63 16 43 34 84 23 40 93 96 89 2 90

Company
Kaiser-Francis Oil Co. Killam Oil Co. Ltd. Laredo Energy IV Le Norman Operating LLC Legend Natural Gas LP LLOG Exploration Co. LLC MacPherson Oil Co. Manti Resources Inc. McGowan Working Partners Merit Energy Co. Mewbourne Oil Co. Milagro Oil & Gas Inc. Murex Petroleum Corp. Murfn Drilling Co. Muskegon Development Co. New Dominion LLC Parsley Energy Co. Petro Harvester Oil & Gas LLC Petro-Hunt Group Pisces Holding Co. Pruet Production Co. R. Lacy Inc. Red Willow Production Co. Reliance Energy Inc. Rice Energy LLC Ricochet Energy Inc. Rosewood Resources Inc. Samson Investment Co. Sanchez Oil & Gas Corp.

BOE
7,038,597 3,646,181 3,690,876 1,931,443 2,982,596 14,885,848 3,804,164 2,501,394 1,664,504 44,236,489 19,647,168 3,373,338 3,459,069 1,547,885 1,734,269 3,928,171 2,666,276 2,688,628 8,835,212 3,628,703 4,087,313 1,938,669 6,484,259 3,711,986 1,695,176 1,634,944 1,792,674 44,197,043 1,788,008

City
Tulsa Laredo Houston Oklahoma City Katy Houston Santa Monica Corpus Christi Jackson Dallas Tyler Houston Houston Wichita Mount Pleasant Tulsa Midland Plano Denver Metairie Jackson Longview Ignacio Midland Cannonsburg San Antonio Dallas Tulsa Houston

State
OK TX TX OK TX TX CA TX MS TX TX TX TX KS MI OK TX TX CO LA MS TX CO TX PA TX TX OK TX

Top executive offcials


Henry Kleemeier, exec VP, COO; Don Millican, CFO, VP; George Kaiser, pres, CEO David Killam, partner, mgr; Radcliffe Killam, CEO Glenn Hart, pres, CEO; Jim Flowers, VP drilling, completion; Ken Cravens, VP land; Paul Thompson, chief geo; Scott Stevenson, VP acq; Jerry Holditch, VP geo; Jaime Casas, CFO David Le Norman, pres, owner Mark Tantillo, VP geo; Michael Becci, VP, CFO; James Winne, pres, CEO, chair Scott Gutterman, pres, CEO; Mitch Ackal, VP, bus dev; Tim Lindsey, sr VP, prod/ops; John Newman, CFO, treas; Randy Pick, managing dir, A&D Donald MacPherson, pres, CEO; Scott MacPherson, sr VP, COO; Bradford Williams, CFO Chris Douglas, VP exp; Barry Clark, COO; Ben McCrackin, VP ops; Lee Barberito, pres; Robert Helm, CFO Joseph McGowan, VP; James Phyler, VP; David McGowan, partner; John McGowan, managing gen partner; David Russell, pres, CEO Meghan Cuddihy, dir IR; Kevin Ryan, sr VP, CFO; William Gayden, chair, founder Monty Whetstone, VP prod; Kenneth Waits, COO, exec VP; J. Roe Buckley, CFO, exec VP; Bruce Insalaco, VP exp; Curtis Mewbourne, pres, CEO, owner Gary Mabie, COO; Marshall Munsell, sr VP bus dev; James Ivey, pres, CEO; Robert LaRocque, VP fnance, treas Waldo Ackerman, founder, pres; Donald Kessel, VP Robert Young, CFO, sec, treas; William Murfn, chair; David Murfn, pres; David Doyel, exec VP; Leon Rodak, VP prod William Myler, pres, CEO Jean Antonides, VP, exp; Susan Keary, CFO; Kevin Easley, pres, CEO Bryan Sheffeld, pres Dennis Justus, CFO; Gareth Roberts, chair; Scott King, VP exp dev; Randy Holt, VP ops; William Griffn, pres, CEO Tom Nelson, VP fnance; Douglas Hunt, dir acq; Charles Rigdon, VP ops; Bruce Hunt, pres Bill Gray, co-founder, principal; John Barrett, co-founder, principal J. Hilton, VP prod; Randy James, pres; Rick Calhoon, VP, sec Bluford Crain, VP; Rogers Crain, VP; Ann Crain, pres Robert Voorhees, pres, COO; Bill McFie, VP ops; Stephen Goff, CFO B. Jack Reed, CFO; Gary McKinney, pres, CEO, owner; Julie Edgerton, controller Daniel Rice, founder, owner; Daniel Rice IV, COO; Toby Rice, CEO Jerry Hamblin, pres; Chris Maier, VP; Raymond Gallaway, VP Linda Tucker, VP admin, fnance; Gary Conrad, pres; Geoff Ice, VP exp David Adams, COO; Steve Trujillo, bus dev int'l; Scott Rowland, bus dev US, Can; Stacy Schusterman, chair, CEO Tony Sanchez III, founder, pres, CEO; Joseph R. DeDominic, sr VP, COO

Gas & Liquids Flow Measurement


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OGFJ100P
Rank
35 7 83 13 62 69 30 94 51 46 57 19 64 67 24 58 44 71 79 80 10 87 73 81 18 76 5 31

Company
Sanguine Gas Exploration LLC Sheridan Production Co. LLC Sklar Exploration Co. LLC Slawson Exploration Co. Inc. Square Mile Energy Stephens & Johnson Operating Co. Stephens Production Co. Strat Land Exploration Co. Summit Petroleum LLC Tana Exploration Co. Tellus Operating Group LLC Texas Petroleum Investment Co. Texland Petroleum LP Tidelands Oil Production Co. Valence Operating Co. Vantage Energy LLC Venture Oil & Gas Inc. Vernon E. Faulconer Inc. Vess Oil Corp. Wagner Oil Co. Walter Oil & Gas Corp. Ward Petroleum Corp. West Bay Exploration Co. White Oak Energy, LP WildHorse Resources LLC Wolverine Gas and Oil Corp. Yates Petroleum Corp. Zenergy Inc.

BOE
4,086,007 17,569,364 2,059,962 11,100,068 2,698,874 2,567,610 4,800,756 1,672,738 3,302,998 3,494,576 2,921,635 7,257,519 2,674,129 2,616,466 5,959,695 2,909,594 3,591,773 2,440,208 2,167,523 2,145,719 14,533,214 1,857,106 2,405,326 2,112,406 7,928,446 2,219,376 20,535,153 4,450,425

City
Tulsa Houston Shreveport Wichita Houston Wichita Falls Fort Smith Tulsa Midland The Woodlands Ridgeland Houston Fort Worth Long Beach Kingwood Englewood Laurel Tyler Wichita Fort Worth Houston Enid Traverse City Houston Houston Grand Rapids Artesia Tulsa

State
OK TX LA KS TX TX AR OK TX TX MS TX TX CA TX CO MS TX KS TX TX OK MI TX TX MI NM OK

Top executive offcials


Randolph Nelson, pres; Thomas Fuller, VP fnance, treas Matt Assiff, exec VP, CFO; Jim Bass, exec VP, COO; Lisa Stewart, CEO Howard Sklar, owner, CEO; David Barlow, VP, COO; Chris Farrell, VP, CFO; Cory Ezelle, VP exp Donald Slawson, pres, CEO; Kathy Atkins, controller Gary Loveless, chair, CEO Fred Stephens, pres WR Stephens, pres, CEO Larry Darden, pres, CEO, owner; Russell McGhee, CFO Matthew Johnson, exec VP ops, fnance; Dennis Johnson, pres, CEO; Thomas Fago, VP exp Kevin Talley, pres; Carl Comstock, VP land, bus dev Richard Mills, pres, mgr; Thomas Wofford, CFO H Sallee, pres, co-founder; Wiliam Crawford, co-owner, principal Frank Kyle, CFO; Gregory Mendenhall, VP ops; Jerry Namy, co-owner; James Wilkes, pres, co-owner; Bryan Lee, VP exp Don Foster, controller; Michael Domanski, pres, CEO, gen mgr; Mark Kapelke, VP ops, engineering Steve Manning, pres; Douglas Scherr, CFO, sec; Walter Scherr, CEO Roger Biemans, co-founder, chair, CEO; Thomas Tyree, co-founder, pres, CFO; Mike Kennedy, exec VP, COO Jay Fenton, pres; Jarvis Hensley, VP ops Tom Markel, VP, acct, CFO; Vernon Faulconer, CEO; Jean Crawley, VP land, admin; David Enright, pres Barry Hill, CEO; Ronnie Nutt, sr VP, ops, eng, bus dev; J. Michael Vess, chair; Brian Gaudreau, VP land, acq Bryan Wagner, pres, owner; William Lesikar, VP, CFO; HE Patterson, COO, sr VP Joseph Walter, pres, chair, CEO Richard Tozzi, exec VP, CFO; Lew Ward, chair; Gilbert Tompson, VP land; William Ward, pres, CEO Harry Graham, VP exp; Robert Tucker, pres, owner; David Rataj, VP fnance, treas Scott Nonhof, VP bus dev; Mark Etheredge, VP exploitation; Mike Rayburn, exec VP; Thomas Isler, pres Jay Graham, pres; Anthony Bahr, CEO Gary Bleeker, VP; Sidney Jansma, pres, CEO John Yates Sr., chair, emeritus; John Yates Jr., pres, chair; John Perini, exec VP, CFO; James Brown, COO Robert Zinke, pres, chair

Source: IHS Herold; For more information about IHS Herolds Private Company Database, visit herold.com/research.herold.contact_us Production totals based on latest fgures as reported to and recorded by individual state agencies and tabulated by IHS at time of publication. Some agencies are delayed by as many as several months in releasing data which may impact rankings.

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Industry Briefs
Riverstone Holdings closes $7.7B energy and power fund
New York, NY-based energy investment firm Riverstone Holdings LLC closed its latest conventional energy private equity fund, Riverstone Global Energy and Power Fund V LP (Fund V), with total commitments of $7.7 billion. The funds original target was $6 billion. Fund V will make investments in energy and power business around the world. To date, Fund V has invested $2.3 billion in 19 companies, including eight repeat management teams.

Natural Resource Partners enters Bakken as Abraxas shifts focus with sale
Natural Resource Partners LP has entered the Bakken Shale/Three Forks play with an agreement to purchase non-operated working interests in producing oil and gas properties in the Williston Basin of North Dakota and Montana from Abraxas Petroleum Corp. for approximately $35.3 million in cash. The acquisition consists of approximately 13,500 net acres that are held by production with an estimated average working interest of 11% in the Bakken/Three Forks play. The acquisition includes approximately 120 producing wells in addition to interests in 22 wells that are in various stages of development. NRP anticipates funding $8.1 million in additional capital expenditures associated with these new wells in 2013, a portion of which will be paid at closing. NRP expects the acquisition to close in the third quarter of 2013 and to be immediately accretive to NRPs unitholders. By selling the majority of its non-operated Bakken Shale properties, San Antonio, TXbased Abraxas Petroleum is shifting its focus to a core operated portfolio. Inclusive of the non-operated Bakken sale, Abraxas has divested approximately 502 boepd for gross proceeds of $47.3 million since the beginning of 2013. These asset sales have also removed approximately $10 million of budgeted CAPEX commitments for Abraxas. E-Spectrum Advisors LLC acted as divestiture agent for Abraxas on the sale.

nologies scope of supply includes subsea trees and wellheads, manifolds, installation tooling, flowline connection systems, and associated control systems. The equipment is scheduled for delivery commencing in 2015.

Whiting sells OK assets to Breitburn for $860M


BreitBurn Energy Partners LP (BBEP) has agreed to purchase interests in the Postle and North East Hardesty oil fields, along with associated midstream assets, from Whiting Oil and Gas Corp., a whollyowned subsidiary of Whiting Petroleum Corp., for approximately $860 million. Whiting had been looking to monetize the mature Oklahoma Panhandle assets for some time, noted Wunderlich Securities analysts, and the deal is viewed favorably as it lowers debt and shows the hidden value within Whitings portfolio of assets. Net proceeds from the sale are expected to reduce the companys outstanding balance on its $2 billion credit facility from $1.5 billion to roughly $650 million, putting it at a strong debt-to-capitalization ratio of just over 20%, noted Wunderlich Securities. With its balance sheet in check, look for the company to increase its push into the Niobrara, the analysts noted. As for Breitburn, risk and opportunity await, said Global Hunter Securities analysts. These assets are integral in allowing BBEP to rebuild the distribution coverage cushion that has been eroded by expiring natural gas hedges and continue its steady distribution growth. Risk and opportunity exist in the acquired assets, being CO2 EOR wells. While there will be a learning curve, best practices can hopefully be applied to other BBEP properties, driving additional production from existing wells, they noted. The company paid $116,000/flowing boe ( $19.46/ bbl of proved reserves) versus a historical average of $98,000/flowing boe and $15.50/bbl of reserves,

Marathon Oil to sell Angolan assets for $1.5B


Marathon Oil Corp. subsidiary, Marathon International Oil Angola Block 31 Limited, agreed to sell its 10% working interest in the Production Sharing Contract and Joint Operating Agreement in Block 31 offshore Angola to SSI Thirty-One Limited (Sonangol Sinopec International), the company said June 25. The transaction has a total value of approximately $1.5 billion. SSI Thirty-One Limited currently holds a 5% working interest in the block. Production from the PSVM development on Block 31 commenced in the fourth quarter of 2012. The concessionaire of Block 31 is Sonangol, Angolas state-owned oil company. The operator is BP Exploration Angola with a 26.67% working interest. Sonangol EP holds 25%; Sonangol P&P holds 20%; Statoil Angola A.S. holds 13.33%; and SSI Thirty-One Limited currently holds 5%. With this transaction, the company has agreed upon or closed on nearly $2.9 billion in divestitures since 2011, at the upper end of its targeted $1.5 billion to $3 billion of divestitures over the period of 2011 through 2013. Scotia Waterous served as Marathon Oils financial advisor on the transaction. Closing is anticipated in the fourth quarter of 2013. 42

FMC Technologies wins $1.2B subsea equipment order from Total


FMC Technologies Inc. has received an order from Total Upstream Nigeria Ltd. for subsea equipment for the Egina field. The award has an estimated value of $1.2 billion. The Egina field is located in Block OML 130 offshore Nigeria. FMC Tech-

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Industry Briefs
respectively, noted the analysts, but highlighted the liquids-rich nature of the transaction (98%) vs. historical transactions. BBEP is acquiring additional interests in certain of the acquired assets from other sellers for an additional $30.2 million. of coal or other natural resources, but will lease properties it acquires to various operators in exchange for royalty payments. The lessees of the properties will manage any commodity price risk associated with the operations, not KMP. financing for Isramcos share of the development of the Tamar offshore gas field since 2011.

Schlumberger acquires Alberta-based Gushor


Schlumberger has acquired Gushor Inc., a petroleum geochemistry and fluid analysis company based in Calgary, Alberta, Canada, that provides exploration and production (E&P) solutions in the heavy oil and oil sand industry. A University of Calgary spin-off formed in 2006, Gushor specializes in the integration of geology, fluid properties, petroleum geochemistry and reservoir engineering information.

Warburg Pincus affiliate invests up to $600M in new African E&P


Delonex Energy Ltd., a new exploration and production company (E&P) focused on Central and East Africa, has received an investment of up to $600 million from an affiliate of private equity firm Warburg Pincus. Delonex Energy is led by CEO Rahul Dhir, the former CEO of Cairn India Ltd. Dhir was also recently an executive-in-residence at Warburg Pincus, where he worked in close collaboration with the firm over the past several months to formulate Delonexs business plan. Delonex Energys strategic areas include the East African Continental Rift System, the Central African Rift System, and the coastal margins of East Africa. Delonex Energy plans on accessing opportunities in these areas through farm-in and direct awards from host governments. Delonex Energy is headquartered in London, with subsidiaries in UK, India and Kenya.

Holland Services gets investment from HIG Capital


An affiliate of HIG Capital LLC, a global private equity firm, has invested in Holland Services. Holland, a large land services provider serving multi-national and domestic energy firms, has assisted oil and gas companies with all aspects of acquiring, selling and developing land and mineral rights since 1985. Financing for the transaction was provided by THL Credit. The investment in Holland is the second time THL and HIG have partnered to invest in the oilfield services sector.

CIT lead arranger in $60M financing for Independence Contract Drilling


CIT Group Inc. arranged a $60 million senior secured credit facility for Independence Contract Drilling (ICD), a vertically integrated premium land drilling services provider, to build a fleet of fast moving land-based oil and gas programmable AC drilling rigs. CIT Corporate Finance served as Sole Lead Arranger and Sole Lead Administrative Agent in the transaction. Financing was provided by CIT Bank, the US commercial bank subsidiary of CIT. Terms of the transaction were not disclosed.

Isramco gets US$500M financing for Tamar field

Milbank, Tweed, Hadley & McCloy LLP has advised the lenders and hedge counterparties on a further US$500 million term loan financing for Isramco Negev 2 LP (Isramco) in support of its share of the development of the Tamargas field located of the coast of Israel. The loan proceeds partially refinance the US$750 milKinder Morgan initiates lion bridge and term loans extended new business to Isramco in 2011 and also support Kinder Morgan Energy Partners LP is future development and expansion of initiating a new business of owning, the field which became operational leasing and acquiring natural resource in March 2013. Isramco is the largreserves within its Terminals business est local partner in the Project and segment to pursue non-operating owns a 28.5% stake in the Tamar gas investments in coal and other mineral field. The other investors are Noble reserve properties and infrastrucEnergy, Delek Drilling, Avner Oil ture. Richard M. Whiting, a senior and Gas and Alon Gas Exploration. executive with more than 35 years of Financing was arranged by Deutsche experience in the coal industry, has Bank, who also led the 2011 financjoined KMP as president of Kinder ings, and Natixis and was successMorgan Resources LLC, which will fully syndicated to a large number own mineral reserve properties and of onshore and offshore financial other assets in North America. KMP institutions. Deutsche Bank has now will not actively engage in the mining arranged US$1.25 billion in debt July 2013 Oil & Gas Financial Journal www.ogfj.com

PetroFrontier, Statoil amend agreement in Southern Georgina Basin


PetroFrontier Corp. has agreed to amend the existing farmin agreement with Statoil Australia Oil & Gas AS whereby Statoil has committed to spend the next US$50 million throughout the remainder of 2013 and 2014 to fully fund up to a 385 km 2D seismic program and the drilling and stimulation of four to six vertical test wells. Throughout 2012 and the first half of 2013, PetroFrontier and Statoil jointly spent approximately US$30 million on 43

Industry Briefs
exploration in the Southern Georgina Basin. Under the Amended Farmin Agreement, Statoil could spend a total of up to US$175 million by the end of 2016 before PetroFrontier will be required to contribute further. Statoil will also become the operator effective September 1, 2013. Under the terms of the Amended Farmin Agreement, up to the next US$160 million of exploration costs will be fully funded by Statoil over three phases to the end of 2016, in return for 80% of PetroFrontiers working interest in EP 103/EP 104 (100% WI), EP 127/EP 128 (75% WI) and EPA 213/EPA 252 (100% WI) in the Southern Georgina Basin, Northern Territory, Australia. of all of its coal bed methane properties located in the state of Alabama. The sale resulted in net proceeds of approximately $62 million after normal and customary purchase price adjustments of $1.2 million to account for net cash flows from the effective date to the closing date. Simultaneously with the close of the property sale, approximately $57 million was used to repay outstanding borrowings under the companys credit agreement and $5 million was held in reserve to pay transaction related costs and expenses, including the liquidation of certain natural gas hedge positions. After this repayment, borrowings outstanding under the credit agreement totaled $77 million and such amount has been established as the new borrowing base. In connection with this repayment the nonconforming Tranche B portion of total outstanding borrowings, which has existed since August 2012, has been eliminated and the company no longer has a borrowing base deficiency under the credit agreement. Lantana Oil & Gas Partners, a Houston based divestiture firm, represented GeoMet in this transaction.

Dejour names auditor


At its Annual and Special Meeting of Shareholders held June 14 in Vancouver, Dejour Energy Inc. appointed BDO Canada LLP as the companys auditors for the ensuing year.

DrillingInfo acquires Transform


Drillinginfo Inc., a provider of SaaSbased decision-support technology for the upstream oil and gas industry, has acquired Denver-based Transform Software & Services Inc., a provider of analytic interpretation and modeling. Details of the transaction were not disclosed. Austin, TX-based Drillinginfo will retain Transforms Denver-based office and all of its employees. Transforms CEO and co-founder, Dean Witte, PhD, an industry veteran and geophysicist, has been named senior vice president of research for Drillinginfo and CEO of the Transform division. Murray Roth, Transforms president and co-founder, is now vice president of worldwide consulting for Drillinginfo and president of the Transform division. Vaquero Capital served as the mergers and acquisitions advisor to Drillinginfo on the transaction.

Warren Resources increases 2013 Capex


Warren Resources Inc. is increasing its 2013 capital expenditure budget by $15 million to $73 million. The increase in planned capital expenditures is due to a decision to drill 25 new coalbed methane (CBM) wells in the Spyglass Hill Unit in the Washakie Basin, which is a sub-basin of the Greater Green River Basin, Wyoming. The additional wells are expected to be placed into sales in the latter part of 2013; therefore, Warren is not updating its full-year gas production guidance at this time. The Spyglass Hill Unit comprises approximately 113,000 gross acres and holds all of the leases within the Unit to all depths, including those depths and formations below the CBM Mesa Verde coal formation. Warren holds approximately 88,000 net acres in the Unit. In order to maintain and perpetuate the Unit, the Company and the other working interest owners are required to drill 25 CBM wells each year.

Kabe to form exploration JV with Canadian firm


Kabe Exploration Inc. has entered into a letter of intent to form a joint venture partnership with Canadian oil and gas holding company International Equity Partners Oil & Gas Inc. for the exploration and development of 7,300 acres of oil leases in the Mississippian field of southern Kansas. International Equity Partners Oil & Gas will contribute capital and expertise toward developing the assets for production. Kabes five year operational plan is expected to bring 24 new oil wells into production. Each well in the area is estimated to yield 400,000 barrels of oil, or a potential 9.6 million total barrels for the project.

ARKeX raises $15M in new investment


ARKeX, a provider of non-seismic geophysical imaging services, has raised US$15 million in new equity from 4D Global Energy Investments, an investment vehicle managed by 4D Global Energy Advisors, a Paris-based growth capital investor that specialises in the energy sector. The new investment will enable ARKeX to expand its full tensor gravity gradiometry (FTG) multi-client data library and proprietary services. Founding Partner of 4D Global Energy Advisors Jrme Halbout has joined the ARKeX board as a non-executive director alongside the existing investors Energy Ventures, Ferd, and SEP.

GeoMet closes Alabama producing properties sale


On June 14, 2013, GeoMet Inc. closed the previously announced sale 44

www.ogfj.com Oil & Gas Financial Journal July 2013

Energy Players
Marathon execs plan retirement
Two Marathon Oil Corp. executives with decades of company service between them, have elected to retire from the company. Clarence P. Cazalot, Jr., chairman, president Cazalot and CEO of Marathon Oil Corp. has elected to retire on Dec. 31, 2013, after almost 14 years leading Marathon Oil and 41 years in the oil and gas industry. Cazalot will continue as executive chairman through Dec. 31, 2013. Cazalot joined Marathon in March 2000. He became chairman oil Marathon Oil Corp. (NYSE: MRO) following the spin-off of Marathon Petroleum Corp. (NYSE: MPC) in mid-2011. Prior to Marathon, Cazalot served as vice president of Texaco Inc. and president of Texacos worldwide production operations. News of Cazalots retirement comes one week after Thomas K. Sneed, Marathon Oil Corp.s vice president and chief information officer announced his retirement plan set for Sept. 1, 2013 following more than 32 years of service. The Marathon Oil board of directors has elected Lee M. Tillman to the board of directors and to succeed Cazalot as president and CEO effective Aug. 1, 2013. Tillman most recently served as vice president of Engineering for ExxonMobil Development Company where he was responsible for all global engineering staff engaged in major project concept selection, front end design and engineering. He holds a Bachelor of Science degree in chemical engineering with honors from Texas A&M University and a PhD in chemical engineering from Auburn University. The board of directors intends to nominate Dennis H. Reilley, currently Marathon Oil lead director, as non-executive chairman upon Cazalots retirement. Bruce A. McCullough will succeed Sneed as vice president and CIO. Sneed will serve as vice president of IT Services until Sept. 1 to facilitate an orderly transition. McCullough joins Marathon Oil from Anadarko Petroleum Corp. where he most recently served as director, Global Business Systems. McCullough has worked in the information technology field, primarily in the oil and gas sector, since graduating from Baylor University with a bachelors degree in computer science. director of Chevrons IndoAsia Business Unit. Since joining Chevron in 1980, Shellebarger has held a variety of upstream positions in the US, Angola and Indonesia. Luquette has led Chevrons North America Upstream business since 2006. He previously held key exploration and production positions in Louisiana, California, United Kingdom and Indonesia. As the head of the companys North America upstream business, Luquette opened new frontiers by advancing Chevrons presence in the Deepwater Gulf of Mexico and acquiring significant shale gas positions in Pennsylvania and Canada. Luquette will stay with the company until September 1, 2013 to transition his responsibilities.

Encana names Suttles as president, CEO


Encana has appointed Doug Suttles as its president and CEO and a director of the Calgary-based company. Doug Suttles has 30 years of oil and gas leadership experience. Suttles Most recently, Suttles has served as COO, BP Exploration & Production. He is a mechanical engineer and a 2008 recipient of the University of Texas Mechanical Engineering Distinguished Alumni Award. Randall D. Eresman, the companys previous president and CEO, retired from the company in January after nearly 35 years with the company and its predecessor, Alberta Energy Co. Ltd. Clayton Woitas, an Encana director, took over as interim president and CEO while the company conducted its search for Eresmans successor. Woitas, who remains as a director of the company, is the designated future chairman of the board.

SandRidge continues leadership transition


After nearly a year of scrutiny focused on SandRidge Energy Inc. founder and now-former CEO Tom Ward, the Oklahoma City-based oil and natural gas company is transitioning its leadership team. Ward, who founded the company in 2006, had, until June 19, served as chairman and CEO, has departed the company based on the Board of Directors decision that despite Wards many contributions to SandRidge, new leadership is in the best interests of the company and its shareholders at this time. James Bennett, who has served as CFO of SandRidge Energy since January 2011 and was promoted to president in March 2013, will retain his title as president and will replace Ward as CEO of the company. Lead independent director Jeffrey Serota will serve as interim non-executive chairman. Prior to joining SandRidge, Bennett was managing director for White Deer Energy, a private equity fund focused on the oil and gas industry. Bennett graduated with a bachelors degree from Texas Tech University. Additionally, the company has appointed Eddie LeBlanc to the role of 45

Luquette to retire after 35-year career at Chevron


Chevron Corp. has named Jeff Shellebarger president of Chevron North America Exploration and Production Company, effective August 1, 2013. Shellebarger succeeds Gary Luquette, who will retire from Chevron after 35 years of service. Shellebarger is currently managing

July 2013 Oil & Gas Financial Journal www.ogfj.com

Energy Players
executive vice president and CFO. He fills the role of CFO vacated when Bennett was named CEO and president. LeBlanc brings to SandRidge broad financial experience in the exploration and production industry, at both private and publicly held companies, including having served as CFO at East Resources Inc., PostRock Energy Corp., Ascent Energy Co., Range Resources Corp., and Coho Energy Inc. He holds a bachelors degree from the University of Louisiana at Lafayette (formerly the University of Southwestern Louisiana) and is a certified public accountant and a chartered financial analyst. director. Previously de Vreede was at Redevco, where he held the position of CFO. de Vreede earned a bachelors degree from The Hague University of Applied Sciences. He received a masters degree and graduated as a registered accountant from Nyenrode Business University in The Netherlands. He is an alumnus of Harvard Business School after completing several Executive Education programs. compliance matters. Craine has also led numerous independent investigations for publicly traded companies. Before entering private practice, he served as an enforcement attorney with the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Craine was also actively involved in the SECs and FINRAs oil and gas task forces. Craine holds a bachelors degree from Wabash College, and a Juris Doctor from Southern Methodist Universitys Dedman School of Law.

Senergy appoints new VPs


Senergy has appointed two new vice presidents. Ian Williamson and Dave Reed have been named to the respective VP roles in Contracts & CommerReed cial, and Business Efficiency. Williamson will be based in the companys Queens Terrace office in Aberdeen and Reed will operate from Kuala Lumpur. Williamson and Reed have Williamson been part of Senergy since the companys inception in 2005. Both were employees of Xcavo a well engineering and performance management company which merged with subsurface consultancy RML (Reservoir Management Ltd.) to become Senergy.

Express Energy Services names Brunnert COO

Former Anadarko CEO joins Riverstone Holdings

Express Energy Services has named David BrunEnergy and powernert as executive vice focused private investpresident and COO. ment firm Riverstone He will be based in Holdings LLC has Express headquarters added former Anadarko in Houston. Prior to Brunnert Petroleum executive joining Express, BrunJames T. Hackett to the nert, a 20-year industry Hackett firm as a partner and veteran, served in various operational co-head of the Houston management positions with Weathoffice. From 2003 to 2012, Hackett erford International from 1997 was CEO of Anadarko Petroleum, through 2013, including vice presiwhere he served as chairman of the dent of drilling tools and intervention board of directors from 2006 to services, global general manager of 2013. Hackett stepped down from drilling tools, global business unit Anadarko on June 4, 2013 as part of manager of performance drilling tools a long-planned succession process. and other engineering management Earlier in his career, he was chairman roles. While at Weatherford, Brunand CEO of Ocean Energy and, after Chesapeake Energy nert created more than 25 patented that, president and COO of Devon names Craine as CCO technologies that are used in the oil Energy. He holds a bachelors degree Patrick K. Craine, a partner with the and gas industry. His background also from the University of Illinois and an law firm Bracewell & Giuliani LLP, is includes four years with the US Army MBA from Harvard University. joining Chesapeake Energy Corp. as Corps of Engineers where he was a chief compliance officer (CCO). In paratrooper and combat engineer. Subsea service firm this capacity, he will report to Chesa- Brunnert received his bachelors deDeepOcean hires new CFO peake General Counsel Jim Webb and gree from the United States Military Dennis de Vreede will join Deepthe Audit Committee of the compaAcademy at West Point and his MasOcean Group Holding BV as its CFO nys board of directors. At Bracewell ter of Mechanical Engineering from on August 1, 2013. He will succeed & Giuliani, Craine was a partner in the University of Houston. Frank Eggink who will left firm on the firms White Collar Defense, InJune 30, 2013. Dennis de Vreede ternal Investigations and Regulatory Devon makes senior manjoins from industrial real estate firm Enforcement practice, and counseled agement appointments Prologis where he served as senior companies, boards, committees, ofDevon Energy Corp. has appointed vice president, European finance ficers, and directors in regulatory and David A. Hager to the position of 46 www.ogfj.com Oil & Gas Financial Journal July 2013

Energy Players
COO. Hager has served as executive vice president, exploration and production since 2009 after serving on Devons board of directors beginning in 2007. In addition, he served as COO of Kerr-McGee prior to its 2006 merger with Anadarko Petroleum Corp. Hager has over 30 years of oil and gas exploration and production experience. He holds a bachelors degree from Purdue University and an MBA from Southern Methodist University. Tony Vaughn has been promoted to the position of executive vice president, exploration and production. Vaughn previously served as Devons senior vice president, exploration and strategic services. Prior to joining Devon in 1999, Vaughn spent 12 years with Kerr-McGee. He holds a bachelors degree from the University of Tulsa and a bachelors degree from Oral Roberts University. ing Group. They have joined to lead the expansion of the banks lending capabilities to the energy services and equipment sector, as well as support the companys growth strategy in Canada. Englot, Borsos and DaSilva are reporting to Bret West, head of Energy Services and Equipment. Englot has nearly 30 years of Canadian banking experience in the energy industry. Prior to joining Wells Fargo, he led a commercial banking team, focused on oilfield services. Borsos joins with nearly 16 years of banking experience, having recently managed a commercial banking group focused on middle market energy customers. DaSilva joins with nearly 12 years of banking experience, eight of which has been devoted to the energy services sector in Canada. corporate development and business analysis functions during his tenure.

Lloyds Register board appointments support energy business


Lloyds Register has appointed Chris Finlayson, chief executive of BG Group plc, and Ellis Armstrong, ex-CFO of E&P at BP plc, as non-executive directors on the board Finlayson of Lloyds Register Group Ltd. Before joining BG Group, Finlayson gained over 33 years technical and commercial experience in the oil and gas indusArmstrong try with Royal Dutch Shell plc where he was a member of the exploration and production leadership team, serving in Russia, Nigeria, Brunei and the North Sea. Armstrong joined BP in 1983, and has had an extensive career in offshore operational roles, commercial and planning roles, and leadership functions, ending his career with BP as CFO of exploration and production. He holds a BSc and PhD from Imperial College, and an MBA from Stanford Business School.

Doyle appointed chairman at Equal Energy


Equal Energy Ltd. has appointed Michael Doyle as chairman. Dan Botterill, the companys previous chairman did not stand for re-election. Two other directors, Roger Giovanetto and Peter Carpenter, also did not stand for re-election. Doyle also serves on the companys Compensation Committee and is chair of the Governance and Nominating Committee.

Archer joins TPH specializing in midstream


Tudor, Pickering, Holt & Co. (TPH) has hired Scott W. Archer as managing director in investment banking. Archer will specialize in midstream and MLPs at Archer the energy investment banking firm. He will be based in Houston. Archer joins TPH after 13 years with Bank of America Merrill Lynchs Global Energy & Power Group, where he focused primarily on Midstream and MLP energy companies. Archer received an MBA with honors from The University of Texas and received a BBA degree with dual majors in Honors Business and Finance also from The University of Texas.

Buckeye Partners makes organizational changes


Buckeye Partners LP has appointed Khalid A. Muslih as president of Buckeyes International Pipelines and Terminals business unit. Muslih has been an integral member of the Buckeye executive team since 2007, having served most recently as Buckeyes senior vice president, corporate development and strategic planning. Muslih succeeds Mary F. Morgan, who retired from Buckeye at the end of June. In addition, Chris S. Pine has been promoted to vice president, corporate development and strategic planning. Pine joined Buckeye in 2009 and has served in various

Greenes Energy Group names Yuille CFO of Testing and Services


Greenes Energy Group (GEG), a provider of integrated testing, rentals and specialty services, has promoted Mark Yuille to CFO of the Testing and Services business unit Yuille based in Houston. Prior to his new role, Yuille was CFO for GEG and earlier, served in various roles with GE. Yuille has a Bachelor of Science in Business Administration with a specialization in Finance and Economics. 47

Wells Fargo adds to Calgary energy practice


Perry Englot, Peter Borsos, and Dennis DaSilva have been added to the Calgary-based Energy practice in Wells Fargos Corporate Bank-

July 2013 Oil & Gas Financial Journal www.ogfj.com

OIL AND NATURAL GAS IN EVERYDAY LIFE

In addition to being essential for transportation and heating, oil and natural gas are important ingredients in many of the products, we use in everyday life. Clothes, PCs, mobile phones, glasses and bottles are no exceptions. DONG Energy has more than 30 years of experience in exploration and production

of oil and natural gas in the North Sea. We are experts in terms of getting the most out of our oil and natural gas felds in a safe and environmentally responsible way. We have a fast growing E&P business, and we plan to double our production by 2020, thus strengthening our regional position.

DONG Energy is one of the leading energy groups in Northern Europe. Our business is based on procuring, producing, distributing and trading in energy and related products in Northern Europe. DONG Energy has nearly 7,000 employees and is headquartered in Denmark. The Group generated DKK 67 billion (EUR 9.0 billion) in revenue in 2012. For further information, see www.dongenergy.com

MOVING ENERGY FORWARD

www.dongenergy.com

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"

hose who lead a quiet life, lead a good life. That has been the historically resounding proverb for the Danes when it comes to business and its oil and gas industry is no exception. Upon arriving in Copenhagen, one senses that everyone abides by the same rules: you do not shout about what you do, you do not boast to your neighbors, and you should never ever assume you are better than the next person. Even commuting to work is a humble affair: from politicians to CEOs to delivery boys, 50% of Copenhageners commute by bicycle, each one hidden amongst the rush of other cyclists on the towns busy streets.

Danish
Twist
This sponsored supplement was produced by Focus Reports. Publisher: Ines Nandin; Project Coordinator: Kirsty Avril Jane Walker; Editorial Coordinator: Herbert Mosmuller; For exclusive interviews and more info, plus log onto energy.focusreports.net or write to contact@focusreports.net

The

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49

This modest approach could also be used to describe the countrys attitude towards its energy industry. Few people know that Denmark is the only country in the European Union that supplies all of its own energy. For the last few years, Denmarks energy production has been about 20% higher than its energy consumption. Denmark is still one of Europes biggest oil and gas producers. Figures from 2012 show that a proven 870 million barrels of oil equivalent (BOE) lurk under the extremely tight chalk of the Danish Continental Shelf (DCS). This means a supply of black energy for roughly the next 10 years at current rates of consumption. While Denmarks reserves may not be the largest, the country nonetheless is producing 0.3% of the worlds oil. Thats good news for government, too, as just last year the industry generated $5.2 billion in tax revenues. So a change in the traditionally reserved attitude appears to be creeping in: it seems both the public and the private sector are taking notice of their neighbors backyards and wondering just what lies in their own. The Danish Energy Agency (DEA) forecasts that oil production will drop 30% by 2014, but this has not overshadowed the countrys remaining potential. Denmark has made some substantial technological contributions to the global oil and gas industry, such as the horizontal drilling techniques developed by the Danish Underground Consortium (DUC). The challenge lies now in that even more innovation will be needed to increase extraction rates from the countrys mature chalk felds. Each percentage increase in the extraction rate means more than $8 billion gross value at todays rates. Innovation requires talent and investment. But investment requires Denmark to communicate its stability and potential more forcefully. Over the frst months of 2013, the government announced a change in tax regime on oil and gas revenues for companies producing in the Danish North Sea, proposing a level playing feld for them. We believe it will provide us with a more modern and neutral tax system in the North Sea than we have right now, said Bjarne Corydon, Denmarks Minster of Finance. As such, the DEA together with Martin Lidegaard, the Minister of Climate, Energy and Building will organize the 7th licensing round for felds in the DCS, attracting more attention and brining more investment to the Danish North Sea stronghold. The ambition is to organize the round before the end of 2013. On May 1, 2012 the industrys new voice, Oil Gas Denmark (OGD), opened its doors to make the country more visible on the world energy map. CopenhaMartin Nsby, Managing Director, Oil Gas Denmark Martin Lidegaard, Minister of Climate, Energy and Building Bjarne Corydon, Minister of Finance

gen is now a candidate to host the next World Petroleum Congress, which would bring the country an extra boost and more recognition. Martin Nsby, managing director for OGD, said, A key focus of the association is on the continued development of the service companies that supply the oil industry. Internationalization is also part of this: Danish service companies that have matured in the Danish sector of the North Sea are now applying for projects in Brazil or Norway. Indeed, many companies that have contributed to Denmarks status on the international scene learned from the highly challenging conditions in the Danish North Sea and took that expertise abroad. Yet despite these advancements in the oil and gas sector, there is a twist in the countrys energy focus. In addition to its expertise in black energy, Denmark has set perhaps the most ambitious targets for green energy the world has seen so far. The government has established the goal of being 100% powered by renewable energy as of 2050. Lidegaard reiterates, We want to be self-suffcient and prove that it is possible for a modern welfare state to become independent of fossil fuels in 30-40 years time. This growing political focus on renewable energy prioritizes offshore wind and that is drawing resources and top talent away from the oil and gas industry. Lidegaard offers assurances that this way of dealing with Denmarks energy future is not intended as an aggressive opposition to the oil industry; rather they go

Fig. 1: Energy consumption in Denmark (1990-2022)


Share of total energy consumption in Denmark (%)
100 90 80 70 60 50 40 30 20 10 0
% Change 1990 - 2010 % Change 2010 - 2022

hand-in-hand. The Danish parliament is completely green when it comes to the Danish demand, but we are also in complete agreement that we should be a part of the fossil fuel supply system, as long as international demand

43.3%

38.7%

40.4%

Oil

-4.6%

1.7%

Percent

10.0%

20.6%

16.9% 14.7%

Gas Coal Renewables

10.6% -21.8% 15.8%

-3.7% -3.4% 5.5%

remains, said Lidegaard. Despite this assurance, the spotlight is certainly cast on green, with black in the supporting role. That raises questions: Is the oil and gas industry merely an instrument to pay for Denmarks green transition? Or can the two offshore industries work together to create the right energy mix for Denmark?

39.9%

18.1%

6.8%

22.5%

28.0%

90 92 94 96 98 0 2 4 6 8 10 12 14 16 18 20 22

Source: The Danish Energy Agency: Danmarks olie-og gasproducktion 2010

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July 2013 Oil & Gas Financial Journal www.ogfj.com

DO MORE
WITH LESS
PROVIDES TANGIBLE RESULTS
Welltec enables operators to perform heavy duty well interventions with much less equipment and manpower, leading to tangible results such as increased production and inherently safer interventions.

Number of interventions (bars)


200

Personal injury rate Drilling and Workover Recovery rate % for large fields (>50 mil Scm oil) RLWI (Subsea) Tractor (E-line) Coil Snubbing

Injury frequency* (dark line) Recovery rate % (green line) 55 55


50 45

150

40 35 30

100

25 20

50

15 10 5 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

*Injury frequency is calculated as number of injuries per 1000000 work hours. Sources: Norwegian Petroleum Safety Authority: Statoil, Norwegian Ministry of Petroleum and Energy

WWW.WELLTEC.COM EL

After all one must not forget, as Nsby states, that the Danish oil and gas industry represents 15,000 work places; $8.4 billion; 9% of Danish exports, and a great deal of innovation.

Shell, Chevron, and since July 2012, NSF. Another example is Welltec. Welltec has looked at great new ways to decrease the costs of wells, said Steen. If we wish to produce more than the

E&P on the DCS: a never-ending story?


Never before has the Danish oil and gas industry seen its three operators so active at the same time: with Maersk Oil and its partners Shell and Chevron responsible for 85% of production, DONG E&P 10% and Hess 5%. All three have new building projects going on, as well as extensive modifcations of existing installations due to changing environmental and reservoir conditions, ageing of the installations and technical development. Denmarks current oil and gas production comes exclusively from mature chalk felds, an area the country has developed great expertise in. The techniques used globally in the production from tight reservoirs have for an important part been developed in Denmark, said Peter Helmer Steen, CEO of national oil company North Sea Fund (NSF) which has been the state participant since 2005 and holds a 20% stake in all licenses as a commercial partner. Indeed, many of the techniques Steen refers to have been developed or improved by the DUC, which traditionally has dominated exploration and production on the Danish continental shelf. DUC is comprised of Maersk Oil (operator) along with

current percentage, we need to keep costs low in all aspects of drilling, and the completion techniques that Welltec is working with could be a possible cost reduction in the completion of these wells. Interestingly, Welltec, which has developed from a start-up to generating $300 million annual revenue in under 20 years, did not develop from a focus on Denmark, but on northern neighbor Norway. We decided from day one to be an international company, Welltec founder and CEO Jorgen Hallundbk told Focus Reports. Even on our website, you have to look carefully before you will fnd anything Danish and that is fully intentional; why consider to be tied to one market when you have the entire world to play with? Today, the rest of the world should look up and take notice of what is happening in Norway when it comes to enhanced oil recovery, Hallundbk explained. Norway has been focusing on enhancing recovery rates for more than 20 years and still today is the global benchmark for enhanced oil recovery, said Hallundbk, adding that, The rest of
Peter Helmer Steen, CEO, North Sea Fund

Fig. 2: Majority of the Danish oil and gas reserves have been produced increasing recovery requires substantial technological leap
Oil reserves in 2011
MMboe (percent of total)

899 (21%) 2,271 (52%)

264 (6%)

629 (15%)

283 (6%)

4,346 (100%)

~11 years remaining reserves with 2011 production level


Exploration resources Total
Possible resources Proved resources

Produced Commercial Contingent Techn. reserves resources resources

Gas reserves in 2011

Adding value to the Danish North Sea

MMboe (percent of total)

343 (19%) 964 (53%)

205 (11%)

99 (5%)

198 (11%)

1,808 (100%)

~9 years remaining reserves with 2011 production level


Exploration resources Total

Produced Commercial Contingent Techn. reserves resources resources

Production value of the remaining proved oil resources and possible oil resources are estimated to be worth DKK 700B = USD123B and DKK 550B = 97B respectively* Reserves as per 1.1.2011. Gas reserves and gas production is sales gas *Based on 2010 average exchange rate and oil price (USD/DKK exchange rate of 5.5 and Brent oil price of USD 110 Source: The Danish Energy Agency

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Fig. 3: Oil and gas governments top revenue source


Corporate tax contributing industries in 2010
DKK billions

23.7

16.4

8.2

The Danish Energy Agency estimates the total direct corporate tax contribution* from the oil and gas sector to be DKK 23.7 billion
5.2 3.8 2.5
Wholesale and retail trade Transportation

DKK 8.2 23.7 16.4 7.4 5.2 3.8 2.5 2.0 1.4 1.2

USD 1.4 4.2 2.9 1.3 0.9 0.7 0.4 0.3 0.2 0.2

Additional tax* not included in DST data

7.4

2.0
Manufacture of furniture and other manufacturing 4.1%

1.4
Knowledgebased services

1.2
Telecommunications

Financial and insurance 17.0%

Extraction of oil and gas

Pharmaceuticals

15.3%

10.8%

7.9%

5.3%

2.9%

2.5%

Share of total (percent) In 2010, for every 1 million barrels of oil equivalent produced, government revenues of DKK ~170 million were generated *In addition to ordinary corporate taxes, government revenues from the oil and gas sector includes carbon tax and proft-sharing Source: Statistics Denmark; the Danish Energy Agency

the world and the other North Sea countries are not there yet. According to Hallundbk, Denmark is still at an average point in terms of recovery factors, and the UK is nowhere near the levels of Norway. Denmark could take Hallundbks comments as
Jrgen Hallundbk, CEO, Welltec

The Hejre-feld that Hansen refers to is one of the most signifcant developments that the DCS has seen in a long time. DONG estimates probable reserves at 44,000 boe/day, most of it oil. More signifcantly,

clear advice. Nonetheless, the Danish industry takes pride in the signifcant rise of its extraction rates over the past decades. The current recovery rate is

around 26-27%, which is low in comparison with other producers such as Norway, said Martin Nsby, OGD managing director. We should consider, however, that it went up from 5-6% on the outset, and seen in that light it actually is a great achievement. Indeed the phrase vacuum-cleaning the Danish Continental Shelf recurred several times throughout our interviews with Denmarks operators. At the outset, DONG focused on small feld development, or vacuum cleaning as we like to call our activities
Sren Gath Hansen, Vice President, DONG E&P
Most importantly Port of Esbjerg has considerable experiences in working with the demands from the ofshore industry and simultaneously Esbjerg already has great wind-mill experience.
CEO John Westwood, Douglas-Westwood

on the DCS, said Soren Gath Hansen, vice president DONG E&P. Our Siri-feld is a success story as we have actually been able to keep the area alive by vacuum cleaning.

That is one kind of strategy and it takes a particular kind of company, but Hansen realized that he would not be able to develop the company and the portfolio on the long term only focusing on late-life felds and vacuum cleaning. Although one of our largest developments, the Hejre-feld, is in Denmark, almost 70% of our production actually comes from Norway today, while we are also investing heavily west of Shetland. DONG is the biggest holder of acreage in that area, Hansen said.

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Hejre is the frst feld coming into production that is not situated in the low-temperature and low-pressure chalk felds in the southern part of the Danish North Sea. The water-depth at 60/65 meters is slightly deeper than existing producing felds, but some of the reservoirs are also more challenging than the traditional mature chalk felds. The Hejre-feld is the frst High Pressure, High Temperature (HPHT) feld put in production in Denmark, and a good example of the not-so-low hanging fruit on the DCS, said Flemming Horn Nielsen, country manager Denmark, DONG E&P. The question, however, is how much of this not-so-low hanging fruit will be harvested. While a recent fnd by Wintershall of potentially 100 million barrels of recoverable oil in the Hibonite exploration well inspired hope, the number of appraisal drillings in the past three years averages close to zero for Denmark. Furthermore, oil production is declining rapidly and a mid-size player in the Danish context, Bayerngas, recently announced it might pull out of Denmark, citing far-reaching changes in the tax regime and consequent devaluation of its assets. Denmark no longer appears attractive, Bayerngas country director Denmark, Trond Bjerkan, said. We have stopped all preparations for bidding in the next licensing round because it no longer makes sense.
Flemming Horn Nielsen, Vice President and Country Manager, DONG E&P Denmark

Bayerngas responded to government efforts to harmonize the different tax arrangements under which oil companies currently operate on the DCS. The amendments follow a 12-month investigation into the possibility to change a deal, the North Sea Agreement, which the former government made with the DUC in 2003. When the current government realized that it could not change taxes for the DUC without setting off costly compensation clauses in the contract, it instead took the tax rules that the DUC operates under and applied them to the rest of the oil companies operating in the Danish North Sea. Whether this is the right strategy to optimize exploration and production is hotly debated by key stakeholders of Denmarks energy industry. It is extremely important for the Danish government to realize that the country is a net exporter of oil and gas and that the oil and gas industry generates around $30 billion in tax revenues, but also that the extraction rate stands at a mere 27% for the current felds while the world is screaming for more energy, said Steen Brdbk, CEO of Semco Maritime, a project engineering company and one of Denmarks fastest growing energy companies of the past decade. We cannot produce enough energy to substitute the growth rate for countries outside of the Organization for Economic Co-operation and Development (OECD), Brdbk added. Therefore, Denmark has to continue exploring as the UK and Norway are doing. We need the government to support that strategy. If they do not, the outcome is easy to predict. This is an inter-

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national business and international oil companies are putting their money where they can get most back. In a response to industry criticism, Finance Minister Bjarne Corydon told Focus Reports that, The rules that apply to new concessions for the DUC partners under the North Sea Agreement should also apply to the concessions handed out before 2004. We are creating a level playing feld, more neutral taxation, and we are enhancing revenues for a nation that has to invest in growth. Corydon can put forward that Maersk Oil announced its plan to invest $800 million in the development of Tyra South East, the largest investment by the DUC partners since the approval of Halfdan Phase 4 in 2007, only weeks after the proposal came out, a decision taken on the basis of the new tax rules. However, critics would say that this again is not an example of the type of forward-looking activity that the DCS needs in order to avoid becoming a sunset production area. Asked about the signifcance of the DCS for Maersk Oil, VP of Exploration Lars Nydahl Jrgensen, Vice President, Head of Exploration, Maersk Oil said: It is clear that the Danish Continental Shelf is a mature area where exploration has been going on for many years. I would like to point out Johan Sverdrup in Norway. Forty years and four generations of exploration had been going on with companies coming in and trying their best, and still Johan Sverdrup was not found. now.
Steen Brdbk, President and CEO, Semco Maritime Lars Nydahl Jrgensen, Vice President, Head of Exploration, Maersk Oil

Before the end of this year the DEA hopes to organize the 7th licensing round. My expectations are high. A lot of good, new data has been developed in the last years, said Peter Helmer Steen of NSF. Denmark has been known for many years as a chalk reservoir. Therefore much of the seismic investigation has been targeted to chalk. The other layers have not been targeted that much, which perhaps has led some opportunities to stay below the radar until

Data collected since the 6th licensing round in 2006 indicates that there is a lot of oil left in the Danish subsoil, Steen said. It is not easy oil, but very interesting nonetheless.

Esbjerg: the Missing Link?


The board of the World Energy Cities Partnership (WECP), a non-proft organization comprised of the mayors of the different member cities, will soon welcome Johnny Strup as its 20th member. Strup is the mayor of Esbjerg, a city of 70,000 on the Danish west coast, 709 km south of fellow member city, Stavanger. It might come as a surprise to some to see the name of Esbjerg among the likes of Aberdeen, Houston, Stavanger, Port Harcourt, Perth, Luanda, and Villahermosa. But to Strup it is logical. We bring a new dimension

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Esbjerg's Fishing Harbour in the 1950s. Courtesy of the Fisheries and Maritime Museum, Esbjerg

founder of Q-Star Energy, a provider of multi-skilled manpower to the oil and gas and renewables industry. This made it very hard to attract new people to the oil and gas industry; they simply did not believe there was a future and would prefer to work in wind energy. Hansen knows the challenge all too well, with around 300 of his people active on North Sea platforms. Although it remains a serious challenge, the shortage of human resources for Esbjergs oil and gas industry seems to be changing, and in the right direction. I am confdent that, in a couple of years, young people will start looking at the oil and gas business again and realize that it is a viable and even attractive alternative, Hansen said. Also, in Esbjerg we clearly show that it is possible to swap between the oil and gas and the renewables industry and that it is possible to

to the table among these 19 members, Strup said. We are undoubtedly the member with the biggest offshore wind industry. On top of that, we are a frontrunner in uniting that offshore wind industry with our offshore oil and gas industry. For Esbjerg, joining this organization is an acknowledgment of its contributions to the global energy industry. But the title of Member City brings more. The WECP is not just a way to share experiences, but to actually capitalize on members expertise and set up partnerships between organizations and companies. Esbjergs success can be seen as proof that the green profle of Denmarks energy policy actually has positive effects on the countrys oil and gas industry. The city of Esbjerg is the best illustration that we do not see our green energy industry as a substitute for an economically effcient and progressive way of using our oil resources: its offshore industry mixes both green and black, and many local companies have a foot in both, Minister of Finance Bjarne Corydon said. It is the same companies and decision makers, successfully harnessing both sectors. Indeed, many of Esbjergs key oil and gas players have been quick to grasp opportunities resulting from the national governments push for a greener energy mix. Their expertise was happily welcomed by a wind industry that desperately needed to build up offshore expertise. The frst offshore wind park was constructed by a company that had experience building these parks onshore, said Steen Brdbk, CEO of Semco Maritime. They ran into serious trouble dealing with the harsh environment and weather conditions. Now they are using competences from the oil and gas industry and leaning heavily on the oil and gas industrys supply chain. Still, the marriage between te city's oil and gas and wind industry is not perfect. Just two years back, most Danes thought that the oil and gas industry would close down within a couple of years and that the industry would be fully replaced by renewables, mainly offshore wind, said Henrik Hansen, CEO and
Henrik Hansen, CEO, Q-Star Energy Esberg -1,020 (60%) Johnny Strup, Mayor of Esbjerg Anders Eldrup, Chairman, Offshore Center Denmark.

apply expertise and experience from the oil and gas industry in the renewables industry. People familiar with the citys business community maintain that it is more than a good geographic location that has led to Esbjergs success. Many cities in Denmark have seen industries crucial to their economy leave, and they have to do something different now, said Anders Eldrup, the chairman of Offshore Center Denmark and former CEO of DONG Energy. Many are waiting for something to happen; in Esbjerg they do not wait, they just start

Fig. 4: Most People in the sector work in Esbjerg


Main oil and gas employee distribution areas in Denmark (avg. 2008 - 2010) %

DENMARK

Copenhagen -680 (40%)

Source: Statistics Denmark Registerbaseret arbejdsstyrkestatik

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ANOTHER 900,000 HOUSEHOLDS THIS SUMMER

DONG Energy has built more offshore wind farms than any other company in the world. We possess unique knowledge and skills, which we use in every step of an offshore wind project, from early development, during construction and through to operation and maintenance. Driven by the powerful wind at sea, no CO2 emissions and an ambitious target to reduce the cost of energy, we believe that offshore wind energy will be an important part of the future energy system. T Towards 2020, we aim to quadruple our installed offshore wind

capacity and lead the industry in driving down cost, to make offshore wind competitive with traditional energy sources. This summer, DONG Energy and our partners put the London Array and the Anholt offshore wind farms on stream. With a capacity of 630 MW, London Array is by far the worlds largest offshore wind farm. Anholt Offshore Wind Farm of 400 MW is the largest offshore wind farm in Denmark. T Together, these two offshore wind farms can produce electricity equivalent to the annual consumption of 900,000 households.

DONG Energy is one of the leading energy groups in Northern Europe. Our business is based on procuring, producing, distributing and trading in energy and related products in Northern Europe. DONG Energy has nearly 7,000 employees and is headquartered in Denmark. The Group generated DKK 67 billion (EUR 9.0 billion) in revenue in 2012. For further information, see www.dongenergy.com

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something new. It would be great if we could make the spirit of Esbjerg spread to the rest of the country. Blue Water Shipping, a provider of freight solutions, seems to be an exponent of this praised Esbjerg mentality, transporting oil rigs to every corner of the planet. Thomas Bek, global manager of the companys oil and gas division said: Since the early years of the Danish oil and gas industry, Blue Water has supplied drilling equipment to the industry, with shipments ranging from small courier parcels containing o-rings to project transport of complete oil rigs to the Middle East, the North Sea, Irish Sea and West of Shetland, Atlantic Frontier, the Faroe Islands and Greenland, and the Far East. Also, we have a particularly strong position in Central Asia. Asked how on earth an Esbjerg-based company developed a particular expertise in dealing with freight in one of the former Soviet Unions most remote areas, Bek explained: One of the biggest customers we have in the industry is Keppel, the worlds largest rig manufacturer, and it was through this relationship that we went into the Caspian. We move around with our customers. That also means that, when we are entering a new market, it is not necessarily part of a long term strategic decision that took years to develop; it can also be an opportunity that shows up.
Thomas Bek, Global Manager Oil & Gas Division, Blue Water Shipping Sren Fle Knudsen, CEO, Danbor

Still, parts of the virtues ascribed to Esbjerg are born out of necessity. The willingness to do something else is crucial, said Sren Fle Knudsen, CEO of Danbor, Esbjergs largest offshore base with operations in Australia, Brazil, Venezuela, Italy, Norway, and the UK, when asked what enables Esbjergs business community to box above its weight internationally. Denmark is a small country but has to be global. We cannot just sit here in Esbjerg and wait for things to happen, he said. This does not just go for the biggest companies like Ramboll and Maersk Oil, but also for the smaller and mid-sized companies, Knudsen continued. Around the North Sea, in Brazil, the Middle East, Asia; many companies have shown that they are capable of capitalizing on opportunities in the oil and gas industry around the world. Esbjerg is also home to Dancopter, Europes fastest growing helicopter company between 2009 and 2012. Just ten years ago, Dancopter performed its frst fight in Esbjerg. Today, the offshore operation has expanded to 16 helicopters on two continents with the worlds most respected oil and gas companies. Dancopter has indeed been through a fantastic growth period, said Jens Jensen, managing director.
Jens Anders Jensen, CEO, Dancopter

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Our most important tasks are emergency and oilspill preparedness in and around the oil elds as well as services for the ofshore wind farms where our specialized vessels and crew are an important part of safety. Our eet comprises of 36 units anchor handling/tug/supply/tanker assist/oil recovery/survey/ERRV vessels.

In 2011, we won the biggest contract in the Danish North Sea, servicing Maersk Oil and the 15 felds of the DUC. A year earlier, in 2010, we had established ourselves in Nigeria through a fve-year contract with Shell. We also started to work with Shell from Den Helder in the Netherlands and Norwich in the UK.

lated deep know-how all along the value chain, satisfying demand is not a problem we have the portfolio and all the skills to bring this to life. But Leupold also notes: Suppliers need to understand that if offshore wind wants to maintain a long-term perspective, we need to make sure that it remains within the cost frame acceptable for society in the long term. We must be able to compete with other alternatives for power

Offshore Wind: Causing a Stir


In 1991 Denmark erected its frst offshore wind park, and now the countrys 2012 Energy Agreement prescribes that Denmarks energy supply must consist of 100% renewables by 2050. Further to this, DONG recently announced that, by 2020, the cost of offshore wind needs to fall to 100 euro per megawatt hour for parks constructed from 2020. Samuel Leupold, DONG Energy Wind Powers new vice president puts it simply, If it does not happen, we jeopardize our industrial future. DONG Energy Wind Power, the worlds market leader in offshore wind, and responsible for building 38% of European capacity, is fully aware of this responsibility and the challenge of bringing the cost of offshore wind down in order to make it a competitive source of energy. This would enable the wind industry to sit side by side with Denmarks oil and gas industry in keeping the country energy self-suffcient in the years to come. Leupold is not concerned about delivery, given that we have accumu-

generation, and that is why I say that our suppliers must understand that it is in their best interest that they help us be creative, come up with new concepts, industrialize those concepts, develop the value and supply chain to such a degree that the cost really come down to the level we have indicated. His comments are echoed by Thomas Gellert, COO of CT Offshore, an offshore cable laying company, part of the installation vessel company A2SEA, partly owned by DONG Energy. Gellert feels that where this industry might be in the verge of taking a wrong turn is in terms of the lack of cooperation between parties especially at early project stages. Otherwise, it might be very diffcult to bring down cost to a sustainable level for the industry. He adds, We can do something as a single entity We can always strive to complete projects more effciently, perform early commissioning by using the experience we
Thomas Gellert, COO, CT Offshore

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have. But to really lower the cost of energy is a joint task it is a matter of joining forces and managing the interfaces. Michael Hannibal, CEO Offshore E W EMEA OF, Siemens Wind Power remarks on his optimism about bringing down the cost of offshore wind. Since 1991, we have been able to reduce costs by 40% per decade. These cost reductions have for a very large part been caused by turbine design and turbine innovation. The turbines have grown; they have become more effcient with larger rotors, larger generators and other features resulting in increased production. Hannibal has his work cut out for him, saying that the answer to the future solution will require companies like Siemens to continue to innovate on the turbines. He concludes that it is not the oil and gas industry they need to look to as a cost example, but the commodities sector to learn how to industrialize and mass produce offshore wind. So, if offshore wind does not look to the oil and gas industry for cost reduction capabilities, what can green learn from black? Hannibal suggests that harmonized legislation across Europe, as the oil and gas industry has managed to secure, could help. A2SEA CEO Jens Frederik Hansen notes that, Ultimately, harmonization would drive costs down,
Jens Frederik Hansen, CEO, A2SEA Michael Hannibal, CEO Offshore E W EMEA OF, Siemens Wind Power Samuel Leupold, Executive Vice President Wind Power, DONG Energy

and increase visibility on every countrys specifc procedures. Leupold, on the other hand, believes that as the wind industry has grown so fast, there are many challenges faced from a managerial, procedural and best-practice point of view. There is still almost a start-up environment in the industry that would beneft greatly by being more stable and industrial like Denmarks oil and gas industry. There is one threat that faces the oil and gas industry from offshore wind in Denmark: the brain drain, or migration of talent from the black energy industry to the green one. A2SEA has installed more than 50% of the worlds total offshore wind turbine capacity, and although Hansen admitted that fnding highly skilled engineers and professional project managers is always a challenge, he also pointed out that, Denmark is well recognized for clean energy and wind power and for that reason we receive a large community of international engineers wanting to be part of our unique ability to promote and develop green energy. Moreover, the growth we have achieved over the last years

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has given our company a worldwide reputation, and this factor has really improved our capacity to meet and retain the best talent available on the market. Also, we have been working closely with universities, by promoting discussion and debates on wind energy. Surely this does not sound like the quiet life we expect Danes to lead. Some companies have made the jump into offshore wind from the oil and gas industry where they so comfortably sat, having seen the opportunities and having the ability to leverage their capabilities. One example is Esvagt, a company that operates a fast-growing feet of Emergency Response and Rescue Vessels (ERRVs) and Anchor Handling Tug Supply (AHTS) vessels in the North Sea from its base in Esbjerg. The companys business was frmly anchored in the oil and gas industry from the start, but talking offshore in Denmark is not just about offshore oil and gas anymore. It is also offshore wind. Wind energy is decisively moving offshore and there is a requirement for maintenance, Esvagts managing director Sren Nrgaard Thomsen said. As the wind turbines are placed further from shore, travelling from shore to the turbines for maintenance takes too much time. We can provide vessels that can act
Sren Nrgaard Thomsen, Managing Director, Esvagt Morten Mnster, Partner, Deloitte

as service ships, where we have technicians on board with a workshop and a warehouse for spare parts. If companies like Esvagt can successfully leverage capabilities to their advantage both ways in offshore, then perhaps this is where green and black can see eye to eye. The key for Denmarks offshore energy success may lie in making a black and green industry prosper under a stable government framework. Denmark has, over the decades, been progressive in developing its energy industry. The Danes were pioneers in exploration and production of oil and gas in the North Sea. They were the frst country to develop a district heating system, and now they are driving the development of offshore wind energy. When asked about the offshore industry from an external perspective, Morten Mnster, partner with Deloitte, summed it up: I would say that it is black and green. The best way of advancing the development of renewables is to work with the oil industry and integrate the two from a competence perspective. Denmark is a small country, and its unique trait is that we are good at working together. We can apply that in black and green, too. It is not either or, or even transitioning from black to green; it is about offshore together, and combining our different initiatives.

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Company/Advertiser Index
PAGE 43 12,31,46 48,57 5,13 34 46 11 32 27,31,45,64 44 16 IFC 13 12 22,31 COMPANY PAGE COMPANY Reservoir Management Ltd. Riverstone Holdings LLC Royal Dutch Shell plc Rystad Energy Sadara Chemical Co. Samson Offshore LLC SandRidge Energy Inc. Saudi Arabian Oil Co. Schlumberger Scotia Waterous SEC Semco Maritime Senergy SEP Shearman & Sterling LLP Shell Sheridan Production Co. LLC Society of Petroleum Engineers Sonangol SSI Thirty-One Ltd. Statoil Stone Mountain Resources Surge Energy Talisman Texaco Inc. The Louisiana Land & Exploration Co THL Credit Total Transform Software & Services Inc. Tudor, Pickering, Holt & Co. UK Export Finance US Ex-Im Bank Vaquero Capital Wapiti Energy Warburg Pincus Warren Resources Inc. Weatherford International Wells Fargo Welltec Western Gas Partners LP WGP Holdings Inc. White & Case LLP White Deer Energy Whiting Oil and Gas Corp. Whiting Petroleum WildHorse Resources Williams Partners LP Wunderlich Securities Xcavo XTO Energy Zakum Development Company PAGE 46 32,42,46 31,47 20 13 11 34,45 13 43 42 12,28,46 54,55 46 44 13 23 34 6 13 42 10,18,42 31 33 31 45 30 43 11,13 44 5,47 13 13 44 33 43 44 46 33,47 51 12 12 13 45 42 22 34 12 42 46 18 23 Kerr-McGee 47 K-Exim 13 Kinder Morgan 32,43 Kirkpatrick Oil & Gas LLC 35 Kodiak 33 Korea National Oil Corp. 32 K-sure 13 Lantana Oil & Gas Partners 44 Liberty Resources 33 Lime Rock Partners 5 LLOG Exploration Co. LLC 34 Lloyds Register 47 Louisiana Department of Natural Resources 29 Marathon Oil Corp. 11,42,45 Marcus Evans 27 Masdar Institute of Technology 25 Maverick Brothers Energy LLC McMoRan Exploration Milbank, Tweed, Hadley & McCloy LLP Morgan Stanley Mubadala Petroleum Municipality of Esbjerg Energy Metropolis Natixis Natural Resource Partners LP 34 33 13,43 14 23 53 43 42

COMPANY 4D Global Energy Advisors A2SEA Abdulaziz H. Al Fahad Abraxas Petroleum Corp. Abu Dhabi National Oil Company Abu Dhabis Marine Operation Company Access Industries Alberta Energy Co. Ltd. Alon Gas Exploration Anadarko Petroleum Corp. Apache Apollo ARKeX Ascent Energy Co. Atlas Resource Partners Avner Oil and Gas Baker Donelson Bank of America Merrill Lynch BDO Canada LLP Blue Water Shipping BoyarMiller BP Bracewell & Giuliani LLP BreitBurn Energy Partners LP BTG Pactual Buckeye Partners LP Cabinda Gulf Oil Co. Cabot Oil & Gas Corp. Carlyle Carrizo Cenovus Energy Inc. Century Midstream LLC Chesapeake Energy Corp. Chevron Corp. Chief Oil & Gas LLC CIT Group Inc. Citadel Citation Oil & Gas Corp. Citrus Energy Corp. CNOOC COFACE Coho Energy Inc. ConocoPhillips Constitution Pipeline Co. LLC Continental Resources Crdit Agricole Crosstex Energy LP Danbor DanCopter DeepOcean Group Holdings BV Dejour Energy Inc. Delek Drilling Delonex Energy Ltd.

PAGE 44 59 13 42 23 23 32 45 43 12,45 31 32 44 46 33 11,43 29 47 44 60 5 13,45,47 46 42 33 47 13 12 33 10 33,64 13 10,46 13,31,45 34 43 14 34 34 10 13 46 64 12 22 14 12 61 60 46 44 11,43 43

COMPANY Deutsche Bank Devon Energy DONG Energy Dow Chemical Co. Dynamic Offshore Resources East Resources Inc. Ecopetrol America Inc. El Paso Corp. Encana Energy Ventures Enerplus Enertia Software ENI Enterprise Products Partners LP EOG Resources

DrillingInfo Energy Services Group 19,44

EP Energy 32,35 Equal Energy Ltd. 47 E-Spectrum Advisors LLC 35,42 ESVAGT 58 Euler Hermes 13 Evaluate Energy 10 Express Energy Services 46 ExxonMobil 16,29,31,45 FERC 12 Ferd 44 FIEM 13 FIRNA 46 First Reserve 13 FMC Technologies Inc. 42 Forest Oil Corp. 31 Freeport McMoRan Copper & Gold 33 GAIL 10 GeoMet Inc. 44 GeoSouthern Energy Corp. 35 Global Hunter Securities 42 Greenes Energy Group 47 GulfStar Group 5 Gushor Inc. 43 Halcon Resources 33 Harwood Capital Inc. 21 Hatem Abbas Ghazzawi & Co. 13 Hein & Associates LLP 26 HIG Capital LLC 43 Holland Services 43 Husky Energy Inc. 64 IHS Herold Inc. 34 Imperial Oil 64 Independence Contract Drilling 43 International Equity Partners Oil & Gas Inc. 44 International Renewable Energy Agency 25 Isramco 43 Kabe Exploration Inc. 44

Netherland Sewell & Associates Inc. BC

Nexen 31 NGP Energy Capital Management 1 NiSOurce 13 Noble Energy Inc. 11,43 Norsofonden 52 Occidental 33 Ocean Energy 46 Ohio Department of Natural Resources 11 OPEC 23 Opportune 3 PCD Energy 14 Penn West 33 Petrobras 33 PetroChina 31 PetroFrontier Corp. 43 Petro-Hunt Group 34 Piedmont Natural Gas Co. Inc. 12 PLS Inc. 32 Post Oak Energy 34 PostRock Energy Corp. 46 Q-STAR ENERGY 61 Quicksilver Resources 31
Quorum Business Solutions Inc. 34-41

Qv21 Technologies Range Resources Corp. Red Cross Reliance Industries

IBC 10 64 10

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Beyond the Well

Companies rooted in Canada contribute to flood relief efforts


ern Alberta. In addition, employee donations to registered charities will be matched by Encana up to $25,000 Mikaila Adams per employee as part of the companys Senior Associate Editor matching gifts program. OGFJ The hard work being done by relief agencies and emergency services personnel, as well as the many volunfter more than a day of extreme teer citizens who have pitched in to help their neighbours, truly reflects the rainfall caused the Bow and strong sense of community in Calgary Elbow rivers to surge from and throughout southern Alberta, their banks, record-breaking floods said Bill Oliver, Encanas executive vice have wreaked havoc on Calgary and president and chief corporate offer. surrounding neighborhoods. Three The company pledged its commitpeople were killed and over 100,000 residents were forced to evacuate parts ment to work with city officials and of southern Alberta that authorities say industry associations to coordinate a could remain without power for weeks, collective industry volunteer response to aid those communities impacted by or even months. flooding. The floods are Calgarys worst in nearly a century, stripping the record from June 2005 when, according to the citys website, surging waters forced the evacuation of 1,500 people, damaged 40,000 homes, and ultimately caused C$400 million (US$383 million) in damages. Alberta Premier Alison Redford told reporters at a June 21 press conference that water on the Elbow River was flowing more than three times faster Flooding in Blairmore, Alberta, June 20. late June 20 than during the 2005 Photo courtesy of Government of Alberta flood, reported Bloomberg. As the water recedes, cleanup begins, and already, oil and gas companies Active in Canada for over 100 years, rooted in Calgary are pitching in to ConocoPhillips contributed US$1 help. million to support relief efforts. One Calgary-based Encana Corp. has half of the donation will be presented donated $500,000 to assist with flood to the Red Cross and the other half relief efforts. The number includes an allocated to local non-profit organizainitial donation of $250,000 to the Red tions supporting the recovery efforts. Cross to assist in immediate relief work The company will also match donations in impacted communities, as well as from ConocoPhillips Canada employ$250,000 to be allocated to a number ees and US employees and retirees. of Encanas partners which are actively So many people in southern Alberta engaged in the effort in both the have been impacted by this disaster, and Calgary area and elsewhere in southwe want to support the outstanding work that emergency responders and organizations like the Red Cross have been doing, and will be doing over the coming days and weeks, said Ken Lueers, president of ConocoPhillips Canada. Our thoughts are with all of those who are dealing with the impact of this flood, and our sincere thanks to the volunteers who have been working to help their neighbours. Another $1 million will come from Cenovus Energy Inc. An initial donation of $250,000 will go to the Red Cross for immediate relief efforts. The company will then work with its community partners to determine how best to allocate the remainder of the donation. Husky Energy Inc. has also stepped up with $1 million. We have witnessed the devastating impact of flooding, but also the resilience of those impacted and the dedication of first responders, CEO Asim Ghosh said in a press release. Recovery will be a long process, with many lending a helping hand. We are pleased to join that effort. Additionally, Canada-based Imperial Oil, through its main philanthropic arm, the Imperial Oil Foundation, has committed $100,000 to the Canadian Red Cross to support emergency assistance efforts. Our thoughts are with Albertans who need assistance at this time. We applaud the Red Cross and other emergency organizations for their immediate response and believe it is important to provide the practical assistance needed, said Rich Kruger, Imperial chairman, president, and CEO. Anyone wishing to support the ongoing Red Cross response to this disaster may do so by donating to the Canadian Red Cross Alberta Floods Response. OGFJ

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