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THE BUSINESS PUBLICATION FOR THE OIL AND GAS EXECUTIVE

November 2017

MOELIS & COMPANY:

A DECADE OF GROWTH

SPECIAL FOCUS:

MIDSTREAM
PRIVATE EQUITY JVS
MLP FUNDAMENTALS
DEBT-EQUITY STRUCTURE

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 CONTENTS V14/NO. 11 | NOVEMBER 2017
THE BUSINESS PUBLICATION
FOR THE OIL AND GAS EXECUTIVE

FEATURES ®

24
16
INCREASING YOUR MARKET CAP EXPORTS ARE CHANGING
35
CRUDE OIL LOGISTICS

NON-OPEC DECLINE RATES

17 New options create a more complex logistics
puzzle
TO STABILIZE
Wood Mackenzie says decline rates should
hold steady at about 5% until 2020 WEATHERING THE STORM
38
18
Lessons learned from hurricanes Harvey
and Irma
SHALE INVESTMENT AND
CONVENTIONAL ASSET SALES
Slowing production growth for shale BRIBERY AND CORRUPTION
40
31 companies Targeted analytics as an instrument in the

20
battle

MOELIS & COMPANY

Ken Moelis is chairman and CEO of Moelis
42
THE BBA RULES ARE COMING
& Company, a New York-based investment Is your oil and gas partnership ready?

64
bank that provides strategic advice to
a diverse client base. OGFJ caught up
with him in Houston during a visit to the HOW SUSTAINABLE IS PERMIAN TIGHT
financial services firm’s local office, which OIL GROWTH?
focuses on energy.
42 24
PRIVATE EQUITY JVS
Shortage of traditional capital in oil and gas DEPARTMENTS
creates opportunities for private equity 4 EDITOR’S COMMENT

ON THE COVER
28
HYBRID APPROACH TO DEBT-EQUITY
6
8
CAPITAL PERSPECTIVES
SECOND THOUGHTS
Ken Moelis is STRUCTURE 10 UPSTREAM NEWS
chairman and CEO of
Moelis & Company

MLPS
31 12
46
MIDSTREAM NEWS
DEAL MONITOR
Photo by 48 OGJ150
Sylvester Garza Fundamentals and related structuring and
formation considerations 56 INDUSTRY BRIEFS
59 ENERGY PLAYERS

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OGFJ .com pwestervelt@pennwell.com
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 CONFIDENCE EARNED.
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Advising on the acquisition Advised Veresen on the Advised on the divestiture of Advised on the joint acquisition Advised on the divestiture Divestiture of Eagle Ford
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 EDITOR’S COMMENT

Technology is a game-changer
IS THERE ANY DOUBT that the future of and downhole technologies, sensors, and many other tech-
the energy industry is intertwined with ad- nology innovations coming into the traditional oil and gas
vances in technology? Surely not. In fact, I space. We believe there is a business in advising energy
think it’s fair to say the changes that all companies around the development, acquisition, and use of
industrial sectors are undergoing today are technology, private and public investors around their invest-
as significant as those that occurred about ment strategy in the space, technology companies trying to
200 years ago with the onset of the Industrial better penetrate the energy industry, and private energy
DON STOWERS
CHIEF EDITOR Revolution. And the pace of change has technology companies regarding their M&A and IPO
– OGFJ certainly accelerated. options.”
The old saying “Lead or get left behind” He added, “There are literally hundreds of companies
seems to be applicable in the current environment. With focused in this space, ranging from the integrateds, the large
current soft oil prices, it’s crucial to find ways to improve technology companies, independents, oilfield service com-
efficiency throughout the enterprise. If your competitors are panies, E-Tech startups, as well as private equity and venture
using a technology that helps bring this about, you had better capital players. We believe this is a great opportunity for TPH
be willing to do the same just to keep pace. to establish a new wing of the energy advice business.”
Maynard Holt, CEO at Tudor, Pickering, Holt & Co., recently With this E-Tech investment banking effort in mind, TPH
asked me to visit with him in the bank’s offices in downtown recently announced it will host its inaugural Energy Disrup-
Houston. After I arrived, he intro- tion Conference in Austin, Texas,
duced me to two colleagues, John on Nov. 10. The conference will
“We believe there is a business in advising
Gibson and Robert Steel. focus on showcasing companies
energy companies around the development,
Gibson joined TPH in May as a involved in developing and de-
acquisition, and use of technology, private and
senior advisor. He previously ploying disruptive technologies in
public investors around their investment strategy
served as president and CEO at the energy industry.
in the space, technology companies trying to
Tervita Corporation, and prior to Gibson is spearheading the
better penetrate the energy industry, and private
that was a director at Parker Drill- strategy to build out an energy
energy technology companies regarding their
ing for over a decade. Before that, technology banking practice. He
M&A and IPO options.” – Maynard Holt
he held several senior positions will help TPH identify and follow
with Halliburton, including presi- the technologies with the greatest
dent of the Energy Services Group. He is an active member promise for materially changing the performance of the
of the University of Houston’s Energy Advisory Board, is a sector.
trustee for Houston Baptist University, and assists the Uni- “We are in the midst of significant technological disruption
versity of Texas at Austin’s Bureau of Economic Geology in the energy industry, and we believe the best technologies
Visiting Committee and the Institute for Global Ethics, Ad- have yet to be uncovered,” asserts Gibson. “Our Energy Dis-
visory Committee. ruption Conference is an opportunity for those companies
Steel is a partner and CEO at Perella Weinberg Partners and startups in this space to promote their businesses to a
in New York. (TPH was acquired by Perella Weinberg last C-Suite audience of oil and gas clients, venture capital firms,
year.) He spent nearly 30 years with Goldman Sachs, rising and private equity investors.”
to head of the Global Equities Division, and also served as Steel recalled his experience as deputy mayor of economic
vice chairman of the firm. Later, as CEO of Wachovia Cor- development in New York during the Bloomberg administra-
poration, he oversaw the sale of the bank to Wells Fargo & tion. He remarked that a key initiative of Mayor Bloomberg
Co. He also was New York City’s deputy mayor for economic was to encourage and grow the technology sector of that
development where he was responsible for the Bloomberg city’s economy. Steel led the applied sciences initiative, which
administration’s economic strategy and job creation established the Cornell-Technion campus on Roosevelt Island
efforts. and the New York University Center for Urban Science and
What they wanted to talk about was TPH’s new emphasis Progress initiative in Brooklyn.
on technology. If these three men have their way, TPH will Steel, who serves as chairman emeritus of the Aspen In-
be leading the way as an investment bank and trusted advisor stitute’s Board of Trustees as well as numerous other groups
related to new technology adoption in the energy industry. and organizations dedicated to furthering scientific and
Holt commented, “We have been watching all the changes economic education and interests, expressed strong support
happening in oil and gas around the use of data, predictive for TPH’s efforts in this area. It’s likely that this new wave of
analytics, machine learning, artificial intelligence, completion technology will be transformational, he said.

4 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017

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1711OGFJ_5 5 11/3/17 9:43 AM
 CAPITAL PERSPECTIVES

© Andreykuzmin | Dreamstime
Billions of dollars of bad oil
and gas loans: A rebuttal
LARRY DERRETT, HOUSTON, TX

AN ARTICLE TITLED “Billions of dollars of bad oil and gas loans”
recently published by Oil & Gas Financial Journal suggests that
despite the substantial decline in oil prices over the last three
years, banks have delayed write-offs by changing the rules as to
how borrowing bases have been calculated. The article, which
ran in the September issue, goes on to imply the market has been
distorted because there have been so few borrowing base reduc-
tions and bankruptcies. At its conclusion, the author poses the
question how long can this shell game last?
Please note this is not intended as an effort to discredit the
author who seems well qualified and has published informative
articles in the past. In addition, if I have gathered conclusions
from the article that were not purposefully intended, I apologize
ahead of time. Regardless, there were certain comments impli-
cating banks which were quite clear. I have a quite different
view and want to address some of these topics.
To start, the assertion that many “borrowing bases were not
reduced” despite the reduction in oil prices over the past four
years is simply not true.
After the mid-year borrowing base season in 2016, 44 out of 63

6 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017

1711OGFJ_6 6 11/3/17 9:43 AM


public companies reported a reduction in their borrowing base.
Of those 44, 21 had reductions of at least 30% (based on information
from a July 2016 article by Haynes and Boone LLP, 2016 Spring Oil
and Gas Borrowing Base Redetermination: The Day of Reckoning,
that ran in Practical Law Finance). Again, these are public com-
panies generally with diversity of production and potential access
to the equity markets. One can only imagine the number of smaller
private companies who were affected.
As to the banks having been overly lenient and “the math
doesn’t work” given the significant decline in oil prices, I agree
that on the surface it might seem odd. However, it’s not that simple.
Banks can’t be robotic by relying on math only to govern credit
decisions. Lenders take several factors into account such as wheth-
er borrowers could issue equity or sell assets. Understanding that
these actions take time to implement, banks selectively granted
extensions to borrowing base determinations to some producers.
In exchange, lenders received the benefits of anti-hoarding pro-
visions, mortgages on additional properties and the establishment
of deposit account control agreements (DACAs). For lenders,
these protections might not have been available (or at least delayed)
if the borrower was pushed into bankruptcy.
There is an assertion that the rules were changed to avoid large
losses. Even if that was true, it didn’t work for the period 2015 –
early 2016 as three large energy banks took a $3.5 billion reserve
against potential oil and gas loan losses (again, based on informa-
tion from the aforementioned July 2016 article by Haynes and
Boone LLP).
When a bank establishes loan loss reserves, scrutiny of ques-
tionable loans is maddeningly detailed and subject to many layers
of internal as well as external review from regulators. I can’t imagine
a bank being so naïve as to suddenly change the rules and think
it will go unnoticed. In fairness, the OCC has implemented new
rules that can affect how lenders set borrowing bases, but it was
not the result of banks changing the rules.
As to whether changing the rules created artificial market
dynamics and prevented companies from distress or bankruptcy,
the facts show a different story. According to the Haynes and
Boone LLP Oil Patch Bankruptcy Monitor from December 2016,
in 2015 and 2016, 144 North American oil and gas companies filed
for bankruptcy.
Considering the number of bankruptcies and the number of
companies experiencing borrowing base reductions, market dy-
namics were certainly affected despite the action, or, inaction of
banks.
The article cited numerous examples as to how the rules were
changed, but in my opinion, few of the actions would move the
needle substantially (if at all) to “prop-up” a borrowing base. In
my opinion, these changes could not materially increase a bor-
rowing base. Here, the examples in question.
INCREASING PDP RESERVES THROUGH LOWER DECLINE
RATES AND LONGER WELL LIVES
Unless the total remaining EUR is increased, lower decline rates
generally do not result in a higher PV of PDP reserves. Think about
NOVEMBER 2017 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
1711OGFJ_7 7
CAPITAL PERSPECTIVES
it—the math doesn’t work. There is one exception to this with
recently drilled wells but it seldom happens and the explanation
is not worth the detailed discussion.
ADDING OTHER PUDS THROUGH VARIOUS MEANS
Changes to PUD values often do not translate into increases in
borrowing bases. Many borrowing base calculations are already
constrained as non-PDP reserves cannot account for more than
20-30% of the total. For example, if a producer has a $100 million
borrowing base but is already constrained, their non-PDP reserves
can increase from $80 million to $200 million, but in isolation
would contribute little additional value in a borrowing base
calculation.
BANKS LOWERED D&C COSTS, OPERATING EXPENSES
Banks are supposed to lower these costs if they have gone down.
A reduction in operating expenses is accretive to a borrowing
base, but would have to be evidenced in Lease Operating State-
ments, or, proven reductions in future costs. A decline in D&C
will affect PUD value, but is irrelevant if the borrower is already
PUD constrained.
ADDING MORE WELLS TO THE COLLATERAL (ALTHOUGH
MANY COMPANIES WERE AT 80% OR MORE IN 2014)
This doesn’t increase the borrowing base since the reserves were
already accounted for in prior borrowing base calculations. It
merely improves the banks collateral position by mortgaging more
properties.
No doubt, in the early part of the decade, banks started relaxing
lending standards to remain competitive. But there is no set of
rules to protect a bank from the dramatic drop we’ve seen in oil
prices. Once the bottom fell out, new rules of engagement had to
be created since banks had very little experience in handling
problem RBLs. Banks likely made some mistakes in restructurings,
especially in the early stages in 2015 and early 2016. Despite taking
some lumps in navigating through an industry restructuring,
banks did not conduct “shell games.” It’s simply not in their DNA.
When you add in the regulatory oversight suddenly thrust onto
the industry, the risk of being caught playing “shell games” was
never an option.
ABOUT THE AUTHOR
Larry Derrett is an energy finance consultant based
in Houston, TX. He has over 30 years of experience
in the upstream, midstream, oilfield services, and
trading sectors as a banker, consultant, and VP
Finance/CFO. He has served as CFO of ARM Energy,
a privately held provider of risk management and
physical marketing services to producers throughout the US,
CFO of ERG Resources LLC, and as a managing director with
CIT Energy, among other roles. Derrett holds a BBA from The
University of Texas at Austin.
7
11/3/17 9:43 AM
 SECOND THOUGHTS
Technology: So nice we wrote it twice
THE OIL AND GAS INDUSTRY has some-
times been characterized as ‘slow to adopt’ in
certain areas, but technology has always played
a role in its advencement. It was, in large part,
the catalyst for the rise of unconventional as-
sets in recent years. Now, a new wave of digital
technologies is gaining ground.
MIKAILA ADAMS
EDITOR – OGFJ In the past month alone I’ve seen reports
detailing the way the “lower for longer” price
environment is changing the way oil and gas companies think
about growth and efficiencies. For my esteemed colleague, Don
Stowers, the same. Read his Editor’s Comment on the topic of
technology from another source just four pages ahead.
Years into a downturn, one such report kicked off: “A more
frugal E&P sector may accelerate the digitalization of the oilpatch.
A shifting emphasis on returns over growth heightens the appeal
of digital solutions that promise to maximize efficiency and
optimize performance,” this from an October oilfield services
(OFS)-related note from Evercore ISI.
In other October news, a survey from Accenture and Microsoft
reported that almost two-thirds of upstream firms see the value
digital technologies deliver as low oil prices linger. Faster and
better decision-making and shorter time to first oil and gas
topped the list of expected benefits from digital technologies.
An oil and gas CEO survey from KPMG echoed the others.
With breakeven points more sustainable, and the industry’s
emergence from a major downturn, “CEOs are bullish on growth
outlook and are intensifying investment in emerging technologies
and innovative solutions to lead the way.”
Regina Mayor, global energy leader, KPMG, said: “The energy
sector is an incredible place to be right now. Innovative technol-
ogies have the capacity to completely disrupt the way we operate,
and it’s clear from our study that global oil and gas executives
recognize that these technologies – when properly implement-
ed– put us in a position to make big change.”
 In the KPMG study of 51 global oil and gas CEOs, a majority
said they expect to see their company grow over the next 12
months to three years. To achieve this, 88% of CEOs plan to invest
in data and analytics tools, followed by IoT (82%), and cognitive
automation (78%). Eighty-six percent say these investments will
primarily focus on physical infrastructure, 71% say regulatory
compliance, 59% point to innovation of new products and
services.
 Similar statistics were seen in Accenture’s survey. Rich Hols-
man, the digital leader in Accenture’s energy industry group said:
“Our survey respondents see big data and analytics, cloud, the
Internet of Things (IoT), mobility, high-performance computing
(HPC) and cybersecurity as having the greatest potential to
transform their businesses. In the next three to five years, 70%
plan to spend more or significantly more on digital technologies,
and the next wave includes HPC, wearables, robotics, artificial
8 WWW.OGFJ.COM
1711OGFJ_8 8
intelligence and blockchain.”
The transformation certainly doesn’t stop with the upstream
sector. Building on the Evercore ISI note, an acceleration of the
digital revolution most certainly weighs on OFS companies. “We
are in the early innings of the upstream digital revolution, and
many E&Ps are likely discovering the difference between buzz-
words and actual value-added as it pertains to OFS digital offer-
ings. The automation arms race has begun and when the dust
settles there should be a clear bifurcation between the “haves”
and “have-nots,” the note offered.
I reached out to a few folks “in the field,” the technology field,
for comments.
Perry Turbes, Quorum president and CEO told me: “From
startups to supermajors, three major trends have emerged that
are driving the CEOs of energy companies to reconsider how
they modernize their business: improving business agility, in-
creasing operational efficiency, and transitioning their workforce.
Digital transformation helps companies conquer these complex
challenges with technologies that seamlessly integrate and
simplify business operations by leveraging IoT, cloud, big data
and mobility.”
Philippe Herve, VP Solutions, SparkCognition Inc. said: “The
oil industry is now stabilizing from one of the most severe down-
turns it has ever seen. The simultaneous rise in big data, com-
puting power, and a data-friendly workforce has enabled AI to
take the role of the all-encompassing technological solution the
industry needs.”
The industry has been mulling the data big picture for some
time. In a 2016 interview, I asked KPMG’s Mayor about data as
a component in managing costs in the downturn. At the time,
she said the benefits of certain investments in that direction
were still 5-10 years down the road. Following the release of the
new KPMG survey, I reached out to Mayor for an update.
“The industry has adopted so quickly,” she told me. “When
we talked in earlier 2016 it was more ‘duck and cover.’ Now that
we’re in this lower for longer—or perhaps lower forever—envi-
ronment, we see the industry being more aggressive in its will-
ingness to adopt less proven technology.”
For one, she said, the price points have come down. And,
perhaps, companies were more skeptical then, but the industry
was “in the throes of facing massive drops…perhaps not knowing
how to cope,” she offered. Now, Mayor said, prices are more stable,
and companies are grappling with what to do next. “We’re seeing
the pilots and proofs of concept bearing results. The survey bears
out out what we’re actually seeing in the marketplace,” she said.
That’s not to say the possibilities are without challenges. In
addition to sheer integration, both KPMG and Accenture pointed
to strategic digital talent as a potential barrier in the short term.
Ways to harness the power of an evolving digital landscape
are still being uncovered, but many agree that there’s something
quite compelling underneath the layers.
| OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017
11/3/17 9:43 AM
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1711OGFJ_9 9 11/3/17 9:43 AM

 UPSTREAM NEWS
EXXONMOBIL MAKES FIFTH
DISCOVERY OFFSHORE GUYANA
Exxon Mobil Corp. has made a fifth new oil discovery after
drilling the Turbot-1 well offshore Guyana.
Turbot is ExxonMobil’s latest discovery to date in the country,
adding to previous discoveries at Liza, Payara, Snoek, and Liza
Deep. Following completion of the Turbot-1 well, the Stena
Carron drillship will move to the Ranger prospect. An additional
well on the Turbot discovery is being planned for 2018.
ExxonMobil affiliate Esso Exploration and Production Guyana
Ltd. began drilling the Turbot-1 well on Aug. 14, 2017 and en-
countered a reservoir of 75 feet (23 meters) of high-quality, oil-bear-
ing sandstone in the primary objective. The well was safely drilled
to 18,445 feet (5,622 meters) in 5,912 feet (1,802 meters) of water
on Sept. 29, 2017. The Turbot-1 well is located in the southeastern
portion of the Stabroek Block, approximately 30 miles (50 kilo-
meters) to the southeast of the Liza phase one project.
The Stabroek Block is 6.6 million acres (26,800 square kilome-
ters). Esso Exploration and Production Guyana Ltd. is operator
and holds 45% interest in the Stabroek Block. Hess Guyana
Exploration Ltd. holds 30% interest and CNOOC Nexen Petro-
leum Guyana Ltd. holds 25% interest.
KALNIN VENTURES MAKES FIFTH
MARCELLUS ASSET ACQUISITION
An affiliate of Kalnin Ventures LLC’s BKV Oil and Gas Capital
Partners LP fund has entered into Purchase and Sale Agreements
with respect to the fund’s fifth acquisition of assets in just over
two years in the northeast portion of the Marcellus Shale. The
fund is financially backed by its sole investor, Banpu Pcl, a
Thailand-based coal mining and power generation company
with total assets of more than $6 billion.
The transaction is valued at an aggregate price of $210
million, with potential additional payments to the sellers of up
to $18.75 million over the next three years depending on natural
gas prices. Separate purchase and sale agreements were en-
tered into with Carrizo (Marcellus) LLC and Reliance Marcellus
II LLC, to acquire their respective interests in the assets (subject
to customary closing conditions), which are comprised of in-
terests in 112 wells, including 98 producing wells, 11 drilled
and uncompleted (DUC) wells and three wells that are tempo-
rarily abandoned.
The assets are predominantly located in Pennsylvania’s
Wyoming and Susquehanna Counties.
Kalnin has invested, through the fund, $417 million in the
Marcellus Shale and is poised to fully invest its first fund. With
this acquisition, the fund is now one of the top 20 natural gas
producers in Pennsylvania.
“This deal is unique from our previous four in that it provides
us the opportunity to naturally expand into an operator position
while also acquiring additional midstream assets,” said Chris-
topher Kalnin, managing director and co-founder of Kalnin
Ventures LLC. “However, it is similar to prior deals in that we
are acquiring profitable assets and enhancing them with tech-
10
1711OGFJ_10 10
nology and big data. Our experience as a non-operator, and
now operator, coupled with our high-quality asset base and
proprietary technology, has put us in a compelling position to
expand further in the Super Core of the Marcellus.”
The acquisition follows the Fund’s previous transactions with
Zena Energy LLC, Radler 2000 LP - Tug Hill Marcellus LLC; Chief
Exploration and Development LLC; and Range Resources –
Appalachia LLC, all located in the Marcellus Shale.
Upon completion of this transaction, the fund will have an
interest in 355 active wells. These transactions provide the fund
with net natural gas production of 160 million cubic feet per
day.
ENERGEAN SEES FIRST CPR RESULTS FOR TWO 100%
OWNED BLOCKS, OFFSHORE MONTENEGRO
Energean Oil & Gas has received the first Competent Persons
Report (CPR) for its assets offshore Montenegro, compiled by
Netherland Sewell & Associates (NSAI), detailing the recover-
able gas and liquids resource estimates in respect to Energean’s
100% interest in blocks 4218-30 and 4219-26.
The CPR shows the combined net unrisked prospective
recoverable resources (P50) for the two blocks, awarded to the
company earlier this year, as 1.8 TCF natural gas and 144 MMbbls
liquids (438 MMboe in total).
Energean is currently the sole operator, with 100% working
interest, of offshore blocks 4218-30 and 4219-26. The blocks
were officially awarded in March 2017, following the signing of
a Concession Agreement between the company and the State
of Montenegro. The two blocks cover a surface area of 338 km2
in shallow waters.
The CPR is part of the first three-year exploration phase,
which entails a mandatory work program including a 3D seismic
survey covering the two blocks that is planned to be acquired
in 2018, and geological and geophysical studies. The total cost
of this initial exploration phase is estimated at US$5 million.
KRISENERGY COMMITS TO CAMBODIA
APSARA OIL DEVELOPMENT
KrisEnergy Ltd., an independent upstream oil and gas company,
is pleased to announce it has made a final investment decision
to proceed with the first phase of development for the Apsara
oil field, the first hydrocarbon development project in the
Kingdom of Cambodia.
Located in Cambodia Block A in the Gulf of Thailand, Phase
1A of the Apsara development envisages a single unmanned
minimum facility 24-slot wellhead platform producing to a
moored production barge capable of processing up to 30,000
barrels of fluid per day with gas, oil and water separation facilities
on the vessel. Oil will be sent via a 1.5 km pipeline for storage
to a permanently moored floating, storage and offloading
vessel.
KrisEnergy is the operator of Cambodia Block A and holds
95% working interest. The General Department of State Property
and Non Tax Revenue of the Ministry of Economy and Finance
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017
11/3/17 9:43 AM

holds the remaining 5% on behalf of the Royal Government of
Cambodia.
The Cambodia Block A contract area covers 3,083 sq. km over
the Khmer Basin in the Gulf of Thailand where water depths range
between 50 meters and 80 meters. The individual oil accumulations
in Cambodia Block A are small and spread over a large geographic
area, requiring significant funds and time to fully develop. Addi-
tionally, reservoir production performance in the Khmer Basin
has yet to be proven. For these reasons, among others, there is
some uncertainty regarding long-term production rates, reserves
and commercial viability and therefore a phased development
approach has been prudently adopted. Once the initial Phase
1A platform is on stream, there will be a period to monitor reservoir
performance before commencing Phase 1B, which envisages up
to three additional platforms producing to the Phase 1A facilities.
A Phase 1C will potentially add up to six additional platforms for
the full 10-platform Apsara development.
TEXAS DRILLING PERMITS, COMPLETIONS STATISTICS
The Railroad Commission of Texas (Commission) issued a total
of 903 original drilling permits in September 2017 compared
to 746 in September 2016. The September total included 781
permits to drill new oil or gas wells, 16 to re-enter plugged well
bores and 106 for re-completions of existing well bores. The
breakdown of well types for those permits issued September
2017 included 215 oil, 64 gas, 554 oil or gas, 58 injection, one
service and 11 other permits.
In September 2017, Commission staff processed 318 oil, 101
gas, 40 injection and four other completions compared to 430
oil, 155 gas, 38 injection and seven other completions in Sep-
tember 2016. Total well completions processed for 2017 year
to date are 5,408; down from 8,737 recorded during the same
period in 2016.
According to Baker Hughes Inc., the Texas rig count as of
October 6 was 448, representing about 48% of all active rigs
in the United States.
WOOD MACKENZIE: WHAT’S BEHIND
THE BOOST IN LIBYAN PRODUCTION?
Libya’s oil production has increased steeply from August 2016’s
low point of below 300,000 barrels per day (b/d) to around
850,000 b/d at present, passing the one million b/d barrier in
July. But Wood Mackenzie believes Libya may now be reaching
its near-term production limits and future growth will be
gradual.
Effective export capacity will be constrained by damage to
the key ports of As Sidrah and Ras Lanuf limiting production
to a maximum of 1.25 million barrels per day, National Oil
Corporation’s (NOC) previously announced 2017 year-end
target. Reaching this would be quite an achievement, given
ongoing challenges, including international oil companies’
reluctance to recommit capital and expertise, a national oil
company starved of funding and, not least, the propensity for
violence to flare up and armed groups to hinder oil output.
NOVEMBER 2017 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
1711OGFJ_11 11
UPSTREAM NEWS
With political agreement still some way off, international oil
companies have taken differing stances to the country’s up-
stream sector. North American players continue to view Libya
with trepidation and some may seek to mitigate their exposure
by divesting. But for many European companies, the risks are
manageable and a gradual re-entry into familiar projects without
committing capital makes sense.
OPEC has ruled that Libya will remain exempt from any
production cap: a tacit acknowledgement of the upside lim-
itations to the country’s production recovery. Wood Mackenzie
expects that it will be well into next decade before production
is restored to pre-war levels. Maintaining stable output of one
million b/d and realizing incremental gains in the interim could
be considered a success and may help avert a deepening of
the country’s crisis.The possibility of longer-term political nor-
malization and a reduction in conflict will depend on the country
being able to maintain oil production.
CHEVRON SANCTIONS POLYMER-BASED EOR
FOR CAPTAIN OIL FIELD IN THE NORTH SEA
Chevron North Sea has decided to proceed with the first phase
of its Captain enhanced oil recovery (EOR) project in the outer
Moray Firth offshore northeast Scotland.
The program is designed to increase the field’s overall re-
covery rate through the application of polymer technology.
Stage 1 of the EOR project, which follows several EOR pilot
programs at the Captain field, will involve drilling up to six
long-reach horizontal injection wells within the existing Captain
platform area.
Greta Lydecker, managing director, Chevron Upstream Eu-
rope, said: “Sanctioning Stage 1 EOR at Captain is an important
milestone in the development of the technology, which we
believe will improve the recovery rate from older fields and
help extend the life of assets.
“The application of advanced EOR technology in the North
Sea supports the UK government’s strategy of Maximizing
Economic Recovery of its offshore energy resource, and this is
in direct alignment with Chevron Upstream’s strategy of ex-
tracting value from our existing asset base.”
Oil & Gas Authority (OGA) area manager Eric Marston said:
“Polymer EOR has the potential to increase recovery, extend
field life, and stimulate field redevelopments…Chevron, along
with BP, Shell and Statoil, has been a driving force behind the
industry-led EOR task force.”
Texaco (since merged with Chevron) discovered the bil-
lion-bbl Captain field in 1977 in UK block 13/22a. First production
followed in March, with the development driven by advances
in horizontal drilling and downhole pumps.
The production complex comprises a wellhead protector
platform and bridge-linked platform connected to an FPSO.
Chevron operates with an 85% interest, in partnership with
Dana Petroleum (15%).
—Offshore staff
11
11/3/17 9:43 AM
 MIDSTREAM NEWS
RIO GRANDE LNG, CAMERON COUNTY
AGREE TO PROPERTY TAX INCENTIVES
B RIEFS Rio Grande LNG LLC, a wholly-owned subsidiary
of NextDecade Corp., a liquefied natural gas
EXXONMOBIL (LNG) development company focused on LNG
ACQUIRES DELAWARE export projects, has executed agreements with
BASIN TERMINAL Cameron County, Texas to receive Chapter 312
Exxon Mobil Corp. has tax incentives for its proposed Rio Grande LNG
acquired a crude oil
export project at the Port of Brownsville.
terminal in Wink, Texas
from Genesis Energy LP. The tax abatement agreements are aligned
The terminal is located in with distinct phases of the project and provide
the Delaware Basin. The for the full abatement of County property taxes
terminal is positioned
for each phase’s first 10 years of operations. Sub-
to handle Permian Basin
crude oil and conden- ject to a positive final investment decision, Rio
sate for transport to Gulf Grande LNG agrees to pay $2.7 million in pay-
Coast refineries and ments-in-lieu-of-taxes during each year of tax
marine export terminals.
abatement for all phases. Additionally, the Rio
The facility is intercon-
nected to the Plains Grande LNG agrees to provide up to $10 million
Alpha Crude Connector to fund community projects and to maximize the
pipeline system, and is hiring of local residents during construction and
permitted for 100,000
operations.
b/d of throughput with
the ability to expand. Currently one of the largest proposed private
This acquisition marks investments in the State of Texas, Rio Grande
ExxonMobil’s first LNG and its associated Rio Bravo Pipeline could
terminal in the Permian
invest more than $15 billion in the County. At full
Basin to be anchored by
the corporation’s newly build-out, the proposed facility and pipelines are
acquired Delaware Basin expected to create approximately 6,000 direct
acreage, announced in jobs during construction; more than 250 perma-
January.
nent jobs at the facility during operations; and
more than 3,000 indirect permanent jobs in the
County.
The Rio Grande LNG project is in the advanced
stages of its regulatory approval process with the
US Federal Energy Regulatory Commission and
hopes to receive all necessary approvals by mid-
2018, allowing for a final investment decision later
that year and first LNG in 2022. The terminal is
to be engineered and constructed by CB&I, and
will utilize a design based on equipment supplied
by Air Products and Chemicals Inc. and Baker
Hughes GE.
ENCANA STARTS UP SECOND
MONTNEY PLANT
Encana started up the Sunrise processing plant
on September 27. Sunrise is the second of three
processing plants that support Encana’s conden-
sate-focused growth plan in the Montney. In par-
allel with the Sunrise and Tower facilities ramping
up, the third plant, Saturn remains ahead of
schedule and is on track to start up before year-
end. In addition, the Towerbirch lateral pipeline
which connects all three plants to the NGTL sys-
tem started up on October 1.
12 WWW.OGFJ.COM
1711OGFJ_12 12
Encana’s midstream agreement with Veresen
Midstream enables Encana, via the Cutbank Ridge
Partnership, to construct and operate the Tower,
Sunrise and Saturn plants, as well as any future
build opportunities, on behalf of Veresen Mid-
stream on a contracted basis. Veresen Midstream
funds and owns the facilities and Encana pays to
use them through a fee-for-service agreement.
BRAZOS MIDSTREAM ACQUIRES
NATURAL GAS GATHERING SYSTEM
IN DELAWARE BASIN
Brazos Midstream Holdings LLC subsidiaries have
closed on the purchase of a natural gas gathering
system from Callon Petroleum Co. As part of the
acquisition, Brazos signed a long-term, fee-based
agreement with Callon for gas gathering and
processing services for acreage under develop-
ment in Ward and Pecos counties in the Southern
Delaware Basin. Including the Callon dedication,
Brazos’ midstream infrastructure is anchored by
long-term acreage dedications covering approx-
imately 240,000 acres with Permian operators.
The acquired natural gas gathering system will
connect to Brazos’ existing system and the pre-
viously announced Comanche II natural gas pro-
cessing plant. When complete in January 2018,
Brazos’ total operated processing capacity will
be 260 MMcf/d. In addition, Brazos is accelerating
plans to build a third natural gas processing plant,
Comanche III, to meet continued volume growth
in the region. The company has secured a site
for the plant and will begin construction in early
2018.
MUSTANG FUEL MAKES $65M
MIDSTREAM INVESTMENT
Oklahoma-based Mustang Fuel Corp.’s mid-
stream subsidiary, Mustang Gas Products LLC
(MGP), is undertaking a $65 million capital pro-
gram aimed at increasing the capacity, efficiency,
and reach of its midstream assets.
Within the next 18 months, the company an-
ticipates its capital spending program to result
in increased system-wide gathering capability
and increased plant capacity – to more than 225
million cubic feet per day (MMCFD). Scheduled
improvements include upgrading horsepower,
replacing older equipment, installing new pipe
and adopting new technologies for process, ef-
ficiency and control enhancements.
MGP currently operates a system consisting
of four cryogenic gas processing plants, a straddle
plant, over 4,200 miles of pipe and 110,000 horse-
| OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017
11/3/17 9:43 AM

power of compression spread over 10 counties
in central and north central Oklahoma. The ma-
jority of MGP’s footprint is in Oklahoma’s STACK
play and is concentrated in Kingfisher, Blaine,
Canadian, Garfield, and Major counties, where
MGP gathers gas from nearly 2,000 sections. MGP
can currently process up to 175 MMCFD and
offers both high-pressure and low-pressure gath-
ering. MGP connects to multiple pipelines and
has contracted for 70 MMCFD of firm takeaway
capacity.
COPPERBECK ENERGY SEES
COMMITMENT FROM TAILWATER CAPITAL
Copperbeck Energy Partners LLC has received
an equity commitment from Tailwater Capital, an
energy-focused private equity firm based in Dal-
las, Texas. Copperbeck is focused on providing
midstream and downstream-adjacent infrastruc-
ture and services for refineries, petrochemical,
and industrial concerns. Copperbeck recently
closed the purchase of a 62.5% interest in Saconix
LLC from MRMC. Saconix combines MRMC’s
contribution of Martin Product Sales LLC’s sulfuric
acid business with the addition of Copperbeck
to help drive growth through new equity invest-
ment. The business continues to be headquar-
tered in Roswell, Georgia with all employees
retained in their existing roles. MRMC will con-
tinue to own a 37.5% interest in Saconix. Cop-
perbeck was represented by Gardere Wynne
Sewell LLP. Thompson & Knight LLP advised
Tailwater Capital.
PIN OAK CORPUS CHRISTI CLOSES
ON GMCC ACQUISITION
Pin Oak Corpus Christi LLC has closed on the
acquisition of 100% of the equity interests in
Gravity Midstream Corpus Christi LLC (GMCC)
from EnCap Flatrock Midstream, a venture capital
firm based in San Antonio. The owners of Pin Oak
Terminals LLC, Dauphine Midstream LLC, and
Mercuria Energy Group Ltd. provided equity fi-
nancing for the transaction. Dauphine and Mer-
curia also recently commissioned a new liquids
terminal in Mt. Airy, Louisiana, Pin Oak Terminals,
which has approximately four million barrels of
contracted capacity.
Pin Oak Corpus Christi is currently operational
with pipeline connections into nearby refineries,
737,500 barrels of storage, a crude processing
unit, a polymer modified asphalt plant, rail loading
and unloading facilities, a truck rack, and access
to Aframax and barge docks. There are long-term
NOVEMBER 2017 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
1711OGFJ_13 13
MIDSTREAM NEWS
contracts in place to expand the terminal’s oper-
ations. Dauphine is a portfolio company of Pelican
Advisors LLC. BR I E F S
BP ENERGY PARTNERS TO SELL PINNACLE EUREKA MIDSTREAM
MIDSTREAM TO I SQUARED CAPITAL HOLDINGS ENTERS
Dallas, TX-based BP Energy Partners LLC (BPEP) NEW STRUCTURE
and I Squared Capital have entered into a defin- Eureka Midstream
Holdings LLC has a new
itive agreement by which BPEP will sell Houston,
ownership structure. Blue
TX-based Pinnacle Midstream LLC, a portfolio Ridge Mountain Resourc-
company of BPEP, to I Squared Capital through es Inc. (BRMR), formerly
its ISQ Global Infrastructure Fund II. Pinnacle is known as Magnum Hunt-
er Resources, entered
a provider of crude and natural gas gathering,
into a definitive agree-
natural gas processing and related midstream ment to divest 100% of
solutions in the Delaware portion of the Permian its equity investment
Basin of West Texas. in Eureka Midstream.
BRMR formerly had an
RBC Capital Markets served as the exclusive
equity partnership in the
financial advisor to Pinnacle in the transaction company with Morgan
and Thompson & Knight LLP served as legal Stanley Infrastructure Inc.
counsel to BPEP. (MSI). MSI has entered
into a new partnership
in the company with SK
CRESTWOOD CLOSES BUY-IN OPTION Holdings Co. Ltd. (SK).
WITH SHELL MIDSTREAM SK now has a direct
Crestwood Equity Partners LP has closed on the ownership interest in the
company.
previously announced equity option agreement
with Shell Midstream Partners LP, a master limited
partnership formed by Royal Dutch Shell plc, to
purchase a 50% equity interest in Crestwood
Permian Basin LLC which owns the Nautilus gas
gathering system. The other 50% equity interest
continues to be owned by Crestwood Permian
Basin Holdings LLC. The Nautilus system gathers
the majority of Shell’s operated Delaware Basin
gas under a 20-year tiered, fixed-fee contract.
Crestwood Permian Basin Holdings LLC is a
50%/50% joint venture between Crestwood Equity
Partners LP and First Reserve.
VENTURE GLOBAL LNG CLOSES $108.6M
PRIVATE PLACEMENT
Venture Global LNG Inc. has raised additional
capital of approximately $108.6 million, marking
its seventh round of equity investment. This Reg.
D private placement brings the company’s ag-
gregate funding total to $470 million. The trans-
action proceeds will fund Venture Global LNG’s
continued development activities for its proposed
LNG export facilities in Louisiana. The company
is developing both the 10 MTPA Calcasieu Pass
facility on the Gulf of Mexico and the 20 MTPA
Plaquemines LNG facility in Plaquemines Parish.
Morgan Stanley & Co. LLC and Goldman Sachs
& Co. LLC assisted the company in connection
with the private placement.
13
11/3/17 9:43 AM
 MIDSTREAM NEWS
BP MIDSTREAM PARTNERS BEGINS PUBLIC
TRADING PRICED BELOW EXPECTATIONS
B RIEFS BP Midstream Partners LP, a limited partnership
formed by an indirect, wholly-owned subsidiary
ETP CLOSES HOLDCO of BP plc, priced its initial public offering at $18.00
INTEREST SALE per common unit, below the range of $19-$20 BP
Energy Transfer Partners noted weeks prior. With the 42.5 million common
LP’s wholly owned sub-
units for sale, the IPO could rack up $765 million
sidiaries, Energy Transfer
Interstate Holdings LLC dollars for the Houston-based company. Under-
(ETIH) and ET Rover writers of the offering have a 30-day option to
Pipeline LLC (HoldCo), purchase up to an additional 6,375,000 common
have closed the sale of a
units from BP Midstream Partners.
49.9% interest in HoldCo.
HoldCo owns a 65% The common began trading on the New York
interest in Rover Pipeline Stock Exchange on October 26, 2017 under the
LLC. As a result of this ticker symbol “BPMP.”
closing, HoldCo is now
At the closing of the offering, the public will
owned 50.1% by Energy
Transfer and 49.9% by own an approximate 40.6% limited partner inter-
Blackstone Energy est in BP Midstream Partners, or an approximate
Partners. 46.7% limited partner interest if the underwriters
Phase 1A of the Rover
exercise in full their option to purchase additional
Pipeline now transports
more than one bcf/d of common units. BP plc, through its indirect sub-
natural gas from Cadiz, sidiaries, will own the remaining limited partner
Ohio to Defiance, Ohio. interest in BP Midstream Partners, as well as its
Upon full completion,
general partner and incentive distribution rights.
the Rover Pipeline will
be an approximately 713 Citigroup, Goldman Sachs and Morgan Stanley
mile pipeline designed acted as joint book-running managers. Barclays,
to transport 3.25 bcf of Credit Suisse, JP Morgan, and UBS Investment
natural gas per day from
Bank also acted as joint book-running managers.
the Marcellus and Utica
Shale production areas Citigroup acted as sole structuring agent for the
to markets across the offering.
US and into Union Gas
Dawn Hub in Ontario,
TRANSCANADA TERMINATES PROPOSED
Canada.
PIPELINE PROJECTS, PLANS ONTARIO
SOLAR PORTFOLIO SALE
TransCanada Corp. will no longer proceed with
its proposed Energy East Pipeline and Eastern
Mainline projects.
In a prepared statement released October 5,
TransCanada president and CEO Russ Girling
said, “After careful review of changed circum-
stances, we will be informing the National Energy
Board that we will no longer be proceeding with
our Energy East and Eastern Mainline applica-
tions. TransCanada will also notify Quebec’s
Ministère du Developpement durable, de l’Envi-
ronnement, et Lutte contre les changements
climatiques that it is withdrawing the Energy East
project from the environmental review
process.”
Girling said the company will continue to focus
on its $24 billion near-term capital program, which,
he detailed, “is expected to generate growth in
earnings and cash flow to support an expected
annual dividend growth rate at the upper end of
14
1711OGFJ_14 14
an eight to 10% range through 2020.”
As a result of its decision not to proceed with
the proposed projects, TransCanada is reviewing
its approximate $1.3 billion carrying value, includ-
ing allowance for funds used during construction
(AFUDC) capitalized since inception and expects
an estimated $1 billion after-tax non-cash charge
will be recorded in the company’s fourth quarter
results. TransCanada stopped capitalizing AFUDC
on the project effective August 23, 2017, as dis-
closed on September 7, 2017. In light of the proj-
ect’s inability to reach a regulatory decision, no
recoveries of costs from third parties are
expected.
Later, on October 27, the company noted an
agreement to sell its Ontario solar portfolio com-
prised of eight facilities with a total generating
capacity of 76 megawatts to Axium Infinity Solar
LP, a subsidiary of Axium Infrastructure Canada
II LP, for approximately $540 million.
PHILLIPS 66 MAKES $2.4B DEAL
FOR BAKKEN PIPELINE JV INTERESTS,
MEREY SWEENY
Phillips 66 Partners LP has reached an agreement
with Phillips 66 to acquire its 25% interest in each
of Dakota Access LLC and Energy Transfer Crude
Oil Company LLC (collectively, the Bakken Pipe-
line) and 100% interest in Merey Sweeny LP
(MSLP), the owner of fuel-grade coke processing
units at the Phillips 66 Sweeny Refinery.
The total transaction value of $2.4 billion in-
cludes $625 million in proportional non-consoli-
dated, non-recourse Bakken Pipeline debt and
$100 million of MSLP debt. The value reflects an
approximate 8.9 times multiple, based on the
acquired assets’ forecasted full year 2018 adjusted
earnings before interest, taxes, depreciation and
amortization of approximately $270 million.
Consideration for the acquisition is $1.7 billion
and is expected to be funded through a combi-
nation of debt, proceeds from a private placement
of equity units, and PSXP units issued to Phillips
66. As part of the transaction, the partnership will
assume certain Phillips 66 term loans and notes
payable to Phillips 66, which the partnership ex-
pects to repay with a combination of proceeds
from the private placement of equity and long-
term debt. The partnership will also issue $240
million in new PSXP units to Phillips 66, allocated
proportionately between common units and units
issued to the general partner to maintain its 2%
general partner interest.
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017
11/3/17 9:43 AM
 -------------------------------- ------------------------------------ --------------------------------
$127,500,000 $550,000,000 $1,100,000,000
Initial Public Off ring Senior Notes Senior Secured Credit Facility
Co-Manager Co-Manager Joint Lead Arranger and Bookrunner

September 2017 August 2017 March 2017

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1711OGFJ_15 15 11/3/17 9:43 AM

 Increasing your market cap
EFFECTIVE USE OF DIGITAL TECHNOLOGIES CAN HELP GROW YOUR BUSINESS, SAYS ACCENTURE
ENERGY COMPANIES that leverage the
right combination of new technology could
increase their market capitalization by an
average of more than US$16.4 billion, ac-
cording to Accenture’s evaluation of 10
digital technologies across eight
industries.
Accenture carried out the economic
modeling after its initial research revealed
that only 13% of executives at more than
900 large companies said their businesses
are getting both greater efficiency and
business growth through new revenue
streams from their investments in digital
technologies. The number for respondents
from energy companies is even lower, at
9%. Accenture believes this is due largely
to piecemeal deployment and implemen-
tation of investments in digital
technologies.
For the economic modeling, Accenture
examined a range of technological com-
binations that could best help companies
with sales revenues of $1 billion or more
in the automotive, chemicals, consumer
goods and services, electronic and high-
tech, energy, life sciences, and utilities
industries significantly reduce their cost
per employee and grow their market
capitalization.
For energy companies, the optimum
combination of AR/VR, digital twin, au-
tonomous robot, AI, and big data technol-
ogies could raise their market capitaliza-
tion by $16.445 billion. See Figure 1.
“More than just transforming into digital
businesses, companies must completely
reinvent their operating models, produc-
tion and value chains to create more value
with digital,” said Tracey Countryman,
managing director and global Industry X.0
lead for Resources at Accenture. “Our re-
search yields a concrete solution: what we
call Industry X.0. It’s an action plan for
becoming more adept at embracing tech-
nological change and profiting from it.”
Industry X.0 is how Accenture defines
the digital reinvention of industry, when
businesses use advanced digital technol-
16
1711OGFJ_16 16
F1: COMBINING DIGITAL TECHNOLOGIES TO UNLOCK VALUE
28%
Augmented Reality/
8% Virtual Reality
Autonomous
Robots
8%
Digital Twin
27%
12%
Big Data
Artificial Intelligence
Note: Chart comprises of only top 5 technologies and their weights
Source: Accenture
ogies to transform their core operations, their worker and customer experiences and
ultimately their business models. New levels of efficiency are achieved in the core of R&D,
engineering, production, manufacturing and business support through integrated systems,
processes, sensors and new intelligence. Worker and customer experiences are reimagined
and redesigned through personalization and advances such as immersive, augmented
and virtual reality. New business models and revenue streams are unlocked by smart,
connected products, services and plants that are enabled by new ecosystems.
The level of demand for Industry X.0 is revealed in Accenture’s survey of 931 executives
from 21 countries. Among the respondents, 80% want new efficiencies, new growth and
new experiences to be delivered all at the same time and that 64% agree that failure to
leverage the components of digital value will cause them to struggle for survival in the
future.
The executive research also revealed a key challenge that will hinder the ability of
businesses to innovate with connected and intelligent products. There is a shortage of
digital skills among their workforces that is preventing them from innovating with con-
nected and intelligent products (29%).
“Most of the business leaders we work with understand the power of digital. They see
the potential for digital technologies to bring about transformation and growth and are
making big investments in a variety of leading technologies,” said Dave Abood, senior
managing director, Resources, Growth & Strategy. “Unfortunately, many aren’t getting
the most out of their digital investments. The challenge is that to do so requires a careful
balance of transforming core businesses while scaling new ones, which demands new
talent, new skills and new competencies in managing the pivot.”
There is positive news for the current workforce, as it is expected that key digital
technologies will create new jobs as companies reinvent themselves to reflect Industry
X.0. The research indicates that deployment of connected and intelligent products,
systems and plant will lead not only to the addition of new responsibilities to existing
roles, but also to the creation of entirely new roles. More than half (55%) of executives
surveyed said they believe that more new roles (in terms of responsibility) will be created
than might be eliminated, and approximately the same number of executives (56%) said
they believe that existing roles will be expanded or evolve.
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017
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 Non-OPEC decline rates to stabilize
WOOD MACKENZIE SAYS DECLINE RATES SHOULD HOLD STEADY AT ABOUT 5% UNTIL 2020

THROUGH OPERATIONAL EXCELLENCE programmes and
smart spending, operators have managed to maximize produc-
tion and improve efficiencies, bucking expectations of an in-
crease in decline rates. In fact, non-OPEC decline rates have
remained stable since 2015. A new report by Wood Mackenzie,
Non-OPEC Decline Rates: Lower for Longer, looks at the factors
influencing this stability, how long it can be maintained and
the impact future shifting de-
cline rates may have on the oil F1: ANNUAL AVERAGE NON-OPEC DECLINE RATE
market. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
0%
Dr. Patrick Gibson, re-
search director, Global Oil –1%
Non-OPEC decline rate
“Careful budgeting is also in play,” Dr. Gibson added. “Slashed
capex now predominantly targets short-cycle opportunities with
high returns potential, while development plans and service-sector
cost cuts have bolstered spending efficiency.”
While some shorter-term measures may relax, longer-term
factors, such as increased production from zero decline assets
and early-life assets, will help keep decline rates steady. Wood
Mackenzie’s analysis shows
early-life assets increasing their
proportion of production from
6% in 2010 to 30% by 2020. The
lower decline rates of these

Supply, at Wood Mackenzie, –2% assets counter-acts the higher

said: “Decline rates are a crit- –3%
declines of more mature
ical factor influencing the –3.6
assets.
–4%
current rebalancing of the oil –4.0 –3.8 Dr. Gibson said: “Canada’s
–5%
market and price recovery. A Sharp –5.1 –5.1 –5.1 –5.1 –5.3 oil sands and Brazil’s deepwa-
50% cut in investment in non- –6% –5.7 –5.7 –5.7 increase –5.6 ter pre-salt play are adding a
in 2015 Decline rates –6.3
OPEC producing oil fields and –6.5 –6.5 plateau to 2020 growing proportion of produc-
–7%
a dwindling pipeline of new Oct 2015 analysis Decline rate tion, significant enough to off-
projects since the price crash Source: Wood Mackenzie, Upstream Data Tool Q2 2017, excludes North America tight oil set global decline rates. The oil
should have led to progressive- sands alone could reduce de-
ly steeper decline rates. None- cline rates by as much as 0.6%
theless, decline rates have held F2: OIL SANDS EFFECT ON THE GLOBAL DECLINE RATE in 2020.”
steady at around 5% since 2010 2012 2014 2016 2018 2020
Technology will also play a
0%
2015 and we expect they will role in maintaining stable de-
remain at this level until 2020.” –1% cline rates, as evidenced by
Average annual decline rate (%)

Wood Mackenzie’s analysis –2% developments in horizontal

shows that, annual decline –3%
drilling, hydraulic fracturing,
rates for conventional fields enhanced oil recovery tech-
–4%
peaked at nearly 7% during niques, and CO2 flooding in the
–5%
the last decade, or 2.4 million US, Canada, and Russia.
barrels per day (b/d) a year. –6% Beyond 2020, Wood Mack-
However, in 2014, they reached –7% enzie expects decline rates will
an historical low of just 3.6%, Without oil sands Global decline rate return to the historical norm
or 1.2 million b/d. The price Source: Wood Mackenzie of about 6%, and higher oil pric-
collapse saw decline rates in- es will be needed to incentivise
crease to 5.1%, or 1.9 million b/d in 2015, on the back of steep investment in new production to meet a widening supply gap.
spending cuts. Decline rates have stayed at around that level Even moderate swings in average annual decline rates are capable
since. of influencing the market; the rate of decline for non-OPEC fields
“Stable rates of non-OPEC decline is a disappointing story is crucial to the global supply picture. A 1% shift in annual global
for those looking for significant price support coming from decline rates would have a significant effect on supply, potentially
declining conventional production,” Dr. Gibson said. adding or removing two million barrels per day by 2021.
He said improved operating efficiency and focused capital “Our current modelling shows stable decline rates until 2020,
expenditure (capex) have helped maintain decline rates at then a widening to 6% in 2021. Although the present picture is
current levels. Operators have maximized production rates by one of resilience and smart spending, further gains remain unlikely.
focusing on the best-performing wells, as well as targeting With investment so low, the industry is potentially storing up
processes and maintenance programs, so uptime is problems for supply that won’t become apparent until after the
increased. end of the decade.”

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1711OGFJ_17 17 11/3/17 9:43 AM


Shale investment and conventional asset sales
SLOWING PRODUCTION GROWTH FOR SHALE COMPANIES
ESPEN ERLINGSEN, RYSTAD ENERGY
FROM 2012 UNTIL the end of this year, total North American
shale oil production is expected to grow from 1.9 to 5.8 million
barrels per day (MMbbl/d). As a result, shale has changed the
global oil market. When considering this production growth,
one would expect the production for the main shale producers
to have grown considerably during this period. However, looking
at the reported production for the main shale operators, we
don’t see this trend. In fact, for the last two years, the total
production has declined.
Comparing total shale oil production with the total reported
oil production for the main shale producers, Figure 1 shows
two different trends. Here, the main shale producers are defined
as the 34 largest public shale producers, where the company’s
main activity is shale (excludes the Majors). Figure 1 shows that
since 2012, total production for the main shale companies has
grown from 3.1 MMbbl/d, to 3.8 MMbbl/d as of the second
quarter of 2017. This is a net growth of 700 thousand barrels
18
1711OGFJ_18 18
© Darren Walker | Dreamstime
per day, or 23%. For the same period, total shale production has
grown 3.5 MMbbl/d, or 177%. This shows that even though
shale production has grown considerably, shale producers have
not been able to fully capitalize on the growth.
A key reason why shale companies’ production growth has
been lower than the total shale growth is the cost of developing
the shale. Since 2010, the largest shale companies have invested,
on average, US$46 billion in shale on a yearly basis, and these
investments have been larger than the cash from operations.
Figure 2 shows the reported breakdown of the yearly reported
cash flows for the peer group of shale companies. It illustrates
the cash from operations, cash going to investments, and cash
from financing. By comparing the cash from operations (black
columns) with Capex (gray columns), a clear pattern is that
these companies have invested more than they’ve earned. In
2014 and 2015, this difference was around US$35 billion. This
gap has been financed by various sources, but the key source
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017
11/3/17 9:43 AM
 of additional financing for shale produc- F1: TOTAL REPORTED OIL PRODUCTION FOR A PEER GROUP OF
ers has been asset sales. COMPANIES AND TOTAL NORTH AMERICAN SHALE OIL PRODUCTION
Many shale producers have sold con-
6.0
ventional assets to finance shale activi-
ties. Marathon Oil sold North Sea assets, 5.0
Anadarko sold conventional US onshore

Million bbl/d
assets, and ConocoPhillips sold its share 4.0
in Kashagan. In total, shale companies
have raised US$120 billion in additional 3.0
financing through asset sales from 2013 2.0
until the second quarter of 2017. Total oil production for shale companies
The implication of selling these assets 1.0 Total NA shale oil production
is that the non-shale production for the
shale producers has declined consider- 0.0
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
ably from 2012 to 2016. Rystad Energy 2012 2013 2014 2015 2016 2017
estimates that for this peer group of com-
panies, the non-shale production has Source: Rystad Energy NASWellCube, company reporting. Included companies: APC, AR, APA, BBG, CRZO, CHK, XEC,
CXO, COP, CLR, DVN, ECA, EGN, EOG, EPE, EQT, HK, LPI, MRO, MUR, NFX, NBL, OAS, OXY, PE, PDCE, PXD, QEP, SN,
declined by 21% from 2012 to 2017. Com- SD, SM, SWN, WLL, WPX
panies such as Marathon, Murphy, and
Apache have seen non-shale production
decline more than 30%. Figure 3 shows F2: SHALE PEER GROUP’S REPORTED CASH FLOW BREAKDOWN
the total net oil production for this peer 180 Cash from operations Capex
group of companies split by shale and Other net
160 Sale of assets
non-shale. Clearly, shale production has Net financing activities investment
140 activities
grown from 2012, while conventional
production has declined. Total shale pro- 120
Billion US$

duction for the peer group has grown by 100

about 187%, the same growth level as for 80
the total shale oil production. 60
The fact that shale companies’ pro- 40
duction growth has been slower than the
20
growth in total shale production illus-
0
trates the challenges faced by shale pro- 2013 2014 2015 2016 2017
ducers. Investing heavily in shale, com- YTD
panies covered the deficit by selling off Source: Company reporting. Included companies: APC, AR, APA, BBG, CRZO, CHK, XEC, CXO, COP, CLR, DVN, ECA,
conventional assets. In many cases, this EGN, EOG, EPE, EQT, HK, LPI, MRO, MUR, NFX, NBL, OAS, OXY, PE, PDCE, PXD, QEP, SN, SD, SM, SWN, WLL, WPX

shows that the historical activity levels

in shale were unsustainable and went on F3: TOTAL OIL PRODUCTION FROM SHALE COMPANIES
at the expense of conventional produc- SPLIT BY SHALE AND NON-SHALE ACTIVITY
tion.
4.5
Shale/Tight oil
ABOUT THE AUTHOR 4.0 Non-shale
Espen Erlingsen is a partner 3.5
Million bbl/d

and leader of the E&P team 3.0

at Rystad Energy. His areas 2.5
of expertise include compa-
2.0
ny and acreage valuation,
1.5
breakeven price analysis,
and international petroleum fiscal re- 1.0
gimes. Before becoming a partner, Er- 0.5
lingsen was the lead NCS analyst at Rys- 0.0
2012 2013 2014 2015 2016 2017
tad Energy.
Source: Rystad Energy UCube. Included companies: APC, AR, APA, BBG, CRZO, CHK, XEC, CXO, COP, CLR, DVN, ECA,
EGN, EOG, EPE, EQT, HK, LPI, MRO, MUR, NFX, NBL, OAS, OXY, PE, PDCE, PXD, QEP, SN, SD, SM, SWN, WLL, WPX

NOVEMBER 2017 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 19

1711OGFJ_19 19 11/3/17 9:43 AM

 AN INTERVIEW WITH KEN MOELIS

A decade of growth
MOELIS & COMPANY ACTS AS A FINANCIAL ADVISOR AND PARTNER TO ITS CLIENTS
IN SOME OF THE MOST IMPORTANT DECISIONS THEY MAKE
DON STOWERS CHIEF EDITOR — OGFJ
PHOTOS BY SYLVESTER GARZA

EDITOR’S NOTE: Ken Moelis is chair-

man and CEO of Moelis & Company, a
New York-based investment bank that
provides strategic advice to a diverse
client base, including corporations, gov-
ernments, and financial sponsors, across
all major industry sectors. We caught up
with him in Houston recently during a
visit to the financial services firm’s local
office, which focuses on energy.

OIL & GAS FINANCIAL JOURNAL:

Ken, your firm, Moelis & Company, was
founded just 10 years ago on the brink of
the financial crisis, but it has grown to
become one of the most influential in-
vestment banks in the US with 19 geo-
graphic locations in North and South
America, Europe, the Middle East, Asia,
and Australia. The firm became a top
10-ranked M&A advisor in its first full
year of operation, advising on transac-
tions such as Petrobras’ $127 billion cap-
ital markets and debt markets strategies
related to liability management, Anheus-
er-Busch’s $61.2 billion sale to InBev,
Yahoo’s defense from Microsoft’s $44.6
billion unsolicited proposal, and Hilton
Hotels’ $26.5 billion sale to The Black-
stone Group. In the ensuing years, the
accolades increased – Best Investment
Bank in the UAE; Most Innovative Invest-
ment Bank; Restructuring Advisor of the
Year; Deals of the Year in 2014 and 2015; appeared. The tight-knit, service-oriented businesses had merged with big banks to form
Awards for Excellence 2014. First, tell us these massive, global universal banks, and the bureaucratic culture that resulted just didn’t
why you decided to start a new invest- appeal to me. We were more focused on being all things to all people rather than providing
ment bank on the precipice of the finan- the best possible service and advice.
cial crisis. So I left UBS in 2006 and started Moelis & Company in 2007 to continue doing what I
love, but in an environment where the singular focus was the client. We didn’t just want
KEN MOELIS: I began my banking career to be an independent advisor, we decided early on that we wanted to be a global firm that
in the 1980s at Drexel Burnam Lambert provided advice across M&A, as well as capital markets and restructuring. The financial
and over the next two decades I moved crisis made our ambitions seem lofty, but in hindsight it was a great entrance point for a
from Drexel to Donald Lufkin & Jenrette firm like ours, and I think our counter-cyclical timing has become part of our DNA.
and finally to UBS. But by 2006, I was pres- The crisis also put a spotlight on the value of truly independent, unconflicted advice.
ident of the investment bank at UBS at the We see that play out today as clients demand not only independent advisors, but inde-
time, it occurred to me that what I had pendent advisors who are global, who are discrete, and who are trustworthy. This is
come to enjoy about the industry had dis- highlighted by the assortment of transactions you made reference to – we act as a financial

20 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017

1711OGFJ_20 20 11/3/17 9:43 AM


advisor, as a partner, to our clients. And by doing this effectively,
we are their long-term partner in some of the most important
decisions they make.
OGFJ: There are a number of independent investment banks.
Can you elaborate as to how Moelis is different?
KM: As I mentioned, we immediately recognized the importance
of being global, while at the same time, being acutely focused on
the details of our clients. We knew there was no sense in building
a global firm if we didn’t foster an environment of teamwork and
collaboration. Unlike a lot of other firms, we do not have an “eat
what you kill” model. We all share one global P/L, so our clients
can count on getting the best advice from globally-coordinated
and multi-disciplinary deal teams. We believe our teamwork and
execution capabilities are second to none.
Today we employ over 700 people around the world, are present
in every major market, and have been able to build out our coverage
in new regions counter-cyclically. For example, when big banks
were pulling out of Brazil, we saw the significant opportunity that
still existed there, and also we were one of the first independent
banks to establish a presence in Dubai. In Houston, we made the
decision to enter the market and grow our oil and gas team largely
during the period when many other firms were contracting due
to the cyclical decline in the energy sector.
OGFJ: So you opened a Houston office in 2011 and really started
bulking up your oil and gas coverage over the past two to three
years. Fast forward to today, you have bankers covering every
vertical in the sector. Walk us through the build-out strategy
for your oil and gas franchise and what your goals are for the
team.
KM: When opening an office like Houston, our strong suit is
bringing in deeply-experienced industry bankers and integrating
them into our global platform of highly-specialized product bankers.
So what does that mean? That means that our clients in Texas and
throughout North America get access to our global network through
trusted advisors who are industry veterans that know the region
inside and out. Since starting this franchise in 2011, we have added
and developed expertise across the full spectrum of oil and gas.
Our Houston office of around 35 professionals offers a complete
suite of advisory services, including M&A (public advisory, private
advisory via buy- and sell-side, and A&D), capital markets, and
restructuring/liability management.
Our primary focus is to cover our clients on an ongoing basis
and help provide solutions for these companies in the upstream,
midstream, and oilfield services and drilling sectors. The feedback
from our clients has been that we are tremendously helpful to them
as they have had to navigate an incredibly challenging market,
primarily due to the drop in commodity prices. However, as the
market outlook improves, we think we are well-positioned to advise
clients who are ready to explore a variety of alternatives, including
raising capital and engaging in strategic M&A and A&D
NOVEMBER 2017 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
1711OGFJ_21 21
AN INTERVIEW WITH KEN MOELIS
opportunities.
Since the beginning of 2015, our global energy team has com-
pleted over $700 billion in M&A, capital markets, and debt restruc-
turing transactions for clients in the energy space. As our clients
consider the various alternatives I just mentioned and look towards
their next stage of growth, we look forward to keeping up this
momentum and delivering for them at every opportunity.
OGFJ: Tell us how your team in Houston fits into the global
energy picture at Moelis & Company. Is it all oil and gas
coverage?
KM: At Moelis, we manage our global oil and gas practice through
our two main energy hubs, namely Houston and London, which
have professionals that spend a majority of their time in the energy
sector. These hubs are supported by industry bankers across our
19 offices around the world, including Dubai, Brazil, Australia,
China, India, and Hong Kong (to name a few), with many of our
regional bankers having significant energy experience. While our
Houston office is largely focused on oil and gas coverage and exe-
cution, we also have leading chemicals, infrastructure, power, and
utilities groups that dovetail with our oil and gas bankers to provide
a seamless and holistic global energy offering.
OGFJ: After a period of prolonged volatility, you mentioned
an improving fundamental outlook. That means, for some, it
is the right time to consider mergers and acquisitions, as well
as growth capital. What are you seeing with your client base
regarding this?
KM: As you know, companies in the oil and gas sector have gone
through a very challenging time over the past three years, wherein
there has been a clear focus on balance sheets and liquidity. We
experienced this shift first-hand through our restructuring and
liability management expertise, and we assisted many companies
in navigating these issues. However, as the markets appear to have
stabilized, there are new and different sets of challenges and op-
portunities. Many companies underinvested during this period,
which is leading to capital requirements. It’s also become apparent
that there are real benefits to consolidation, as well as high-grading
assets. As a result, we would envision that both the corporate and
asset M&A/A&D markets will continue to accelerate in this
environment.
OGFJ: Related to the M&A market, we have seen private equity
continue to be quite active – how do sellers prepare for that
dynamic?
KM: Private equity always brings a different set of terms, risk
appetite, and approach. We are seeing sponsors looking to make
investments across the entire oil and gas value-chain. I think the
most important thing we can focus on is how the sponsor universe
finances these acquisitions. Many lenders are still very cautious
about providing capital into levered situations – an understandable
21
11/3/17 9:43 AM
 AN INTERVIEW WITH KEN MOELIS
reaction born from the challenges faced over the past few years.
This likely means that more equity capital will be used to finance
transactions as compared with what we saw prior to the cyclical
decline.
Aside from upstream, which typically accounts for the largest
share of private equity in the oil and gas space, we know sponsors
are focused on quality companies and management teams in the
midstream and oilfield services and drilling sectors. Suffice it to
say, when you combine private equity interest with the industrial
logic behind corporate consolidation and mergers, this seems to
be an interesting time to think about this strategically for many
companies. Ultimately, sellers need to be strategic, consider the
long-term vision for their company, and properly assess their
value.
OGFJ: For the past seven or eight years, US oil and gas producers
have focused on unconventional plays, mainly shale formations.
For the past few years, the Permian Basin has been the hottest
of all the shale plays. Land prices there have skyrocketed, but
upstream companies are still selling assets in other areas to buy
into or focus their presence in the Permian, and much new
infrastructure is being built there. How long will this West Texas
boom continue and does it hamper activity elsewhere, including
offshore?
KM: We have seen a significant number of transactions in the
Permian Basin, particularly during the first two quarters of 2017,
so prices rose dramatically in the region. We are having discussions
with companies that had been focused on growing in that basin,
and would still be very interested if the right opportunity or trans-
action were to manifest itself. However, due to the flurry of trans-
actions and very competitive nature of the region, they are looking
to deploy capital elsewhere.
Clearly, the Permian Basin will continue to see growth as it is
one of the most prolific basins in the world, but we also expect
companies to continue to focus on regions across North America
to invest capital and drive their growth. Other regions are seeing
increased activity such as the Mid-Continent, particularly around
the SCOOP/STACK, Appalachia, and even ARKLATEX, are seeing
an uptick in activity. As it relates to the offshore and the GOM,
these are obviously very large projects that take years to design
and complete. We believe that offshore will recover. However, we
expect that recovery timetable to be behind onshore. We think
you will start to see more activity there, particularly in the Deep-
“As the markets appear to have stabilized, there are new and different sets of
challenges and opportunities. Many companies underinvested during this period,
which is leading to capital requirements. It’s also become apparent that there are
real benefits to consolidation, as well as high-grading assets. As a result, we envision
that both the corporate and asset M&A/A&D markets will continue to accelerate
in this environment.”
22
1711OGFJ_22 22
water. There is also a consolidation story developing on the Shelf,
as many companies in this region work through their balance sheet
challenges, and recognize that bigger is better in this region for a
variety of reasons.
While oil appears to have stabilized around $50 to $55 per barrel,
the threat of volatility still looms in the back of executives’ minds.
We constantly hear from companies all along the value and distri-
bution chain that cost reduction is absolutely paramount.
OGFJ: What are some of the ways you have helped your clients
think about taking out costs and not just surviving, but thriving
in this commodity price environment?
KM: The first big step for a lot of our clients, particularly those in
the upstream space, is looking at their portfolio and making a clear
decision about the viability of core assets and where they want to
invest. That typically leads to the next discussion around divesting
non-core assets. These tend to be costly and capital-intensive
businesses that, at the current breakeven cost, create little to no
value for the company. Conducting both of those exercises strength-
ens the company’s financial position. We have seen companies
throughout the oil and gas value chain tighten their belts dramat-
ically in this environment, from reducing workforce to pushing
their vendors and suppliers to cut prices. Much of this has been
very good for the industry, as companies are laser-focused on the
entire income statement. But some of these costs have to be rein-
troduced as the industry recovers – there is a requirement for labor,
increases in wages, and increases in service costs in order to make
adequate returns. As mentioned earlier, strategic transactions have
also created an opportunity to find synergies and take out costs.
OGFJ: How will renewable energy impact the oil and gas sector
globally?
KM: As a result of the volatility and price pressure, we have seen
a rebalancing of the oil and gas sector over the last couple of years
that should help the industry remain competitive and strong. Costs
are coming down, and consolidation and technology have helped
reduce breakeven levels. While we expect to see renewable power
generation continue to increase, it still only represents less than
20% of total demand in the United States. Demand for oil and gas
is rapidly expanding in emerging markets, which creates greater
opportunities abroad.
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11/3/17 9:43 AM
 AN INTERVIEW WITH KEN MOELIS

OGFJ: What aspect of your business

keeps you awake at night?

KM: What I am most concerned about

is our access to top-level junior talent. I
think the same reasons I left UBS 10-or-so
years ago – the bureaucracy, lack of focus
on clients, the consolidation in banking
that took the culture and excitement out
of being a banker – has trickled down to
the young college graduates who are
about to launch their careers. Thirty years
ago, the top 5% of college graduates were
excited to start a career on Wall Street.
They were attracted to the high-profile
work they could do right out of the gate,
LtoR: Adrian Goodisman, managing director, upstream oil & gas; Bryan Lastrapes, managing and the comradery of working on a team
director, upstream oil & gas; Ken Moelis, founder, chairman, and CEO; Brian Jinks, managing
of brilliant people to find solutions for
director, midstream oil & gas and MLPs; David Cunningham, head of US oil & gas and oilfield
services. Not pictured: Bassam Latif, managing director, oil & gas restructuring; and David the world’s largest companies.
Bradshaw, senior advisor, upstream oil & gas. That opportunity is still there and that
work is as important as ever, but today,
OGFJ: Activist pressure in both oil and gas and power and utilities has increased that same 5% have the opportunity to go
recently. Tell us how you’ve seen activist campaigns change and how Moelis & Company into lucrative careers at tech companies
works with companies facing activists? and startups, which are attractive be-
cause they offer new recruits a chance
KM: The same forces that make for a constructive deal-making environment also help to be innovative, to scratch their entre-
grow activist pressure, so we see that theme continuing to play out. For oil and gas com- preneurial itch. That’s what I think got
panies that have navigated the volatility well, shareholders want them to go out and put squashed as those universal, behemoth
their excess capital to work, but some shareholders are very specific as to how they think banks were created over the last two
companies should put that capital to work. In contrast, for companies that have lingering decades.
balance sheet or liquidity issues, some shareholders are applying pressure. In the current At Moelis we foster a tight-knit culture
environment, activists are making recommendations ranging from not doing M&A, to that encourages innovation and cele-
pushing for consolidation, to breaking up companies for a sum-of-the-parts valuation. brates entrepreneurship. Our clients,
Simply put, shareholders are becoming more active and have views that span the entire many of which are the world’s largest
spectrum of alternatives a company may consider pursuing. multinational corporates, rely on us for
We think that these types of situations highlight the importance of working with an advice, and I continue to believe that
independent advisor, and how important it is to avoid conflicts of interest. advising these clients through the stra-
tegic decision-making process is one of
OGFJ: You mentioned your presence in Dubai earlier, and I wanted to ask about the the best professional experiences out
activity we have seen out of the national oil companies in the Middle East. In October, there – and one of the few professions
you were listed as an advisor to Abu Dhabi National Oil Company on the $3 billion where, even as a young banker, your work
bond offering by its subsidiary, Abu Dhabi Crude Oil Pipeline LLC. There have also has real impact.
been numerous stories in the international press about the planned IPO of Saudi As you can tell from our conversation,
Aramco. Earlier this year, various media outlets mentioned that Moelis & Company there are a number of disruptive forces
has been chosen as the sole independent adviser for that IPO. If these reports are at play, not just in energy, but across every
accurate, this would be a real coup for Moelis and would represent the biggest equity industry. I think banking puts you on the
advisory mandate to date. What, if anything, can you tell us about this? forefront of disruption, challenges you
to think critically about how the world
KM: Our role advising ADNOC on the $3 billion bond offering by its subsidiary, ADCOP, is is being changed, and to actively take
very-much in the public domain via the offering documents. But, beyond that, I will let the part in shaping it.
transaction speak for itself. It was one of the largest asset-backed bond offerings in the history
of the region, and ADNOC and its subsidiary have been very clear about the use of proceeds. OGFJ: Thanks for taking time to talk
As I mentioned earlier, confidentiality is at the core of our business. We pride ourselves on with us, Ken.
our discretion and therefore do not discuss stories in the press or any client business.

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1711OGFJ_23 23 11/3/17 9:43 AM

 Private equity JVs
SHORTAGE OF TRADITIONAL CAPITAL IN OIL AND GAS CREATES OPPORTUNITIES FOR PRIVATE EQUITY
JUSTIN T. STOLTE AND MICHAEL P. DARDEN, GIBSON, DUNN & CRUTCHER LLP, HOUSTON

EDITOR’S NOTE: This is the first of

three articles by Justin Stolte and Mi-
chael Darden on private equity in the oil
and gas industry. Articles two and three
will run in future issues of OGFJ.

DESPITE AN ABUNDANCE of resource

opportunities in the United States, capital
in the oil and gas sector remains relatively
tight, with traditional financing sources—
capital markets (debt and equity) and
banks (secured and unsecured loans)—
continuing to be somewhat inaccessible
to many industry players. The inaccessi-
bility of traditional financing sources is
the result of several factors, including
stricter lending standards imposed fol-
lowing the global financial crisis in 2008
and the wave of bankruptcies across the
oil and gas sector in 2015 and 2016, as well
as continued volatility in commodity
prices.
Despite these headwinds, the oil and

gas sector remains resilient. Crude oil
production in the US is forecast to reach
an average of 9.9 million barrels per day
in 2018, surpassing the prior record of 9.6
million barrels per day in 1970. Similarly,
record domestic natural gas production
is expected to continue into 2018, with
the US likely becoming a net exporter of
natural gas next year for the first time.
The strength of domestic oil and gas pro-
duction is expected to continue for the
foreseeable future, with combined oil and
gas demand (globally) projected to in-
crease for several decades (even in the
most aggressive “peak oil demand” sce-
narios so often written about these days),
a significant portion of which is expected
to be provided by domestic sources.
The lack of traditional financing sourc-
es noted above, paired with the industry’s
projected growth in production, has cre-
ated a significant opportunity for private
equity firms in the last several years. Since
the beginning of the commodity price
© Mast3r | Dreamstime
downturn in mid-2014, PE firms have reportedly raised more than $100 billion for in-
vestment in the oil and gas space. Much of this capital has been deployed through the
use of joint ventures across the industry, often serving as marriages of necessity between
PE firms seeking to invest in oil and gas projects and industry players in need of devel-
opment capital.
As we head into 2018, it is expected that joint ventures will play an increasingly
important role in the sector, as it appears that over half of the $100 billion raised since
2014 has not deployed, making this an opportune time to review the various joint
venture structures that are commonly used by PE firms to make oil and gas investments.
This article will provide a brief overview of those structures.
DEFINING JOINT VENTURES
Before proceeding further, we should clarify this article’s use of the term “joint ventures.”
The term does not have one accepted definition in the oil and gas industry and is often
used loosely by industry participants to describe a multitude of commercial arrange-
ments. Moreover, the term can have a very distinct meaning when used in the legal
context, especially with regard to the allocation of liability and whether fiduciary duties
exists between parties. For purposes of this article, the term is used in a very general
sense to describe arrangements whereby a PE firm is making an investment with a

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1711OGFJ_24 24 11/3/17 9:43 AM

 company, either at the asset-level, in the case of drilling ventures,
or at the equity level, in the case of infrastructure joint ventures
and equity lines of commitment.
We will present this article in three parts, the first of which
provides a brief overview of a certain type of drilling joint venture
arrangement commonly referred to as “DrillCos.” The second
and third installments of this article will focus on PE investments
through infrastructure joint ventures and equity lines of com-
mitment with management teams, respectively.
DRILLCOS
The last few years have seen the emergence of a transaction
structure called the DrillCo, a large-scale drilling joint venture
arrangement, the contours of which are often very similar to a
farmout of the drill-to-earn variety. It should be made clear that
drilling joint ventures have been utilized in the oil and gas industry
for a very long time, so DrillCos are not new structures. Also, for
the sake of clarity, it should be pointed out that there is no new
company (no “co”) formed in a DrillCo. Rather, each party to the
transaction will ultimately hold an interest in the properties
included in the transaction, subject to a variety of agreements.
While it is tempting to try to identify what is “market” in regard
to any type of transaction, there is really no market for DrillCo
transactions, as each DrillCo transaction is a uniquely negotiated
transaction. Nevertheless, it can be helpful to identify common
terms used, and perhaps trends, in these transactions. This can
be tricky, as it requires making generalizations based on a some-
what limited sample size.
In its most basic form, a DrillCo involves the contribution of
acreage by an operator and the contribution of cash by an investor.
The investor pays for its share of all costs and some—or, in rare
instances, all—of the operator’s share of certain defined costs in
wells drilled. In return, the investor earns, and is assigned, a
working interest in the wells drilled. The assigned interest is
subject to partial reversion to the operator upon the investor
achieving an agreed internal rate of return typically between 10%
F1: FOUR COMMERCIAL POINTS LIKELY TO BE FIRST
NEGOTIATED
WI in Tranche Wells,
subject to partial reversion
at IRR Hurdle
OPERATOR INVESTOR
Carry on a portion or all of
operator’s share of D&C
costs for Tranche Wells
NOVEMBER 2017 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
1711OGFJ_25 25
“For an operator holding acreage with development
potential, but with limited access to capital, a
DrillCo presents an attractive mechanism by which
to develop its acreage. For an investor, a DrillCo
provides an opportunity to deploy large amounts of
capital, while accessing management expertise and
quality oil and gas assets not otherwise available
to the investor.”
to 20% (or some other agreed return metric) on its investment
(the IRR Hurdle).
For an operator holding acreage with development potential,
but with limited access to capital, a DrillCo presents an attractive
mechanism by which to develop its acreage. For an investor, a
DrillCo provides an opportunity to deploy large amounts of
capital, while accessing management expertise and quality oil
and gas assets not otherwise available to the investor. DrillCos
involve significant capital commitments, typically staged in
tranches, with the capital commitment for each tranche poten-
tially being in the hundreds of millions of dollars.
The description in Figure 1 of a basic DrillCo highlights four
key commercial points that are likely to be the first to be nego-
tiated, and that will become the foundation of the term sheet
that is typically agreed prior to negotiation and preparation of
definitive agreements for the transaction: (1) the percentage of
the operator’s share of certain costs that will be borne (i.e., carried)
by the investor in addition to the investor’s share of those costs
prior to reversion (i.e., before the IRR Hurdle is met); (2) the
working interest (WI) to be earned by the investor prior to re-
version; (3) the WI (or other interest) to be retained by the investor
subsequent to reversion (i.e., after the IRR Hurdle is met); and
(4) the IRR Hurdle.
These four key commercial points are often reflected in the
term sheet by a chart similar to the one shown in Table 1, although
in the definitive agreements these commercial points would be
described more comprehensively.
Of course, transactions may be structured differently. For
instance, partial reversions may occur incrementally at different
return levels, and any of the other commercial points could be
handled differently. Nevertheless, the chart above represents a
typical treatment of the key commercial points. t is only after
these points are agreed that the real work begins. The term sheet
will also address a significant number of additional items, which,
together with the other deal terms and boilerplate, will be ex-
T1: FOUR COMMERCIAL POINTS REFLECTED
IN THE TERM SHEET
Operator Investor
(1) Development costs __% __%
(2) Initial WI in wells __% __%
(3) WI in wells after IRR Hurdle __% __%
(4) IRR Hurdle __%
25
11/3/17 9:43 AM
 panded on and addressed in detail in the definitive agreements
used to evidence and implement the final agreed terms of a
DrillCo.
A Joint Development Agreement (JDA) is the key DrillCo
agreement and contains the comprehensive expression of the
rights and obligations of the parties to the DrillCo. The JDA
typically includes some or all of the following exhibits:
• Joint Operating Agreement (JOA): The JOA is used to govern
operations for each contract area. The contract area may be
defined on a well-by-well basis or a tranche-by-tranche basis,
or anything in between.
• Initial Work Program and Budget (Initial WP&B): The Initial
WP&B is typically deemed approved upon execution of the
JDA. Since capital commitments for DrillCos are typically
made on a tranche-by-tranche basis, each tranche has a
separate work program and budget. The Initial WP&B defines
the investor’s obligation to participate in the initial tranche
of wells, potentially within an established time period.
• Assignment: The Assignment is used to convey to the investor
the interest earned (subject to reversion) in the relevant wells
upon the occurrence of an earning event. Assignments can
be made on a well-by-well basis, on a well tranche basis, or
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1711OGFJ_26 26
simply on a periodic basis, as negotiated by the parties. The
working interest earned is typically limited to a well-bore
assignment, and may also be limited to the depths drilled or
being produced under the DrillCo.
• Memorandum of JDA and Memorandum of JOA (collectively,
“Memoranda”): The Memoranda are utilized to put third
parties on notice of the terms and obligations of the parties
under the JDA and each JOA. To achieve this, the Memoranda
are recorded in the real property records in the county or
counties in which the underlying properties are located.
• Tax Partnership Agreement: The Tax Partnership Agreement
is utilized to ensure that the tax benefits derived in connection
with the “carry” component of the investor’s payment obliga-
tion may be realized.
• Management Services Agreement (MSA): The MSA sets forth
the arrangement pursuant to which the operator may provide,
for the benefit of the investor, any number of services in con-
nection with the DrillCo activities. The services provided may
include services such as accounting (including production
accounting), authority for expenditure (“AFE”) and joint in-
terest billing (“JIB”) processing and administration, royalty
and tax administration, marketing, regulatory, engineering,
and land (including land administration), but the services
provided will vary from deal to deal. In most situations, the
investor will not be in a position to perform these services for
itself, at least not at the outset.
It is important that outside advisors be engaged early and
often in DrillCo processes to help facilitate the negotiation of
these DrillCo documents. These negotiations are often fairly
time intensive, with issues frequently arising with respect to the
investor’s level of control over operations, transfer restrictions,
“off-ramps” providing certain protections for the investor if a
tranche’s wells are underperforming, and methods for determin-
ing whether the IRR Hurdle has been achieved, among many
others. In many cases, DrillCos are not successfully launched
due to the parties’ inability to reach agreement on such terms.
We hope that the first part of this article helps those faced
with the task of working on a DrillCo transaction feel more
prepared for those negotiations, as well as in the implementation
of DrillCos once the definitive agreements have been signed.
ABOUT THE AUTHORS
Justin T. Stolte is a corporate partner in the Houston
office of Gibson, Dunn & Crutcher LLP, and a mem-
ber of the firm’s Private Equity, Mergers and Acqui-
sitions, and Oil and Gas practice groups.
Michael P. Darden is partner-in-charge of the Hous-
ton office of Gibson, Dunn & Crutcher, chair of the
firm’s Oil & Gas practice group, and a member of
the firm’s Energy and Infrastructure and Mergers
and Acquisitions practice groups.
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11/3/17 9:43 AM
 TM

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 Hybrid approach to debt-equity structure
A DATA-DRIVEN APPROACH DELIVERS ACTIONABLE INSIGHTS AND
HELPS DRIVE PRUDENT DECISION-MAKING ON THE OPTIMAL DEBT-EQUITY MIX
PATRICK NG, REAL CORE ENERGY, HOUSTON
GEOFFREY WONG, IAM LEGACY, HONG KONG

WHETHER THE OIL PRICE will be $80 or $50 by 2020, two
challenges are here to stay. They are: 1) reduce variability, and
2) create a finance program that can weather “lower for longer”
oil price scenarios.
In our previous article in the December 2016 issue of OGFJ
(“Operating profitably with $50 oil”), we demonstrated how
alpha-seeking portfolio adjustment works. While pruning a
portfolio can enhance return on the edge, adjustment in itself
may not suffice to move the needle. By extension of the hybrid’s
bottom-up, highly granular, asset-level well economics modeling
and top-down portfolio simulation, we illustrate how a da-
ta-driven approach delivers actionable insights and helps drive
prudent decision-making on the optimal debt-equity mix. When
coupled with improved acreage and margins, the hybrid helps
reduce variance and strengthen execution.
USE CASE
First we simulate the universe of portfolios with different weights
of the underlying assets. Figure 1 shows the expected return
and volatility of portfolios. Next, express the incremental gain
in return with respect to volatility as pseudo capital-market
line, and finally determine the optimal debt-equity mix.
FIRST PRINCIPLE
We equate reducing variability to narrowing the spread of re-
turns. It can be accomplished by upgrading acreage and, or
adjusting portfolio allocation. While portfolio adjustment can
do only so much, heavy lifting will come from more impactful
acquisition which often requires financing.
The key is lower cost of capital. More concretely, quantify
how the weighted average cost of capital (WACC) varies with
debt/equity ratio. For the purpose of illustration (Figure 2), we
use a reference interest rate of 2.5% and equate the cost of equity
to the expected return of portfolio.
As evident in Figure 3, for rates higher than 8%, there is no
tangent portfolio for the underlying assets. When there is no
tangent portfolio, borrowing works for borrower, but is sub-op-
timal for lender. Within the pseudo capital-market line sweep
on positive rates (solid lines), there exist viable portfolios along
the efficient frontier. For each suitable reference rate, there is

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1711OGFJ_28 28 11/3/17 9:43 AM

 one and only one portfolio on the efficient
“Will oil be $50 or $80 by 2020? Investing in new high-impact projects
frontier that is tangent to the capi-
is about making probabilistic inference with imperfect information about
tal-market line, and the tangent portfolio
unknowable events in the future. With the advent of data analytics
offers the best risk-adjusted return with
and machine-learning algorithms, we will get past using averages for
optimal financing. For completeness,
major investment decisions, better exploit the spread, and explore
dashed lines (negative reference rates)
the “data” more fully and efficiently.”
are out of bound for optimal debt-equity
analysis.
When we iterate on the weighted av- to better acreage and margins? The universe of portfolios will migrate northwestward
erage cost of capital (WACC) versus to the upper left and the capital-line sweep captures more positive intercepts (i.e.,
debt-equity ratio, increasing leverage fewer dashed lines). As a result, the debt-equity sweet spot expands.
(higher debt-equity ratio) drives WACC
lower up to certain point (Figure 4). For
the three portfolios, the optimal debt-eq-
uity ratio varies from around 0.5 to close F1: EXPECTED RETURN AND VOLATILITY OF PORTFOLIOS
to 2 (in line with that of coal, renewables,
and oil and gas industries ( from Cost of Portfolio Monte Carlo simulations of 2500 Oil $50
Capital by Sector analysis, NYU, January 0.6
2017). 0.3
0.4 0.2
INTERPRETATION
0.1
Expected return

The use of debt at the tangent portfolio 0.2

Sharpe ratio
can be optimal for both the borrower and 0.0
the lender, at an appropriate reference 0.0
–0.1
rate. This makes the hybrid a quick strike-
zone scanner and viable loan optimizer, –0.2 –0.2
especially for recurring semi-annual re- –0.3
determinations (see “Billions of dollars –0.4
of bad oil and gas loans” by Laura Free- –0.4
man, September 2017 OGFJ). –0.6
The hybrid approach can help guide 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
an operator moving closer to the tangent Expected volatility
portfolio along the efficient frontier, as Note: The outer envelope defines the efficient frontier, on which reside portfolios with minimal volatility for a
given return.
well as the lender “redetermining” a loan
portfolio’s “sweet spot” – i.e., arc span on
the efficient frontier within the strike F2: WEIGHTED AVERAGE COST OF CAPITAL
zone. The transparency afforded by using VARIES WITH DEBT/EQUITY RATIO
the hybrid facilitates borrowers and lend-
ers to arrive at a win-win outcome, name- 24
ly, lowering the cost of capital, executing
the “right” projects, and delivering a 22
higher risk-adjusted return.
WACC (percent)

20
With a Fed rate hike, leading to higher
reference rates, debt-equity financing’s
18
sweet spot will shrink accordingly. On
the other hand, with a Fed rate cut, the 16
sweet spot will grow. For example, during
a period of historical low Fed fund rates 14
from 2010 to 2014 with oil prices hovering
above $80, borrowing mushroomed and 12
junk-rated debts peaked in Q2 2014. This 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
scenario is elaborated by the hybrid Debt-equity ratio
approach. Note: For cost of equity 17.5%, the mean of cost of debt 7.6%, and tax rate 32%, the optimal debt-equity cost
is around 2/3. Dots are data points connected by curve-fit solid line.
What happens when we have access

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1711OGFJ_29 29 11/3/17 9:43 AM

 F3: SWEEP OF CAPITAL-MARKET LINES ANCHORED BY • Deeper learning – at the junction of
VARYING INTEREST RATES first principle and learning algorithm,
the hybrid approach bodes well to
Portfolio Monte Carlo simulations of 2500 Oil $50 incorporate oil and gas production
0.6 data at the well and asset level, devel-
0.3
op actionable insights and a robust
0.4 0.2 strategy to thrive in the new normal
0.1
“lower for longer” world.
Expected return

0.2

Sharpe ratio
When we have access to more data
0.0 and train machines to learn, it will be
0.0
–0.1 possible to minimize the avoidable bias,
i.e., closing the gap between how well an
–0.2 –0.2
experienced practitioner can do versus
–0.3 a machine. Our ultimate goal is to digitize
–0.4
prudent decision-making by capitalizing
–0.4
–0.6
on the advances in algorithm and com-
puting, come up with a better way to
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 quantify and manage risk, as well as op-
Expected volatility timize debt-equity funding. Connect
Note: Sweep of capital-market lines anchored by interest rates varying from 2.5% to 8% (i.e., solid lines with positive strategy to execution and move the nee-
intercepts). Strike zone (dashed box) associated with interest rate of 2.5%, shrinks with Fed rate hike and expands with
cut (imagine base moving up and down). dle.

ACKNOWLEDGEMENT
F4: WEIGHTED AVERAGE COST OF CAPITAL SWEEP WITH We thank Rystad Energy for providing
INTEREST RATE AND COST OF EQUITY the production data for portfolio simu-
lation and analysis.

ABOUT THE AUTHORS

Patrick Ng is a partner at
Real Core Energy in Hous-
Relative WACC

ton. Ng has a focus on ac-

quisitions and divestitures.
He held operations and
technology leadership posi-
tions at WesternGeco and Fugro, devel-
oping and bringing solutions to market
at the intersection of data and technol-
ogy. He earned his MS in geology and
0 2 4 6 8 10
geophysics from Yale University and has
Debt-equity ratio
an MBA from the University of
Note: Weighted average cost of capital sweep with reference interest rates (2.5%, 5.25%, 8%) and cost of equity Houston.
(17.5%, 27.5%, 38.1%) for selected portfolios along the efficient frontier (Figure 3, green, blue, and red stars).
Relative WACC (vertical axis) simply means it can be calibrated to operator-specific cost of equity.
Geoffrey Wong, CFA is a
portfolio manager at IAM
SUMMARY Legacy, a family office in
Will oil be $50 or $80 by 2020? Investing in new high-impact projects is about making Hong Kong. He has worked
probabilistic inference with imperfect information about unknowable events in future. previously as an analyst and
With the advent of data analytics and machine-learning algorithms, we will get a portfolio manager for sev-
past using averages for major investment decisions, better exploit the spread, and eral major financial institutions and bou-
explore the “data” more fully and efficiently. As continuous improvement we can only tique investment banks in New York,
get better with data, reasons being: London, and Hong Kong. He received a
• Financial technology – efficient frontier, debt-equity calculus, faster what-if and BA from the University of California,
visual risk-return dynamic, constitute the first line of defense against irrational Berkeley and an MEng from Cornell
exuberance. University.

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Master Limited Partnerships
MLP FUNDAMENTALS AND RELATED STRUCTURING AND FORMATION CONSIDERATIONS
JEFFERY K. MALONSON, KING & SPALDING LLP, HOUSTON
IT HAS BEEN A ROUGH THREE YEARS in the energy sector. We
all witnessed the precipitous decline in oil and gas prices and the
wide-spread carnage that followed. As of July 2017, about 130 oil
and gas producers have filed for bankruptcy since 2015, involving
approximately $79.3 billion in debt obligations. While the midstream
sector has not experienced the same level of distress experienced
by the upstream oil and gas sector, it was not unscathed. As of July
2017, roughly 20 midstream companies have filed for bankruptcy
since 2015, involving nearly $20.3 billion in debt obligations.
During the downturn, upstream Master Limited Partnerships
(or MLPs), large and small, were disproportionately affected. Unable
to hedge a significant portion of future production, they were left
almost completely exposed to the sharp, sustained decline in oil
and gas prices. Reserves values decreased and borrowing bases
were reduced, leaving many producers significantly overdrawn
and unable to repay excess borrowings. To conserve capital, many
stopped paying quarterly cash distributions and slashed capital
expenditures. In the end, it was not enough. Unable to stem the
tide, virtually all fell into bankruptcy.
Although few midstream MLPs have sought bankruptcy pro-
tection, it is unclear whether the extreme dislocation in the up-
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© Anhong | Dreamstime
stream sector will adversely impact throughput volumes in the
future. Moreover, a number of analysts predict that the lack of
significant capital available to fund infrastructure projects may
negatively affect future takeaway capacity in some areas.
In the aftermath of the downturn, some are speculating that
the upstream MLP may never recover, at least not in its traditional
form. As it is, the midstream MLP has always been the most reliable
of the bunch – yet, many anticipate the midstream investor base
will be more discriminating, favoring midstream companies with
strong sponsors and attractive infrastructure projects. The general
consensus is that there is a market for “brand names” in the space.
So, why write about MLPs? Fair question. Reflecting on the
significant contributions made by MLPs in the energy sector can
be therapeutic in turbulent times. As some begin to cast doubt on
the durability of the structure, we should remind them that the
MLP has been solely responsible for funding the development of
oil and gas pipeline infrastructure in the United States for nearly
30 years. But more than that, it is an opportunity to get back to
basics.
This article briefly discusses certain fundamental principles of
MLPs, and then it identifies and explains common structuring and
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formation considerations designed to sup-
port the underlying objectives of the MLP.
It is important to understand that MLPs
are flexible and should be structured
around the specific cash flow characteris-
tics of MLP assets. If we have learned any-
thing from the latest down cycle, it is that
we should endeavor to structure MLPs to
withstand even the harshest price
environments.
MLP FUNDAMENTALS
MLPs are publicly traded limited partner-
ships that are listed on a national securities
exchange – typically, the NYSE or Nasdaq.
Similar to stock in a corporation, interests
in MLPs (referred to as “units”) are bought
and sold in public offerings and over the
counter through ordinary brokerage trans-
actions, similar to stock in a corporation.
The primary objective is to structure
and form a tax efficient investment vehicle
that generates sufficient current cash flows
to pay distributions to unitholders, has low
capital expenditure requirements to grow
its asset base, and has significant long-term
growth opportunities to increase cash dis-
tributions to unitholders over time.
Designing an MLP that achieves the
objectives of the sponsor and meets the
expectations of investors requires a detailed
analysis of the MLP’s expected cash flows.
It is critical that the MLP’s stated cash dis-
tribution policy reflects the projected cash
flow profile of MLP. For example, midstream
companies that are supported by long-
term, fee-based contracts typically generate
stable cash flows and, therefore, are suitable
for a distribution policy that pays a mini-
mum quarterly distribution. On the other
hand, companies with significant unhedged
commodity price exposure are not good
candidates for a minimum quarterly dis-
tribution policy – rather, a more appropri-
ate distribution policy would be variable
cash distributions.
Recognizing that there are material,
sometimes subtle variations in asset char-
acteristics, cash flow volatility, and the
perceived ability to mitigate cash flow vol-
atility over the long term are prerequisites
to selecting an appropriate MLP
structure.
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F1: ORGANIZATIONAL STRUCTURE OF AN MLP
Public unitholders
Sponsor Common Units
[Subordinated units]
Common units
100%
Indirect
__% Limited ownership
Partners Interest
The General Partner
[Incentive Distribution Rights]
__% Limited
Partner Interest
0% General Partner
Interest
The MLP
100% Indirect
ownership
OLP
STRUCTURING CONSIDERATIONS
Organizational structure of an MLP
The basic organizational structure of a MLP involves two tiers, with the MLP being a
limited partnership whose sole asset is the ownership of all of the membership interests
in a limited liability company or all of the partnership interests in another limited part-
nership that owns and operates the assets of the operating business (See Figure 1).
The general partner of the MLP typically owns a non-economic interest in the MLP,
and may own rights to increasing portions of cash distributed by the MLP, which are re-
ferred to as “incentive distribution rights.” The limited partnership interests in the MLP
are allocated between the sponsor of the MLP and the public investors.
The two-tier structure is based upon the desire for operational, legal, tax, and financial
flexibility. For instance, the two-tier structure allows a MLP to effect “double breasted”
financing – debt financing at the subsidiary level and debt financing at the MLP, which is
structurally subordinated to subsidiary level debt. Additionally, the two-tier structure
enables the MLP to segregate assets and debt among multiple subsidiaries for operational
accountability, liability, regulatory, tax, or various other reasons.
Economic structure of an MLP
Cash distribution policy – The economic structure of an MLP is centered around cash
flow and the expectation of cash distributions. Under the terms of the partnership agree-
ment, an MLP is required to distribute all “available cash” to its unitholders, quarterly or
monthly.
• Minimum quarterly ddistributions – Businesses that generate stable and consistent
cash flow from quarter-to-quarter are able to commit to paying a “minimum quarterly
distribution” to unitholders. In the offering documents, the MLP makes a statement as
to its “intention” to distribute a specific minimum quarterly distribution on each out-
standing unit. This stated intention is the basis for the “yield” at which the MLP is
marketed to investors. When the MLP intends to pay a minimum quarterly distribution
to its unitholders, the sponsor will retain a portion of its equity in “subordinated units”
to support the distribution on the common units. In exchange, the sponsor will receive
incentive distribution rights.
• Variable distribution MLPs – Businesses that do not generate stable or consistent cash
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 “In the aftermath of the downturn, some are speculating that the upstream qualifying income test, then it will be treat-
MLP may never recover, at least not in its traditional form. As it is, the ed as a corporation for US federal income
midstream MLP has always been the most reliable of the bunch – yet, tax purposes, and any income will be sub-
many anticipate the midstream investor base will be more discriminating, ject to both corporate level income taxes
favoring midstream companies with strong sponsors and attractive and individual income taxes.
infrastructure projects. The consensus is that there is a market for ‘brand The qualifying income test is satisfied
names’ in the space.” if at least 90% of the MLP’s gross income
for each taxable year is qualifying income.
flow from quarter-to-quarter have gone public as “Variable Distribution MLPs.” A Generally speaking, qualifying income is
Variable Distribution MLP is simply a publicly traded limited partnership with a policy income from natural resource activities –
of paying quarterly distributions of all reasonably distributable cash, without maintaining dividends –interest (other than interest
coverage or borrowing to pay consistent distributions from quarter-to-quarter. Instead, generated by a financial or insurance busi-
the focus is on optimizing business results and maximizing total distributions over ness) – real property rents – income from
time. the sale of real property – gain from the sale
• Subordinated units – The MLP will issue two classes of limited partnership interests of assets that generate qualifying income
in an IPO, subordinated units and common units. In the offering, common units will – income from the sale of stock or units,
be issued to the public investors, and the sponsor will receive both common units and and – gains from commodities – futures
subordinated units that are convertible into common units if certain conditions are – forwards, and – options, subject to certain
satisfied. By their terms, common units are entitled to receive minimum cash distri- limitations. Natural resource activities in-
butions before the subordinated units are entitled to receive any cash distributions. clude, exploration, development, mining
Consequently, the sponsor bears a disproportionate risk that there will be a shortfall or production, processing, refining, trans-
of cash to pay the minimum distribution on all of the common units and all of the portation, storage, and marketing of any
subordinated units – that is, there will be less than 100% distribution coverage. mineral or natural resource.
• Incentive distribution rights – Incentive distribution rights are designed to encourage
the general partner (owned and controlled by the sponsor) to operate the MLP in a Tax efficiency
manner that will increase cash flow from operations and cash distributions to the It is critical for those evaluating the MLP
limited partners. he owner of the incentive distribution rights is entitled to receive an structure to involve tax counsel early in the
increasing percentage (historically, up to 50%) of the cash distributions above specified process. In addition to the qualifying in-
levels or targets. Table 1 illustrates the allocation of distributions as distribution thresh- come analysis, tax counsel will outline and
olds are satisfied. diagram the steps required to ensure that
Again, incentive distribution rights are designed to encourage the general partner to assets are contributed to the MLP on a tax
increase cash flows from operations and distribute increasing amounts of cash to limited deferred basis. Likewise, tax counsel will
partners. Some practitioners also suggest that incentive distributions compensate the determine whether and to what extent the
sponsor for sharing a disproportion downside risk associated with subordinated units. MLP can dividend cash to the sponsor on
The flaw in this theory is that subordination generally ends (subordinated units convert a tax-deferred basis at the time of the initial
to common units) when certain conditions are met, while incentive distributions are public offering.
perpetual. The tax analysis also requires the spon-
sor and its advisors to analyze the expected
FORMATION CONSIDERATIONS amount of “tax shield” provided to investors
Qualifying income limitations over a two- to three-year period following
To be treated as a partnership for US federal income tax purposes – and receive “pass- the IPO. Tax shield is the difference between
through” tax treatment – a MLP must satisfy the “qualifying income test” set forth in the amount of cash distributed by the MLP
Section 7704 of the Internal Revenue Code of 1986, as amended. Pass-through taxation to its limited partners and the amount of
means that no federal income tax is paid at the partnership level. Rather, income is taxed income allocated by the MLP to the limited
only at the individual partners level. If a publicly traded partnership fails to satisfy the partners. The excess of the cash distributed
over the amount of income allocated is
T1: MARGINAL PERCENTAGE INTEREST IN DISTRIBUTIONS treated as a non-taxable return of basis. For
Marginal percentage interest in distributions example, if you purchase a unit for $10 with
Top quarterly distribution target amount Unitholders GP & IDRs a 10% yield and the tax shield is 80%, then
Up to 1st Target (115% of MQD) 100% 0% a cash distribution of $1.00 would require
Above 1st Target, up to 2nd Target (125% of MQD) 85% 15%
the MLP to allocate $0.20 in income, with
the remaining $0.80 treated as a non-tax-
Above 2nd Target up, to 3rd Target (150% of MQD) 75% 25%
able return of basis.
Above 3rd Target 50% 50%

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 Limited investor base
Although there is a growing base of institutions investing in MLP
Don’t miss another units, the market for MLP units is largely comprised of individuals
residing in the United States. Tax-exempt investors avoid investing
CAREER OPPORTUNITY in MLP units because the distributions generate unrelated business
taxable income, or UBTI, which is subject to tax in the hands of
such entities. Regulated investment companies, or RICs, find in-
vesting in MLP units less attractive because of the strict regulatory
limitations on the size of the RIC’s investment in MLP units.
Adverse tax consequences for foreign investors has substantially
limited the MLP investor base to US residents. A foreign person
investing in a MLP doing business in the US is himself deemed to
be engaged in the business in which the MLP is engaged – conse-
quently, the foreign investor would be required to file a return in
Top Oil & Gas Industry Employers are the US to report and pay taxes on cash distributions received from

RECRUITING
the MLP. What is more, the MLP is required by law to withhold
taxes at the maximum rate from the foreign investor’s cash distri-
butions, forcing the investor to file a US tax return to request what

NOW!
would likely be a significant refund.

Federal securities laws

Preparing for and completing an initial public offering is no small
with PennEnergy Jobs undertaking and requires a significant amount of time and resources
from the sponsor and the management team. Upon completion
of the IPO, the MLP will be a “reporting company.” As a reporting
company, the MLP will be required to make periodic filings with
the United States Securities and Exchange Commission – annual,
quarterly, and current reports.
Companies are wise to plan ahead and increase staff to ensure
they are able to satisfy the new regulatory obligations. Allocating
resources to meet the burdens and challenges of running a public
company will cost a lot of money, failure to do so may cost a lot
more.

CONCLUSION
Cash flow. Cash flow. Cash flow. Understanding the cash-flow
profile associated with a set of assets or a segment of the energy
sector is a prerequisite to selecting a distribution policy. Once you
have identified the appropriate policy, the rest is belts and sus-
penders. That is, the other economic considerations are available
to “support” the selected policy.

Visit PennEnergyJobs.com to ABOUT THE AUTHOR

UPLOAD YOUR RESUME
to the database today.
FREE • CONFIDENTIAL • ALL JOB TYPES & EXPERIENCE LEVELS
Jeff Malonson is a partner in King & Spalding’s cor-
porate practice group based in the firm’s Houston
office. He focuses his practice on capital markets,
mergers and acquisitions, and governance matters.
His capital markets practice includes representing
public and private corporations, master limited part-
nerships (MLPs), investment banking firms, and private equity
firms in initial public offerings (IPOs) primarily in the energy
sector.

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 Exports are changing crude oil logistics
NEW OPTIONS CREATE A MORE COMPLEX LOGISTICS PUZZLE
FOR MIDCONTINENT PRODUCERS AND MARKETERS
RICHARD MURPHY, ALLEGRO DEVELOPMENT CORP., DALLAS

CRUDE OIL LOGISTICS in the Midcon-

tinent region (AR, LA, KS, NM, OK, and
TX) seems to be a simple puzzle with few
pieces. Because all crude oil has to be
refined, companies typically transport it
from Midcontinent production locations
to the closest refineries, which are most
often located along the Texas and Loui-
siana Gulf Coast, via the most efficient
mode of transport (MOT).
The most efficient MOT is gathering
systems and pipelines. In reality, however,
blending and large amounts of crude oil
being transported by truck make the
puzzle more complex. Additionally, the
exporting of crude oil in the United
States, most of which will originate in
the Midcontinent, promises to compli-
cate the Midcontinent logistics puzzle
even more. While there are complexities
associated with Midcontinent oil logis-
tics, there are solutions that can help
your organization complete an export
logistics puzzle. (See Figure 1.)

© Leon Viti | Dreamstime

CRUDE OIL EXPORTS
Beyond the stabilization of WTI crude
prices in the $50 range, the most impact-
ful event for midcontinent crude oil is
probably the recent changes to federal
law allowing the export of crude oil. Ex-
porting crude oil brings into play a host
of elements that have not been consid-
ered in Midcontinent crude oil operations
since the late 1960s and early 1970s,
thereby eliminating some pieces of the
logistics puzzle and adding others.
US exporting is happening for two
primary reasons. First, most Gulf of Mex-
ico refineries are optimized for relatively
heavy oil (low API gravity). Due to this,
light crudes like those found in the Eagle
Ford and other Midcontinent basins com-
mand higher per-barrel prices on the
world market than they would if they just
delivered to Gulf Coast refineries. These
crudes are often blended down in quality
to meet refinery feedstock specifications.
Secondly, transportation via ocean-going vessels is very efficient. The smaller crude
oil tankers, like PANAMAX vessels, can transport around 300,000 Bbls of crude oil on
a single journey. One can transport a barrel of crude via a large crude oil tanker thou-
sands of miles for less than the cost to transport the same barrel fewer than two
hundred miles by truck. So, though the distance the crude oil is transported may go
up 10, 20, or 30 times; the transportation costs increase at a fraction of the distance
increase. As US port facilities get cleared for on-loading to super tankers that can
transport more than 1.7 million Bbls at a time, the economics will improve even more.
Currently, the differential between the value of light crude oil at Gulf Coast refineries
and its value at East Asian refineries is so wide that it is more profitable to transport
the crude oil thousands of miles to Asia and sell it rather than transport it hundreds
of miles to refineries in Texas and Louisiana.
In June of this year, crude oil exports from the US had grown to 1.3 Million BOPD
(Bbls of oil per day). Many think this level could double in the next two to five years
and the Midcontinent, with its close proximity to Gulf of Mexico ports, stands to
benefit the most from this exporting trend. Should exports double, the US will be

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 F1: MIDCONTINENT CRUDE LOGISTICS EXPORT LOGISTICS – A NEW LOGISTICS PUZZLE
EXPECTATION VS. REALITY For some grades of crude, exporting means that the blending
step can be eliminated, resulting in cost reductions and fewer
Gathering Refinery
System Delivery management headaches such as the need to balance light and
Pipeline heavy crude movements across stations to facilitate blending.
Production Movement
Similarly, if one’s light crude is already trucked directly to Gulf
Coast refineries, it could be trucked a few more miles to offload
to a tanker (if the tanker is onloading). The ports that export
crude oil are located in the same cities as the Gulf Coast refin-
eries that much of the Midcontinent crude oil traditionally
Expectation: flows to. So, except for blending in some instances, all of the
One might think that Midcontinent crude logistics is simple. existing pieces of the Midcontinent Logistics Puzzle remain.
Truck Refinery New pieces of the logistics puzzle are added for vessels as
Movement Storage Delivery existing pieces like railcars may be used differently and the
Storage & Pipeline
Production Blending Movement pieces may be re-arranged. Exporting Midcontinent crude oil
can be very profitable, but it also presents organizations with
a very complicated transportation puzzle. Since storage facilities
near the ports are generally dedicated to feedstocks, crude may
be stored at existing stations for longer periods of time as it
waits for tankers. Another option is to use railcars for the leg
Reality: to the port and store the crude in the railcars while it awaits a
The reality of Midcontinent crude logistics tends to be
more complex. tanker. Ocean-going vessels are an entirely different transpor-
tation method than trucks, railcars, pipelines, or even barges.
They have different processes, regulations, cost structures, and
exporting near the same level as Kuwait or Nigeria. These terminology than trucks, railcars and pipelines. This all has to
countries’ economies are almost entirely dependent upon crude be internalized by the logistics organization to enable effective
oil exports, which means US exports can be expected to change operations.
a lot more than Midcontinent logistics in future years. Tankers also open up an entirely new set of destinations for
crude oil and the possibility of multiple destinations on the

F2: MULTIPLE PIECES OF THE LOGISTICS PUZZLE

Production Truck Transload Rail Transload Vessel Refinery

Movement Movement movement Delivery

Railcars may be used for storage of crude oil while waiting to load a tanker.

Production Gathering Pipeline Storage Pipeline Vessel Refinery

System Movement Movement movement Delivery

Even without trucking or blending, the movement to export markets can become complex.

Production Truck Storage Transload Rail Transload Vessel Refinery Vessel Refinery
Movement Movement movement Delivery movement Delivery

Multiple destinations create opportunities but also add complexity.

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 F3: CTRM SOFTWARE CAN HELP CREATE A PROFITABLE EXPORT LOGISTICS CHAIN tively track and manage the exporting of
crude oil from the Midcontinent. In fact,
Prod
uctio Pipe these types of software solutions are nec-
n Move line
ment load essary to properly evaluate export op-
ing Trans el
her Vess ent
Gat stem em portunities and determine possible ex-
S y Mov
port logistics costs and the P&L impacts
Refin
Tru
Mcokve ck
Tru ding Deliv ery of the export strategy.
Movem ment Blen Stora
ery
ent ge Ra Similarly, when exporting crude oil, it
Move il
ment is critical for the CTRM to be compre-
hensive and capable of considering in-
ternational options. Capabilities such as
Without the right software solutions, the puzzle is just a pile of pieces. handling vessel expenses in multiple
currencies, calculating international tax-
Production Gathering Storage Transload Rail Transload Vessel Refinery
es, and calculating the best hedge for the
System Movement Movement Delivery volumes being transported become very
important in making such endeavors
profitable.
A good commodity trading and risk management software (CTRM) will turn the Finally, the CTRM solution should be
pile of pieces into a profitable export logistics chain. flexible and adaptable. As the last decade
has shown, the crude oil business can
change significantly. The most adaptable
same logistics movement. Instead of an organization having to consider, at most, a systems can implement new products
few dozen refineries when marketing the crude and planning the logistics, it now can and functionality in a few days or weeks,
potentially consider hundreds of potential refineries in several dozen countries. This even when utilizing company resources
makes marketing and logistics planning cycles much longer. With exporting, one has to do so, and can be tailored to precisely
to decide which puzzle they are building before they even begin to assemble the pieces. meet one business model. Having such
(See Figure 2.) a solution to facilitate logistics operations
Going from a purely domestic logistics operation to an international one also brings can enable Midcontinent companies to
additional challenges that impact logistics. The foreign currency implications alone, effectively capitalize on these new export
if not properly managed, could completely change the economics of a deal. Finally, opportunities and realize higher margins
there is the timing consideration. With traditional Midcontinent operations, most from more efficient logistics operations.
production in a given month could expect to be settled and paid for in the next month.
When utilizing crude oil tankers (which, aside from their long journey times and
multiple destinations), the process can take several days to load and unload at each ABOUT THE AUTHOR
destination, one might not receive payment for two to three months or more after Richard Murphy is the prod-
production. This, in turn, makes credit even more important in determining where uct manager for crude oil
the crude is delivered. and refined products at Al-
legro Development Corp., a
A MODERN SOFTWARE SOLUTION IS CRITICAL IN BUILDING YOUR PUZZLE provider of commodity trad-
There is no doubt that putting together the puzzle of Midcontinent crude oil logistics ing and risk management
exports is extremely challenging. Logistics in the Midcontinent is significantly different (CTRM) software. After four years as an
than it was just five years ago, and we are only seeing the beginning of the changes ICBM missile launch officer, he has spent
that will be brought about by the exporting of US crude oil. Yet, as frustrating and 25 years helping companies solve strate-
challenging as the management of the logistics can be, it is critical to do so because gic, tactical, and technological problems.
of its large financial impact. Some 17 of those years were spent solving
Thanks to a heavy reliance on trucking, Midcontinent logistics costs can be $5, problems at 40 different energy compa-
$10, or more per barrel. Vessels will only raise these costs further. With logistics costs nies. For the last eight years, his major
of $10 per barrel, even a 5% improvement could yield $0.50 or more per barrel of cost focus has been utilizing technology to
savings. Even at very low export volumes, say 250,000 barrels a month, could save a better manage crude oil logistics. Murphy
producer or marketer $1.5 million a year. (See Figure 3.) has a BSBA in finance and banking from
A comprehensive and adaptable CTRM solution for tracking, evaluating, and the University of Missouri and an MPA
managing logistics is essential to handling crude oil exports. It is important to be able from the University of Wyoming.
to evaluate multiple origin/destination combinations using multiple movement legs
with multiple transportation methods. This capability is required to be able to effec-

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Weathering the storm
LESSONS LEARNED FROM HURRICANES HARVEY AND IRMA
LORETTA TERRANELLA, DTN, OMAHA, NEBRASKA
DURING A NATURAL DISASTER, you need supply options.
Ensuring that you have allocations and truck time to supply
your customers can be the difference between keeping or losing
a long-time valued business relationship. It is during tight supply
times, like we saw recently with hurricanes Harvey and Irma,
that you should have a contingency plan in place to secure the
fuel you need. As wholesalers and marketers, several questions
and considerations should be addressed in order to have con-
fidence that you can obtain product, and obtain it quickly,
during times of tight supply.
SUPPLIER RELATIONSHIPS ARE KEY
When everyone is scrambling to get their hands on the same
product, having sufficient supplier relationships is critical to
ensure your trucks get loaded with the necessary product. In
some cases, like if one of your suppliers communicates a sig-
nificant supply disruption, your best option may be to send
trucks to load elsewhere. In situations such as these, it’s im-
38
1711OGFJ_38 38
© Kevin Tietz | Dreamstime
portant to build relationships with suppliers in surrounding
areas and be authorized to fuel at nearby terminals to save time
and effort and avoid the risk of having a truck return with an
empty tank altogether.
Like having relationships with terminals outside of your
normal loading area, another important precautionary question
to ask is whether you have carrier relationships that allow you
to move product from locations outside your normal geographic
area. Having this capability can drastically improve your chances
of securing the fuel you need during a large-scale supply dis-
ruption in your normal geographic area. And if so, are your
drivers carded at these new terminals? This variable will affect
your driver’s ability to secure fuel from a sophisticated and
robust terminal automation systems or legacy terminal solutions
which both require an authorization process to fuel.
Building these contingency plans takes forethought, and
can’t be done by simply picking up the phone when you have
trucks turned down at another terminal. Making sure you have
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 credit terms with these suppliers in advance is important and,
if you don’t, knowing what steps to take to get them is an es-
sential next step. Almost every fuel contract will have a force
majeure clause – so make sure you read the fine print and are
aware of your supplier’s contractual intent for when a natural
disaster occurs.
Furthermore, it’s important that your relationships with
suppliers, whether in your standard location or in the surround-
ing areas, are developed enough where you can reach them
after hours. In the case of a major supply disruption, like that
of a hurricane, that you can reach them outside of standard
business hours to confirm your allocations – or at the very least
– learn that you need to load product elsewhere so you can
plan truck times accordingly and in a timely manner. Sometimes
even more important is that you make yourself available so that
they can reach you to confirm allocations or warn of a supply
disruption. You would hate to have your suppliers trying to get
in contact with you to share critical supply information without
an efficient way to get a hold of you.
SECONDS COUNT
One thing is certain when trying to secure fuel during a tight
supply market – seconds count. For wholesalers and marketers,
it’s important to be equipped with technology that makes the
most of your precious seconds.
Advanced technological solutions can help you to immedi-
ately identify where product is available and where you have
allocations. Your price discovery tool should show you prices
not just within your immediate area, but in any geography
where you may pick-up product. They should also allow you to
easily see prices, and where you have allocations available – all
on one screen. During a crisis, you may very well be picking up
product several hundred miles away. It’s important in these
situations that you calculate-in transportation costs to price
your product correctly. Did you know an advanced price dis-
covery tool can automatically calculate freight costs for you?
Along with real-time price information, supplier communication
is also key.
Seconds most certainly count when communicating with
your suppliers. In the case of terminal outages, receiving im-
mediate notifications for outage updates for your suppliers can
save you precious time from calling around. In addition to
notifications, you want a real-time view of allocations. Suppliers
that use an online, real-time product allocation portal not only
set themselves apart but make the lives of those loading much
easier – especially when there are outages in certain areas.
Critical weather updates are another benefit of an advanced
price discovery tool. Do you have a solution that alerts drivers
to severe weather conditions such as wind, rain and hail? Having
your drivers notified when dangerous weather is within a certain
number of miles to them helps keep your carriers, and your
product, safe.
When equipped with the right technological solutions that
can identify where you have product available, especially during
NOVEMBER 2017 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
1711OGFJ_39 39
“What we learned from hurricanes Harvey and
Irma is that, to secure the fuel you need, having a
combination of robust supplier relationships and
real-time price and allocation information gives you
an advantage by saving you time and effort when
securing product and improving margins when you
turn around to sell it.”
times of severe weather like we saw with hurricanes Harvey
and Irma, securing the fuel you need becomes much easier. It
also helps keep your drivers, and your product, out of unsafe
driving conditions with targeted weather alerts for your trucks.
But, securing the product is only half the battle.
ONLY HALF THE BATTLE
Once you secure the fuel, capitalizing on having that product
by selling it quickly to your customers is critical. To do this
effectively, access to real-time spot ticker information is critical.
Savvy marketers watch this information closely in tight supply
times to see if it is ticking up or down. Having your finger on
the pulse can tell you when you should pull loads to get the
best price. For example, if the spot ticker is rising, your sales
team has the ability to sell additional fuel by recommending to
clients that they buy an extra load today to avoid even higher
prices tomorrow or in the coming days.
Does your sales team in the field have immediate access to
pricing data? For the most profitable margins, it’s important
for them to have real-time, mobile access to this information
so they can give potential customers a price on the spot, and
secure a deal.
CONCLUSION
Securing fuel in times of tight supply is a challenge faced by
wholesalers and marketers alike. What we learned from hurri-
canes Harvey and Irma is that, to secure the fuel you need,
having a combination of robust supplier relationships and re-
al-time price and allocation information gives you an advantage
by saving you time and effort when securing product and im-
proving margins when you turn around to sell it.
In the event of a hurricane or any other supply disruption,
being equipped with advanced technological solutions can
better prepare you to secure and sell fuel with confidence.
ABOUT THE AUTHOR
Loretta Terranella is regional sales director for DTN.
She has worked in the petroleum fuel distribution
industry since 2001, where she has held positions
with both Commercial Fueling Network and Ad-
vantage Energy Systems. DTN provides price no-
tification, business document delivery, market
intelligence, and business transaction support to North Amer-
ican refiners and refined fuel marketers.
39
11/3/17 10:06 AM
 Fighting bribery and corruption
TARGETED ANALYTICS ARE AN EFFECTIVE INSTRUMENT
IN THE BATTLE AGAINST BRIBERY AND CORRUPTION AT ENERGY FIRMS
MICAH WILLBRAND, NICE ACTIMIZE, LONDON

AS MOST PEOPLE KNOW, energy firms

– including oil and gas companies – are
greatly affected by geopolitical events such
as changes in government, armed conflicts,
and natural disasters. In addition, the in-
dustry is increasingly being impacted by
global regulations, significant fines, and
other challenges affecting the health of their
businesses. However, the impact of bribery
and corruption, and its ability to expand it
into new areas of the business, is one of the
greatest emerging threats facing the
industry.
In addition to monitoring their own
tightly-regulated actions, oil and gas com-
panies, like their peers in other industries
doing global business, are also held increas-
ingly accountable for the conduct of their
executives and staff. As part of the moni-
toring of global conduct, the effort to curb
bribery and corruption, and remain com-
pliant, is changing the way many oil and
gas companies do business, leading them

© Aleksandar Radovanovic | Dreamstime

to seek out technology solutions to manage
what was often relegated as an employee
management issue.
Remaining compliant with myriad reg-
ulations is a full-time job. And with the
increasing demands on companies to be
compliant with regulations, many oil and
gas companies are bulking up compliance
staff. The current model for many energy
firms conducting business is: organizations
tap into teams of accountants, analysts and
lawyers to manually review transactions,
invoices and procurement data for suspi-
cious behavior related to bribery and cor-
ruption. But this is a short term, manual
solution which cannot scale. With the
volume of data and the sheer complexity
of today’s bribery and corruption schemes,
it’s easier than ever for compliance teams
to miss critical red flags.
As oil and gas companies increasingly
turn to automation technology to address
the problem of bribery and corruption,
many are specifically using analytics pro-
grams to monitor for and stop these potentially illicit behaviors which can be disastrous
to both the bottom line and to a firm’s reputation.
Sophisticated analytics and rules have been designed to spot suspicious transactions,
invoices and procurement data. These suspect activities are then flagged to teams that
investigate the results of a technical analysis, which makes the entire process more efficient
and productive.
These systems look for transactions that are outside of the normal flow of business.
For example, ill-timed or duplicative payments, falsified invoices, and other suspicious
transactions. An analytics program will scroll through all the data held in an organization’s
general ledger to spot these suspicious activities and flag them for analysts.
One way in which the oil and gas industry is especially exposed to the risk of bribery
and corruption is in the acquisition of oil or mining licenses. During the bidding process,
a local third-party agent employed by a company to secure the contract may be working
behind the scenes to route bribes to officials overseeing the license. Upon the awarding
of the contract, these bribes are then paid and are disguised as payments to various officials
or sub-contractors.

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1711OGFJ_40 40 11/3/17 10:06 AM

 A specialized analytics system analyzes all the transactions
related to a deal and would look to identify the questionable pay-
ments using data points that include timing of the payments, types
of organizations, or unusual payment behavior, such as a one-off
bonus payment paid to the agent that was not agreed to prior to
the deal.
THE POWER OF AI
These new analytics systems are often designed with the power
of artificial intelligence (AI) at the core. These solutions can include
“fast track” capabilities of prebuilt analytics developed using thou-
sands of hours of research and experience in the field, these solutions
can quickly identify some of the more common scenarios which
trigger alerts. And once the organization begins submitting trans-
actions, machine learning comes into play and begins to learn
what a “normal” situation is for that particular business as it sees
more data.
This high-level information is also fed back to the overall service
as data scientists build more sophisticated analytics. Thus, the
service allows both customized learning as well as group level
learning for everyone in an organization that uses it.
Methods of evading detection continue to grow more and more
sophisticated. But, a targeted analytics system takes into account
decades’ worth of risk scenarios, and is constantly updated with
each transaction it processes and each alert it surfaces. Built on
the same infrastructure that often handles the processing of more
than 50 million transactions a day in its most strenuous applications,
the systems designed to track bribery or other forms of corruption
are often scalable to almost limitless performance.
Anti-bribery and corruption analytics are grouped into three
primary areas. Travel, expense, gifts, and entertainment is the first
and the primary area that organizations work with because it
improves the capabilities of their existing processes. The second
area that is adopting these new analytics is accounts payable,
followed by accounts receivable. While the travel area is nearly
always the first area to be rolled out, organizations tend to move
into monitoring the accounts payable or receivable areas based
on priority of risk as dictated by their specific concerns or client
work.
The introduction of specialized anti-bribery and corruption
technologies and systems has provided oil and gas companies with
an overwhelming sense of relief. Historically, bribery and corruption
has been an area underserved from a technical perspective, leaving
organizations vulnerable to legal, reputational, and even criminal
risk. Until now, compliance, ethics, and legal professionals have
been dependent on home-grown solutions to manage their inves-
tigations and compliance requirements.
This situation was forcing them to focus on training and aware-
ness programs because there were no analytics systems being
employed to help. But now, possessing the ability to tie disparate
ERP data systems together, analyzed by sophisticated analytics,
as well as case management for investigations and whistleblowing
protection, is a game changer for the industry.
The road ahead is full of opportunities to expand and automatic
NOVEMBER 2017 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
1711OGFJ_41 41
“The introduction of specialized anti-bribery and
corruption technologies and systems has provided
oil and gas companies with an overwhelming
sense of relief. Historically, bribery and corruption
has been an area underserved from a technical
perspective, leaving organizations vulnerable to
legal, reputational, and even criminal risk.”
analytics used to fight bribery and corruption, with the oil and gas
industry at a prime position to take full advantage of these advances.
First, is the continual creation of better and faster analytics to serve
the market. Anti-bribery and corruption scenarios are ever changing
and companies, through their analytics, are going to have to work
hard to stay ahead of the criminals.
Currently, about 50% of bribery and corruption cases are revealed
by whistleblowers. However, as new solutions come online that
address these findings, the clues uncovered by these whistleblowers
will become easier to track and prove. Through the development
of newer case management systems, these services will offer a
secure and streamlined work flow to ensure that whistleblower
tips are appropriately logged and reviewed. Additionally, these
types of solutions will be applied to many other areas that an or-
ganization must be in compliance with, such as health and
safety.
As bribery and corruption targeted analytics picks up steam in
the oil and gas industry, those companies not employing these
technologies may hopefully be in the overburdened minority.
Importantly, these analytics will enable oil and gas companies to
grow more responsibly as they move into new markets and
geographies.
Today, too much business is left on the table because a geography
or vertical is perceived to be too risky because of bribery or cor-
ruption concerns. Now, new technology solutions and analytics
enable businesses to tackle these markets responsibly by giving
centralized oversight to a company with minimal disruption to its
business.
ABOUT THE AUTHOR
Micah Willbrand is global head of anti-bribery and
corruption solutions for NICE Actimize. He works
with organizations to identify ways to mitigate bribery,
corruption, money laundering, and other financial
crime risks. He has more than 14 years of experience
in financial services and technology specific to global
AML/CFT initiatives, and brings a range of experience to enable
organizations to streamline customer onboarding and monitoring
programs. Prior to joining Actimize, Willbrand was global director
of risk at Reed Elsevier – Accuity, where he also held the positions
of director of risk and payments, EMEA, and director, Financial
Services Americas.
41
11/3/17 10:06 AM
 The BBA rules are coming
IS YOUR OIL AND GAS PARTNERSHIP READY?
LARRY A. CAMPAGNA AND JESSICA N. CORY, CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY, HOUSTON

THE UPCOMING New Year may present some nasty surprises
to oil and gas partnerships that have not prepared for the
new partnership tax audit rules. Entirely new Internal Rev-
enue Service (IRS) audit procedures will become effective
for partnership taxable years beginning after Dec. 31, 2017.
These new rules drastically change the way the IRS will assess
additional tax on partnership income. Moreover, the new
regime will make partnerships directly liable to pay any
additional taxes, not the individual partners.
The new partnership audit rules were enacted as part of
the Bipartisan Budget Act of 2015 (BBA). The BBA adopted
a streamlined set of rules designed to make it easier for the
IRS to audit and collect tax from large partnerships, partic-
ularly hedge funds, private equity firms, and oil and gas
partnerships. To accomplish these goals, the BBA authorizes
the IRS for the first time to assess and collect tax adjustments
at the partnership level, effectively imposing taxes directly
on entities taxed as partnerships. In effect, partnerships will
no longer be taxed entirely as pass-through entities.
Congress expects to raise $11 billion in revenue as a result
of these rules, so oil and gas partnerships should expect the
IRS to be aggressive in using its new tools. Fortunately, there
are actions tax partnerships can take now to reduce the
potential for negative consequences in the coming years.
OIL AND GAS PARTNERSHIPS
The term “partnership” is broader than most folks expect.
The Internal Revenue Code (IRC) defines “partnership” ex-

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1711OGFJ_42 42 11/3/17 10:06 AM

 tremely broadly to include almost any unincorporated joint
business operation. This definition is broad enough to cover
most types of joint operations in the oil and gas industry,
from formal partnerships to contractual joint ventures that
have not elected to opt out of partnership treatment under
IRC Section 761 (e.g., by striking paragraph IX of the AAPL
Model Form 610 Joint Operating Agreement). For tax pur-
poses, “partnership” also includes other entities, such as
limited liability companies, that have elected to be treated
as a partnership for federal income tax purposes in order to
obtain the benefits of a single level of income tax.
Oil and gas partnerships also include a significant number
of master limited partnerships (MLP), which combine the
tax benefits of a partnership and the liquidity of a public-
ly-traded corporation. Because MLP units are publicly-traded,
MLPs must satisfy specific requirements not imposed on
other tax partnerships. For example, MLP units must be
“fungible,” meaning they must have identical tax and eco-
nomic characteristics in the hands of a buyer, leaving MLPs
exceptionally sensitive to the entity-level tax envisioned by
the BBA.
UNDERSTANDING THE NEW
PARTNERSHIP AUDIT RULES
For more than thirty years, tax partnerships have been subject
to audit under the procedures established in the Tax Equity
and Fiscal Responsibility Act of 1982, commonly referred to
as TEFRA. TEFRA created a unified audit procedure for most
partnerships, which allowed the IRS to examine partnership
items at the partnership level, rather than opening an audit
into the personal return of each individual partner. Although
the TEFRA rules encouraged a partnership to name a “tax
matters partner” to help coordinate the audit, partners had
significant rights to notice and participation. In the event
the IRS determined adjustments to partnership items, the
adjustments flowed through to the partners, with the sep-
arate partners having the responsibility to pay their allocable
shares of any assessed tax, penalties, or interest.
The BBA rules radically change both the partnership audit
procedures and the collection of additional taxes from part-
nerships. Most importantly, the new rules shift the burden
of paying any tax adjustments directly to the partnership.
The BBA authorizes the IRS to assess any “imputed under-
payment” of tax at the partnership level, generally at the
highest individual rate of tax (currently 39.6 percent), rather
than at the separate partners’ individual tax rates, and then
to collect any tax underpayments, penalties, and interest
directly from the partnership.
The BBA rules also severely limit partners’ rights with
respect to the examination of the partnership’s return. Unlike
under the TEFRA rules, partners will no longer have the right
to receive notice of a partnership audit, participate in the
audit, or raise partner-level defenses. Instead, the IRS will
NOVEMBER 2017 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
1711OGFJ_43 43
“The BBA rules are extremely favorable to
the IRS, but they do provide taxpayers with a
few avenues for relief. For example, under IRC
Section 6221, small partnerships of 100 or fewer
qualifying partners are eligible to opt out of the
new procedures.”
only deal with a single designated “partnership representa-
tive” who will have the sole authority to act on behalf of the
partnership. If the partnership fails to designate a partnership
representative on its return for the year under review, the
IRS may select a partnership representative to act on behalf
of the partnership. Unlike the tax matters partner under
TEFRA, the BBA partnership representative does not have
to be a partner of the partnership, but can be any person
with a substantial presence in the United States.
RELIEF PROVISIONS
The BBA rules are extremely favorable to the IRS, but they
do provide taxpayers with a few avenues for relief. For ex-
ample, under IRC Section 6221, small partnerships of 100 or
fewer qualifying partners are eligible to opt out of the new
procedures. Qualifying partners include individuals, C cor-
porations, foreign entities that would be taxable as C cor-
porations under US law, S corporations, and the estates of
deceased partners. These qualifying partner rules mean that
some small partnerships will not be eligible to opt out of the
BBA rules. For example, if one of the partners is a partnership,
a disregarded entity, or a trust, the partnership cannot opt
out.
If an eligible small partnership wants to opt out of the
BBA rules, it must do so annually on its tax return. The
partnership cannot wait until an IRS audit to decide; it must
elect out of the BBA procedures when filing the tax return.
For partnerships that are too large (i.e., more than 100
partners) or too complicated (e.g., with another partnership
as a partner) to elect out of the BBA, there are two other
options to reduce the burden of the partnership-level tax.
First, a partnership can make a “push out” election under
IRC Section 6226. To do so, the partnership provides each
of its reviewed-year partners with a revised Schedule K-1
reporting such partner’s allocable share of any partner-
ship-level adjustments within 45 days of receiving notice of
a final partnership adjustment (FPA) from the IRS. This shifts
(or “pushes out”) the burden of payment from the partnership
to those who held an interest in the partnership during the
taxable year under review. However, the election comes at
the price of paying an additional two percent interest on any
underpayment.
Alternatively, a partnership can seek a modification of the
imputed amount of the tax under IRC Section 6225. These
43
11/3/17 10:06 AM
 provisions allow adjustment of the partnership tax liability
if the reviewed-year partners voluntarily amend their own
returns or if the partnership can show that the individual
partners would have been taxed at a rate lower than the
maximum individual marginal rate. For example, a partner-
ship can seek a reduction in the imputed underpayment
amount where at least one of its reviewed-year partners
voluntarily files an amended return, taking into account the
partner’s share of the adjustments in the FPA and remitting
the corresponding tax due.
A partnership can also request a modification to the extent
an adjustment is allocable to (1) a tax-exempt partner, from
which no tax should be due, (2) a C corporation, subject to
tax at a lower maximum rate (35%), or (3) in the case of
capital gain or qualified dividend income, an individual, as
such income is taxable at preferred rates (23.8%). MLPs can
also request a modification to the extent its partners have
“specified passive activity losses,” or losses from the MLP
suspended under IRC Section 469(k).
POTENTIAL CONSEQUENCES OF INACTION
Oil and gas partnerships, big and small, need to prepare for
the BBA rules. Failing to do so will lead to complications and
potentially increased costs. For example, if a partnership
does not consult with its tax advisors about designating a
partnership representative each year on its return, it poten-
tially leaves the selection of a partnership representative in
the hands of the IRS. Similarly, a small partnership eligible
to opt out under IRC Section 6221 must be proactive in
making such an election on its tax return each year or be
subject to the general BBA rules upon audit.
Thoughtful planning also is essential to avoid unnecessary
disputes among partners. By imposing an entity-level tax,
the BBA effectively shifts the tax burden from the partners
who owned partnership interests in the taxable year under
review to the current year’s partners, regardless of whether
the current partners owned any interest in the partnership
during the reviewed year. Under the BBA, the partnership’s
current partners will be subject to capital calls or reduced
distributions to pay any tax demanded from the
partnership.
Moreover, oil and gas partnerships face peculiar additional
complications from an entity-level tax. For example, the
Internal Revenue Code treats a joint venture that has not
elected out of partnership treatment as a separate entity,
despite being a purely contractual arrangement. A joint
venture is not a state-law entity, and it is unlikely to have a
bank account with funds that it could use to pay an “entity”
level tax. Accordingly, the joint operating agreement for any
tax partnership should address this issue specifically, either
by making a particular party (e.g., the operator) responsible
for paying any tax assessed against the joint venture under
the BBA, or requiring the partnership representative for the
joint venture to make a push-out election.
44
1711OGFJ_44 44
An entity-level tax will also cause unique difficulties for
MLPs. Because of the fungibility requirement for MLP units,
MLPs generally cannot make special tax allocations or dis-
tributions to a particular group of public unitholders or call
for additional capital from some public unitholders but not
others. An MLP thus cannot allocate the burden of the part-
nership-level tax to partners according to the interests they
held in the MLP in the reviewed year. Further, given that a
tax liability will likely drive down the trading price of an
MLP’s public units, it would be difficult to raise capital to
pay the tax by selling additional equity units. Instead, to pay
the tax, the MLP would need to use cash on hand – poten-
tially resulting in reduced distributions – or debt. An MLP
could also pursue a push-out election to avoid these conse-
quences and push the liability out to the reviewed-year
partners. But the average MLP has approximately 40,000
unitholders, so an MLP would struggle to make a push-out
election within the tight timeframe in which to issue adjusted
Schedule K-1s to all the partners.
RECOMMENDATIONS
The good news is that oil and gas partnerships still have
several months to prepare for the new BBA rules. During
that time, partnerships should review their governing doc-
uments and amend any tax matters provisions. At a mini-
mum, partnership agreements should be revised to:
Refer to the BBA rules, rather than the soon-to-be-outdated
TEFRA provisions;
• Designate a partnership representative or establish a
procedure to select the partnership representative for
each taxable year;
• Provide checks and balances on the partnership repre-
sentative’s authority, including notice procedures in ap-
propriate partnerships;
• In a small partnership, address whether to elect out of the
BBA rules and include transfer restrictions to ensure the
partnership remains eligible to elect out; and
• Determine whether all partners should indemnify the
partnership for their allocable share of any partnership
tax adjustment.
In addition, oil and gas partnerships concerned about the
potential impact of the new BBA rules should consult with
their tax advisers about other measures necessary to prepare
for these new rules.
ABOUT THE AUTHORS
Larry Campagna is a shareholder
and former chair of the Tax Contro-
versy Section of the law firm of
Chamberlain, Hrdlicka, White, Wil-
liams & Aughtry. Jessica Cory is an
attorney in the Tax Section of Cham-
berlain Hrdlicka.
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017
11/3/17 10:06 AM
 May 22-24, 2018 #PNEC2018
MARRIOTT HOUSTON WESTCHASE
HOUSTON, TEXAS, USA
WWW.PNECCONFERENCES.COM

REGISTER EARLY AND SAVE!

Save $150 on Full Conference Registration when you register by April 23, 2018.

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 DEAL MONITOR

Q3 US upstream deals down 40% from Q2,

clock in at $11.4 billion
ANDREW DITTMAR, PLS INC., HOUSTON

US UPSTREAM DEAL VALUE came in at $11.4 billion in the
third quarter, down 40% from the $20.1 billion in upstream deals
during the second quarter and far below the high-water mark
of $25.5 billion during the first quarter. Driving the decline was
a remarkable slowdown in Permian deal making, where the
total value transacted slid to just $1.3 billion. That is the lowest
total seen in the Permian since the first half of 2015 and is down
90% from the $18.4 billion that transacted during the peak of
the Permian boom during the first quarter.
Value was split between $735 million in the Midland Basin
and $531 million in the Delaware Basin. Midland Basin value
was almost entirely from QEP Resources Inc.’s acquisition of
property from the Cox family for $732 million. While total
transacted value fell, acreage values have remained strong. The
$51,400/acre paid by QEP Resources for the Cox family assets
is near the top value paid in either basin and not far off the
$59,000/acre QEP Resources paid in June 2016 for RKI Petroleum
assets in the same area.
Sky high seller expectations for leasehold in the Permian
may be one factor in the rapid slowdown of Permian transac-
tions. Buying acreage at these prices leaves little room for error
in execution. At the same time, execution risk may be rising as
demand for rigs, labor, and sand pushes costs up. In addition,
Wall Street sentiment has become more cautious about E&P
stocks, making the overnight equity raises that funded much
of the Permian boom more difficult. The new focus is less on
eye-popping IP rates and rapid growth and more about balance
sheet management and investor returns. This affects all basins,
but especially the Permian as it is the industry’s biggest growth
story.
The STACK ended up with top honors during Q3, hitting
$4.2 billion in deals. A majority of that value came from the $3.8
billion merger of Silver Run II with Alta Mesa and Kingfisher
Midstream. The Bakken saw a surprising resurgence, recording
$2.0 billion in transactions. That was the best total for the play
since before the oil price crash in 2014. Selling was led by Halcón
Resources, which transacted $1.5 billion in Bakken assets to
support its earlier Permian buying and future development. In
a trend spanning several quarters, Halcón’s Bakken assets were
snapped up by private equity portfolio companies. Private equity
was very active on the buyside during the third quarter, ac-
counting for nearly 50% of acquisitions. On the flip side, private

PLS INC. MONTHLY DEAL MONITOR – 5/17/17 - 6/16/17

SELECT US UPSTREAM TRANSACTIONS
Date
Announced Buyer Seller Value ($MM) Asset Location Deal Type O/G
13-Oct-17 Perdure Petroleum Chaparral Energy $170 TX: Panhandle & OK Property Oil
6-Oct-17 Banpu Carrizo & Reliance $210 PA: Haynesville Property Gas
5-Oct-17 PLS Confidential Ward Petroleum - OK: SCOOP/Hoxbar Property Oil + Gas
4-Oct-17 Exaro Energy III Linn Energy $200 WY: Conventional Property Oil
4-Oct-17 Lilis Energy Undisclosed $46 TX Permian: Delaware Property Oil
4-Oct-17 Matador Resources Undisclosed $38 NM Permian: Delaware Property Oil
27-Sep-17 ExxonMobil PLS Confidential - Permian: Delaware & Midland Property Oil
25-Sep-17 PDC Energy Bayswater E&P $210 CO: DJ Basin Property Oil + Gas
25-Sep-17 Bayou City Energy Chaparral Energy - OK: STACK Property Oil + Gas
20-Sep-17 PLS Confidential Halcon Resources $110 ND: Bakken Property Oil
Total $984

SELECT GLOBAL MIDSTREAM TRANSACTIONS

Date Value
Announced Buyer Seller ($MM) Asset Location Deal Type Asset Type
10-Oct-17 Brazos Midstream Callon Petroleum - TX Permian: Delaware Asset Gas Gathering
2-Oct-17 Global Infrastructure Partners The Energy & Minerals Group; Laredo $1,825 TX Permian: Midland Asset Crude Transportation
Total $1,825
Prepared by PLS Inc. For more information, email memberservices@plsx.com
Validity of data is not guaranteed and is based on information available at time of publication.

46 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017

1711OGFJ_46 46 11/3/17 10:06 AM

 DEAL MONITOR

equity only made up 5% of sales.
Outside of the STACK/SCOOP and Bakken, no unconven-
tional play had more than $1.0 billion in value during the third
quarter. Instead of concentration in a few hot plays, the market
was mostly characterized by geographically diverse buying.
Nine unconventional plays recorded at least one deal over $100
million, and a number of notable conventional assets also
changed hands. Oil deals returned to favor after a preference
for gas in the largest deals of the second quarter. Eight of the
top ten deals of the third quarter were for oily assets.
The trends established during the third quarter look likely
to carry forward through the rest of the year. Through the first
part of the fourth quarter, we have seen a continuation of di-
versified buying with most deals $200 million or under. Notable
recent transactions include Chaparral Energy Inc.’s $170 million
sale of EOR assets in Oklahoma and the Texas Panhandle to
newly formed Perdure Petroleum. Taking a page out of the
playbook of the Permian drillers, Chaparral Energy is selling off
non-core assets to sharpen its focus in the STACK, hoping the
strong regional focus plays well on Wall Street.
The same approach is being taken by Linn Energy Inc. At
press time, the company announced it was selling its Williston
Basin non-op assets for $285 million to an undisclosed private
buyer. That deal pushed Linn’s divestments since emerging from
its financial reorganization in February to over 10 and its total
proceeds to more than $1.5 billion. At the same time, Linn
strengthened its position in the Merge by forming a JV with
Citizen Energy II named Roan Resources.
More public operators are likely to continue to focus attention
on one or two key plays in order to highlight operational effi-
ciencies on Wall Street. At the same time, private equity is likely
to continue to take advantage of tepid buying by public firms
to snap up assets, especially in plays like the Barnett, Bakken,
and Eagle Ford. An interesting future story will be private equity’s
execution on these assets to meet investor expectations for
timelines and returns on capital. Unlike the recent Delaware
Basin boom, companies are unlikely to be able to quickly flip
acreage for a price several times their cost. While this latest
round of acquisitions may end up ultimately being good invest-
ments, patience may be needed to see the returns.
Outside of the US, deal value surged forward during the third
quarter with a total of $28.7 billion, including $3.0 billion in
Canada. Driving the bulk of the increased value were a number
of large deals and spinoffs, including the acquisition right at
the end of the quarter of Lattice Energy (a newly formed sub-
sidiary of Origin Energy) by Beach Energy for $1.2 billion. It is
typical for the international deal market to be driven by a handful
of large deals, making quarterly totals there more volatile and
future direction tougher to guess than in the US.

SELECT INTERNATIONAL UPSTREAM TRANSACTIONS

Date
Announced Buyer Seller Value ($MM) Asset Location Deal Type O/G
5-Oct-17 Chevron Woodside Petroleum - Australia Acreage Gas
28-Sep-17 Beach Energy Origin Energy $1,246 Australia Corporate Oil + Gas
27-Sep-17 Murphy Oil Queiroz Galvao $11 Brazil Farm-In Oil
27-Sep-17 ExxonMobil Queiroz Galvao $27 Brazil Farm-In Oil
26-Sep-17 Total ECO Oil & Gas $14 Guyana Farm-In Oil + Gas
25-Sep-17 International Petroleum Cenovus Energy $415 Canada: AB Conv. Property Gas
21-Sep-17 President Energy Chevron $22 Argentina Property Oil
Total $1,734

SELECT GLOBAL OILFIELD SERVICE TRANSACTIONS

Date Value
Announced Buyer Seller ($MM) Asset Location Deal Type Asset Type
16-Oct-17 Emerson Electric Paradigm $510 Netherlands Corporate E&P Software
10-Oct-17 WaterBridge Resources Arkoma Water Resources - Oklahoma Corporate Water Management
9-Oct-17 WorleyParsons Amec Foster Wheeler $298 United Kingdom Assets UK E&P Service Business
6-Oct-17 Borr Drilling Sembcorp Marine $1,256 Singapore Assets Jack-Up Rigs
28-Sep-17 RRIG Energy Oilfield Water Logistics - Texas Assets Water Supply
25-Sep-17 CIRCOR Colfax $855 Maryland Assets Fluid Handling
Total $2,919

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 OGJ150 QUARTERLY

Revenue, income a mixed bag in 2Q

DON STOWERS, CHIEF EDITOR – OGFJ
LAURA BELL, STATISTICS EDITOR – OIL & GAS JOURNAL

FINANCIAL RESULTS for the OGJ150 TOTAL REVENUES • 3Q15 — $145.5B

group of companies were lukewarm by
most measures in the second quarter of
2017. However, given the lengthy down-
turn that the oil and gas industry is
emerging from, maybe “neither hot nor
cold” isn’t so bad.
In the last quarter, we suggested that
1Q17 might be considered a “turning
point” for the industry when the down-
turn began to change direction. That
still seems to be the case, especially if
you compare net income and total rev-
enue year over year with 2016. However,
the latest results trended downward
from the previous quarter.
Speaking of trends, “lower for longer”
still seems to be a prevalent theme with
regard to energy prices. Nevertheless,
the Permian is still hot even with $50
oil, and there is renewed activity in gas
plays like the Haynesville. As US exports
of LNG start to increase, this could begin
to impact domestic natural gas markets
in some parts of the country, although
efforts to monetize more associated gas
may serve to offset volume reductions
achieved from LNG exports.
Total revenue for the OGJ150 group of
companies in the 2Q17 grew by nearly
$20.3 billion (17%) over the same quarter
in 2016. That’s certainly not bad, but it
was down from the $43 billion (42%)
year-over-year growth seen in the previ-
ous report. It represents an improve-
ment over the $14.8 billion (11%) growth
in the 4Q16.
However, comparing 2Q17 with 1Q17,
we see a slight decline — $5.6 billion
(3%) – drop in total revenue. This may
be insignificant, but we’ll have to see
what happens in the third quarter. I be-
lieve this is called “watchful waiting.”
Here is a quick look at total revenue
for the group for the past 11 quarters:
• 2Q17 — $137.5B
• 1Q17 — $143.1B
• 4Q16 — $128.3B
• 3Q16 — $127.7B
• 2Q16 — $117.3B
• 1Q16 — $100.2B
• 4Q15 — $123.9B
SOME KEY CHANGES FROM PREVIOUS QUARTER
How company appeared
on last quarter's list
Vanguard Natural Resources LLC
• 2Q15 — $159.3B
• 1Q15 — $145.2B
• 4Q14 — $198.1B
As you can see, total revenue for the
group bottomed out in the first quarter
of 2016 and has improved incrementally
in subsequent quarters, until the most
recent quarter. Current revenues are still
approximately $60 billion less than in
the fourth quarter of 2014, just 10 quar-
ters earlier.
NET INCOME
As with the total revenue figures, net in-
come for the group was up substantially
— $3.2 billion in the 2Q17 compared to a
net loss of $17.1 billion in 2Q16. However,
there was a precipitous drop from $9.9
billion in the prior quarter to $3.2 billion
in the second quarter. This represents a
67% decline in net income. Is this an
anomaly or a symptom of a problem with
fundamentals? Obviously this is some-
thing to watch in the next quarter.
How company appears
Why change? on this quarter's list
Changed name to Vanguard Natural Resources Inc.

THE TOP 20 FASTEST GROWING COMPANIES1

2nd – Stockholders’ equity – ——– Net income ——– —– Long-term debt —–
quarter Most recent Preceding Most recent Preceding Most recent Preceding
rank by quarter quarter2 quarter quarter2 quarter quarter2
total Change, Change,
assets Company –––––– $1,000 –––––– % –––––– $1,000 –––––– % –––––– $1,000 ––––––
51 Carrizo Oil & Gas Inc. 131,831 69,927 88.5 56,306 40,000 40.8 1,521,986 1,362,046
21 Parsley Energy Inc. 5,873,176 4,583,088 28.1 55,794 38,300 45.7 1,490,597 1,490,022
44 Centennial Resource Development Inc. 2,925,952 2,566,252 14.0 23,198 10,707 116.7 0 0
48 WildHorse Resource Development Corp. 1,149,575 1,061,220 8.3 26,366 20,252 30.2 485,033 338,783
10 Apache Corp. 8,265,000 7,823,000 5.7 613,000 267,000 129.6 8,329,000 8,327,000
64 SRC Energy Inc. 894,367 863,418 3.6 27,936 19,880 40.5 0 0
26 Diamondback Energy Inc. 5,286,934 5,119,358 3.3 164,128 141,100 16.3 1,151,515 985,786
12 Pioneer Natural Resources Co. 10,602,000 10,348,000 2.5 233,000 42,000 454.8 2,281,000 2,729,000
85 Ring Energy Inc. 296,974 294,260 0.9 1,911 1,279 49.4 0 0
1
Based on 2nd quarter ending June 30, 2017, unless otherwise noted. Companies were selected on the basis of growth in stockholders’ equity from previous quarter. Only companies
with positive net income for both quarters were considered. Companies were not considered if they had a decline in net income, were subsidiaries of another company, or became public
within the last year. 2Based on previously reported data.

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 OGJ150 QUARTERLY

Here is a glimpse at net income fig- THE TOP 20 IN NET INCOME AND STOCKHOLDERS’ EQUITY*
Stockholders’
ures for the group for the past 11 quar- Net income, equity,
ters (brackets indicate a net loss): Rank Company $1,000 Rank Company $1,000
• 2Q17 — $3.2B 1 ExxonMobil Corp. 3,264,000 1 ExxonMobil Corp. 185,838,000
• 1Q17 — $9.9B 2 Chevron Corp. 1,466,000 2 Chevron Corp. 147,388,000
• 4Q16 – [$17.5B] 3 Apache Corp. 613,000 3 ConocoPhillips 30,499,000
• 3Q16 – [$1.0B] 4 Occidental Petroleum Corp. 507,000 4 Occidental Petroleum Corp. 21,037,000
• 2Q16 – [$17.1B] 5 Ultra Petroleum 499,037 5 Hess Corp. 15,078,000
• 1Q16 – [$18.9B] 6 Chesapeake Energy Corp. 495,000 6 Anadarko Petroleum Corp. 14,656,000
• 4Q15 – [$58.5B] 7 Devon Energy Corp. 451,000 7 EOG Resources Inc. 13,901,715
• 3Q15 – [$47.3B] 8 Southwestern Energy Co. 284,000 8 Marathon Oil Corp. 12,405,000
• 2Q15 – [$28.5B] 9 Pioneer Natural Resources Co. 233,000 9 Devon Energy Corp. 11,330,000
• 1Q15 – [$15.2B] 10 Consol Energy Inc. 227,413 10 Pioneer Natural Resources Co. 10,602,000
• 4Q14 — $2.5B 11 Kinder Morgan CO2 Co. LP 221,000 11 Noble Energy Inc. 10,098,000
The good news is that the OGJ150 12 Linn Energy Inc. 220,057 12 Concho Resources Inc. 8,729,000
group is on a two-quarter winning 13 Diamondback Energy Inc. 164,128 13 Antero Resources Corp. 8,302,862
streak. The forecasters who predicted a 14 Concho Resources Inc. 152,000 14 Apache Corp. 8,265,000
return to profitability this year, after 15 Rice Energy Inc. 137,249 15 Parsley Energy Inc. 5,873,176
eight consecutive quarters of net losses, 16 Exco Resources Inc. 120,750 16 Range Resources Corp. 5,661,891
have been proved correct. 17 Gulfport Energy Corp. 105,936 17 Diamondback Energy Inc. 5,286,934
18 Newfield Exploration Co. 98,000 18 Whiting Petroleum Corp. 4,996,107
EXXON STILL ON TOP 19 Cimarex Energy Co. 97,262 19 Murphy Oil Corp. 4,977,688
Among the top companies in net in- 20 Bonanza Creek Energy Inc. 93,356 20 WPX Energy Inc. 4,304,000
come, ExxonMobil still reigns supreme. Total 9,449,188 Total 529,229,373
The supermajor realized nearly $3.3 bil- *Based on 2nd quarter ended June 30, 2017

lion in net income for the 2Q17 com-

pared to $4.1 billion in net income for THE TOP 20 IN SPENDING* THE TOP 20 IN TOTAL REVENUE*
Capital, Total
the 1Q17 and $1.7 billion year over year. exploratory revenue,
No. 2-ranked Chevron earned almost spending, Rank Company $1,000
$1.5 billion in net income for the quarter Rank Company $1,000 1 ExxonMobil Corp. 62,876,000
1 ExxonMobil Corp. 6,791,000
compared to $2.7 billion the prior quar- 2 Chevron Corp. 34,480,000
2 Chevron Corp. 6,539,000
ter and a net loss of about $1.5 billion 3 ConocoPhillips 8,882,000
3 Anadarko Petroleum Corp. 2,296,000
year over year. 4 Occidental Petroleum Corp. 3,603,000
4 ConocoPhillips 1,986,000
The rest of the top 10 in net income 5 Devon Energy Corp. 3,273,000
5 EOG Resources Inc. 1,885,417
includes: 6 Anadarko Petroleum Corp. 2,716,000
Occidental Petroleum
• Apache Corp. — $613M 6
Corp.
1,492,000 7 EOG Resources Inc. 2,612,472
• Occidental Petroleum — $507M 7 Devon Energy Corp. 1,468,000 8 Chesapeake Energy Corp. 2,281,000
• Ultra Petroleum — $499M Pioneer Natural Resources
8 EQT Production 1,401,179 9 1,630,000
Co.
• Chesapeake Energy — $495M 9 Noble Energy Inc. 1,215,000
10 Apache Corp. 1,384,000
• Devon Energy — $451M 10
Pioneer Natural Resources
1,074,000 11 Hess Corp. 1,228,000
• Southwestern Energy — $284M Co.
11 Chesapeake Energy Corp. 1,031,000 12 Marathon Oil Corp. 1,059,000
• Pioneer Natural Resources
12 Antero Resources Corp. 938,502 13 Noble Energy Inc. 1,059,000
— $233M
13 Apache Corp. 883,000 14 Southwestern Energy Co. 811,000
• Consol Energy — $227M
14 Continental Resources Inc. 877,115 15 Antero Resources Corp. 790,389
New to the top 10 income list this
15 Concho Resources Inc. 863,000 16 Range Resources Corp. 673,111
quarter are Apache Corp., Occidental
16 Hess Corp. 786,000 17 Continental Resources Inc. 661,486
Petroleum, Ultra Petroleum, Chesapeake
17 Marathon Oil Corp. 775,000 18 EQT Production 631,101
Energy, Pioneer Natural Resources, and
18 Rice Energy Inc. 644,326 19 Concho Resources Inc. 567,000
Consol Energy.
19 Southwestern Energy Co. 619,000 20 California Resources Corp. 516,000
The following companies dropped off
20 Cimarex Energy Co. 582,172 Total 131,733,559
the list of Top 10 in net income: Linn *Based on 2nd quarter ended June 30, 2017
Total 34,146,711
Energy ($220M); Chaparral Energy
*Based on year-to-date June 30, 2017
($21.4M); Concho Resources (net loss
of $63.6M); ConocoPhillips (net loss of

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 OGJ150 QUARTERLY

THE TOP 20 IN ASSETS —

TOP COMPANIES IN RETURN ON...* MARKET CAPITALIZATION1
Market
10 TOTAL ASSETS capitalization,
9.2
Rank Company $1,000
Return on total assets, %

8 1 ExxonMobil Corp. 342,061,553

6
2 Chevron Corp. 197,705,631
4.2 3 ConocoPhillips 53,497,088
4 3.8 3.8 3.5
2.9 2.9 2.9 Anadarko Petroleum
2.3 4 26,481,325
2.2 Corp.
2
Occidental Petroleum
5 45,774,990
Corp.
0
6 EOG Resources Inc. 52,265,801
Dorchester Minerals
LP (96)

Chesapeake Energy
Corp. (16)

Abraxas Petroleum
Corp. (89)

W&T Offshore
Inc. (72)

SilverBow Resources
Inc. (81)

Isramco Inc. (91)

Northern Oil and

Gas Inc. (80)

Carrizo Oil & Gas

Inc. (51)

SRC Energy
Inc. (64)

Seneca Resources
Corp. (59)
7 Hess Corp. 13,943,802
8 Devon Energy Corp. 16,803,432
9 Marathon Oil Corp. 10,072,500
10 Apache Corp. 17,271,276
11 Noble Energy Inc. 13,867,000
80 TOTAL REVENUE
Pioneer Natural
67.3 12 27,144,079
Return on total revenue, %

70 Resources Co.
60 54.7 13 Antero Resources Corp. 6,816,831
50 Continental Resources
40.6 37.6 14 12,130,440
40 37.2 34.5 Inc.
33.8
30 27.7 27.0 26.1 15 Concho Resources Inc. 17,730,867
20 Chesapeake Energy
16 4,501,035
Corp.
10
2
17 EQT Production 10,155,229
0
Dorchester Minerals
LP (96)

Abraxas Petroleum
Corp. (89)

Callon Petroleum
Co. (46)

WildHorse Resource
Development
Corp. (48)

SRC Energy
Inc. (64)

Rice Energy
Inc. (22)

Carrizo Oil & Gas

Inc. (51)

Sandridge Energy
Inc. (66)

W&T Offshore
Inc. (72)

Parsley Energy
Inc. (21)

18 Range Resources Corp. 5,748,838

19 Murphy Oil Corp. 4,423,043
Whiting Petroleum
20 2,023,132
Corp.
Total 880,417,891
1
As of June 30, 2017. 2Parent company data.
50 47.3 TOTAL STOCKHOLDERS’ EQUITY
Return on stockholders’ equity, %

42.7
40 The remainder of the top 10 in total
30
revenue includes:
• ConocoPhillips — $8.9B
20 • Occidental - $3.6B
10.4 9.4 • Devon — $3.3B
10 8.1 7.2 6.8
4.2 4.0 3.1 • Anadarko — $2.7B
0 • EOG Resources — $2.6B
Isramco Inc. (91)

Carrizo Oil & Gas

Inc. (51)

US Energy
Corp. (103)

Dorchester Minerals
LP (96)

Newfield Exploration
Co. (38)

Rice Energy
Inc. (22)

Abraxas Petroleum
Corp. (89)

Cimarex Energy
Co. (39)

Devon Energy
Corp. (8)

SRC Energy
Inc. (64)

• Chesapeake Energy — $2.3B

• Pioneer — $1.6B
• Apache Corp. — $1.4B

*Includes companies whose accounting methods vary. Excludes companies whose results were inflated by TOP 10 IN SPENDING
identifiable extraordinary gains. Excludes royalty trusts. Numbers in parentheses indicate rank by total assets.
(YEAR TO DATE)
ExxonMobil moved past Chevron in
spending in 2Q17 with $6.8 billion in
$3.4B); Stone Energy (net loss of $6.5M); Resources, No. 19 Murphy Oil Corp., and capital spending in 2Q17. Chevron fell
and Antero Resources (net loss of No. 20 Whiting Petroleum Corp. to the No. 2 position with $6.5 billion in
$5.1M). spending.
Of the top 20 companies ranked by TOP 10 IN TOTAL REVENUE The rest of the top 10 in spending
total assets, nine showed net losses for ExxonMobil again leads the pack with includes:
the quarter: No. 3 ConocoPhillips, No. $63.3 billion in total revenue, virtually • Anadarko — $2.3B
4 Anadarko, No. 7 Hess Corp., No. 9 the same as in the previous quarter. Chev- • ConocoPhillips — $2.0B
Marathon Oil, No. 11 Noble Energy, No. ron remains No. 2 with $34.5 billion, up • EOG Resources — $1.9B
13 Antero Resources, No. 14 Continental from $33.4 billion in the first quarter. • Occidental — $1.5B

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 OGJ150 QUARTERLY

• Devon — $1.5B ($197.7 billion); 3) ConocoPhillips ($53.5 • WildHorse Resource Development

• EQT Production — $1.4B
• Noble Energy — $1.2B
• Pioneer — $1.1B
YTD CAPITAL SPENDING
Year-to-date capital spending in the
second quarter of this year stood at
about $46.1 billion, down approximately
$3.9 billion (7%) from year-ago levels.
As a further indication that companies
continue to spend less even as oil prices
and profitability climbs, this represents
a dramatic 47% decline from 2Q15 capi-
tal spending – two years ago – which
was just under $50 billion.
MARKET CAPITALIZATION
The top 10 companies in market capi-
talization as of June 30, 2017, are: 1)
ExxonMobil ($342.1 billion); 2) Chevron
billion); 4) EOG Resources ($52.3 billion);
5) Occidental Petroleum ($45.8 billion);
6) Pioneer Natural Resources ($27.1 bil-
lion); 7) Anadarko Petroleum ($26.5 bil-
lion); 8) Concho Resources ($17.7 bil-
lion); 9) Apache Corp. ($17.3 billion);
and Devon Energy ($16.8 billion).
FASTEST-GROWING COMPANIES
For the second consecutive quarter, we
have a short list of “fastest-growing com-
panies.” Ranked according to growth in
stockholders’ equity, these were the
fastest-growing oil and gas producers
in the 2Q17:
• Carrizo Oil & Gas Inc. grew by 88.5%
over the preceding quarter
• Parsley Energy Inc. grew by 28.1%
• Centennial Resource Development
Inc. grew by 14%
Corp. grew by 8.3%
• Apache Corp. grew by 5.7%
LIST GROWS A BIT
By press time for this issue, 117 of the
137 companies included in the OGJ150
Quarterly Report had reported their
financial results to the US Securities
Exchange Commission. This is up from
the 104 of 124 companies that reported
their results in the prior quarter.
KEY CHANGES
The only notable change in the OGJ150
for this quarter: Vanguard Natural Re-
sources LLC changed its name to Van-
guard Natural Resources Inc.

2Q17
——————–––––––– 2nd quarter ending June 30, 2017 ––––––––——————
Rank
Stockholders’ Total Net YTD Capital & expl.
by total Total
—— equity —— —— revenue —— —— income —— ––– spending –––
assets assets
2Q17 Company $1,000 Rank $1,000 Rank $1,000 Rank $1,000 Rank $1,000
1 ExxonMobil Corp. 343,012,000 1 185,838,000 1 62,876,000 1 3,264,000 1 6,791,000
2 Chevron Corp. 254,599,000 2 147,388,000 2 34,480,000 2 1,466,000 2 6,539,000
3 ConocoPhillips 78,004,000 3 30,499,000 3 8,882,000 117 (3,426,000) 4 1,986,000
4 Anadarko Petroleum Corp. 44,348,000 6 14,656,000 6 2,716,000 114 (334,000) 3 2,296,000
5 Occidental Petroleum Corp. 41,982,000 4 21,037,000 4 3,603,000 4 507,000 6 1,492,000
1
6 EOG Resources Inc. 29,263,617 7 13,901,715 7 2,612,472 42 23,053 5 1,885,417
7 Hess Corp. 27,798,000 5 15,078,000 11 1,228,000 115 (417,000) 16 786,000
8 Devon Energy Corp. 26,814,000 9 11,330,000 5 3,273,000 7 451,000 7 1,468,000
9 Marathon Oil Corp. 24,241,000 8 12,405,000 12 1,059,000 111 (139,000) 17 775,000
10 Apache Corp. 22,602,000 14 8,265,000 10 1,384,000 3 613,000 13 883,000
11 Noble Energy Inc. 21,574,000 11 10,098,000 13 1,059,000 116 (1,498,000) 9 1,215,000
12 Pioneer Natural Resources Co. 16,271,000 10 10,602,000 9 1,630,000 9 233,000 10 1,074,000
13 Antero Resources Corp. 15,442,221 13 8,302,862 15 790,389 90 (5,132) 12 938,502
14 Continental Resources Inc. 13,871,257 21 4,254,335 17 661,486 106 (63,557) 14 877,115
2
15 Concho Resources Inc. 13,591,000 12 8,729,000 19 567,000 14 152,000 15 863,000
16 Chesapeake Energy Corp. 11,920,000 105 (684,000) 8 2,281,000 6 495,000 11 1,031,000
17 EQT Production3 11,884,454 — — 18 2
631,101 28 2
52,765 8 1,401,179
18 Range Resources Corp. 11,621,336 16 5,661,891 16 673,111 23 69,550 25 469,644
19 Murphy Oil Corp. 10,136,801 19 4,977,688 21 474,497 97 (17,571) 28 431,654
20 Whiting Petroleum Corp. 9,405,419 18 4,996,107 30 311,958 108 (65,981) 34 323,404
21 Parsley Energy Inc. 8,085,602 15 5,873,176 40 213,677 26 55,794 31 361,742
2
22 Rice Energy Inc. 7,995,050 33 1,900,284 27 398,307 15 137,249 18 644,326
23 WPX Energy Inc. 7,962,000 20 4,304,000 25 413,000 21 76,000 22 542,000

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 OGJ150 QUARTERLY

2Q17
——————–––––––– 2nd quarter ending June 30, 2017 ––––––––——————
Rank
Stockholders’ Total Net YTD Capital & expl.
by total Total
—— equity —— —— revenue —— —— income —— ––– spending –––
assets assets
2Q17 Company $1,000 Rank $1,000 Rank $1,000 Rank $1,000 Rank $1,000
24 QEP Resources Inc. 7,265,500 23 3,635,000 28 383,700 30 45,400 24 477,900
25 Southwestern Energy Co. 7,150,000 36 1,573,000 14 811,000 8 284,000 19 619,000
26 Diamondback Energy Inc. 6,783,809 17 5,286,934 35 269,434 13 164,128 35 291,767
27 Oasis Petroleum Inc. 6,261,721 25 2,977,610 39 254,091 47 16,568 39 252,461
28 SM Energy Inc. 6,212,605 30 2,501,828 51 120,721 110 (119,907) 30 366,743
29 California Resources Corp. 6,154,000 103 (491,000) 20 516,000 103 (47,000) 51 132,000
30 Consol Energy Inc.4 5,924,105 — — 37 260,305 10 5
227,413 41 243,097
31 RSP Permian Inc. 5,859,073 22 4,151,547 43 183,100 35 31,090 37 268,205
4
32 Freeport McMoran Inc. 5,546,000 — — 24 445,000 109 (89,000) 65 61,000
33 Gulfport Energy Corp. 5,294,155 27 2,914,839 29 323,953 17 105,936 27 460,765
34 Cabot Oil & Gas Corp. 5,219,459 29 2,642,031 22 460,457 43 21,527 29 393,333
2
35 EP Energy Corp. 4,888,000 53 559,000 33 296,000 89 (3,000) 38 266,000
36 Energen Corp. 4,746,732 24 3,187,742 38 256,824 37 29,481 26 466,508
37 PDC Energy 4,656,928 28 2,714,442 34 275,926 31 41,250 32 334,406
38 Newfield Exploration Co. 4,595,000 38 1,207,000 26 402,000 18 98,000 23 507,000
39 Cimarex Energy Co. 4,562,980 31 2,311,755 23 456,452 19 97,262 20 582,172
40 Denbury Resources Inc. 4,425,341 56 514,199 36 261,184 50 14,399 52 129,884
41 Kinder Morgan CO2 Co. LP6 4,106,000 — — 32 307,000 11 7
221,000 — NA
8
42 BreitBurn Energy Partners LP 3,947,834 57 452,677 48 141,109 107 (65,792) 70 44,327
43 Linn Energy Inc. 3,201,516 32 2,256,817 31 307,819 12 220,057 60 88,821
9
44 Centennial Resource Development Inc. 3,098,569 26 2,925,952 57 91,064 41 23,198 47 198,299
45 Extraction Oil & Gas Inc. 2,796,527 35 1,652,354 54 119,766 59 7,240 21 572,105
2
46 Callon Petroleum Co. 2,581,664 34 1,815,897 60 82,283 32 33,390 50 146,090
47 Unit Corp. 2,523,310 37 1,244,463 45 170,581 56 9,059 55 107,933
2
48 WildHorse Resource Development Corp. 2,373,550 39 1,149,575 67 70,173 39 26,366 45 211,264
49 Sanchez Energy Corp. 2,218,053 101 (447,323) 44 175,854 29 46,309 44 217,680
2
50 Halcon Resources Corp. 2,081,350 46 732,029 53 120,137 46 20,177 53 121,210
51 Carrizo Oil & Gas Inc. 1,963,819 66 131,831 46 166,483 25 56,306 36 290,625
52 Laredo Petroleum Inc. 1,941,254 59 324,403 42 187,001 24 61,110 42 232,219
53 Matador Resources Co. 1,777,076 40 962,371 49 129,611 34 31,687 33 328,929
54 Cobalt International Energy Inc. 1,774,348 109 (1,326,532) 88 15,520 113 (185,568) 46 206,430
55 Ultra Petroleum 1,762,003 107 (940,103) 41 212,657 5 499,037 43 225,057
2
56 Jones Energy Inc. 1,726,019 45 749,983 74 48,626 112 (145,332) 56 107,250
8
57 EV Energy Partners LP 1,489,343 48 684,619 71 56,052 102 (25,161) 91 3,635
58 Chaparral Energy Inc. 1,414,771 41 950,745 63 74,048 44 21,365 58 92,377
59 Seneca Resources Corp.10, 11 1,394,320 — — 47 151,161 36 30,123 — NA
60 Bill Barrett Corp. 1,323,194 55 542,264 73 51,558 98 (18,447) 57 104,236
8
61 Legacy Reserves LP 1,318,043 98 (214,290) 56 92,852 95 (11,077) 64 61,910
62 Vanguard Natural Resources Inc. 1,290,560 108 (957,130) 55 93,992 104 (53,872) 84 17,873
63 Black Stone Minerals LP 1,250,086 44 770,802 52 120,557 27 54,174 79 33,903
64 SRC Energy Inc. 1,233,633 42 894,367 62 75,056 38 27,936 48 178,606
65 Eclipse Resources Corp. 1,212,257 52 597,305 58 86,191 54 11,494 49 166,012
66 Sandridge Energy Inc. 1,132,678 43 864,161 59 84,851 40 23,499 59 88,904

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 OGJ150 QUARTERLY

2Q17
——————–––––––– 2nd quarter ending June 30, 2017 ––––––––——————
Rank
Stockholders’ Total Net YTD Capital & expl.
by total Total
—— equity —— —— revenue —— —— income —— ––– spending –––
assets assets
2Q17 Company $1,000 Rank $1,000 Rank $1,000 Rank $1,000 Rank $1,000
67 Approach Resources Inc. 1,106,267 54 550,322 80 24,969 93 (8,896) 76 37,819
68 Amplify Energy Corp. 966,625 58 389,751 66 70,216 22 75,484 86 15,727
2
69 Rex Energy Corp. 905,570 88 3,698 75 47,462 94 (9,603) 67 54,004
11
70 Comstock Resources Inc. 901,831 100 (305,307) 69 61,471 99 (21,442) 61 85,829
71 Jagged Peak Energy LLC 888,753 49 678,564 72 53,051 48 16,403 40 249,636
72 W&T Offshore Inc. 874,971 104 (597,957) 50 123,323 33 33,315 71 43,800
73 Stone Energy Corp. 868,719 61 288,947 61 76,891 92 (6,461) 81 25,492
74 Earthstone Energy Inc. 824,111 50 674,158 79 25,777 105 (54,967) 87 10,048
75 Midstates Petroleum Co. Inc. 801,648 51 598,671 70 60,679 52 13,742 66 54,369
76 Bonanza Creek Energy Inc. 786,544 47 686,411 77 44,144 20 93,356 88 10,036
77 Resolute Energy Corp. 728,549 97 (62,232) 64 71,026 53 13,228 54 118,484
78 Exco Resources Inc. 696,346 106 (741,126) 65 71,015 16 120,750 69 44,484
79 Lonestar Resources US Inc. 582,355 64 160,853 86 18,135 101 (23,161) 77 37,750
80 Northern Oil and Gas Inc. 481,306 102 (455,471) 68 64,902 51 13,802 73 42,748
81 SilverBow Resources Inc. 460,146 65 151,768 76 45,782 49 16,241 62 85,655
82 Contango Oil & Gas Co. 376,168 63 234,173 84 20,276 91 (6,034) 78 35,553
83 Gastar Exploration Inc. 371,300 95 (9,061) 82 22,646 88 (2,779) 68 48,274
84 Penn Virginia Corp. 337,152 62 236,696 78 36,282 45 21,329 72 43,583
85 Ring Energy Inc. 329,932 60 296,974 89 14,551 67 1,911 63 73,912
86 Mid-Con Energy Partners LP 255,605 70 99,736 87 16,480 96 (15,199) 90 4,341
87 PrimeEnergy Corp. 230,021 72 89,398 83 21,532 73 173 80 30,463
88 Panhandle Oil and Gas Inc.13 205,476 67 115,986 93 12,437 71 1,261 83 18,012
89 Abraxas Petroleum Corp. 187,137 68 106,362 90 13,153 60 7,195 74 40,453
90 PetroQuest Energy Inc. 148,573 99 (253,437) 81 24,251 87 (2,100) 82 21,661
91 Isramco Inc. 144,982 81 8,989 85 18,379 63 4,252 96 566
92 Goodrich Petroleum Corp. 143,353 75 55,645 92 12,477 85 (1,214) 85 17,519
93 Lilis Energy Inc. 125,007 85 6,976 100 5,425 100 (23,148) 75 40,280
94 Black Hills Corp.4 103,044 — — 99 6,149 86 (1,946) — NA
95 Enduro Royalty Trust 99,965 69 99,965 102 3,546 65 3,271 — NA
8 2
96 Dorchester Minerals LP 91,341 71 89,624 91 12,553 57 8,449 95 608
97 Yuma Energy Inc. 89,690 76 34,313 97 6,555 80 (163) 89 4,527
98 Evolution Petroleum Corp.14 88,268 74 68,470 94 8,836 70 1,501 101 63
15 16
99 VOC Energy Trust 81,682 73 81,682 101 3,811 64 3,570 — NA
2
100 Reserve Petroleum Co. 36,552 77 31,916 106 1,631 77 (65) 93 1,525
101 Spindletop Oil & Gas Co. 24,002 79 17,480 107 1,327 74 138 100 70
102 MV Oil Trust 18,334 78 18,334 103 3,077 66 2,875 — NA
103 US Energy Corp. 15,808 91 3,241 104 1,992 72 336 103 22
104 Mexco Energy Corp.17 12,145 82 8,415 110 668 82 (295) 98 200
15 16
105 Cross Timbers Royalty Trust 11,192 80 9,680 105 1,635 69 1,522 — NA
15 16
106 San Juan Basin Royalty Trust 10,021 84 7,206 98 6,452 62 5,981 — 0
107 Apache Offshore Investment Partnership 9,368 83 7,373 115 164 78 (126) 102 31
108 Tengasco Inc. 8,068 86 5,351 108 1,318 81 (178) 99 140
109 FieldPoint Petroleum Corp. 8,020 93 474 109 900 68 1,747 97 326
110 Royale Energy Inc. 8,013 94 (5,436) 113 246 76 71 94 1,053
111 New Concept Energy Inc. 7,139 90 3,425 114 243 79 (135) 104 10
112 Adams Resources & Energy Inc.4 5,070 — — 111 410 75 95 — NA
113 Houston American Energy Corp. 4,861 87 4,245 116 46 84 (466) 92 2,170
15 16
114 Sabine Royalty Trust 4,723 89 3,647 95 8,579 58 7,900 — 0

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 OGJ150 QUARTERLY

2Q17
——————–––––––– 2nd quarter ending June 30, 2017 ––––––––——————
Rank
Stockholders’ Total Net YTD Capital & expl.
by total Total
—— equity —— —— revenue —— —— income —— ––– spending –––
assets assets
2Q17 Company $1,000 Rank $1,000 Rank $1,000 Rank $1,000 Rank $1,000
15 16
115 Permian Basin Royalty Trust 3,534 92 566 96 7,477 61 6,972 — NA
116 EnerJex Resources Inc. 2,367 96 (9,806) 112 286 55 11,170 105 5
117 Forestar Group Inc. 188 — — 117 5 83 (348) — NA
— American Eagle Energy Corp.18 NA — NA — NA — NA — NA
— American Natural Energy Corp.19 NA — NA — NA — NA — NA
— Armada Oil Inc.20 NA — NA — NA — NA — NA
— Avalon Oil & Gas Inc.21 NA — NA — NA — NA — NA
— Blacksands Petroleum Inc.21 NA — NA — NA — NA — NA
— Camber Energy Inc.21 NA — NA — NA — NA — NA
— Daybreak Oil & Gas Inc.21 NA — NA — NA — NA — NA
— Escalera Resources Co.22 NA — NA — NA — NA — NA
— GeoPetro Resources Co. 21
NA — NA — NA — NA — NA

— Humble Energy Inc. 21

NA — NA — NA — NA — NA

— Magellan Petroleum Corp.21 NA — NA — NA — NA — NA

— Pioneer Oil & Gas21 NA — NA — NA — NA — NA

— PostRock Energy Services Corp. 23

NA — NA — NA — NA — NA

— TN-K Energy Group Inc. 21

NA — NA — NA — NA — NA

— Triangle Petroleum Corp. 24

NA — NA — NA — NA — NA

— United American Petroleum Corp.21 NA — NA — NA — NA — NA

— Venoco Inc.25 NA — NA — NA — NA — NA

— Warren Resources Inc. 21

NA — NA — NA — NA — NA

— Wexpro 26
NA — NA — NA — NA — NA

— Zaza Energy Corp. 21

NA — NA — NA — NA — NA
Totals 1,216,372,784 584,405,874 142,580,785 3,774,309 460,731,167
NA = Not Available. *Annual data reported in OGJ150, Sept. 4, 2017 p. 26. 1Net operating. 2Operating. 3Subsidiary of EQT Resources Inc. 4Oil and gas operations only. 5Before income
taxes. 6Subsidiary of Kinder Morgan Inc. 7Before depreciation, depletion and amortization. 8Partner’s equity. 9Net. 10Subsidiary of National Fuel Gas Co. 113rd quarter. 12Sales. 133rd quarter.
14
4th quarter. 15Trust corpus. 16Distributable income. 171st quarter. 18Filed Chapter 11 bankruptcy May 2015. 19Filed Chapter 11 bankruptcy Aug. 2015. 20Filed Chapter 7 bankruptcy Aug. 2015.
21
Not available at press time. 22Filed Chapter 11 bankruptcy Nov.2015. 23Filed Chapter 11 bankruptcy Apr. 2016. 24Filed Chapter 11 bankruptcy. 25Filed Chapter 11 bankruptcy Apr. 2017. 26Ef-
fective Sept. 2016, merged with Dominion Resources Corp., no data available.

THE OGJ150 COMPANY INDEX

Rank Rank
by by
total total
assets assets
2Q17 Company Headquarters city 2Q17 Company Headquarters city
89 Abraxas Petroleum Corp. San Antonio 76 Bonanza Creek Energy Inc. Denver
112 Adams Resources & Energy Inc. Houston 42 BreitBurn Energy Partners LP Los Angeles
— American Eagle Energy Corp. Littleton 34 Cabot Oil & Gas Corp. Houston
— American Natural Energy Corp. Tulsa 29 California Resources Corp. Los Angeles
68 Amplify Energy Corp. Houston 46 Callon Petroleum Co. Natchez, Miss.
4 Anadarko Petroleum Corp. The Woodlands, Tex. — Camber Energy Inc. Houston
13 Antero Resources Corp. Denver 51 Carrizo Oil & Gas Inc. Houston
10 Apache Corp. Houston 44 Centennial Resource Development Inc. Denver
107 Apache Offshore Investment Partnership Houston 58 Chaparral Energy Inc. Oklahoma City
67 Approach Resources Inc. Ft. Worth 16 Chesapeake Energy Corp. Oklahoma City
— Armada Oil Inc. Dallas 2 Chevron Corp. San Ramon, Calif.
— Avalon Oil & Gas Inc. Minneapolis, Minn. 39 Cimarex Energy Co. Denver
60 Bill Barrett Corp. Denver 54 Cobalt International Energy Inc. Houston
94 Black Hills Corp. Rapid City, S.D. 70 Comstock Resources Inc. Frisco, Tex.
63 Black Stone Minerals LP Houston 15 Concho Resources Inc. Midland, Tex.
— Blacksands Petroleum Inc. Houston 3 ConocoPhillips Houston

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 OGJ150 QUARTERLY

THE OGJ150 COMPANY INDEX

Rank Rank
by by
total total
assets assets
2Q17 Company Headquarters city 2Q17 Company Headquarters city
30 Consol Energy Inc. Canonsburg, Penn. 80 Northern Oil and Gas Inc. Wayzata, Minn.
82 Contango Oil & Gas Co. Houston 27 Oasis Petroleum Inc. Houston
14 Continental Resources Inc. Oklahoma City 5 Occidental Petroleum Corp. Los Angeles
105 Cross Timbers Royalty Trust Ft. Worth 88 Panhandle Oil and Gas Inc. Oklahoma City
— Daybreak Oil & Gas Inc. Spokane, Wash. 21 Parsley Energy Inc. Austin, Tex.
40 Denbury Resources Inc. Plano, Tex. 37 PDC Energy Denver
8 Devon Energy Corp. Oklahoma City 84 Penn Virginia Corp. Radnor, Penn.
26 Diamondback Energy Inc. Midland, Tex. 115 Permian Basin Royalty Trust Dallas
96 Dorchester Minerals LP Dallas 90 PetroQuest Energy Inc. Lafayette, La.
74 Earthstone Energy Inc. The Woodlands, Tex. 12 Pioneer Natural Resources Co. Irving, Tex.
65 Eclipse Resources Corp. State College, Penn. — Pioneer Oil & Gas South Jordan, Utah
95 Enduro Royalty Trust Austin, Tex. — PostRock Energy Services Corp. Oklahoma City
36 Energen Corp. Birmingham, Ala. 87 PrimeEnergy Corp. Houston
116 EnerJex Resources Inc. San Antonio 24 QEP Resources Inc. Denver
6 EOG Resources Inc. Houston 18 Range Resources Corp. Ft. Worth
35 EP Energy Corp. Houston 100 Reserve Petroleum Co. Oklahoma City
17 EQT Production Pittsburgh 77 Resolute Energy Corp. Denver
— Escalera Resources Co. Denver 69 Rex Energy Corp. State College, Penn.
57 EV Energy Partners LP Houston 22 Rice Energy Inc. Canonsburg, Penn.
98 Evolution Petroleum Corp. Houston 85 Ring Energy Inc. Midland, Tex.
78 Exco Resources Inc. Dallas 110 Royale Energy Inc. El Cajon, Calif.
45 Extraction Oil & Gas Inc. Denver 31 RSP Permian Inc. Dallas
1 ExxonMobil Corp. Irving, Tex. 114 Sabine Royalty Trust Dallas
109 FieldPoint Petroleum Corp. Austin, Tex. 106 San Juan Basin Royalty Trust Ft. Worth
117 Forestar Group Inc. Austin, Tex. 49 Sanchez Energy Corp. Houston
32 Freeport McMoran Inc. Phoenix 66 Sandridge Energy Inc. Oklahoma City
83 Gastar Exploration Inc. Houston 59 Seneca Resources Corp. Williamsville, N.Y.
— GeoPetro Resources Co. San Francisco 28 SM Energy Inc. Denver
92 Goodrich Petroleum Corp. Houston 25 Southwestern Energy Co. Spring, Tex.
33 Gulfport Energy Corp. Oklahoma City 101 Spindletop Oil & Gas Co. Dallas
50 Halcon Resources Corp. Houston 64 SRC Energy Inc. Denver
7 Hess Corp. New York 73 Stone Energy Corp. Lafayette, La.
113 Houston American Energy Corp. Houston 81 SilverBow Resources Inc. Houston
— Humble Energy Inc. Paron, Ark. 108 Tengasco Inc. Greenwood Village, Colo.
91 Isramco Inc. Houston — TN-K Energy Group Inc. Crossville, Tenn.
71 Jagged Peak Energy LLC Denver — Triangle Petroleum Corp. Denver
56 Jones Energy Inc. Austin, Tex. 55 Ultra Petroleum Houston
41 Kinder Morgan CO2 Co. LP Lakewood, Colo. 47 Unit Corp. Tulsa
52 Laredo Petroleum Inc. Tulsa — United American Petroleum Corp. Austin, Tex.
61 Legacy Reserves LP Midland, Tex. 103 US Energy Corp. Denver
93 Lilis Energy Inc. Denver 62 Vanguard Natural Resources Inc. Houston
43 Linn Energy Inc. Houston — Venoco Inc. Denver
79 Lonestar Resources US Inc. Ft. Worth 99 VOC Energy Trust Austin, Tex.
— Magellan Petroleum Corp. Houston 72 W&T Offshore Inc. Houston
9 Marathon Oil Corp. Houston — Warren Resources Inc. Denver
53 Matador Resources Co. Dallas — Wexpro Salt Lake City, Utah
104 Mexco Energy Corp. Midland, Tex. 20 Whiting Petroleum Corp. Denver
86 Mid-Con Energy Partners LP Dallas WildHorse Resource Development
48 Houston
75 Midstates Petroleum Co. Inc. Tulsa Corp.
23 WPX Energy Inc. Tulsa
19 Murphy Oil Corp. El Dorado, Ark.
97 Yuma Energy Inc. Houston
102 MV Oil Trust Austin, Tex.
— Zaza Energy Corp. Houston
111 New Concept Energy Inc. Dallas
38 Newfield Exploration Co. The Woodlands, Tex.
11 Noble Energy Inc. Houston

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 INDUSTRY BRIEFS

LINN TO SELL WASHAKIE PROPERTIES FOR $200M,

INCREASES SHARE REPURCHASE AUTHORIZATION
Linn Energy Inc. has signed a definitive agreement to sell its
interest in properties located in Wyoming to an undisclosed
buyer for a contract price of $200 million, subject to closing
adjustments. The board of directors has also authorized an
increase in the previously announced share repurchase program
from $200 million to a total of $400 million of the company’s
outstanding shares of Class A common stock.
The properties to be sold consist of approximately 163,000
net acres in the Washakie Field in Wyoming with second quarter
net production of approximately 66 MMcfe/d, proved reserves
of ~226 Bcfe and proved developed PV-10 of approximately
$102 million (Proved developed reserves are as of year-end
2016, rolled forward to the effective date of August 1, 2017 and
updated with pricing of $3.00 per MMBtu for natural gas and
$50.00 per bbl for oil. PV-10 represents the present value,
discounted at 10% per year, of estimated future net cash flows.
The company’s calculation of PV-10 herein differs from the
standardized measure of discounted future net cash flows
determined in accordance with the rules and regulations of the
SEC in that it is calculated before income taxes with the pricing
and timing assumptions noted). Annualized field level cash
flow on these properties is approximately $35 million (annualized
field level cash flow calculated from actuals over the past eight
months (January 2017 through August 2017), which does not
include estimated annual general and administrative expense
of ~$4-5 million. For the fourth quarter of 2017, the company
had budgeted approximately $3 million of capital for the Ampelmann and Seaqualize will collaborate on the development
of the S-type gangway, designed to be integrated into large, high
properties. speed vessels for offshore access.
The sale is expected to close in the fourth quarter of 2017
with an effective date of August 1, 2017. This transaction is the cost of operators using the system will be around 30%
subject to satisfactory completion of title and environmental cheaper than helicopters. For the global oil and gas market
due diligence, as well as the satisfaction of closing conditions. where volume of crew is high and the sea state can be severe,
Jefferies LLC acted as sole financial advisor and Kirkland & Ellis the S-type can continuously transfer 50 people and luggage
LLP as legal counsel during the transaction. in five minutes in significant wave heights.

AMPELMANN PARTNERS WITH SEAQUALIZE LOVELL MINNICK AND TORTOISE MANAGEMENT

Ampelmann has partnered with Seaqualize, a Dutch marine
motion technology innovator, to collaborate on the develop-
ment of its latest S-type gangway. Ampelmann develops and
manufactures motion compensated offshore access systems
and its latest gangway solution, the S-type, is designed spe-
cifically to be fully integrated into large, high speed vessels
and dedicated to long-term crew change operations.
The S-type is designed to safely compensate the challenging
motion characteristics of these vessels when in dynamic posi-
tioning alongside the platform.
The full-scale prototype is funded by a subsidy of the Dutch
Ministry of Economic Affairs. While targeted predominantly
towards the crew change market, the offshore wind market will
also hold opportunity for this new generation of gangway, due
to the reduction in power requirements and weight.
Production is due to start on the S-type in early 2018. In total,
TO ACQUIRE TORTOISE
Tortoise Investments and Lovell Minnick Partners have signed
a definitive agreement for a buyout of Tortoise. Terms of the
private transaction were not disclosed. As part of the transaction,
ongoing management and employees are expected to increase
their ownership of Tortoise. Employees will retain a significant
equity interest, with many investing additional capital alongside
Lovell Minnick, who will purchase the equity stake held by
Mariner Holdings and retiring co-founders of Tortoise. Tortoise
will maintain its independence and autonomy with its brand,
investment processes and day-to-day portfolio management
remaining unchanged. Members of Tortoise’s senior manage-
ment and its portfolio managers have signed long-term em-
ployment agreements to remain with Tortoise. Three co-found-
ers, Zachary Hamel, Kenneth Malvey and Terry Matlack, will sell
their remaining interest in Tortoise and retire from Tortoise

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upon closing of the transaction. Co-founder David Schulte,
who left Tortoise in 2015, will also sell his remaining interest in
Tortoise. Lovell Minnick is joined by a premier group of insti-
tutional investors, including HarbourVest Partners, AlpInvest
Partners, and several additional limited partners, who are sup-
porting the transaction. BMO Capital Markets acted as exclusive
financial adviser to Mariner Holdings and Evercore acted as
exclusive financial adviser to Lovell Minnick. Key Strategic
Advisors advised management on the transaction. UBS and
Credit Suisse are providing committed debt financing for the
transaction. Independent directors and the full boards of Tor-
toise’s registered funds have approved new advisory agreements
as a result of the transaction. The transaction is expected to
close by the end of the first quarter of 2018, subject to standard
regulatory, client and fund shareholder approvals.
SPARROWS GROUP, HYDRA GROUP LAUNCH
JOINT VENTURE IN GHANA
Sparrows Group has formed Sparrows Offshore Ghana Ltd. a
joint venture with local partner Hydra Group Ltd. to deliver
crane, lifting, and inspection services in Ghana. The JV creation
was supported by Scottish Development International (SDI),
the international arm of the Scottish Government and Scotland’s
enterprise agencies.
DRILLINGINFO ACQUIRES DATAGENIC
Drillinginfo, a SaaS and data analytics company serving the
energy industry, has acquired London-based DataGenic, a
provider of software solutions for enterprise data management
and business process automation. DataGenic services oil, gas,
power, commercial, and industrial clients globally and specializes
in data-agnostic technologies and complex forward-curve
construction. Generating millions of forward curves per day for
a single client, with granular audit trails, flexible reporting, and
data validation, DataGenic accelerates interoperability for
real-time decisions in the commodity trading business. Austin,
TX-based Drillinginfo’s energy decision platform provides mar-
ket intelligence on nearly 200 countries covering the Middle
East, Africa, Asia, Australia, North and Central Europe, and
Latin America.
CARRIZO AGREES TO SELL MARCELLUS SHALE ASSETS
On October 5, 2017, Carrizo Oil & Gas Inc. entered into an
agreement to sell its assets in the Marcellus Shale to a subsidiary
of Kalnin Ventures LLC for $84 million in cash, subject to cus-
tomary closing terms and conditions. Additionally, Carrizo could
receive contingent payments of up to $7.5 million in aggregate
based on natural gas prices exceeding certain thresholds over
the next three years. Net production from the assets averaged
more than 40 MMcf/d of natural gas over the first nine months
of 2017. The effective date of the transaction is April 1, 2017,
and the transaction is currently expected to close by the end
of November 2017.
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1711OGFJ_57 57
INDUSTRY BRIEFS
WARD SELLS SCOOP AND HOXBAR ASSETS
Ward Energy Partners LLC (WEP) has sold assets located pri-
marily in Stephens and Grady Counties in Oklahoma to an
undisclosed buyer. The assets are prospective for the Woodford,
Mississippian, and Springer reservoirs in the SCOOP and Hoxbar
oil trend. Pro forma for this sale, WEP will continue to own and
operate assets in the STACK play in Oklahoma and the Den-
ver-Julesburg basin in Colorado. WEP is an oil and gas explo-
ration and production company formed in July 2014 by Ward
Petroleum Corp., a diversified exploration and production
company based in Oklahoma and Colorado, and Trilantic Capital
Management LP, a private equity firm based in New York and
Texas. RBC Richardson Barr acted as a financial advisor to WEP
on the transaction. Vinson & Elkins LLP acted as legal advisor
to WEP.
EMERSON TO ACQUIRE PARADIGM
Emerson has agreed to acquire Houston, TX-based Paradigm,
a provider of software solutions for the oil and gas industry, for
a purchase price of $510 million, reflecting a multiple of 13
times expected 2017 EBITDA. Paradigm, joined with Emerson’s
existing Roxar software business, creates an exploration and
production software portfolio with offerings spanning seismic
processing and interpretation to production modeling.
ROWAN, SAUDI ARAMCO LAUNCH ARO DRILLING
ARO Drilling, a 50/50 joint venture between Rowan Companies
plc and the Saudi Arabian Oil Company (Saudi Aramco), com-
menced operations on October 17, 2017. As part of the initial
startup of ARO Drilling, Rowan, and Saudi Aramco contributed
equal amounts of cash into the joint venture. Following these
contributions, Rowan sold three of its jack-up drilling rigs to
ARO Drilling, including the J.P. Bussell, which was previously
idle, and Saudi Aramco sold one of its jack-up drilling rigs to
ARO Drilling. Following the purchase of these drilling rigs, ARO
Drilling distributed excess cash in the amount of approximately
$88 million to each of Rowan and Saudi Aramco maintaining
each party’s 50% ownership interests in the joint venture. Pur-
suant to the ARO Drilling shareholders’ agreement, Saudi
Aramco will sell an additional jack-up rig in 2017 to ARO Drilling
and Rowan will sell an additional two jack-up rigs to ARO Drilling
once they complete their current contracts in late 2018. ARO
Drilling also now manages the operations of Rowan’s seven
remaining jack-up rigs currently in Saudi Arabia. Rowan and
Saudi Aramco have agreed that ARO Drilling will purchase 20
future newbuild rigs that will be constructed by a Saudi Aramco
manufacturing joint venture and are expected to be delivered
between 2021 and 2030. Each newbuild is expected to have a
16-year drilling commitment upon delivery to ARO Drilling.
GOODRICH PETROLEUM ENTERS NEW CREDIT
FACILITY, AGREES TO ACREAGE SWAP
Goodrich Petroleum Corp. has entered into a $250 million
Senior Secured Revolving Credit Agreement with JP Morgan
57
11/3/17 10:06 AM
 INDUSTRY BRIEFS
Chase Bank NA (Joint Lead Arranger, Sole Bookrunner and
Administrative Agent) and SunTrust Bank and SunTrust Robinson
Humphrey Inc. (Syndication Agent and Joint Lead Arranger,
respectively). The credit facility has an initial borrowing base
of $40 million and contains customary terms and conditions,
including semi-annual borrowing base redeterminations. The
company had $31.1 million of cash on hand as of September
30, 2017 and has $23.3 million currently available under the
credit facility. Additionally, the company has entered into an
additional swap of undeveloped acreage on a portion of its
core North Louisiana Haynesville Shale acreage. Goodrich
swapped approximately 900 net acres out of its Metcalf area
of central Caddo Parish for a similar amount of acreage in its
Bethany-Longstreet area in southern Caddo Parish. The swap,
that increased its inventory of long laterals and operated acre-
age which carries lower gathering fees, equates to an increase
in proved undeveloped reserves of 25.5 Bcfe based on the
year-end 2016 SEC Reserve Report with SEC Henry Hub spot
price of $2.481 per MMBTU and $42.75 per barrel West Texas
Intermediate pricing.
CONTINENTAL SELLS 1M BARRELS OF BAKKEN OIL
FOR EXPORT TO CHINA
Continental Resources Inc. noted its first-ever sale of Bakken
oil specifically for delivery overseas. The company has sold
1,005,000 barrels of Bakken crude oil for November delivery to
Atlantic Trading and Marketing (ATMI), which intends to export
the oil to China. Daily sales transactions of 33,500 barrels per
day in November will take place in Cushing, Oklahoma. ATMI
then plans to transport the oil for loading on tankers at Texas
ports. In December 2015 the US lifted its ban on oil exports,
allowing foreign sales to be transacted without a license. Oil
exports have grown steadily in the past two years, primarily to
foreign refineries configured specifically to process light sweet
crude oil.
BURNS & MCDONNELL JOINS ISME
AS FOUNDING PARTNER
The International Society for Mexico Energy (ISME), a non-profit
energy business advocacy group formed three years ago in
Houston, is launching its Mexico City chapter with an inaugural
meeting to be held on Nov. 14 at the EGADE Business School
in Mexico City. Burns & McDonnell is a founding partner of
ISME, an organization chartered to help businesses navigate
Mexico’s evolving energy and power markets in the wake of
deregulation and partial privatization of its power and energy
sectors. Mexico has implemented far-reaching reforms of its
power and energy industries, opening both sectors up to private
investment in 2013 after decades of monopoly control by state-
run enterprises PEMEX and Comisión Federal de Electricidad.
The reforms are creating a surge of attention among both US
and international businesses. ISME is chartered to help serve
as a clearinghouse of best practices and accurate information
for businesses and others looking for business opportunities.
58
1711OGFJ_58 58
Founding partners of ISME are Burns & McDonnell, Kansas City
Southern Railroad, Emerson, and Siemens Financial Services.
Founding academic partners are Tulane University Business
School in Houston and the EGADE Business School at Tecno-
logico de Monterrey in Mexico City. With the start of the Mexico
City chapter, ISME will rotate its monthly meetings between
Mexico City and Houston. Each monthly meeting features a
series of educational sessions updating members on latest
developments within Mexico’s energy sectors along with other
items of interest from around the world.
GORDON TECHNOLOGIES SEES INVESTMENT
FROM PELICAN ENERGY PARTNERS
Pelican Energy Partners has invested in Gordon Technologies
LLC, an independent provider of Measurement-While-Drilling
(MWD) technology to the oil and gas industry. Headquartered
in Scott, LA, with a service facility in Midland, TX, Gordon was
founded in 2014 by Terry Frith, a veteran of the MWD sector
with more than 30 years of experience. Gordon’s product of-
ferings were designed to specifically address needs in today’s
challenging drilling environments, namely MWD failures due
to high shock and vibration, as well as high temperature envi-
ronments. Founded in 2011, Pelican Energy Partners is a spe-
cialized private equity firm based in Houston. The team, focused
on making investments in energy services and manufacturing
companies, has raised $330 million of committed capital and
is investing out of its second fund.
WORLEYPARSONS COMPLETES AFW UK ACQUISITION
WorleyParsons has completed the acquisition of AFW Oil and
Gas UK Ltd. (AFW UK). AFW UK is a provider of engineering
and construction, operations and maintenance and hook-up
services markets in the UK oil and gas market. AFW UK has
over 45 years’ experience operating in the North Sea providing
services across the full asset lifecycle. The business represents
the majority of Amec Foster Wheeler’s former UK upstream oil
and gas operations, to be divested as a remedy to competition
concerns raised in relation to the John Wood Group’s acquisition
of Amec Foster Wheeler.
CONSOL BOARD GIVES APPROVAL TO SEPARATE COAL,
E&P BUSINESSES
The board of CONSOL Energy Inc. has given final approval of
the company’s previously announced separation into two pub-
licly-traded companies–a coal company and a natural gas ex-
ploration and production company. The current parent CONSOL
Energy will change its name to CNX Resources Corp., and will
retain its ticker symbol “CNX” on the NYSE. CoalCo will change
its name to CONSOL Energy Inc., and its common stock will
trade on the NYSE under the ticker symbol “CEIX”. CNX Coal
Resources LP will change its name to CONSOL Coal Resources
LP. CNX Coal Resources will change its NYSE ticker symbol to
“CCR” from “CNXC”, and its common units will continue to
be listed on the NYSE.
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11/3/17 10:06 AM

CONOCOPHILLIPS APPOINTS
DEVINE TO BOARD
ConocoPhillips has elected Caroline Maury Devine
to serve as a board member. Richard Auchinleck no-
tified the board of directors that he does not intend
to stand for re-election as a director of the company
at the end of his current term. Devine also currently
serves on the boards of JBT Corp. and Valeo, as a
member of the nominating committee of Petroleum
Geo-Services ASA and as a member of the Council
on Foreign Relations. Devine began her career by
serving the US government for 15 years in positions
on the White House Domestic Policy Staff, in the US
Embassy in Paris and in the Drug Enforcement Ad-
ministration. In 1988 she joined Mobil Corp., holding
various corporate positions responsible for shareholder
relations and governance issues, as well as interna-
tional government relations. She then served as pres-
ident and managing director of a Norwegian affiliate
of ExxonMobil from 1996 to 2000. Devine will serve
on the Audit and Finance Committee and the Public
Policy Committee of the ConocoPhillips board.
PRESIDENT OF TEXAS ALLIANCE OF ENERGY
PRODUCERS TO RETIRE
Alex Mills will retire from the Texas Alliance of Energy
Producers effective December 31, 2017, as president
and chief of staff. Mills became President of the Texas
Alliance of Energy Producers in 2000, following the
merger of the North Texas Oil & Gas Association
(NTOGA) and the West Central Texas Oil & Gas As-
sociation (WeCTOGA). Mills moved to Wichita Falls
in 1994 as executive vice president of NTOGA after
living eight years in Washington DC where he served
as vice president of the Independent Petroleum As-
sociation of America, the national organization for the
independent oil and gas industry. He also served as
executive vice president of the West Central Texas
Oil & Gas Association in Abilene from 1981 to 1986.
He is a frequent speaker on energy topics, including
speaking engagements at Texas Tech University and
has participated in the Distinguished Lecture Series
at the Dillard Business School at Midwestern State
University. Texas Governor Ann Richards appointed
him to the Interstate Oil & Gas Compact Commission
in 1994 and Governor George W. Bush re-appointed
him in 1995.
RUIZ STERNADT NAMED CEO
FOR DRESSER-RAND BUSINESS
Paulo Ruiz Sternadt has been appointed CEO of the
Dresser-Rand business, part of Siemens Power and
Gas Division. He succeeds Judith Marks who will leave
the company at her own request. Ruiz Sternadt brings
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1711OGFJ_59 59
ENERGY PLAYERS
leadership experience to the position, including more
than 16 years with Siemens in multiple global roles in
the US, Germany, Mexico, and Brazil. He most recently
served as executive vice president of global solutions
for the Dresser-Rand business and a member of its
executive staff.
Devine
ARSENAL RESOURCES NAMES FARMER
PRESIDENT, CEO
Arsenal Resources, a growing pure play natural gas
operator in the Marcellus basin, has appointed Jon
Farmer as president and CEO, effective October 15,
2017. David Wood, who joined Arsenal Resources in
2014 as chairman and then CEO in 2015, will remain
as chairman of the board. Farmer has been with Ar-
Mills
senal Resources since its formation in 2011. He most
recently served as the company’s president and COO.
A graduate of the Advanced Management Program
at Harvard, Farmer has spent his career at various
Appalachian Basin operators, most recently Falcon
Partners. He has a bachelor’s degree in political science
and holds a juris doctorate degree.
AEGIS ENERGY RISK NAMES SANSBURY COO
Sternadt
AEGIS Energy Risk, a provider of hedge advisory,
execution, and back office services to the upstream
oil and gas industry, has named Bryan Sansbury as its
COO. Sansbury is a founding partner and has been
an outside advisor to the firm since its inception in
2013. In his new role, Sansbury will be responsible for
leading the operations, technology, and financial
management of the firm. He joins AEGIS from Alight
Solutions, where he most recently served as president
Farmer
of the Health & Wealth Solutions business. Prior to
this role, he served as the COO and chief information
officer of Aon Hewitt. Sansbury earned a bachelor’s
degree in finance from Berry College and is a Fellow
of the CEO Perspectives Program through the Kellogg
School of Management at Northwestern University.
ARB MIDSTREAM ADDS VANDERHOEF
TO CRUDE SUPPLY AND TRADING TEAM
ARB Midstream LLC has hired Alison Vanderhoef to
the crude supply and trading team. Vanderhoef will
be responsible for identifying new opportunities to
acquire and market crude oil from various regions
throughout North America. She will also work to iden-
tify and assess business development opportunities
for midstream solutions including gathering and pro-
cessing. Before joining ARB Midstream, Vanderhoef
was a crude oil marketer for Petro China. She received
her undergraduate degree from Texas A&M and an
MBA from the University of Phoenix. Prior to Petro
China, Vanderhoef worked for various companies in
59
11/3/17 10:06 AM
 ENERGY PLAYERS
the energy space including Kodiak Oil and Gas, Whit-
ing Petroleum, and Vitol. ARB Midstream is an inde-
pendent, growth-oriented company, providing com-
plete midstream and marketing solutions for crude
oil, LPGs and refined products. ARB was formed with
a strategic financing relationship with BV Natural
Alley
Resources LLC, the energy division of Ball Ventures
LLC.
ALLEY JOINS SILVERBACK EXPLORATION AS CFO
Matthew Alley has joined Silverback Exploration II
LLC as CFO. Alley brings more than 15 years of cor-
porate and energy finance and investment experience
to the Silverback team. In his new role, Alley is respon-
sible for all financial functions of the company including
Coyle
structuring potential transactions, financial modeling
and analysis, budgeting and reporting, and strategic
planning. Prior to Silverback, Alley spent two years as
CFO and vice president of finance with Palomar Nat-
ural Resources, an oil and gas operator with assets in
the United States and Poland. Additionally, Alley was
manager of corporate finance at Aspect Energy, an
independent energy exploration and investment com-
pany, where he focused on corporate and financial
Fergusson
matters relating to projects in the Gulf Coast and
multiple unconventional basins in the United States,
as well as international projects in Hungary, Kurdistan,
and Italy. Alley holds a Bachelor of Science degree in
economics and computer science from the University
of Puget Sound. Silverback Exploration II is an inde-
pendent oil and natural gas exploration company
based in San Antonio. Silverback II is backed by a $500
million equity commitment from EnCap Investments
LP.
RRC COMMISSIONERS APPOINT INTERIM
EXECUTIVE DIRECTOR
Texas Railroad Commission Chairman Christi Craddick
and Commissioners Ryan Sitton and Wayne Christian
voted unanimously to appoint Wei Wang to serve as
interim executive director, effective Oct. 16, 2017.
Wang currently serves as the agency’s CFO. Wang will
serve in this dual capacity while the Commission con-
ducts a search for a permanent executive director to
lead the agency’s day-to-day operations.
ENLINK MIDSTREAM NAMES JAGGI SVP
EnLink Midstream has named Cynthia L. Jaggi as the
new senior vice president - strategic process transfor-
mation, a new team within the company. Through
Jaggi’s leadership, EnLink’s engineering and major
projects teams improved processes, applying lessons
learned from a “Project Playbook” spearheaded by
Jaggi. She has held several key roles since she joined
60
1711OGFJ_60 60
EnLink’s predecessor company in 2006, most recently
as senior vice president of engineering and operations
services. EnLink provides integrated midstream ser-
vices across natural gas, crude oil, condensate, and
NGL commodities.
INEOS SHALE APPOINTS COYLE AS CEO
INEOS Shale has today announced Ron Coyle, the
former Commercial Director of INEOS Phenol, has
been appointed CEO of INEOS Shale. Coyle brings
over 20 years of experience to the UK shale gas com-
pany. Coyle began his career in the US military where
he reached the rank of Army Captain. After completing
his term, he earned an MBA from Emory’s Goizeuta
Business School, joined INEOS Phenol in 1998 and
became its Commercial Director in 2010. INEOS Shale
is now ready to move into an operational phase. INEOS
Shale plans to begin drilling test wells in the
short-term.
NEW MANAGING DIRECTOR
NAMED AT CLEARWELL
Flow assurance and production optimization specialist,
ClearWELL Oilfield Solutions, has appointed a man-
aging director as the company looks to increase its
international footprint. Alasdair Fergusson brings
more than 25 years of oilfield management and mar-
keting experience to ClearWELL, having worked for
major service companies in Europe and the Middle
East. Most recently he held the Paris-based position
of Business Manager Europe and Africa, Production
Technologies at Schlumberger’s M-I SWACO. Before
joining Schlumberger, Alasdair was Director Eastern
Hemisphere, Engineered Chemistry for Weatherford,
based in the UAE. He was also responsible for man-
aging the ClearWELL product line, then distributed
exclusively by Weatherford. This was preceded by a
10-year stint at Baker Hughes in production chemistry,
drilling fluids and completion tools businesses. The
appointment follows FrontRow Energy Technology
Group Ltd.’s acquisition of 50% of ClearWELL from
previous owner MSL Oilfield Services, which retains
the remaining 50%.
BEYOND LIMITS APPOINTS NEW HEAD
OF OIL AND GAS TECHNOLOGIES
Beyond Limits, an artificial intelligence (AI) and cog-
nitive computing company, has appointed Dr. Shahram
Farhadi as the head of oil and gas technologies at the
company. Before joining Beyond Limits, Dr. Farhadi
worked with Occidental Petroleum Corp. on many
projects including unconventional exploration and
chemical flooding. Most recently he worked on sim-
ulations of a propulsion component for the Orion
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11/3/17 10:06 AM

project. He holds a PhD in petroleum engineering from the
University of Southern California. Launched in 2014, Beyond
Limits secured $20 million in Series B funding from BP Ventures,
the corporate investment arm of global energy business British
Petroleum, earlier this year. The investment will accelerate the
delivery of Beyond Limits’ industrial-grade AI software aimed
at providing the energy sector with operational insight, business
optimization, and process automation across operations.
TIDEWATER PRESIDENT, CEO RETIRES
Jeffrey M. Platt has elected to retire from his roles as CEO,
president, and as a director of Tidewater Inc., effective October
15, 2017. The board of directors appointed Larry T. Rigdon as
the company’s interim CEO and president. Rigdon, who was
appointed to serve on the board following the financial restruc-
turing, has prior experience as an executive at Tidewater, retiring
as executive vice president in 2002 after joining the company
in 1992 with the merger with Zapata Gulf Marine Corp. Following
his retirement, Rigdon founded and grew Rigdon Marine Corp.
to 28 offshore service vessels and sold the company in June
2008. Rigdon currently serves as a director of Professional Rental
Tools LLC. In light of Rigdon’s interim dual role as CEO and
president, he has stepped down from the audit committee and
the board has appointed Steven Newman as his replacement.
Tidewater is a provider of Offshore Service Vessels (OSVs) to
the global energy industry.
FORTIS ENERGY SERVICES HIRES ALFORD
AS VP, OPERATIONS
Jason Alford has joined Fortis Energy Services as vice president
of operations. Alford has over 27 years’ experience in the oil
and gas industry, with more than 12 in a management role.
Alford has spent time working in some of the largest oil and
gas plays in the world including: Norway, Kuwait, Venezuela,
Algeria, Libya, UAE, the Gulf of Mexica, North America, and
Egypt, where he was the Country Manager for Boots & Coots,
a Halliburton company. Fortis Energy Services is an oil and gas
well servicing company with corporate headquarters in Michigan
and operations throughout the Rocky Mountain and Northeast
regions, specializing in well completions, down-hole repairs,
maintenance, workovers and plugging and abandonment.
ELLIOTT STEPS DOWN AS NON-EXECUTIVE
DIRECTOR OF ROYAL DUTCH SHELL
Guy Elliott has stepped down as a non-executive director of
Royal Dutch Shell plc. In a prepared statement, Royal Dutch
Shell plc chair, Charles Holliday, said Elliott’s decision to step
down is “related to his involvement in legal proceedings re-
garding his former employment at Rio Tinto. We will miss his
insightful counsel and leadership and would like to thank him
for his seven years of valuable contribution to the Shell Board.
We sincerely hope he satisfactorily resolves those proceedings
and, that in that event, he would like to be considered for re-
joining the Board.”
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1711OGFJ_61 61
ENERGY PLAYERS
ENTEK ENERGY APPOINTS EXECUTIVE CHAIRMAN
Entek Energy Ltd. has appointed the non-executive chairman,
Mark McAuliffe, to the role of executive chairman and managing
director. In a prepared statement the company noted that the
view that process of reconfiguring the company’s asset base
away from unconventional oil and gas could be accelerated if
there was an executive member of the board with the authority
of managing director. The company believes the structure is
the best way to pursue objectives during the asset transition
and is not intended to be long term.
SHAY JOINS BOARD OF PERPETUAL ENERGY
Perpetual Energy Inc. has appointed Ryan Shay to the board
of directors. Shay brings over 20 years of experience in the oil
and gas industry, retiring in June 2016 from his position as
managing director, head of investment banking for Cormark
Securities. Prior to transitioning to investment banking, Shay
was Cormark’s senior energy research analyst for eight years.
Perpetual is an oil and natural gas exploration, production and
marketing company headquartered in Calgary, Alberta. Per-
petual operates a diversified asset portfolio, including liq-
uids-rich natural gas assets in the deep basin of west central
Alberta, heavy oil and shallow natural gas in eastern Alberta,
with longer term opportunities through undeveloped oil sands
leases in northern Alberta.
FRANK ELECTED TO CHEVRON BOARD
Chevron Corp. has elected John B. Frank to the company’s
board of directors, effective November 2, 2017. He will serve
on the company’s audit committee. Frank is vice chairman of
Oaktree Capital Management LP, a firm he joined in 2001 as
general counsel. Frank was Oaktree’s managing partner from
2005 until 2014. Previously, Frank was a partner with the law
firm of Munger, Tolles & Olson LLP. Prior to joining Munger
Tolles in 1984, Frank served as a law clerk to the Honorable
Frank M. Coffin of the United States Court of Appeals for the
First Circuit. He holds a bachelor’s degree in history from Wes-
leyan University, as well as a Juris Doctor degree from the
University of Michigan Law School.
SIDLEY AUSTIN ADDS FIVE PARTNERS
TO ENERGY CAPITAL MARKETS TEAM
Sidley Austin LLP will add a team of five partners to its Capital
Markets and M&A practices, four of whom – David Buck, Jon
Daly, Angela Richards and George Vlahakos – will be based in
its Houston office, with the remaining partner – Bill Cooper –
splitting his time between Houston and Washington, D.C. Buck,
Daly, Vlahakos, Cooper will join Sidley November 1, while
Richards will follow in early December. The addition of the
group continues the firm’s expansion in the energy sector and
supplements its energy capital markets capabilities. Buck is a
senior capital markets and M&A partner with a corporate and
securities law practice emphasizing transactional and gover-
nance matters. Cooper concentrates his practice on complex
61
11/3/17 10:06 AM
 ENERGY PLAYERS
STATEMENT OF OWNERSHIP, MANAGEMENT,
AND CIRCULATION
1. Publication title: Oil & Gas Financial Journal. 2. Publica-
tion number: 023-057 3. Filing date: October 1, 2017. 4. Issue
frequency: Monthly. 5. Number of issues published annu- capital markets transactions representing both issuers and underwriters on initial
ally: 12. 6. Annual subscription price: $150.00. 7. Complete
mailing address of known office of publication: PennWell
public offerings (IPOs), follow-on equity offerings, traditional private placements,
Corporation 1421 South Sheridan Road, Tulsa, OK 74112, Tulsa Rule 144A offerings and private investments in public equity. Daly focuses his practice
County. 7a. Contact person: Traci Huntsman. 7b. Telephone:
918-831-9435. 8. Complete mailing address of headquar- on corporate and securities law. Richards advises clients in the energy sector on
ters or general business office of publisher: PennWell Cor- various federal income tax matters, particularly on domestic business transaction
poration, 1455 West Loop South, Ste 400, Houston, TX 77027. 9.
Full names and complete mailing addresses of Publisher, planning. Vlahakos has experience in a broad range of transactional and corporate
Editor and Managing Editor: Publisher: Paul Westervelt, 1455
West Loop South, Ste 400, Houston, TX 77027. Editor: Don
governance matters.
Stowers,1455 West Loop South, Ste 400, Houston, TX 77027.
Managing Editor: Don Stowers, 1455 West Loop South, Ste 400,
Houston, TX 77027. 10. Owner: PennWell Corporation, 1421 GALLEGOS SUCCEEDS COLE AS SIDEWINDER CEO
South Sheridan Road, Tulsa, OK 74112, Tulsa County; Succes- Sidewinder Drilling LLC CEO Jon C. Cole has retired. J. Anthony Gallegos Jr. has
sors to the Estate of Helen B. Lauinger, 1421 South Sheridan
Road, Tulsa, OK 74112, Tulsa County. 11. Known Bondholders, been promoted to CEO and member of the board. Cole will continue to serve as
Mortgages, and Other Security Holders Owning or Holding
1 Percent or More of Total Amount of Bonds, Mortgages,
chairman of the board. In addition, the company has promoted Scott A. Keller, who
or Other Securities: None. 12. N/A. 13. Publication Title: Oil was formerly director of marketing, to vice president of marketing. Gallegos has over
& Gas Financial Journal. 14. Issue Date for Circulation Data:
September 2017. 25 years of experience in the land and offshore domestic and international contract
15. Extent and Nature of Circulation: drilling business. Prior to this promotion, for the past three years, Gallegos served
Average No. No. copies of as president and CFO with overall responsibility for the profitability and operating
copies each single issue
issue during published performance of the company. He was a founder of the company and served as senior
preceding nearest to
12 months: filing date: vice president and CFO. Previously he served as vice president of business develop-
a. Total number of copies 6,417 6,626 ment of Scorpion Offshore. Gallegos is a veteran of the US Army and holds a BBA
b. Legitimate paid and/or requested distribution
from Texas A&M University and an MBA from Rice University.
1. Outside county paid/requested 5,681 5,619
mail subscriptions stated
on PS form 3541
2. In-county paid/requested mail 0 0 MRC GLOBAL ELECTS ADAMS TO BOARD
subscriptions stated on PS form 3541 Deborah G. Adams has joined MRC Global’s board of directors. Adams has over 30
3. Sales through dealers and 11 11
carriers, street vendors, counter years of management and operational experience at Phillips 66 and its predecessor
sales, and other paid or requested
distribution outside USPS® companies. She has held a variety of roles including procurement, corporate strategy,
4. Requested copies distributed 0 0 commercial and business development, information systems and engineering. Her
by other mail classes
through the USPS® global experience covers the energy value chain with a heavy focus on both midstream
c. Total paid and/or 5,692 5,630
requested circulation
and downstream. From 2014 until 2016, Adams served on the executive leadership
d. Non-requested distribution tteam at Phillips 66 as senior vice president of HSE, Projects and Procurement. She
1. Outside county nonrequested 86 93
copies stated on PS form 3541
has also held various leadership posts including leading the international refining
2. In-county nonrequested copies 0 0 business for ConocoPhillips as well as serving on several of ConocoPhillips’ joint
stated on PS form 3541
3. Nonreqeusted copies distributed 0 0 venture boards. Headquartered in Houston, Texas, MRC Global, is a large distributor
through the USPS by other of pipe, valves, fittings, and related products and services to the energy industry.
classes of mail
4. Nonrequested copies distributed 327 453
outside the mail
PERPETUAL ENERGY APPOINTS SHAY AS DIRECTOR
e. Total nonrequested distribution 413 546
f. Total Distribution 6,105 6,176 Perpetual Energy Inc. has appointed Ryan Shay to the board of directors. Shay brings
g. Copies not Distributed 312 450
over 20 years of experience in the oil and gas industry, retiring in June 2016 from his
h. Total 6,417 6,626
i. Percent Paid and/or 93.24% 91.16% position as managing director, head of investment banking for Cormark Securities.
Requested circulation
Prior to transitioning to investment banking, Shay was Cormark’s senior energy re-
16. Electronic Copy Circulation
a. Requested and Paid Electronic Copies 10,256 10,419
search analyst for eight years. Perpetual is an oil and natural gas exploration, pro-
b. Total requested and paid print copies 15,948 16,049 duction and marketing company headquartered in Calgary, Alberta. Perpetual operates
+ requested/paid electronic copies
an asset portfolio of liquids-rich natural gas assets in the deep basin of west central
c. Total requested copy distribution + 16,361 16,595
requested/paid electronic copies Alberta, heavy oil and shallow natural gas in eastern Alberta, and undeveloped oil
d. Percent Paid and/or requested 97.48% 96.71%
circulation
sands leases in northern Alberta.
x I certify that 50% of all my distributed copies (electronic and print)
are legitimate requests or paid copies.
MDU RESOURCES NAMES HASTINGS CEO OF PIPELINE BUSINESS
17. Publication of Statement of Ownership: Will be printed
in the November 2017 issue of this publication. MDU Resources Group Inc. has named Trevor J. Hastings as president and CEO of
18. Signature and title of Editor, Publisher, Business WBI Holdings Inc., the company’s pipeline and energy services business. Hastings
Manager, or Owner: Traci Huntsman, Manager Corporate Assets
and Postal Compliance. Date: 10/01/2017. joined MDU Resources in 1996 as a regulatory analyst at the company’s utility business.
I certify that all information furnished on this form is true Most recently, he held the position of vice president of business development and
and complete. I understand that anyone who furnishes false
or misleading information on this form or who omits mate- operations support at Knife River Corp. Hastings earned a bachelor’s degree from
rial or information requested on the form may be subject to
criminal sanctions (including fines and imprisonment) and/
the University of North Dakota. David L. Goodin had been serving as the interim
or civil sanctions (including civil penalties). president and CEO at WBI Holdings, in addition to his position at MDU Resources,
since May 2017.

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1711OGFJ_62 62 11/3/17 10:06 AM

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

COMPANY PAGE COMPANY PAGE COMPANY PAGE COMPANY PAGE

AAPL 42 Dauphine Midstream LLC 13 King & Spalding LLP 31 Rio Tinto 61
Abu Dhabi Crude Oil Pipeline LLC 23 DEA 59 Kingfisher Midstream 36 RKI Petroleum 36
Abu Dhabi National Oil Company 23 Devon Energy 49 Kirkland & Ellis LLP 56 Roan Resources 37
Accenture 8,16 Donald Lufkin & Jenrette 20 Kodiak Oil and Gas 60 Rowan Companies plc 57
AEGIS Energy Risk 59 Dresser-Rand 59 KPMG 8 Royal Dutch Shell plc 61
AFW UK 58 Drexel Burnam Lambert 20 KrisEnergy Ltd. 10 Rystad Energy 18,30
Air Products and Chemicals Inc. 12 Drillinginfo 57 Lattice Energy 37 Saudi Aramco 57
Alight Solutions 59 DTN 38 Linn Energy 37,49,56 Schlumberger 60
Allegro Development Corp. 35 Dutch Ministry of Economic Affairs 56 Lovell Minnick Partners 56 SCOTIABANK 3
AlpInvest Partners 57 Emerson 57 Marathon Oil 19,50 Scottish Development International 57
Alta Mesa Holdings 36 Emerson 58 Mariner Holdings 57 Seaqualize 56
Amec Foster Wheeler 58 Encana 12 MDU Resources Group Inc. 62 SEC 34,51,58
Ampelmann 56 EnCap Flatrock Midstream 13 Merey Sweeny LP 14 Shell 11
Anadarko 19 EnCap Investments LP 60 Microsoft 8 Shell Midstream Partners LP 13
Anheuser-Busch 20 Energean Oil & Gas 10 Mobil Corp. 59 Sidewinder Drilling LLC 62
Aon Hewitt 59 Energy Transfer Crude Oil 14 Moelis & Company 20 Sidley Austin LLP 61
Apache Corp. 19,49 Company LLC Morgan Stanley & Co. LLC 13 Siemens Financial Services 58
ARB Midstream LLC 59 ENERGYNET 5 MRC Global 62 Silver Run II 36
ARO Drilling 57 EnLink Midstream 60 MSL Oilfield Services 60 Silverback Exploration II LLC 60
Arsenal Resources 59 EOG Resources 50 Munger, Tolles & Olson LLP 61 SK Holdings Co. Ltd. 13
Aspect Energy 60 EQT Production 51 Murphy Oil Corp. 19,50 Southwestern Energy 49
Atlantic Trading and Marketing 58 Esso Exploration and Production Mustang Fuel Corp. 12 Spark Cognition 8
Axium Infrastructure Canada II LP 14 Guyana Ltd. 10 NICE Actimize 40 Sparrows Group 57
Baker Hughes 11,12,60 Eureka Midstream Holdings LLC 13 Noble Energy 50 Statoil 11
Banpu Pcl 10 Evercore ISI 8 North Texas Oil & Gas Association 59 Stone Energy 49
Barclays 14 Exxon Mobil Corp. 10 NYSE 14 SunTrust Robinson Humphrey Inc. 58
Beach Energy 37 ExxonMobil 12,49 Oaktree Capital Management 61 TAILWATER CAPITAL 13,BC
Beyond Limits 60 Falcon Partners 59 Occidental Petroleum Corp. 49,60 Tervita Corp. 4
Blue Ridge Mountain Resources Inc. 13 FERC 12 OPEC 11,17 Texas Alliance of Energy Producers 59
BMO Capital Markets 57 First Reserve 13 Origin Energy 37 Thompson & Knight LLP 13
BP 11 FLOTEK INDUSTRIES INC. IBC Palomar Natural Resources 60 Tidewater Inc. 61
BP Energy Partners LLC 13 Fortis Energy Services 61 Paradigm 57 Tortoise Investments 56
BP Midstream Partners LP 14 FrontRow Energy Technology 60 Parker Drilling 4 TransCanada Corp. 14
Group Ltd.
BP Ventures 61 Parsley Energy Inc. 51 Trilantic Capital Management LP 57
Gardere Wynne Sewell LLP 13
Brazos Midstream Holdings LLC 12 Pelican Advisors LLC 13 Tudor, Pickering, Holt & Co. 4
Genesis Energy LP 12
Burns & McDonnell 58 Pelican Energy Partners 58 UBS 20,57
Gibson, Dunn & Crutcher LLP 24
BV Natural Resources LLC 60 PEMEX 58 UBS Investment Bank 14
Goldman Sachs & Co. LLC 4,13
Callon Petroleum Co. 12 Perdure Petroleum 37 Ultra Petroleum 49
Goodrich Petroleum Corp. 57
Carrizo (Marcellus) LLC 10 Perella Weinberg Partners 4 UNION BANK 9
Gordon Technologies LLC 58
Carrizo Oil & Gas 51,57 Perpetual Energy Inc. 62 University of Houston 4
Gravity Midstream Corpus Christi 13
CB&I 12 Petro China 59 University of Texas at Austin 4
LLC
Centennial Resource Development 51 Petrobras 20 Valeo 59
Halliburton 4,61
Chamberlain, Hrdlicka, White, 42 Petroleum Geo-Services ASA 59 Vanguard Natural Resources LLC 51
HarbourVest Partners 57
Williams & Aughtry Phillips 66 62 Venture Global LNG Inc. 13
Haynes and Boone LLP 7
Chaparral Energy 49 Phillips 66 Partners LP 14 Veresen Midstream 12
Hess Corp. 50
Chaparral Energy Inc. 37 Pin Oak Corpus Christi LLC 13 Vinson & Elkins LLP 57
Hess Guyana Exploration Ltd. 10
Chesapeake Energy 49 Pinnacle Midstream LLC 13 Vitol 60
Hilton Hotels 20
Chevron 11,49,61 Pioneer Natural Resources 49 Wachovia Corp. 4
Hydra Group Ltd. 57
Chief Exploration and Development 10 PLS Inc. 36 Ward Energy Partners LLC 57
LLC I Squared Capital 13
Professional Rental Tools LLC 61 Weatherford 60
Citigroup 14 IAM Legacy 28
QEP 36 Wells Fargo & Co. 4
Citizen Energy II 37 Independent Petroleum Association 59
of America Quorum 8 West Central Texas Oil & Gas
ClearWELL Oilfield Solutions 60
INEOS Shale 60 Radler 2000 LP - Tug Hill Marcellus 10 Association 59
Concho Resources 49 LLC
International Society for Mexico 58 Whiting Petroleum 50,60
ConocoPhillips 19,49,59 Railroad Commission of Texas 11,60
Energy WildHorse Resource Development 51
Consol Energy 49,58 Range Resources – Appalachia LLC 10
IRS 42 Wood Mackenzie 11,17,64
Continental Resources Inc. 50,58 RBC Capital Markets 13
JBT Corp. 59 WorleyParsons 58
Copperbeck Energy Partners LLC 13 RBC Richardson Barr 57
Jefferies LLC 56 Zapata Gulf Marine Corp. 61
Credit Suisse 14,57 Real Core Energy 28
JP Morgan 14,58 Zena Energy LLC 10
Crestwood Equity Partners LP 13 REGIONS FINANCIAL 15
Kalnin Ventures LLC 10,57
Dakota Access LLC 14 Reliance Marcellus II LLC 10
Kansas City Southern Railroad 58
DataGenic 57 Rio Grande LNG LLC 12
Key Strategic Advisors 57

NOVEMBER 2017 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 63

1711OGFJ_63 63 11/3/17 10:06 AM

 How sustainable is Permian tight oil growth?
TECHNOLOGY HAS played a huge role
in the rapid rise of production in the Perm-
ian Basin. Operators are bullish on the
region’s long-term potential and poised to
exploit the Permian at an unparalleled pace
over the next few years. However, according
to a report by Wood Mackenzie, Geology
vs. technology: how sustainable is Permian
tight oil growth?, geological constraints that
may arise as the play is aggressively devel-
oped could lead to production shortfalls,
and in turn, higher prices early in the next
decade.
In the report’s reference case analysis,
Wood Mackenzie forecasts Permian pro-
duction to increase to more than five mil-
lion b/d in 2025. Fully modeling the poten-
tial impact of the latest breakthrough
technologies reveals measurable upside
to Permian peak production. However,
downside risks related to tighter well spac-
ing and well-on-well interference could
bring peak Permian production forward
by four years compared to the upside case
– putting more than 1.5 million b/d of fu-
ture production in question.
Robert Clarke, research director for
Lower 48 Upstream at Wood Mackenzie,
explains: “Technology gains in the past few
years have propelled Permian well perfor-
mance to new levels. However, industry is
set up to develop the Permian region’s shale
zones at an unparalleled level, testing the
geological limits of the play. It is very likely
that the upcoming level of activity will in-
troduce a new set of issues, particularly
reservoir deliverability.”
Countless other shale plays have proven
that the first few years of growth are typi-
cally the easiest. Beyond that, producers
require more breakthroughs to keep their
barrels at the bottom of the cost curve.
Looking at other shale plays, the Marcellus
hit regulatory and midstream bottlenecks,
the Bakken contended with huge differen-
tials, the Haynesville dealt with a massive
cyclical downturn, and the Eagle Ford
sweet spots ended up being much smaller
than originally modeled. In the Permian,
the growth challenge could relate to the
industry ultimately finding hard subsurface
64
1711OGFJ_64 64
“Reservoir issues could begin to manifest as sweet spots
become exhausted. Taking into account some bearish
assumptions, if future wells tap more difficult rocks, and
are not offset by continued technology evolution, the
Permian may peak in 2021.” – Robert Clarke
“We believe future child wells, because they’re effectively
drilled into pressure sinks, could have EURs 20% to 40%
smaller than their parent producers. This would massively
impact production growth and also limit the amount of
cash flow available for reinvestment.” – Alex Beeker
limits for tight oil recovery.
Wood Mackenzie assessed and quantified the unintended consequences of high-in-
tensity, long-lateral, close-proximity drilling and fracking on reservoir deliverability. The
analysis found that well interference during fracking events could reduce future estimated
ultimate recovery (EUR) value by 30% compared with today. Clarke notes: “These reservoir
issues could begin to manifest as sweet spots become exhausted. Taking into account
some bearish assumptions, if future wells tap more difficult rocks, and are not offset by
continued technology evolution, the Permian may peak in 2021.”
The report looks in detail at one of the most prevalent reservoir risks, parent-child
wells. Infill wells located next to older producers are routinely called “child” wells, in
reference to the older offset “parent” producers. Only a small percentage of wells drilled
today in the Permian are child wells but this will change in the coming years as operators
ramp up production.
Report co-author, Alex Beeker, senior research analyst at Wood Mackenzie explains:
“When child wells are drilled, they are exposed to different reservoir conditions than the
parent. Leaning on history again, we believe future child wells, because they’re effectively
drilled into pressure sinks, could have EURs 20% to 40% smaller than their parent pro-
ducers. This would massively impact production growth and also limit the amount of
cash flow available for reinvestment.”
There is much at stake for operators in the Permian to get the technology vs. geology
equation right. Under the conditions outlined in the report, the maximum range between
the upside technology and downside reservoir risk cases is more than 1.5 million b/d in
2025. That’s more production than the Bakken ever delivered on an annual basis.
“The ultimate outcome will be some combination of all the factors we modeled. Other
risk factors will also come into play such as evolving gas to oil ratios and water-injection
issues in adjacent zones that will impact pressure regimes and completion designs,”
Beeker adds.
A few things are clear from Woodmac’s sensitivity analysis though. Permian production
will grow aggressively for the next few years, technology advancements will quickly spread
across all operators, and EURs for many parent wells should keep rising. Further into the
future though, huge downside reservoir risks may quickly become a reality if technologies
don’t evolve to meet the geological challenges of the future.
“The technology vs. geology tug-of-war has the ability to profoundly alter the future
production profile of the region, and ultimately oil price. Less Permian supply from 2021
onwards would exacerbate the global supply gap and effectively mean the US cannot
deliver what the market believes it can. Other sources of higher cost, conventional pro-
duction would be needed,” Clarke concluded.
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL NOVEMBER 2017
11/3/17 10:06 AM
 ®
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1711OGFJ_C4 4 11/3/17 10:07 AM

 Houston London Paris Stavanger Aberdeen Singapore Moscow Baku Perth Rio de Janeiro Lagos Luanda

For continuous news & analysis

www.offshore-mag.com
November 2017

World Trends and Technology for Offshore Oil and Gas Operations

European
Offshore
Technology

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Photography by Ben Weller

1711OFFEuroSupp_1 1 10/31/17 8:06 AM

 ● E UROPEAN T ECHNOLOGY

Total sanctions seam-welded tubes

for west of Shetland umbilical
Reduced wall thickness cuts offshore installation costs
S. Delettrez
Vallourec Umbilicals
B. Robson
TechnipFMC Umbilicals
J.P. Roques
Total
H. Evin
Vallourec Research Center France

S
uper duplex tubes are the main cost item in a steel tube
umbilical, and optimizing the wall thickness to minimize the
material required can provide significant cost savings. Vallourec
Umbilicals’ newly developed super duplex seam-welded tube
offers a guaranteed high material yield and tighter manufac-
turing tolerances, enabling more cost-effective tube designs without
compromising safety.
The first successful installation was the 18-km (11.2-mi) umbilical
that TechnipFMC supplied for Total’s Glenlivet gas/condensate field
west of Shetland, which came onstream this August via a tie-in to the
subsea production infrastructure serving the Laggan-Tormore fields.
Glenlivet was co-developed with the Edradour field in water depths
of 300-435 m (984-1,427 ft), but the benefits of seam-welded tubes
are equally applicable to longer-distance umbilicals in much deeper
water. Work on the new super duplex tube manufacturing process
started in 2008, and the recent industrialization followed an extensive
qualification program, which continues with various offshore opera-
tors, umbilical manufacturers and third-party type approval bodies.
The new process, developed in accordance with ASTM A789/
A789M-10a, employs the established super duplex stainless steel
grade UNS S32750 or 2507, used widely by umbilical manufacturers
for subsea applications. Main benefits are strong pitting and cor-
rosion resistance; high levels of strength and hardness; and tight
dimensional tolerances properties (in the case of Glenlivet, ovaliza-
tion is +/-0.03 mm).
There are four principal features of seam-welded tube manufactur-
ing: a longitudinal welding line, an orbital welding line, hydraulic test-
ing/cleaning/conditioning, and packaging. The longitudinal welding
line is configured to transform a raw material, flat super duplex stain-
less steel strip into a 100% NDT (non-destructive testing) controlled
coiled tube. The strip is formed into a round tube, which is welded
by a laser source and then heat treated and calibrated before being
controlled by ultrasonic testing and eddy current testing methods: the
latter ensure detection of any possible defect greater than 5% of the
wall thickness. Defect indications are automatically ‘red’ marked on
the tube prior to intermediate reeling on the longitudinal welding line.
Several intermediate reels packed with completed tube are welded
together (TIG, with super duplex filler material process) on an orbital
welding line to produce a final spooled product ready for pressure
A seam-welded tube. (Courtesy Vallourec Umbilicals)
testing and shipping. Any ‘red’ marks detected previously are at this
point removed and replaced by circumferential welds on the line. All
orbital welds are X-ray controlled in real time; the tube is then reeled
onto a customer process reel, which will undergo hydraulic testing,
cleaning and conditioning prior to shipment.
By applying these procedures, long-length super duplex umbilical
tubing can be produced with a minimum yield strength of 750MPa and
a minimum ultimate tensile strength (UTS) of 900MPa, for each tube
size and wall thickness. Vallourec undertook demonstrations of tube
property reliability as part of an extensive, Bureau Veritas-witnessed
qualification program and in line with stringent testing requirements
specified by TechnipFMC Umbilicals and Total.
The manufacturing process provides further benefits in terms of
manufacturing tolerances and general geometry of the tube. Con-
structing the tubes from strip raw material means that the tube wall
thickness tolerances are directly linked to the manufacturing tolerances
of the strip wall thickness, so from the strip manufacturing process a
tolerance below 5% is guaranteed. For seamless tube, wall thickness
tolerances selected for the design and calculations are usually around
10%, but for seam-welded tube the tolerances can be set at up to 5%,
depending on results of the qualification program. Residual ovaliza-
tion is below 3%, which compares with 5% typically for seamless tube.
Yield strength, wall thickness tolerance and ovality all play an
important role in the tube performance. The qualification program
showed that tube wall thickness could be optimized and significantly
reduced, in turn lessening the weight and quantity of raw material.
Another benefit of reduced wall thickness is an increased bending
performance of the tube. The tube’s bending capacity drives the
manufacturing process, as well as the packing and installation method

2 Offshore November 2017 • www.offshore-mag.com

1711OFFEuroSupp_2 2 10/31/17 8:06 AM

1711OFFEuroSupp_3 3 10/31/17 8:06 AM
 ● E UROPEAN T ECHNOLOGY

Tables show (left) high pressure and burst resistance and collapse resistance (right) of three samples with the following dimensions: (1) 15.25 mm outer
diameter (OD) x 1.15 mm wall thickness (WT); (2) 28.5 mm OD x 1.45 mm WT; (3) 18.1 mm x 1 mm WT. (Courtesy Vallourec Umbilicals)

for the umbilical. For the main manufacturing phase of the fabrication
and for the final packing, the tube and the umbilical are spooled onto
a reel at a radius at which the tube will be plasticized. Typically, the
maximum level of plastic deformation allowed per spooling is around
2%. Increasing the bending capacity of the tube enables use of a reel
with a smaller inner core.
Results show that the main benefits in terms of bending radius are
for the larger seam-welded tubes. This could be explained by the fact
that the bending radius is driven by the wall thickness of the tube
and the nominal elastic strain. Due to the manufacturing process, the
yield strength of the seam-welded tubes is independent of the tube
size, something which is not the case for seamless tubes. This has
a significant impact on the project as all manufacturing design and
installation constraints on steel tube umbilicals are directly driven by
the properties of the largest tubes.
There are further potential benefits for the umbilical, such as fatigue
performance and the bend stiffener design. The increased bending
capacity of seam-welded tubes should lead to a significant reduction
in the bend stiffener size, although this still needs to be quantified
on a case-by-case basis.

Glenlivet project
The Glenlivet gas/condensate field is in block 214/30a, 35 km
(21.7 mi) east of the Laggan field in the UK’s west of Shetland area.
Glenlivet, in 440 m (1,443 ft) water depth, was developed jointly with
the Edradour field which is in shallower water, 17 km (10.6 mi) to
the south. Both are tied back to the existing Laggan-Tormore subsea
Others simply sell you a product – infrastructure, and the commingled fluids from these three fields and
we offer a solution. the Tormore field are processed at the onshore Shetland Gas Plant.
For the two-well Glenlivet development, the umbilicals provide
the required hydraulic, electric and fiber optic services along with
OHL Gutermuth
A control and shut off technique you can rely on.

chemical treatment (scale and wax inhibitor). Corrosion inhibitor is

continuously dosed into the Laggan-Tormore MEG (monoethylene
glycol) system. The Glenlivet umbilical comprises seven 19.05-mm
nominal bore, seam-welded super duplex tubes, three 16-mm cables,
and three fiber optic cables. The umbilical was completed with an inner
sheath, an armor wire package, and a final outer sheath.
Vallourec seam-welded tube offered acceptable mechanical prop-
erties for the service conditions, client specifications, and industry
standards. The material yield stress value, higher than for an equivalent
seamless material, resulted in a thinner tube wall thickness, and the
associated weight reduction brought down the cost of the manufactur-
ing processes, logistics, and offshore installation.
Customized
TechnipFMC Umbilicals in Newcastle, northeast England, manu-
Valve Design
factured the Glenlivet umbilical using the company’s Vertical Helix
„MADE IN GERMANY“
Assembly Machine (VHAM) in a single assembly. The VHAM has
high-capacity process bobbins for functional components that are
alves issued to the tube manufacturers to spool product onto. The weight
ESD Best V 0 reduction provided by the seam-welded tubing allowed the full supply
5
SOLAR since r1s of each tube to be provided on a single bobbin, removing the need
POWER Ye a for tie-in welds to achieve the final length of roughly 18 km (11.2 mi).
Prior to the start of this project, a Vallourec seam-welded tube was
OHL Gutermuth Industrial Valves GmbH included in a prototype manufactured on the VHAM. This was critical
Helmershäuser Str. 9+12 · 63674 Altenstadt / Germany to ensure full suitability of the tube throughout the manufacturing
Phone +49.60 47. 80 06-0 · Fax +49.60 47.80 06-29 process. Following manufacture, the prototype umbilical and tubing
www.ohl-gutermuth.de · og@ohl-gutermuth.de

1711OFFEuroSupp_4 4 10/31/17 8:06 AM

 Development history
Subsea umbilicals for deep and ultra-deepwater field
applications are becoming more demanding to design and
engineer in terms of injection capacity, power requirements
and other factors, according to Vallourec Umbilicals’ Manag-
ing Director, Stéphane Chrobot. “The water depth is really an were subjected to a comprehensive verification-testing program, the
issue, especially for longer tiebacks, and the only response to
this up to now has been to increase the thickness of the tubes.
results of which confirmed problem-free, full manufacturing capability.
“A subsea umbilical can contain up to 10 steel tubes, which The next step was to move the tube into full-scale manufacturing on
makes it very heavy, and this combined with the length can the VHAM for this project. Throughout the manufacturing process no
make transporting it and the subsequent installation problem- issues arose, and the tube was qualified for project umbilical assembly.
atic. These were the considerations we had in mind when we Total, supported by its specialists in Paris, had begun the qualifica-
started our R&D project with Total in 2008-09, and our focus tion process with Vallourec over four years ago, later supported by
was on a solution that could control the wall thickness and TechnipFMC Umbilicals’ own supplier qualification program. This
weight of the tubes.” collaboration and in depth R&D by all parties was essential to be
Vallourec had assembled an R&D team incorporating spe- able to move with confidence into a full-scale project. A new product
cialists from Total and the company’s Finnish steel supplier
Outokompu. “We had made welded tubes for heat exchang-
‘life cycle’ through the manufacturing process was assessed for risks,
ers,” Chrobot explained, “and decided, why not adapt that including logistics and product handling, and development of welding
seam/laser-welded process for steel tube umbilicals? After trials, all of which helped remove doubt from the critical processes
several months of studies, we concluded it would be feasible.” that had historically employed seamless tubes.
TechnipFMC also came onboard in 2011, when Vallourec In 2015, Vallourec delivered 133 km (82.6 mi) of tube to TechnipFMC
Umbilicals was established and had created a first prototype Umbilicals with an inner diameter of 19.05 mm and a wall thickness
seam-welded tube, which needed to be qualified by an umbili- of 1.82 mm for the Glenlivet project, and manufacture and installation
cal manufacturer. of the umbilical was completed in 2016. For handling during installa-
TechnipFMC designed, manufactured, and installed the tion, the umbilical needed to perform as defined by the mechanical
Edradour and Glenlivet umbilicals: Vallourec was subcon-
tracted for the tubes, but at the time did not have the capacity
properties of the design, and in line with the performance of umbilicals
to supply all the tubes seam-welded, with only one special- produced with seamless tubing. In the event the consignment was
ist seam-welded production line operational at that point, in spooled from the TechnipFMC Umbilicals plant into an under-deck
Venarey-les-Laumes, central France. Glenlivet was the first live carousel and installed at the field in summer 2016, without any issues.
project. Vallourec Umbilicals has since doubled capacity at The tubes supplied for this project delivered a 17% saving in wall
the plant, with two lines now capable of producing 1,000 km/yr thickness compared to seamless tubing, and this had a positive impact
(621 mi) of seam-welded tubes. “This is still not enough, how- on the umbilical design and on the subsequent installation. •
ever,” Chrobot said, “so we are considering a further invest-
ment for when the market picks up. Note: This is an adapted version of a paper presented at the Offshore Mediterra-
“The plant can produce all types of seam-welded tubes for nean Conference in Ravenna, Italy, in March 2017.
steel umbilicals. “At present we can make tubes with an inter-
nal diameter of 0.5-in., and with a wall thickness of up to 1.5-in.
We start with a strip of metal, which is formed into a round
tube, then laser welded to form a bonding on the steel. The
tube then undergoes heat treatment on the production line, EFFICIENCY THROUGH
followed by phased-array non-destructive testing to check the
quality of the weld and the steel and any deviations from the INNOVATION
required geometry. Any defect (up to 0.5% of the tube’s wall
thickness) is automatically marked in red and then removed.
We then perform an orbital weld on the second production line
before coiling the finished tube onto a reel.
“Today we see some deep and ultra-deepwater projects
coming forward, though less than in the past, with more of a
focus on tiebacks to existing facilities. But there is growing
interest in our technology, as the process uses less steel –
and super duplex is quite expensive – so our system is price-
competitive.”
Aside from Total, Vallourec Umbilicals has produced some
prototypes for Statoil, and the company has been working on
qualification with various other major operators and NOCs.
The seam-welded tube process has also been qualified by the
other main steel tube umbilical manufacturers, Aker Solu-
tions, Nexans, Oceaneering and Prysmian, although at present
the production capacity cannot supply all these companies’
needs.
“The oil and gas industry is very conservative, particularly
for a new subsea application,” Chrobot said. “For this develop-
ment, we had to demonstrate first that we could produce a pro-
totype, and then that it was of the required quality. We had to The Slick-e-Line system combines the
stage over 11,000 tests to prove the mechanical strength prop- capability of mechanical slickline and real
time cased hole logging into a single unit.
erties, corrosion and fatigue resistance, including hydrogen- Bi-directional communication allows real
induced stress cracking tests in different sizes and different time depth correlation, logging services
conditions for various clients, plus collapse and burst tests: in and surface activation of mechanical and
the latter case, we increase the pressure until 2,000 bar. ballistics products.
“To date we have not encountered a single failure in a laser
weld during tests. You might think that for a seam-welded tube, ONE WIRE
the weak part should be the weld, but we are not adding filler ONE CREW
material when we longitudinally weld the tube. This process in- ONE RIG UP
volves a laser bonding the steel, so that part is even stronger
than the rest of the tube.” WWW.PARADIGM.EU

1711OFFEuroSupp_5 5 10/31/17 8:06 AM

 ● E UROPEAN T ECHNOLOGY
New multi-phase meters
enhance data reliability
Innovative design reduces manpower needs
Giles Edward
M-Flow
A
ccurate measurement has perennially
been one of the most acute long-term
challenges to the upstream industry.
Multi-phase metering was initially
developed to meet these demands in
offshore and subsea wells by delivering the
measurement of multi-phase streams close to
the well in confined or inaccessible areas, so
that its operators and innovators could deliver
optimized production and better reservoir
exploitation.
This trend began almost 30 years ago. The
expectation was that multiphase metering
technology for oil, gas, and water flow would
evolve to be able to not only provide valu-
able data, but also to deliver cost savings.
Those cost savings would facilitate single
well tiebacks, shared use of existing platform
and pipeline facilities, and continuous online
monitoring for economically marginal wells.
However, over the years, the multi-phase
market has not fulfilled these ambitions. In
large part this is because it has prioritized ex-
pensive technology that embeds uncertainty
in flow rate measurement over accuracy and
repeatability in parameters that can be directly
measured. This inherently leads to complexity,
human intervention, and validation-hungry
systems.
Cumbersome and expensive test separa-
tors remain in operation attempting to fill
this knowledge gap; but they provide only
piecemeal or fragmented information that
rarely delivers more than limited value. So
while oil and gas companies seek the benefits
of access to data, for wellhead metering and in
the current oil price environment are hungry
to reduced costs, they’ve been consistently
unable to access lower cost reliable and re-
producible information sets.
A CEO of a major oil company recently
said: “When I first started attending senior
management and board meetings, the data
on production was often unreliable or unavail-
able. Decades later, that has barely changed.
6 Offshore November 2017 • www.offshore-mag.com
1711OFFEuroSupp_6 6
New multi-phase meter design.
(Images courtesy M-Flow)
Until we have accurate, trustworthy data there
will be little progress towards more efficient
oilfields.”
Operational changes
In the last 10 to 15 years, the oil market has
evolved considerably with maturing assets and
especially the now accepted lower for longer oil
price. So much so that many of the beliefs and
principles that guided decision making even
a decade ago are no longer as useful as they
once were. The operating models from those
years were for a long time the templates for
success, but now too many aspects of them add
cost, and stifle implementation of best practice.
Over recent years, low prices have forced
oil and gas companies to get serious about
rising production costs. These have included
project optimization, reducing facility size,
changing facility concept, cutting well count,
improving well design and well efficiencies.
Now the challenge is to sustainably preserve
those gains, and build upon the foundations
that have been laid. To do that will take fresh
Non-intrusive pipe view.
thinking, and a re-examination of how we ap-
proach its development.
One of the biggest factors that will govern
the future price of oil is the extent to which the
standardized, manufacturing-like processes
that characterize tight oil production are imple-
mented across the industry. In the shale plays
in the USA’s Lower 48 states, best practices
have transposed swiftly between operators
and operations. These practices include pad
drilling, high-volume completions, and tighter
well spacing. All have made statistically vis-
ible differences to costs and how quickly and
successfully projects are brought to commer-
cialization.
At the heart of this process has been the
use of reliable data to improve performance
through reproducibility and tight process
control. For offshore, with its longer lead
times and legacy infrastructure, the need for
data is driven by different factors. But it is just
as badly needed to deliver the marginal gains
that incrementally compound into significant
improvements.
Capital discipline has led to an austere in-
vestment approach because of offshore’s high-
er capital intensity and slower payback. When
operating in a price-constrained environment
and looking for a competitive breakeven, the
first focus in achieving sustainable improve-
ments is to upgrade your understanding of
your operations and your business’s assets.
To do this requires elemental knowledge of
your setup, and the ability to answer straight-
forward questions about your wells: When and
where did the water in my process come from?
10/31/17 8:06 AM
 Multi-phase meter field package.

What does this mean for my reservoir planning? Do I have the basic
data to run virtual flow meters to allocate well production? Could the Tackle the
Unconventional
onset of damaging acid gas or scale be avoided?

Production optimization
By re-thinking the challenges that have inhibited the growth of
multi-phase data for the production optimization market, equipment
24 / 365
manufacturers have developed technology and global solutions that
provide confidence at the wellhead, delivering data with reliability,
repeatability, and accuracy. Heavy crude oil dewatering
In contrast to traditional meters, a new type of carbon fiber multi- with high g-force centrifugal
phase meters require minimal manpower, lower capital expenditure,
and almost zero operational expenditure, with five-year lifecycle meter separators from GEA
costs that are on average 20% of traditional multi-phase flowmeter
costs. At the same time, this new metering technology delivers directly
measured, constant data on water cut and gas fraction with certainty With GEA centrifuges you can successfully
regarding accuracy and repeatability.
handle the small density difference between
The proven reliability of this technology facilitates a shift in the
traditional engagement. Moreover, by providing this information in heavy crude oil and water with simultaneous
a packaged, discreet, and highly valuable data set, there can now be separation of fine solids from the oil – and no
a shift in focus: moving dialogue and engagement within the multi- shutdowns are required.
phase market away from the meter, and onto the impact of accurate
and reliable data to redefine upstream operations.
Since May 2017, GEA has had two package units
Next steps in 24 / 365 commercial operation, each with four
The offshore industry cannot easily reinvent its infrastructure. separators and a capacity of over 60,000+ BPD.
Consequently, a key objective is to optimize existing production and The centrifuges are processing heavy crude oil
bring in new reserves at a lower cost. Across most process industries, with an API gravity of 16 and a water content
getting more out of what exists is a game of improving control.
of up to 40 % by volume. The BS&W content of
Lord Kelvin’s words 134 years ago ring as true now: “When you can
measure what you are speaking about, and express it in numbers, you the treated crude oil is < 0.5 %.
know something about it. When you cannot express it in numbers,
your knowledge is of a meagre and unsatisfactory kind.” Data with Unconventional oil needs unconventionally
reliability, repeatability, and accuracy does not have to to be a chal- good treatment. Make the most of it with
lenge that spans generations.
GEA Separation.
Measurement technologies and systems that enable accuracy, re-
peatability and reliability are vital to meet offshore’s ability to remain
competitive in a world of resource abundance. However, to provide For contact details: gea.com/contact
GEA-OI-01-006

the actionable insights, offshore needs will first take trustworthy data
at the wellhead. •

The author
Giles Edward is CEO of M-Flow.

1711OFFEuroSupp_7 7 10/31/17 8:06 AM

 ● E UROPEAN T ECHNOLOGY

Subsea power JIP approaching

final test phases
Key step toward all-electric seabed processing
J.Ø. Bugge
S. Ingebrigtsen
ABB

A
BB Oil & Gas is managing a joint in-
dustry project (JIP) with Statoil, Total,
and Chevron to develop technologies
for subsea power transmission, dis-
tribution, and conversion at greater
distances, in deeper waters, and in harsher
environments. The project started in 2013 and
is targeting a 3,000-hr shallow-water system
test in 2018, following the completion of quali-
fication of pressure-tolerant medium-voltage
switchgear, medium-voltage drives, and sup-
porting controls and auxiliary supplies.
All three partners and the Research Council
of Norway are funding the program, which
has a budget of more than $100 million. The
main targets are to prove the operability of
the equipment in water depths up to 3,000 m
(9,842 ft), transmission distances up to 600
km (373 mi), and power levels up to 100 MW.
The project is following a systematic ap-
proach of technology qualification for the
various components, sub-assemblies and
equipment, the aim being to ensure that the
technology will function reliably in an offshore
field setting within the specified limits, as well
as providing improved understanding of risk
management. Qualification includes extensive
trials of components subjected to test con-
ditions based on a common understanding
of component/equipment-specific stresses
throughout an agreed life-cycle. Sub-assembly
testing is geared mainly to confirming the
overall function, design margins, and the ther-
mal and high-current performance.
The new products will provide the power
needed for emerging technologies such as
subsea compression and subsea oil boost-
ing, and will form part of Statoil’s vision of
the subsea factory and the all-electric subsea
processing facility. Having power distribution
available on the seafloor and the flexibility to
take power from shore also enables staged
field development without the need for major
topsides modifications on remote or deepwa-
ter production installations. Ultimately, it could
also provide allow production of oil and gas
without the need for any topsides installation.
Medium-voltage drive cell pressure test at Statoil’s Rotvoll R&D facility.
(All images courtesy ABB, SPE)
Cost reduction is one of the major drivers
behind subsea power. The savings that can be
achieved via one long power cable distributed
to many subsea loads are substantial. Another
advantage of boosting at the seabed close
to the wellheads is potentially more optimal
recovery of the oil and gas resources; and
importing power from shore also leads to
lower CO2 (carbon dioxide) compared with
power generation on a platform.
VSD prototype
Following verification of the main concept
and key components in April 2015, the project
passed Technology Readiness level 2 (TRL2).
In February 2016, ABB successfully tested a
power-switching cell, a critical module of the
variable-speed drive (VSD), at 300-bar (4,351-
psi) pressure and at full load current at Statoil’s
research facility in Trondheim, Norway. ABB
has since constructed the first full-scale pro-
totype of the VSD which is due to be shallow-
water tested later this year in Vaasa, Finland,
over several weeks. The planned 3,000-hr test
late next year of a complete subsea power sys-
tem with two VSDs in a parallel configuration
combined with subsea switchgear and controls
will also be in shallow water. This will demon-
strate full system functionality and interfaces
under normal operation and fault conditions
to TRL4, the project’s final stage.
The JIP project has allowed flexibility for sub-
sea optimization at all levels. The project organi-
zation was defined across several divisions and
locations, combining the individual strengths of
the system, research and product areas, while
at the same time building on long-established
experience with subsea transformers.
ABB chose to base the subsea power and
control equipment largely on existing in-house
technologies with a long record of reliable
operation and established quality control and
obsolescence strategies. The basic power dis-
tribution, conversion, and control principles
are equivalent to those for any topsides ap-
plication. In addition, the company has partly
re-packaged other core components for subsea
environmental conditions. Subsea-specific fea-
tures include functions for increased reliability,
but with additional margins and redundan-
cies. Since a wide range of electronics and
power components need to operate in both a
pressure-tolerant environment and dielectric
oil, there has been a major focus on component
screening and material technologies in relation
to chemical compatibilities, material interface
aspects, and thermal performance.
All project qualification activities follow the

8 Offshore November 2017 • www.offshore-mag.com

1711OFFEuroSupp_8 8 10/31/17 8:06 AM

 recommendations and TRL stages defined
in DNV RP-A203, applicable to components,
equipment, and assemblies in hydrocarbon
exploration and exploitation offshore. This
recommended practice (RP) is designed to
ensure that the technology will function reli-
ably within specified limits, and provides a
common understanding and terminology of
technology status and risk management.
The core process involves a systematic
identification of the major challenges and
uncertainties to be addressed in the qualifica-
tion program. This entailed initially a break-
down of the overall subsea power system into
separate manageable technology parts, and
classifying these in terms of novelty. Other
important aspects of the RP are the need to
identify required design changes at an early
stage and to improve confidence in the new
technology through close interactions and
traceable documentation.
Reliability is ultra-critical for subsea equip-
ment, as it must be designed for long life with
minimum intervention for maintenance or
repair. The partners agreed on high reliability
targets for separately retrievable power and
control modules, based on the probabilities
of both functioning throughout their first five
years in service, and throughout the equip-
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1711OFFEuroSupp_9 9
ment’s design life. ABB then defined reli-
ability budgets for components and sub-as-
semblies based on hierarchical breakdowns
of the main equipment.
Reliability targets were initially defined
as being technically feasible – i.e. relative
to existing reliability field data for similar
topsides applications – while including risks
attributable to the new application area.
Initially, targets were also substantiated
by a system availability study that involved
powering subsea pumps and compressors.
Diagram of a However, actual system availabilities for a
typical subsea real subsea deployment will vary depending
power distribution
on the configurations selected.
system.
Subsequent qualification test plans were
based on the remaining risk picture, along
with an understanding of the actual life-cy-
cle operating conditions and specific opera-
tor needs. The team predicted component
stresses using mechanical, thermal, and
electrical stress simulations, and these
served as the basis for accelerated life
tests. Critical tests were conducted with
immersion in oil under full pressure and
at elevated temperature for the duration
required to support design life targets,
in addition to other component-relevant
stress conditions.
tpsddde
10/31/17 8:06 AM
 ● E UROPEAN T ECHNOLOGY

ABB has developed subsea-specific the subsea switchgear at 11-33 kV. The
laboratories with a range of pressure drive unit includes an integrated drive
vessels for component screening stud- transformer. For driving larger loads
ies, as well as for long-term tests on such as compressors, two or three VSD
selected components. Test pressures units can be stationed in parallel to drive
vary depending on the type of investi- 12 or 18 MVA loads.
gations, however, acceptance criteria Two VSDs in a parallel configuration
are generally based on tests at 345 bar will be installed with subsea switchgear
(5,004 psi) for components in a pres- and controls, and operated in shallow
sure-compensated environment (non- water for next year’s 3,000-hr trial. The
pressure retaining), and 450 bar (6,526 aims are to demonstrate full system
psi) for pressure-retaining components. function and interfaces under normal
operating and fault conditions; to gain
Minimized downtime reliability experience; and to prove the
The JIP is developing the following suitability of the full-scale prototypes
main products: including thermal properties, and
• Subsea medium-voltage (MV) dis- marinization for a Technology Readi-
tribution switchgear ness Level of 4+.
• Subsea medium-voltage variable During the test the thermal perfor-
speed drives (VSDs) mance and cooling efficiency of the sub-
• Subsea control and low-voltage dis- sea drives will be closely monitored. It is
tribution. essential to verify that individual material
To ensure compact and reliable solu- temperature limits are not violated to
tions, the VSD and the MV distribution Above: ABB Subsea MV switchgear in a moonpool-installable achieve the targeted design life. Design-
are enclosed in oil-filled, pressure-com- module. Below: ABB Subsea drive. wise and functionality-wise, the units will
pensated tanks, with components tested be as similar as possible to the actual
extensively under the full pressure they units to be deployed in a future pilot
will experience at the target water depth. installation; however, the drives will be
The aim is to design the equipment such operated in a back-to-back configura-
that production downtime and retrievals tion directly with the grid without motor
are minimized. loads. This is a so-called ‘power-in-the
Power can be supplied from any avail- loop’ test where only the power losses
able topsides installation or from shore. needs be supplied from the grid. Test-
When the step-out distance is long, a ing with a high-power motor load is not
higher transmission voltage (e.g. 132 performed in seawater, but rather as part
kV) is applied. The step-down trans- of a factory acceptance test.
former converts this to the distribution The final shallow-water sea trial, over
voltage, typically 11-33 kV. For very long 3,000 hours, will involve several stages
transmission distances, typically 250-600 of testing in seawater in a sheltered
km (155-373 mi), a low frequency trans- harbor. Before running with power,
mission is used (at 16.7 Hz), as normal there will be a period of system testing,
50/60 Hz solutions will not be possible. with various redundant communication
The MV switchgear distributes the tests, black-start sequences, verifica-
main power to the various loads, typically tion of ride-through (energy storage),
motors for compressors and pumps, and protection-setting adjustments, breaker
is designed to feed two MV loads. Maxi- and disconnector operations, insulation
mum feeder current is 1,250A, dependent monitoring system verifications, and op-
on the availability of subsea connection eration of the drives with one or more
systems. The switchgear can support cells out-of-service. During the 3,000-hr
an incoming breaker if required as well test, there will initially be thermal run
as a tiebreaker to support cascading of two system with energy storage maintains control stability at nominal power. Next, operating point
subsea switchgears. The subsea switchgear power during transient disturbances on the sets and overload conditions will be checked,
has a pressure-compensated design, with two main supply. Standard oil-filled subsea control and then all the drives will run at steady nomi-
auxiliary supply transformers integrated into modules (SCMs) house the control and low nal load for a longer period before a final power
the base of the unit. voltage subsea electronic modules (SEMs), cycling phase. •
A standard dual A/B redundant system pro- filled with nitrogen.
vides low voltage supply (auxiliary/control The drive unit is of a pressure-compensated
power) to the main power components as well design, with all parts submerged in oil to en-
as other auxiliary supply demands: this low sure cooling of the power components. Oil
Acknowledgment
voltage supply would typically handle 400V circulating within the drive unit employs natural This is an edited version of the paper Subsea Power
AC (200-600 V) in single- or three-phase mode. convection cooling: the unit would typically JIP – As Enabler for All-Electric Subsea Production,
The low voltage feeders have integrated isola- drive a subsea boosting pump (up to 4 MW), presented at the Offshore Technology Conference in
tion transformers and insulation monitoring with an output voltage to the motor of around Houston in May 2017, organized by the Society of
implemented. A centralized 24 V DC supply 6-7 kV. Power for the drive comes directly from Petroleum Engineers.

10 Offshore November 2017 • www.offshore-mag.com

1711OFFEuroSupp_10 10 10/31/17 8:06 AM

 Government-supported initiative speeding
development of North Sea technologies
Goals include improved drilling, inspection efficiency

T
he Oil & Gas Technology Centre in
Aberdeen is a new initiative working
to foster innovation in the UK offshore
sector and help the industry improve
recovery of the North Sea’s remaining
resources. Offshore spoke to Chief Executive
Colette Cohen about the Centre’s goals and
achievements to date, which include over
£15 million [$19.8 million] co-invested with
the industry, a program to fund and support
smaller companies develop their businesses
and promising new technologies, and the
recently opened Innovation Hub.
•••
Offshore: What was the rationale behind
the formation of the Oil & Gas Technology
Centre, and when did the process of forming
the centre begin? Was this prior to Sir Ian
Wood’s proposals for MER UK?
Cohen: In his 2014 Maximising Economic
Resources review for the UK Continental Shelf
(MER UK), Sir Ian Wood made a number of
recommendations. This led to the creation of
the Oil & Gas Authority, a progressive new
regulator for the UK oil and gas industry. Sir Ian
also identified the need for a greater focus on
technology on the UKCS, which was the initial
inspiration for the Oil & Gas Technology Centre.  organizations during the development of the
A business case for the Centre was de-
veloped as part of an Aberdeen City Deal
proposal, which was signed by the UK and
Scottish governments in November 2016.
With £180 million [$239 million] allocated by
the two governments under a 50/50 arrange-
ment, the Technology Centre received the
lion’s share of the £210 million [$277 million]
granted to the City Deal. Work to develop
the Centre began in late 2016 and it officially
opened for business in February 2017.  Centre, but the Centre also invests with many
The £180 million funding is over a 10-year
period, with the requirement for this to be
match funded by the industry – either in-kind
or cash. So far, the Centre has invested more
than £15 million [$20 million] with 60% lever-
aged from industry partners. 
Jeremy Beckman
Editor, Europe
five areas of focus – asset integrity, well con-
struction, marginal discoveries (small pools),
decommissioning, and digital transformation.
The Technology Leadership Board will con-
tinue to provide strategic input on key themes
and challenges. The Centre also has a Call
for Ideas process to identify solutions for the
challenges faced by the industry.  prove the value of their concepts, and prepare
The Centre works with its members to
shape its work programs and focus areas, cre-
ating projects in partnership with operators,
service companies and technology providers
to accelerate the pace of new technologies.  techniques to stimulate and capture creative
Offshore: How many companies, academic
institutes provided input to the proposed Cen-
tre and its future direction?
Cohen: There was extensive engagement
with more than 50 institutions and industry
business case.  at our Queen’s Road site in Aberdeen and are
Offshore: How many members does the
centre have at present, and what are the ben-
efits of participation?
Cohen: The Centre has more than 50 mem-
bers. We have £180 million to co-invest with
our partners to get innovative technologies to
market quicker. Our members help to shape
the base portfolio of projects invested in by the
non-members on projects which fit the Tech-
nology Strategy which supports MER UK.
There are four ways for companies to get
involved, and each one can combine in-kind
funding with cash funding in arrears.
Offshore: What is the purpose of the recently
opened Innovation Hub?
Cohen: This is a state-of-the-art facility,
opened by Scotland’s First Minister on Octo-
ber 2, to drive innovation and accelerate new
technologies to help unlock the full potential
of the UK North Sea. The Hub brings industry
and technology providers together, connecting
problems with solutions and solutions with
problems. By partnering with industry, aca-
demia and experts from outside oil and gas,
we help innovators make their ideas tangible,
them for deployment in the oilfield.
Our program of innovation events and work-
shops is driven by the needs and priorities of
the industry. The Hub provides the tools and
contributions of participants, accelerating ideas
into actions.
Offshore: Can you provide details of the Asset
Integrity and Well Construction Solutions Centres
and the types of projects under development?
Cohen: The Solutions Centres are based
teams of employees that manage the projects
the Technology Centre invests in. One of our
key projects deal with asset integrity. In part-
nership with Infinity Oilfield Services, we are
developing a safety solution that could save UK
North Sea operators up to £320 million [$425 mil-
lion]. The device, which includes Kevlar, would
contain corroded valve equipment to eliminate
the risk of an uncontrolled hydrocarbon release,
improving safety performance and potentially
extending asset life.
Apollo and LifeTech are developing a tablet-
based, software solution for integrity manage-

Offshore: Was there a clear plan from the

outset of the various initiatives that would
be developed?
Cohen: The industry’s Technology Lead- The drillstem testing version of Raptor Oil’s advanced acoustic downhole modem tool. (Images
ership Board provided the Centre’s initial courtesy Oil & Gas Technology Centre)

www.offshore-mag.com • November 2017 Offshore 11

1711OFFEuroSupp_11 11 10/31/17 8:06 AM

 ● E UROPEAN T ECHNOLOGY
ment. It delivers integrity data and decision-
making across the full lifecycle of an asset,
allowing for quicker and more accurate data
gathering and reporting, creating a potential
20% efficiency gain.
Air Control Energy aims to deliver a step
change in the capability and functionality of
unmanned aerial vehicles (UAVs) for the re-
mote inspection of oil and gas facilities. These
advanced drones could be 20 times faster
than traditional inspection techniques and
reduce costs by 50% in comparison to rope
access methods.
The Centre is also working with TRAC
Oil & Gas to develop a new electromagnetic
method to inspect corroded pipework under
insulation and composite wrap materials. This
innovative solution would enable companies
to monitor the condition of hidden pipework,
saving time and money compared to current
approaches.
Well construction is another key focus area.
With the Centre’s support, Raptor Oil has a
program that could transform the transmis-
sion of downhole drilling data to the surface.
The company’s acoustic telemetry technology
could increase the speed and capacity of data
communication, helping to drive efficiency,
reduce costs, and improve decision-making.
We are working with Interwell P&A and
various major North Sea operators to field-
trial a ground-breaking concept for well
abandonment that could save the industry
more than £100 million [$133 million] per
year. The wireline-deployed tool (a rig-less
deployment is targeted), generates downhole
temperatures of up to 3,000°C [5,432°F] to
melt all well elements and create a permanent,
impermeable barrier, without the need to
remove any downhole tubulars.
Using technology to transform the con-
struction and operation of wells could reduce
costs by up to 50%. To support this, the Centre
is co-funding a project with Deepwater Oil
Tools to develop a special articulated joint
called ArticuLock, which could enable drill-
ing operations in rough weather conditions,
saving tens of millions of pounds each year.
Offshore: Can you explain how the Asset
Integrity Solutions Centre (AISC) will work
to achieve its goal to “eliminate the impact of
asset integrity on operational uptime by 2026”?
Cohen: Corrosion has significant impact
on uptime and operating performance. Cor-
rosion costs the global economy £4 trillion/
yr [$5.31 trillion] and £28 billion [$37.21 bil-
lion] annually in the UK. Around 60% of pipe
failures on UKCS infrastructure are due to
corrosion under insulation, while the annual
UKCS cost of vessel inspection and corrosion
under insulation is £300 million [$398 million].
The AISC wants to transform the way the
industry maintains its assets by identifying,
12 Offshore November 2017 • www.offshore-mag.com
1711OFFEuroSupp_12 12
Interwell’s wireline-deployed tool creates a
permanent barrier, without the need to remove
downhole tubulars.
co-funding, developing, and deploying new
technology in the North Sea. The opportunity,
if this can be achieved, is significant:
• Potential production value increase of £157
million [$208 million] with alternative
methods to vessel inspection
• £700 million [$930 million] economic ben-
efit of improved asset integrity technolo-
gies between 2016 and 2025
• £14 million [$18.6 million] investment
required meaning every £1 investment
unlocks £50 [$66] net gain.
The AISC is initially focused on the two
themes identified in the Asset Integrity Theme
Landscaping Study, commissioned by Oil &
Gas UK on behalf of the Technology Leader-
ship Board. These themes are process vessel
inspection (VI) and corrosion under insula-
tion (CUI). Eliminating the impact of asset
integrity on operational uptime by 2026 means
no shutdowns or lost production due to asset
integrity issues by that date.
Offshore: The Centre periodically launches
“calls for ideas.” What are the goals for the
selected technologies?
Cohen: The goals vary depending on the
technology readiness level of the ideas that we
decide to invest in. The goal of an idea with a
low TRL [Technology Readiness level] could
be to prove the concept or develop a working
prototype; a goal for an idea with a higher TRL
could be to take the technology to field trial.
Offshore: What is the purpose of the Tech
X Technology Accelerator?
Cohen: TechX, due to be launched in De-
cember, is an initiative designed to stimulate
and accelerate new technology business an-
chored in northeast Scotland.
Our goal is to invest in 100 technology com-
panies in the next decade, offering:
• Unparalleled funding, up to £100,000
[$133,000] per start-up, with no equity
or pay back required
• Mentoring: advice and support from an
extensive network of experienced men-
tors and partners
• Facilities: fast access to dedicated facilities
and tailored training
• Field testing: opportunities to field trial
through the Centre’s operator network.
There are three available funding pro-
grams to accelerate the development and
deployment of new technology:
For start-ups, there is our Pioneers pro-
gram. Mentoring and support for entrepre-
neurs to develop business, validate products,
acquire customers and attract funding. Each
Pioneer will receive up to £100k funding
and can work out of the TechX space at the
Technology Centre’s site in the heart of Ab-
erdeen. There are two programs each year,
with 10 companies per program.
For subject matter experts, there is our
Market Entry program. This is an ongoing
program for companies with a unique and
near market-ready product – preferably from
a different industry, needing operational test-
ing, validation and scaling. 
Then, there is our Ventures program. This
program is designed for new ventures that are
looking to fill technology and supply chain
gaps through creativity, innovation and deter-
mination. This is a six to nine-month program
that runs in partnership with Deep Science
Ventures in London.
Offshore: What are the aims of the Small
Pools Initiative?
Cohen: The Small Pools Solution Centre,
like the Asset Integrity, Well Construction, De-
commissioning and Digital Solutions Centres,
helps identify, co-fund, develop, and deploy
new technology in the North Sea. The goal is
to have no technically stranded UK offshore
field assets by 2022.
The Small Pools Solution Centre has co-
invested in two projects to date: one is with
Exnics to develop a unique subsea flow meter
that can be retrofitted to measure oil and
gas flow rates from subsea wells. Improv-
ing measurement was one of the key focus
areas identified by the industry’s Technology
Leadership Board.
Another project, with EC-OG, is in the pre-
paratory phase for a field trial of the company’s
subsea power hub – a subsea generation and
storage device which harnesses ocean currents
to provide the power needed to operate well
controls and other critical subsea equipment.
The Small Pools ‘Tie-back of the future’
initiative involves 25 companies, with 15 tech-
nology proposals and six integrated studies to
design new tiebacks that can be delivered for
half the cost in half the time, and significantly
reduce the impact on the environment. The
initiative focuses on designing for disassem-
bly and re-use, contributing to the circular
economy and reducing waste. •
10/31/17 8:06 AM
 Subsea multiphase pump targets doubled
power, improved gas/liquids handling
A
ker Solutions has developed a new
multiphase pump designed to push
the boundaries of subsea boosting. The
company is leading the MultiBooster
development under a joint industry
project supported by three majors as initial
partners, with a further three becoming in-
volved in the final complete system test phase.
Prior to 2011, when planning for the de-
velopment started, Aker Solutions had, with
various sub-vendors, engineered and supplied
subsea multiphase pumps for two projects,
CNR’s Lyell field in the UK northern North
Sea and BP’s King field in the Gulf of Mexico.
But the company decided a new approach
was needed to increase the multiphase capacity
and differential pressure (dP) generation, and
that this would be best served by having full
control over the system’s core components. It
then drew up plans for a development program
focused on the multiphase pump and motor,
condition monitoring and qualification testing,
with the aim of creating a modular platform
that could fit all applications. It invited various
offshore operators to support a JIP, with the
program getting under way in late 2012. Based
on feedback from the operators, the agreed
goals were to increase pump and motor speed
and power from the then limits of 4,000 rpm
to 6,000 rpm, and 3 MW to 6 MW; to double
liquids/gas handling capacity to 1,500 cu m/
hr (52,972 cu ft); and to substantially increase
the dP at a high gas volume fraction (GVF).
According to Aker Solutions Business de-
velopment Manager Marco Gabelloni: “Some
of the partners saw this as an opportunity for
boosting of deeper-water and long-distance
tiebacks – that’s how we came up with the
6 MW target – while others wanted more
competition in the market, with only a few mul-
tiphase pump suppliers to choose from.” Since
the program started, and the subsequent oil
price decline, the industry’s priorities have
veered more toward brownfield applications.
“Many operators now do not want to invest
in large new field developments,” Gabelloni
explained, “but rather to use this technology
to help them extend the lives of their existing
facilities by tying in new wells.
“Since 2012, the JIP members have pro-
vided financial assistance, and more impor-
tantly, their technical expertise. Based on their
experience in previous subsea pump projects,
they were able to provide valuable feedback
on the system’s various requirements.”
1711OFFEuroSupp_13 13
Jeremy Beckman
Editor, Europe
3D rendering of the pump shaft showing
Aker Solutions semi-axial impellers.
(Courtesy Aker Solutions)
Aker Solutions built a test facility at its R&D
complex in Tranby, Norway, to qualify the mo-
tor and demonstrate the pump’s capability to
run at 6 MW. It includes a multiphase test loop
constructed from duplex stainless steel with a
design pressure of 63 bar (914 psi). The closed
loop arrangement features a large separator,
compressor, multiphase cooler, Coriolis flow
meters with piping/valves to connect with a
deep test pit for comprehensive pump-motor
testing, and a maximum multiphase flow of 1,500
cu m/hr (52,972 cu ft/hr) with water and air, or
nitrogen and model oil.
The impellers and motor have been the
most critical elements of the project. Multi-
phase impellers are typically of a helico-axial
design, but based on previous experience, the
JIP opted to develop a mixed-flow impeller in
which the flow channel was part-axial and part-
radial, using the centrifugal action to deliver
more pressure generation from each impeller.
The resultant ‘helico-mixed flow’ design in-
volves closed impellers with backflow leakage
throttled through an impeller ring to reduce
the total backflow. Results were encouraging
from two tests during 2013-14 of two-stage
impellers and diffusers in a pilot pump, with
pressure generation and multiphase pumping
efficiency as predicted. “From this,” Gabelloni
said, “we were able to extrapolate what would
be the actual field pump performance in or-
der to validate computational fluid dynamics
(CFD) models.”
The next priority was to design, construct,
and test a full-size prototype pump capable
of generating 100 bar (1,450 psi) differential
www.offshore-mag.com • November 2017 Offshore 13
pressure at 70% GVF, with appropriate shaft
and bearing sizes to ensure rotodynamic
stability at speeds up to 6,000 rpm. The cho-
sen design was an eight-stage pump, with
the number of stages adjustable to suit the
required differential pressure, and a back-
to-back impeller arrangement to allow the
system to withstand impeller thrust forces.
To provide the power needed for longer step-
outs, the partners opted for a subsea induction
motor. Aker Solutions also developed Class H
FEP cable providing the insulation needed for
the motor windings to withstand the higher
operating temperatures associated with 6 MW
pumping power.
Testing to date on the Tranby loop has
proved the system’s capability to handle flow
rates of 1,500 cu m/hr (over 200,000 b/d) and
the ability to handle high GVF by exceeding
150 bar dP at 70% GVF: “This is substantially
above what we had anticipated,” Gabelloni
said. Tests have also proven the operation of
the subsea motor, which uses a mixture of
water and glycol as a lubricating and cooling
medium. A complete pump/motor system
test is currently in progress, the aim being to
confirm the system’s full operating envelope.
In future, the facility at Tranby will also be
used for factory acceptance tests, he added.
Another innovation is the use of new prox-
imity probes for providing continuous mea-
surements of the rotor displacements, with
analysis of the data to determine when the
pump should be retrieved for maintenance.
The probes, positioned close to the motor/
pump bearings inside the casing, each com-
prise one axial and two radial sensors, and are
being qualified for 1,034 bar (15,000 psi). “No
one else can provide this capability,” Gabelloni
claimed. “It allows us to accurately track the
pumping system’s performance, especially
when close to the boundaries of its operat-
ing envelope.
“This new pump module has a standardized
modular design, sharing several components
with our LiquidBooster single-phase pump.
It is designed to be installed through the
installation vessel’s moonpool, even in the
most challenging weather, and to be easily
retrieved.” •
Reference: ‘Profit Increase with new Subsea Boosting
Products’, presented by Age Hofstad and Hans Chris-
tian Nilsen of Aker Solutions at OTC 2017, organized
by the Society of Petroleum Engineers.
10/31/17 8:06 AM
 ● E UROPEAN T ECHNOLOGY

Multi-phase pumps offer improved

economics in oil and gas production
Conventional methods for producing oil and gas can be successfully replaced by a simpler,
more economic technology known as multi-phase pumping. Multi-phase pumping does not
require separation of oil, gas, or water, so production from the field can be gathered and
transported to a central processing area without requiring separate flowlines, separators,
heater-treaters, tanks, flares, stock pumps, and compressors.
Multi-phase pumps can handle low inlet
pressures, which makes them suited for lower-
ing the flowing backpressure of the well. With
many wells, particularly those on artificial lift,
substantial gains and accelerated production
can be achieved with even a modest drop in
back pressure – often enough to justify the
investment within a few months.
The advantages of this technology, says
Germany-based Leistritz, include a reduction
in the size and scope of the platform facility,
most notably by moving the well flow to cen-
tral processing, eliminating facilities. Other
advantages include production acceleration,
debottlenecking, and increased ultimate re-
covery.
Leistritz says that its multi-phase pumps are
Leistritz says that its multi-phase pumps are
built for use offshore, onshore, or in subsea
built for offshore and subsea applications.
installations and are available in both a high-
pressure and a low-pressure design. They are
ideal for a broad range of oil viscosity and emulsions, and work very well with high GOR.
The pumps are made to cope with slug flow with no impact on operations; and high gas void
fraction as well as wet gas are handled with recirculation of liquids. The compression heat is
removed with the liquid and no process coolers are required. •
TPS Technitube says that it can supply more than 2 million ft of premium tubing from 1.315-in. to
5½-in. OD pipe.
High-quality OCTG pipe meets the needs
of demanding environmental requirements
Today’s oil and gas industry is facing a TPS Technitube Röhrenwerke GmbH says it
number of challenges at the same time: fi- is ready partner with oil and gas companies to
nancial budgets are still tight, operators need help them advance their projects worldwide.
to react quickly and flexibly, and the drilling To face demanding environments, TPS
environments are more demanding than ever. Technitube says it keeps sour service grades
TPS Technitube Röhrenwerke GmbH, like T-95 and C-95SS in stock. Their TPS-
Germany’s leading producer of high-quality Multiseal-TS-6 connection is the preferred
OCTG, says it offers offers solutions to all of connection for work- and teststrings. To prove
these challenges. its high performance, it has been successfully
With the philosophy of keeping a well-as- tested according to ISO 13679 CAL IV.
sorted stock as a manufacturer, the company The company says it can supply more than
says it helps to greatly reduce the costs for 2 million ft of premium tubing from 1.315-in. to
the clients while also ensuring a high degree 5½-in. OD pipe, and has more than 3,000 pieces
flexibility in supply. of accessories and fittings on hand, including
With more than 40 years of experience, pup joints, X-overs, and flow couplings. •
The Slick-E-Line technology combines the op-
erational effectiveness of traditional slickline
services with cased hole logging in a single
system. (Photo courtesy Paradigm Group)
Advanced well
intervention, flow
assurance technologies
offer enhanced options
Paradigm Group was established in
2009 in Groot-Ammers, the Netherlands,
to develop and introduce new technologies
targeted for well intervention solutions.
The initial focus of the company was on
thermoplastic composites for the purpose
of developing high-strength, lightweight
cables for well logging and intervention
services. From a strong IP position for
data transmission through a thermoplastic
coated slickline, this capability has led to
the innovative Slick-E-Line product, a tech-
nology that combines the operational effec-
tiveness of traditional slickline services with
cased hole logging in a single, safer and
more cost-efficient platform. Slick-E-Line
is now fully commercial in key markets
around the world.
Since then, the group has expanded with
a portfolio now including drilling and flow
assurance capabilities, with group com-
panies operating from the Netherlands,
Scotland, Houston, Mexico, and Dubai.
Paradigm’s latest drilling technology,
the Traction Drill Collar, provides forward
downhole traction during horizontal drilling
operations. This traction provides added
weight on bit while dramatically reducing
vibration and stick-slip.
The latest Paradigm flow technology,
called Flexi-Coil, is said to be the world’s
first miniature flexible coiled tubing sys-
tem for pipeline remediation. Flexi-Coil
allows crews to unblock and remediate
pipelines with a reach up to up 15 km from
a platform, replacing what have traditionally
been high-cost vessel remediations. Along
with Slick-E-Line, Paradigm Intervention
Technologies provides DTS/DAS with
fiberoptics-based slickline products. •

14 Offshore November 2017 • www.offshore-mag.com

1711OFFEuroSupp_14 14 10/31/17 8:06 AM