Wilson's Halcon does reverse split, outlines strategy

Halcon Resources Corp., Houston, (NASDAQ: HK), formerly Ram Energy Resources Inc., announced a one-for-three reverse split of its common stock—with fractional shares rounded up—effective Feb. 10, 2012. The reverse split was approved in connection with Halcon Resources LLC's $550-million investment.

Halcon was formed in early February by former Petrohawk Energy Corp. founder Floyd Wilson in a reverse merger with publicly traded, Tulsa-based Ram Energy. The deal put the build-to-sell Wilson back in the driver's seat of a public E&P.

In August 2011, Wilson sold Petrohawk for $15 billion to Australian minerals and mining conglomerate BHP Billiton. Following the December announcement that he would take the helm at Ram, its shares quadrupled.

Halcon will concentrate in four liquids-rich areas: the Mississippi Lime, Woodbine, Louisiana Wilcox, and Utica-Point Pleasant. Rigs will be put to work in each play over the coming months.

One to two rigs will work the Utica during second-half 2012 to drill six to nine wells targeting the Point Pleasant formation, with an acreage-position goal of 150,000 to 250,000.

In the Mississippi Lime, one rig will begin work in the second quarter, with another two rigs coming online later in the year. The company expects to drill nine to 15 wells at a cost of $2.5- to $3.5 million each. The estimated ultimate recovery (EUR) is 180,000 BOE (69% oil) per well. Halcon holds 53,000 net acres in the play that it acquired with Ram.

Woodbine drilling will begin in the second quarter, with four to eight wells sunk on targeted acreage of 50,000 to 75,000 acres. Another rig will enter the play in the second half of the year. Finally, one rig will move into the Wilcox in the second quarter to drill three to five wells on a target of 50,000 to 75,000 acres. Well costs are anticipated to be $7.5- to $8.5 million with recoveries of about 450,000 BOE each, with 44% oil.

The oily legacy properties acquired with Ram Energy will provide cash flow of about $50 million in EBITDA annually to fund operations. Additional operating capital will come from $550 million in liquidity, with some $325 million of that amount being cash.

Gas-weighted South Texas and southern Louisiana properties are divestiture candidates, as are the majority of legacy Ram properties.

The company is expected to disclose three additional wildcat oil plays in the future.

Apache doubles Anadarko base with Cordillera deal

Houston-based Apache Corp. (NYSE; Nasdaq: APA) has expanded its position in the Western Anadarko Basin with the acquisition of George Solich's privately held Cordillera Energy Partners III LLC, Denver, in a $2.85-billion cash and stock deal. Apache funded the acquisition with $2.25 billion in cash and $600 million in shares.

Cordillera, backed by private-equity provider EnCap Investments LP, holds 254,000 net acres in the Texas Panhandle and western Oklahoma targeting the Granite Wash, Tonkawa, Cleveland and Marmaton plays.

Estimated proved reserves are 71.5 million BOE with net production of 18,000 BOE per day. Apache estimates 14,000 potential drilling locations on the acreage.

Steven Farris, Apache chairman and chief executive, says 80% of revenues from the acquisition are derived from liquids. Apache has operated in the basin for 50 years, and will more than double its position there with this move.

"The experience we have gained drilling 500 wells in the Granite Wash play—including 79 horizontals drilled since 2009—gives us an in-depth understanding of the geology," he says.

Cordillera has 11 rigs in the play across 15 counties in the Texas Panhandle and western Oklahoma. Cordillera III was formed in 2007 after two prior successful Anadarko Basin exits. The Cordillera team intends to form a fourth domestic venture following the sale.

Wells Fargo Securities analyst David Tameron estimates Apache is paying $39.86 per bbl. proved. Applying a value of $7,500 million cu. ft. equivalent per day to current production, he estimates Cordillera is receiving approximately $8,000 per net acre.

The effective date is Sept. 1, 2011. Closing is expected on April 30.

Goldman, Sachs & Co. and Tudor, Pickering, Holt & Co. were advisors to Apache. Jefferies & Co. Inc. and J.P. Morgan Securities LLC were financial advisors to Cordillera, and Andrews Kurth LLP and Thompson & Knight LLP were legal advisors.

SandRidge acquires Gulf's Dynamic Offshore

In a surprise move, SandRidge Energy Inc., Oklahoma City, (NYSE: SD) plans to acquire privately held, Houston-based Dynamic Offshore Resources LLC in a $1.275-billion transaction expected to close during second-quarter 2012. The deal will comprise approximately $680 million in cash and $74 million in Sand - Ridge shares valued at $8.02 per share.

Dynamic Offshore's assets include multiple operated and nonoperated properties in the shallow Gulf of Mexico offshore Texas, Louisiana and Alabama. The company operates primarily in water depths of less than 300 feet. Producing assets yield 25,000 BOE per day and are 50% oil. Proved reserves as of year-end 2011 were 62.5 million BOE (50% oil). Eighty percent of the value and the quantity of the reserves are proved developed.

SandRidge chairman and chief executive Tom L. Ward said, "We are acquiring these assets for less than PV-10 of the proved developed reserves and at just over $50,000 per flowing barrel."

SandRidge has secured $725 million in committed financing from Bank of America Merrill Lynch, SunTrust Robinson Humphrey Inc. and Royal Bank of Scotland Plc that it may use to fund the cash portion of the consideration. The company's $790-million borrowing base facility remains undrawn.

BofA Merrill Lynch and SunTrust Robinson Humphrey are financial advisors to SandRidge. Covington & Burling LLP is legal advisor to SandRidge. Vinson & Elkins LLP is legal advisor to Dynamic Offshore.

BNP Paribas to sell $11B loan portfolio

According to the Financial Times, BNP Paribas, Paris, France's largest bank by assets, has put some $11 billion in oil and gas loans on the block.

BNP is seeking a balance-sheet reduction of about 10%, or $92 billion, before the end of 2012, in particular cutting its US dollar funding needs to shore up confidence among rattled investors.

According to the Financial Times, the energy loan portfolio was on the market and BNP was talking to at least three potential buyers.

Of the roughly $11-billion portfolio, only $4 billion has been drawn. Large U.S. and Canadian banks are thought to be the most logical acquirers of the as- sets, according to sources. Some of the Houston-based bankers will be relocated to New York.

BNP would not comment on the asset sale but one person close to the bank said it was not quitting the global energy business and remained committed to lending money to strategic clients in the sector.

French rivals Société Générale and Crédit Agricole are also selling assets and shrinking balance sheets to meet capital rules set by regulators for June 2012.

Kinder Morgan to sell El Paso's E&P assets

Kinder Morgan Inc., Dallas, (NYSE: KMI), which agreed to buy El Paso Corp., Houston, (NYSE: EP) for $21.1 billion last year, would like to sell El Paso's oil-exploration business piecemeal. Buyout giant Apollo Global Management LLC, New York, (NYSE:APO) is among the more determined buyers for the entire business, and has secured bank financing, according to The Wall Street Journal.

Richard Kinder, chief executive of Kinder Morgan, has said his company would prefer to sell the assets in one transaction. But it has kept open the option of selling the El Paso exploration assets in separate packages.

El Paso owns oil and natural gas fields in the U.S., Brazil and Egypt. Previous estimates indicated the assets could fetch at least $7 billion if sold as a whole. But given their diverse geography and quality, it wasn't surprising that potential buyers were attracted to different pieces, noted the Journal.

Kinder Morgan in October agreed to buy El Paso in a deal that will create the country's largest natural-gas-pipeline network. The deal superseded El Paso's previously announced plans to separate its pipeline and exploration businesses into two companies.

El Paso's main holdings are in the Eagle Ford shale, the Haynesville shale and the Gulf of Mexico's shallow waters. It also owns fields in the Rocky Mountains, offshore Brazil and in Egypt's Western Desert.

Venoco approves CEO take-private proposal

Venoco Inc., Denver, (NYSE: VQ) has reported approval of the proposal by chairman and chief executive Timothy M. Marquez to acquire all of the remaining outstanding Venoco shares through his entity Denver Parent Corp. for approximately $734.6 million in cash.

Marquez, who holds 50.3% of Venoco stock, has offered $12.50 per share. Venoco has approximately 58.7 million shares outstanding, with the remaining 49.7% not held by Marquez amounting to about 29.2 million shares. The offer represents a 63% premium to Venoco's closing price on Jan. 13 and a premium of 75% to the volume-weighted one-month moving average for that date. It implies a total enterprise value of approximately $1.5 billion.

Rick Walker, chairman of the special committee, said the deal was accepted after a five-month search, with the assistance of independent legal and financial advisors, who concluded the transaction will maximize value for the public shareholders.

Venoco has operations in northern California's Sacramento Basin, where as of June 30, 2011, it held approximately 600,000 gross acres. The company's properties include South Ellwood Field, Santa Clara Federal Unit, and Dos Cuardas Field offshore California; Willows and Greater Grimes fields in the Sacramento Basin; Santa Clara Avenue and West Montalvo fields in Ventura County; and Beverly Hills West Field in Los Angeles County. In addition, Venoco holds a reversionary interest in Hastings Field in Texas.

Production averaged 17,265 BOE per day during third-quarter 2011. Net proved reserves as of Dec. 31, 2010, were 85.1 million BOE.

Bank of America Merrill Lynch and Strategic Energy Advisors LLC are financial advisors to Venoco. Squire Sanders is legal advisor. Citigroup Inc. and BMO Capital Markets Corp. are financial advisors to Marquez. Wachtell, Lipton, Rosen & Katz is legal advisor to Marquez.

When the deal was first proposed in August 2011, KeyBanc Capital Markets Inc. analyst Jack N. Aydin said the deal valued proved reserves at approximately $14.03 per bbl. equivalent and production at $68,000 per BOE per day.

M&A news

• Western Gas Partners LP, Houston, (NYSE: WES) has completed the acquisition of certain midstream assets from Anadarko Petroleum Corp., The Woodlands, (NYSE: APC) for $483 million. Western Gas acquired Anadarko's 100% ownership interest in Mountain Gas Resources LLC, which owns the Red Desert Complex, a 22% interest in Rendezvous Gas Services LLC, and related facilities.

The acquisition was financed with some $160 million of cash on hand, a $300-million draw on the partnership's revolving credit facility, and the issuance of 632,783 common units to Anadarko and 12,914 general partner units to Western Gas Holdings LLC, the general partner.

Additional news

• Houston-based private-equity firm Quantum Energy Partners has formed Renaissance Offshore with offshore veteran Jeffrey Soine. Supported by a $300-million equity commitment from Quantum, Renaissance will primarily engage in acquiring and redeveloping legacy oil-producing properties in the shallow-water Gulf of Mexico.

Soine previously served as executive vice president of the international business unit for Woodside Energy Ltd, Perth, as well as president of Woodside Energy (USA). Prior to Woodside, Soine was acquisitions manager for W&T Offshore, Houston, (NYSE: WTI) where he successfully acquired assets in the Gulf of Mexico.

Immediately after formation, Renaissance closed on the acquisition of the Ship Shoal 266 Field from Union Oil Co. of California, a Chevron Corp., San Ramon, (NYSE:CVX) subsidiary. The field is approximately 75 miles off the coast of Louisiana, in an average water depth of 180 feet.

Soine commented, "With the recent shift in focus of the majors and large independents to unconventional resources, market conditions are ripe for an acquirer to pursue opportunities on the Gulf of Mexico shelf."

• Tulsa-based start-up Capstone Natural Resources LLC announced a $100-million growth-equity commitment from Lime Rock Partners, Westport, Conn. The capital will fund potential acquisitions and initial drilling and completion expenditures in the Permian Basin. Capstone will be particularly focused on oil opportunities in the Central Basin Platform of West Texas and eastern New Mexico.

The senior leadership consists of ex- Arena Resources Inc. executives, late of the 2010 sale to SandRidge Energy Inc., Oklahoma City, (NYSE: SD) for $1.6 billion. Capstone is led by chief executive Phil Terry—former chief executive of Arena Resources—and David Ricks, president, COO and former vice president of operations at Arena.

• Lucid Energy Group LLC, Dallas, has secured a $75-million equity commitment from EnCap Flatrock Midstream, San Antonio. Lucid Energy is a startup midstream company. The company will pursue greenfield initiatives and acquisitions in conventional and unconventional basins with an emphasis on the Midcontinent. Lucid is led by president Michael J. Latchem; previously, he was president of TPF Gas Services LLC.

• Plains All American Pipeline LP, Houston, (NYSE:PAA) plans to construct a 170-mile pipeline to serve increasing Mississippian Lime crude-oil production in northern Oklahoma and southern Kansas.

The pipeline, in conjunction with the previously announced Medford-to-Cushing pipeline conversion, is designed to provide approximately 175,000 bbl. per day of crude oil transportation capacity to the Cushing market. It is expected to be completed by mid-2013.

The company also announced it has entered into a long-term agreement with

SandRidge Energy Inc., Oklahoma City, (NYSE:SD) to purchase Sand - Ridge's production from a multi-county area around the new pipeline system.

The Mississippian Lime pipeline will originate in Alfalfa County near Alva, Okla., and terminate at Plains All American's Cushing, Okla., crude-oil storage facility.

The new pipeline will share approximately 80 miles of right-of-way with Plain's Medford-to-Cushing pipeline. The company plans to extend the pipeline from Alva northward into Kansas as demand warrants.

• Cross Border Resources Inc., (OTCQX: XBOR.OB) a San Antonio-based oil and gas E&P, announced it will conduct a broad review of strategic alternatives aimed at maximizing shareholder value. KeyBanc Capital Markets is the company's financial advisor.

Cross Border's chairman and CEO, Everett (Will) Gray II, said, "We strongly believe that our current share price does not reflect the value of our assets, and we are therefore conducting a thorough review to determine whether shareholder value can be maximized through alternative methods."

The company has a portfolio of assets in the Permian Basin.

• Blacksands Pacific Group Inc. has agreed with its partner to jointly develop oil prospects in the Williston Basin in North Dakota. The Williston prospects include oil and gas leases held in the Tyler, Lodgepole, Bakken, Red River and Three Forks producible zones.

The oil and gas leases are more than 50,000 net acres with an initial 72-well drilling program proposed at an estimated capex cost of approximately $200 million. Blacksands Pacific, through its subsidiary Blacksands Pacific Williston Basin LLC, will jointly operate with a 50% working interest, and also provide 100% of the required capex cost.

• Vermilion Energy Inc., Calgary, has completed its previously announced purchase and sale agreement with Total E&P, Paris (Paris: FP FP). Vermilion has acquired working interests in six producing fields in the Paris and Aquitaine basins in France.

The assets are expected to average 2,200 BOE per day of production in 2012, weighted 86% to high-quality Brent-based crude, and add an estimated 6.7 million BOE of proved plus probable reserves (96% crude oil). Vermilion paid approximately $108 million cash at closing.

The assets consist of interests in six fields including the Itteville (79%), Vert Le Grand (90%), Vert Le Petit (100%), La Croix Blanche (100%) and Dommartin-Lettree (56%) fields in the Paris Basin and the Vic Bilh (73%) field in the Aquitaine Basin. Upon closing, Vermillion will hold a 100% operated working interest in each of the acquired fields with the exception of the Dommartin-Lettree field in the Paris Basin, in which it holds a 56% nonoperated stake.

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