OGI This Week

Something is swirling in the Gulf of Mexico ̶ and it’s not a hurricane. It’s a growing interest in companies vying to secure drilling rights off the coast of Mexico. Even with the oil and gas downturn, which is causing some companies to hold back on exploration, Mexico officials says they are pleased with the results of the most-recent auction.Chesapeake Energy Corp. made an announcement recently that is causing some employees to be fidgety. The company stated recently that it plans to cut 740 people, or 15% of its workforce, to reduce costs and align itself with the realities of the market environment.The city of Anchorage is in the utility business, and it’s looking to spread its wings even more. Officials are weighing a bid on ConocoPhillips Alaska’s interests in the Beluga River Unit in the Cook Inlet. The city claims that its involvement in the utility business has saved customers hundreds of millions of dollars.
Simply stated, there is a lot going on at Halliburton these days. The service giant will pay nearly $18.3 million to 1,016 employees nationwide to address unpaid overtime. On top of that, the company has had to cut its workforce in North Dakota because of business conditions. Meanwhile, the proposed Halliburton-Baker Hughes merger is struggling to cross the finish line.For some E&P companies, it’s not all about unconventionals. RAM Energy began in 1986 with a strategy of acquiring long-life, low-decline conventional assets. Although the industry has changed tremendously, Larry Lee, the CEO of Tulsa, Okla.-based RAM Energy LLC, continues to take the same unconventional approach.And finally, there is no doubt that the oil and gas downturn has put projects at risk. Consider this quote from James Webb, the upstream research manager for Wood Mackenzie: “We estimate that as much as $1.5 trillion of investment spend destined for new (pre-sanctioned) and U.S. tight oil projects is now out of the money, or in starker terms, uneconomic at a $50 oil price.”
This week’s edition of Oil and Gas Investor This Week pretty much sums up the yin-yang state of the oil and gas industry. One company has a strategy for when oil prices begin to improve, and another has filed for bankruptcy production. And, for at least the time being, lease-and-drill tendencies are trending downward. Acquire-and-exploit strategies are today’s fashion.● In just four years Sanchez Energy Corp. has gone from 92,000 Eagle Ford acres and 10 wells generating 600 barrels of oil equivalent per day and $15 million in revenue to a quarter-million acres, 53,000 barrels of oil equivalent and $600 million in revenue. The company says it has a plan to position itself for renewed growth when the business climate improves.● EnCap partner Murphy Markham says private equity sponsors are turning back to acquire-and-exploit, as opposed to lease-and-drill. “I believe the acquire-and-exploit strategies are where the opportunities are going to be, and we’re seeing a lot more opportunities on that front despite the market being rather quiet because of the low commodity price,” he stated.● Once riding high, Samson Resources Corp. now finds itself with $4.9 billion in liabilities and nearly a billion dollars in debt due in 2016. The company ultimately succumbed to separate downturns, first in natural gas prices in 2012 and then in crude oil values in the second half of 2014. After a cumulative net loss of $1.9 billion in the past 12 months, Samson filed for bankruptcy reorganization Sept. 16. It is the largest E&P to do so amid the downturn in oil prices.
There’s no doubt about it: The rocky state of oil prices is dominating industry news these days, and we will focus on that in this edition of Oil and Gas Investor This Week.For starters, Bill Marko, the managing director of Jeffries LLC, is not mincing words when it comes to the A&D landscape of 2015. “It’s brutal,” he said.Chuck Yates, managing partner of Kayne Anderson, says energy leaders must have the trait of vulnerability and be open to potential pain. “We’re not all perfect. We don’t have to act perfect. It’s OK to show that other side,” he said.Finally, Barclays has revised its global E&P spending outlook for 2015, saying spending could fall 20% this year and as much as 8% in 2016. “We note that after almost every decline year previously, spending increased by more than 10% the following year,” Barclays said in the report. “Then again, it’s a new oil paradigm we’re facing.”
In this week’s edition of Oil and Gas Investor This Week, we will focus on property divestitures and acquisitions in the shales. For starters, W&T Offshore Inc. has agreed to sell its Yellow Rose Field in the Permian Basin. The deal will allow W&T to maintain its offshore holdings while paying down debt. Ajax Resources LLC will purchase the Permian assets for $376 million. Meanwhile, WPX Energy is bolstering its Permian position. To do so, the company has agreed to sell a North Dakota gathering system to a private equity fund managed by the Ares EIF Group, a subsidiary of Ares Management LP. The transaction is worth about $185 million. And finally, EOG Resources Corp. is looking to dump a bulk of its noncore assets in Wyoming, Utah and Colorado, despite having about $3.4 billion in available liquidity. EOG says the land for sale, about 130,000 acres, is “outside of our core producing areas.”
Effects: The impact of short-, medium- and long-term oil price recoveries on investments in ethane crackers in North America was assessed in a recent report. Other petrochemicals, including polypropylene, could also be affected in the long term.Anticipation: Hart Energy’s Stratas Advisors predicted earlier this summer that Keystone XL permitting would be rejected before the Labor Day weekend. The Canadian press recently ran similar reports. Infrastructure giant TransCanada can resubmit its application for approval in 2016 if Keystone is rejected.Trending Down: For the first time, natural gas production across all major U.S. shales could decline this September, the U.S. Energy Information Administration said in a report. Fewer rigs and a drop in legacy production will chip away at the Marcellus and other large gas shales.
Insecure: Hackers now use malware via phishing emails, compromised credentials and other tactics to wage more sophisticated cyberattacks on the oil and gas industry. Walter Energy was a recent target in the theft of hundreds of corporate earnings announcements.Rocky: With about 950 earthquakes so far this year, Oklahoma outranks California as one of the most seismically active states. Injecting wastewater into the Arbuckle Formation triggered the uptick in quakes, an expert said.Overkill? Because the oil and gas industry has successfully reduced greenhouse-gas emissions, some energy trade groups called the Environmental Protection Agency’s recent proposed emissions guidelines unnecessary.
Silver Lining: Oil prices recently fell to a six-year low. However, the International Energy Agency forecasts that global oil demand for the rest of the year will grow by 1.6 million barrels per day.Value: Energy stocks are currently cheap compared to other equities, according to a senior equity strategist at CIO Wealth Management Research Americas. Even so, energy investments—especially in MLPs—will require careful consideration because prices are so low.Geography: Three quick factors to buoy hopes for higher oil prices:—1. The U.S. currently has the largest supply of natural gas. 2. The U.S. has a variety of international energy sector clients. 3. North America as a whole produces more barrels of oil equivalent than OPEC’s top three countries.
Exit: David M. Hall, COO of Miller Energy Resources Inc., resigned after the Securities and Exchange Commission charged that the company fraudulently overstated the value of a 2009 Alaska acquisition.Resource: Alternative capital sources include hedge funds and sale of royalty interests. Understanding the risks and benefits is crucial, Jones Day partners and associates say.Ahead: Midstream deals comprised 21 of the 47 deals with values above $50 million, according to analysis of second-quarter transactions. Upstream deals were down another 20% in July.
Waiting: The price of oil will stay low until there is evidence that the oversupply of oil is shrinking, a study concluded. So far, prices in the U.S. have not fallen far enough to affect the oversupply.Falling: The supply-demand imbalance meant ExxonMobil’s second-quarter profit dropped by half, to $4.2 billion from last year’s $8.8 billion. Reducing: Chevron will lay off about 1,500 people, or about 2% of its global workforce. Of the total, 950 jobs will be in Houston, and 500 will be in San Ramon, Calif.
Any Takers? There is currently a surplus of proppant in North America, and the most in-demand type is frack sand. However, through the rest of the year, overall proppant consumption will decrease by 23%.Reduced: E&Ps were awarded fewer permits in the second quarter of this year. The decline was steepest in the Eagle Ford, Permian Basin and Bakken, with 13%, 5% and 14% decreases, respectively. Money And Rules: Oil, natural gas and coal companies are not required to pay for economic damage caused by carbon emissions, according to authors of a University of Cambridge research paper.
Portent: Schlumberger said North American E&P spending could fall by 35% during the remainder of the year. The oil markets are rebalancing, and in some basins pricing has fallen to unsustainable levels.Lackluster: Lower prices and profits dampened Mexico’s much-anticipated Round One shallow-water Gulf of Mexico oil block auction. Out of 14 up for bidding, eight received no bids and four had bids thrown out. Haven: With more than $2 billion in debt, Sabine Oil & Gas recently filed for Chapter 11 bankruptcy. Prior to its merger with Sabine last year, Forest Oil Corp. incurred heavy debt.