Energy Matters

Parkman: Buyer Valuation Of Shale-Gas Assets Depends On Maturation Of The Play

ndarbonne — Tue, 02 Mar 2010 02:23:48 +0000

“…A Barnett package of assets would probably be a lot easier to value at this point than an Eagle Ford package….”

Discount rates among shale plays continue to be diverse, based on which plays have proven to perform, says Jim Parkman, co-founder and managing director of energy investment-banking firm Parkman Whaling LLC.

“I’m not sure that we totally understand how to value the shale reserves yet because we’re not sure what the ultimate (recoveries) are,” Parkman says in the complimentary webinar “Jim Parkman’s Observations On The Recent Reorg Cycle, And Forward Markets” hosted by OilandGasInvestor.com and now available on demand.

“We don’t have a clear picture of the decline rates and, of course, you don’t know what your total reserves are so, any time you have that level of uncertainty, you tend to see, from the practical point of view, the discount rate moving up. That’s going to vary by company and company.”

An energy investment banker for nearly 30 years, Parkman is a leader in energy-company workouts and capital-structure reorganizations, with recent assignments including the restructuring/reorgs of Energy Partners Ltd., Edge Petroleum Corp., Foothills Resources, Beryl Oil and Gas, Bigler, Storm Cat Energy Corp. and four other energy companies.

“In my practical experience, you can have some wildly different analysis in a competitive situation for shale-type assets and that’s probably a result of one party looking at a 25% pretax discount rate and another party looking at a 15% pretax discount rate. So, for shale-type assets, you would expect a huge variation of valuation and, as time passes, that would tend to narrow as industry develops a consensus on how the various shale-type investments will perform….

“For example, a Barnett package of assets would probably be a lot easier to value at this point than an Eagle Ford package of assets…I’d expect a good deal of variability within and among the different shale plays.”

Parkman describes three stalking-horse transactions in the webinar. Does the stalking-horse process work for small deals, say between $1- and $10 million?

“I don’t think there is any difference with the size,” he says. “I think the stalking-horse transaction can be designed at any size. You probably have more competition with the small transactions, so I would say ‘yes, it probably works,’ except for transaction cost because, of course, there usually is a break-up fee related to a potential purchaser taking a stalking-horse position and, if the break-up fee is not large enough to cover the transaction cost, it may not be too appealing.

“So, in theory, there may be a lower limit on whether or not the stalking horse process is functional.”

Hear these and more of his remarks in the complimentary webinar “Jim Parkman’s Observations On The Recent Reorg Cycle, And Forward Markets,” which includes a PDF of Parkman’s slides.

Does he expect E&P bankruptcies this year? “There is always the risk of bankruptcy or meltdown of E&P companies, especially given the widespread adoption of hedging strategies,” he says, “because, if there is counterparty failure or default…, there can be a liquidity crisis and a consequent meltdown scenario…

“There can always be, in any conditions, potential bankruptcy…There are some companies that have been able to accrete through the downturn without requiring restructuring or bankruptcy…but, compared to this time last year, we’re in a far better position because, this time last year, I would have said there would be at least 10 bankruptcies before the end of the year and I’m certainly more optimistic about that (in 2010).”

–Nissa Darbonne (ndarbonne@hartenergy.com), E-Editor, Hart Energy Publishing; Oil and Gas Investor, A&D Watch, Oil and Gas Investor This Week, OilandGasInvestor.com Today, OilandGasInvestor.com, A-Dcenter.com, UGcenter.com, UGcenter.com Today, EPmag.com, E&P Buzz, PipeLineandGasTechnology.com, PGT News, HartFUEL.com, FUEL.

Marcellus Already Drilled Plenty In New York State; Not A Threat To Water Supply

ndarbonne — Mon, 01 Mar 2010 18:17:43 +0000

“…The major amount of the Marcellus play will not be underneath the New York City water supply anyway….”

There has been plenty of drilling through the Marcellus shale in New York—enough to estimate the potential for recoverable gas reserves from the rock—says Dr. Terry Engelder, professor of geosciences at Pennsylvania State University, and Ralph Williams, principal and founder of well analysis and petroleum engineering firm Reservoir Visualization Inc.

If the Marcellus has been penetrated a great deal already why would penetrating it now create any new threat to water supply there? “You are asking a question that really verges on the political rather than the scientific,” Engelder says in the webinar “Marcellus G&G—The View From The Subsurface” presented by OilandGasInvestor.com and UGcenter.com and now available for viewing on demand.

“As far as I can tell, the major hold-up (in drilling the Marcellus) in New York state involves the fact that some of the Marcellus occurs underneath the Catskill Mountains water supply to New York City. Gas production there is always the concern the environmentalists have. Until the (gas-drilling) operators (and I) can convince the public that the fear over hydraulic fracturing and its ability to pollute ground water—until that is abated, until the public becomes convinced and has confidence in the facts we have—then the politicians will remain uneasy.

“It is a PR job that needs to be done and I am confident that, eventually, the politicians will come to understand that, first of all, the major amount of the Marcellus play will not be underneath the New York City water supply anyway and, secondly, subsurface activity at the depth the Marcellus is found is not in any way going to endanger the near-surface water supplies.”

In the past 29 months, Engelder has discussed the Marcellus’ potential in 129 forums before more than 7,000 industry and non-industry members. He estimates that 117 Appalachian Basin counties could become economic for Marcellus pay, and he estimates the ultimate recovery (EUR) after 50 years of production decline at 867 trillion cubic feet (Tcf) of gas on a P10 basis and 220 Tcf on a P90 basis.

The economic production he forecasts would come from 17 New York counties, 42 in Pennsylvania, 18 in Ohio, 39 in West Virginia and one in Maryland. His estimate is based on assumption of a power-law rate-decline model in which 70% of the sections produce and spacing is 80 acres.

Engelder says a great deal about the Marcellus in New York is known from penetrations of it in developing the Oriskany sandstone gas-storage fields. “I remind you that the Oriskany is below the Marcellus so, as a consequence of that type of drilling activity, we know about a lot of the details. Some of the real cross-sections show the Marcellus.”

Some areas especially pop. “It is very clear that, in areas such as Broome County…Tioga County and Chemung County, I think that’s an area where I think the Marcellus will work very well, providing that the state legislature lets the operators do their thing there, which has so far been a problem.”

Williams’ firm has data on more than 3 million U.S. oil and gas wells, including 30,000 wells that have penetrated the Marcellus. He says Marcellus well data is especially transparent in New York. “We have a lot more control in New York. First, the Marcellus is a lot shallower and actually goes to outcrop (there). Now how far the black shales and hot (high API gamma ray) shales do continue to outcrop where they transition from gas-bearing to water-bearing will be determined as drilling progresses up into New York, but you definitely have all of the Marcellus intervals active in New York and should be productive.”

Could any of New York’s Marcellus gas be drained via wells in Pennsylvania? “Absolutely none,” says Engelder. Williams adds, “I concur with Terry on that question. If you look at other shale plays, they’re down-spaced to 160s- and 80-acre spacing to drain these reservoirs, so it’s going to take a lot of drainage points and they don’t drain large distances.”

Engelder concludes, “The Marcellus represents one of the world’s greatest opportunities for gas-shale production, and America itself is set up to capitalize on this with other (shale) plays…One of the challenges for the operators…is to further engage the politicians to help them come to the understanding of the magnificence of this particularly resource and the opportunity it offers in American industry to expand and…to slow down the flow of cash out of America. To bring in (foreign) petroleum, it seems to me to be so unnecessary given the size of the resource America has in the form of natural gas.”

Williams, who presented in the webinar while in the field in Pennsylvania, says of the Appalachian Basin, “This is an amazing basin. It is one of the venerable basins and, as we talk to the people and the operators here, it’s been a long time coming for the Appalachian Basin to be in the spotlight for the U.S. and there is a lot of hydrocarbon in the Marcellus and the many other zones in all of the basins in the country and we look forward to developing that.”

For more details on Appalachia’s Marcellus play, including state-by-state and county-by-county estimates for economic production potential, click to the webinar “Marcellus G&G—The View From The Subsurface” now available for viewing on demand.

The webinar includes transcript and slides from the DUG-East conference panel “Meet the Marcellus: Geology, Geophysics, and Potential,” including remarks by Dr. John (Jack) A. Ward, executive vice president, E&P, for PetroEdge Energy LLC, on “Marcellus Shale Porosity Distribution Based on Regional Mapping;” Williams on “The Detailed Stratigraphic Framework of the Marcellus Shale;” James Coleman, U.S. Geological Survey, Eastern Energy Resources Team, on “Examination of Potential Factors Affecting Successful Exploration and Production;” and Doug Pferdehirt, president, reservoir-production group, for Schlumberger, on “Completions in the Marcellus Laterals.”

Boone Pickens On Pro-NatGas HR 1835, Plus More Wildcatter-, Poker-Table-Type Boon-isms

ndarbonne — Sun, 28 Feb 2010 23:34:16 +0000

Boone Pickens started his campaign in the summer of 2008 in Washington for legislation that incents natural gas as a transportation fuel. Now, Congress will consider HR 1835 that does this. He’s confident the legislation will be passed, he told Texas Independent Producers and Royalty Owners Association (Tipro) members at their annual meeting in Houston recently.

Reasons include the obvious—encouraging greater use of domestic natural gas as a fuel choice in lieu of imported oil just makes sense. Pickens, chairman of Dallas-based energy investor BP Capital, is confident for another reason: After 30 years of lobbying Washington, he hasn’t been successful. This time, he says with his trademark, wildcatter-style, poker-table-type courage, “what the hell? I spent $62 million. I should get something done.”

More Boone-isms from his remarks at the Tipro meeting:

–His last book is “The First Billion is the Hardest: Reflections on a Life of Comebacks and America’s Energy Future.” He says his next book will be “I Can Show You How to Get Rid of $2 Billion Faster Than You Made $1 Billion.”

–He was introduced at the Tipro program as an advocate for natural gas and as a “wind man,” the latter of which was withdrawn for its gastronomical humor. He replied, “You don’t want to be introduced as a ‘wind man,’ but you don’t want to be introduced as a ‘gas man’ either, so I still like to be known as an oil man.”

–Washington needs an energy policy. His father explained more than 60 years ago that “a fool with a plan is better than a genius with no plan.” America has been “a fool with no plan…We are not going to be a fool without a plan. We don’t want to be a fool with a plan, either.” HR 1835 is “genius with a plan.”

–A former, leading U.S. State Department member told him some time ago that America’s dependency on imported oil reduces its leverage. “With our dependency on oil, we lose a lot of flexibility at the State Department.”

–While Washington worries about healthcare, education and other issues, these won’t matter without an energy plan “because you won’t have any money for any one of them,” while sending billions of dollars overseas for oil.

–Estimates were a couple of years ago that the U.S. has more than 2,000 trillion cubic feet (Tcf) of recoverable natural gas reserves, a great deal of these as a result of technological and economic breakthroughs in surfacing shale gas, and a newer estimate is of more than 4,000 Tcf. The difference may be a matter of decades, and both the low and high number is far more than 100 years out at current demand. “No one will ever know you made a mistake. I’ll (at 81 now) be gone.”

The NAPE Video Files: Interviews With More Than 30 Industry Leaders

ndarbonne — Mon, 22 Feb 2010 15:55:07 +0000

Oil and Gas Investor and E&P editors interviewed more than 30 industry leaders at NAPE 2010 this week. Stay tuned to OilandGasInvestor.com, EPmag.com, UGcenter.com and A-Dcenter.com for videos of these interviews.

–Cameron Smith, Formerly Managing Director, The Rodman Energy Group: Cameron Smith, the founder of COSCO Capital Management LLC that became The Rodman Energy Group, discusses his view of the capital markets and his plans to check off “bucket list” goals in the coming year.

–Bryant Patton, Principal, BryCap Investments Inc.: Bryant Patton, principal of oil and gas investment firm BryCap Investments, discusses his interests in producer Sendero Energy Partners LP, midstream firm Teak Midstream and producer Cinco Resources, into which his Camden Resources was merged, and using unconventional-well technology in conventional plays in West Texas and Oklahoma.

–Tim Murray, Managing Director, Guggenheim Partners: Tim Murray, managing director for energy mezzanine-investment firm Guggenheim Partners, describes the recapitalization of Gulf Coast Basin-focused Milagro Exploration, the firm’s investments through this past capital-markets cycle, conventional vs. unconventional plays and what the firm is investing in in 2010.

–Neil Carpenter, SVP, Worldwide Sales, Wellpoint Systems Inc.: Neil Carpenter, senior vice president, worldwide sales, for Wellpoint Systems Inc., discusses energy producers’ concerns with costs and contrasts how downstream vs. upstream energy companies deploy technology.

–Charlie Chambers, Founder & CEO, Chambers Oil & Gas: Charlie Chambers, founder and CEO of Chambers Oil & Gas, and former acting president of Rosetta Resources, describes his plans for his new family-owned E&P company.

–Bill Weidner, Managing Director, The Rodman Energy Group: Bill Weidner, managing director, The Rodman Energy Group, discusses his 2010 outlook for private equity’s opportunities and challenges for the upstream energy sector as well as his view of the growing importance of midstream infrastructure in new shale plays.

–Murphy Markham, Partner, EnCap Investments LP: Murphy Markham, a partner in EnCap Investments LP, describes the firm’s private-equity midstream investments with investment partner Flatrock Energy Advisors, its approximately $2 billion available to place upstream, and raising a new upstream fund that may bring total capital available to deploy to some $4 billion.

–Bret Bolin, President & CEO, P2 Energy Solutions: Bret Bolin, CEO and president of P2 Energy Solutions, discusses the need for greater integration to enable companies to become more efficient and profitable. A single technology platform provides an elegant infrastructure.

–Eric Thurston, Vice President, P2 Energy Solutions: Eric Thurston, vice president of P2 Energy Solutions, discusses Excalibur, the company’s newest offering. Excalibur is a comprehensive suite of more than 30 modules that address all the critical business requirements and workflows of an oil and gas producer.

–Marc Lawrence, SVP, Division Manager, Data Licensing Division, Fairfield Nodal/Fairfield Industries: Marc Lawrence, senior vice president and division manager, data-licensing division, for seismic firm Fairfield Nodal/Fairfield Industries describes current demand for seismic data and analysis, and renewed interest in shallow-water, deep-shelf Gulf of Mexico exploration due to huge Davy Jones and other prospect results.

–Greg Pipkin, Managing Director, Investment Banking, Barclays Capital: Barclays Capital managing director, investment banking, Greg Pipken delivers his perspective of corporate M&A, including his involvement and unique perspective of the Denbury Resources/Encore merger and ExxonMobil’s acquisition of XTO Energy.

–Gerry Conroy, Vice President, Product Management, P2 Energy Solutions: Gerry Conroy, vice president, product management, for P2 Energy Solutions, describes producers’ emphasis on cost management during this commodity-price cycle, estimates for the industry needing to drill 30,000 shale-gas wells and what top oil and gas producers do that make them successful.

–Dan Steele, SVP and Manager, Energy Lending Group, Bank of Texas: Dan Steele, senior vice president and manager for the energy lending group at Bank of Texas, shares his views on capital-raising activities in 2010 and how the next round of credit redeterminations should be less painful for many producers this year.

–Bruce Vincent, President, Swift Energy Co.; Chairman, IPAA: Bruce Vincent, president of onshore U.S.-focused Swift Energy Co., discusses the company’s work in the Eagle Ford shale-gas play and in Louisiana conventional-oil plays, investor interest in oil-weighted E&P companies, and his work in Washington in explaining how proposed new law and policies would affect the U.S. oil and gas industry to Harry Reid and Nancy Pelosi, and to President Obama via energy czar Carol Browner.

–Aliza Dutt, VP & Senior Equity Analyst, IHS Herold: Aliza Dutt, vice president and senior equity analyst for IHS Herold, describes her outlook for equities and the industry this year. Herold finds capital spending is going up again.

–Scott Noble, Founder & President, Noble Royalties Inc.: Scott Noble, founder and president of Noble Royalties Inc., gives his take on changes in minerals valuations from prior years, the revived pace of A&D and geographic areas that are causing the most buzz for buyers.

–Nathan Oliver, VP, Gulf of Mexico, Multi-Client Data, PGS/Petroleum Geo-Services: Nathan Oliver, vice president, Gulf of Mexico, multi-client data, for PGS describes the resurgence in the Gulf of Mexico driven both by recent large discoveries and by new technology such as wide-azimuth seismic acquisition.

–Steve Kennedy, SVP and Energy-Group Manager, Amegy Bank: Steve Kennedy, senior vice president and energy-group manager for Amegy Bank, describes his view of the pace of energy capital investments and his long-term outlook for oil and gas in the U.S.

–David Preng, President & Founder, Preng & Associates Inc.: David Preng, president and founder of energy-focused recruiting firm Preng & Associates Inc., describes oil and gas producers’ renewed demand in 2010 for both executive and technical personnel, and continued demand for value-adding energy-company board members.

–Mike Ming, President, RPSEA (Research Partnership to Secure Energy for America): Mike Ming, president of RPSEA (Research Partnership to Secure Energy for America), describes his organization’s commitment to research in ultra-deep water, unconventional resources, and small producers and promotes more government funding for oil and gas research.

–Adam Connors, Director, Corporate Finance, C.K. Cooper & Co.: Adam Connors, director, corporate finance, for investment-banking firm C.K. Cooper & Co., describes stock investor interest in traditional and highly-liquid energy securities currently, a decline in interest in PIPEs and other securities with monetization restrictions, and what oil and gas stories are winning investment-market favor today.

–Bryan Chapman, EVP, Energy Lending Manager, Iberia Bank: Bryan Chapman, executive vice president and energy-lending manager for Iberia Bank, discusses the bank’s recent entry into the energy-lending space, his team’s strategy for connecting with clients in 2010 and his outlook for oil and gas.

–Adrian Goodisman, Managing Director and Co-Head, U.S., Scotia Waterous: Adrian Goodisman, co-head, U.S., and managing director, Scotia Waterous, provides his insight on the state of the A&D market and particularly for the Gulf of Mexico and international.

–Mike Lakin, Managing Director, Envoi Ltd.: Mike Lakin, managing director of Envoi Ltd., sees U.S.-headquartered companies taking their unconventional expertise overseas to prospect for shale gas on distant shores.

–Ward Polzin, Managing Director, Tudor, Pickering, Holt & Co.: Tudor, Pickering, Holt & Co. managing director Ward Polzin explores whether any momentum remains in the JV market, who is buying and selling oil and why, the value of an oil PUD, and how oil metrics compare to gas.

–Andy Clifford, President, Saratoga Resources Inc.: Andy Clifford, president of Saratoga Resources, describes the company’s efforts to emerge from Chapter 11, and that it is looking for partners for its offshore prospects, which may be on trend with McMoRan Exploration’s recent discoveries.

–Jim Sledzik, Partner and President, Houston Office, Energy Ventures AS: Jim Sledzik, partner and president, Houston office, for oilfield-technology investment firm Energy Ventures AS, discusses new products that are being put to work in developing unconventional-resource plays by portfolio companies Ingrain Inc., Oxane Materials Inc., Fotech Solutions Ltd. and Ziebel AS, ranging from nanotechnology proppant to fiber-optic formation monitoring, and he describes the recent monetization of Fund III investment NovaDrill, and the advancement of other investments toward business-plan maturation and sale.

–Phil Martin, CEO & Founder, New Century Exploration Inc.: Phil Martin, chief executive officer and founder of onshore U.S.-focused New Century Exploration Inc., describes public vs. private E&P companies’ access to shale-gas plays, New Century’s plans to grow its shale-gas portfolio and how he has formed a retail electric provider, True Electric, that serves as a hedge against natural gas prices.

–Ramona Hovey, SVP, Products, DrillingInfo: Ramona Hovey, senior vice president, products, for data- and information-services firm DrillingInfo, discusses producers’ continued interest in shale-gas drilling data, results in the Barnett oil play, and how analysis of operator differences suggests a best or “better of class.”

–Tim Rotchford, Chairman, Arena Resources Inc.: Tim Rotchford, chairman of publicly held, Tulsa-based Arena Resources Inc., describes investor interest in the company’s 85% oil-weighted portfolio, its large holding in the prolific Fuhrman Mascho Field in West Texas, and its attention to new oil-shale plays.

–Kamil Tazi, Vice President, Engineering & Planning, Cordillera Energy Partners: Kamil B. Tazi, vice president of engineering and planning for private E&P company Cordillera Energy Partners III, talks about the Denver-based firm’s focus on the multiple stacked pays of the Texas Panhandle and western Oklahoma, particularly the Granite Wash, Tonkawa and Cleveland reservoirs. These “gas-plus” plays offer high NGL yields and premium economics.

–Kurt Abraham, Vice President, Texas Alliance of Energy Producers: Kurt Abraham, vice president, Texas Alliance of Energy Producers, analyzes industry issues and describes the group’s 2010 media campaign to educate the public and lawmakers about the oil and gas industry.

Portfolio Candy: These E&P Stocks Promise To Pop

ndarbonne — Thu, 18 Feb 2010 19:08:55 +0000

Producers’ quarterly results have been pouring in and equity analysts have weighed in on some of their favorites for coming months and for 2010, liking both oil- and gas-weighted stories. These stocks promise to make a portfolio pop, they say.

Marcellus players. Marcellus players have further proven their value upon Anadarko Petroleum Corp.’s news of bringing Mitsui E&P USA LLC, a business of Japan’s Mitsui & Co. Ltd., into its 100,000-net-acre, north-central Pennsylvania, Marcellus holding at $14,000 an acre, representing $1.4 billion in additional Anadarko cash to deploy there. KeyBanc Capital Markets analyst Jack Aydin says, “…This is one of the best transactions in the Marcellus shale play to date. More importantly, we believe this bodes wells for our companies under coverage with exposure to the Marcellus shale.”

He cites Atlas Energy Inc. (Nasdaq: ATLS) and Exco Resources Inc. (NYSE: XCO), in particular, as both are looking to take on partners in the play. He adds upside for other shale-gas producers he covers: Cabot Oil & Gas Corp. (NYSE: COG), Carrizo Oil & Gas Inc. (Nasdaq: CRZO), Range Resources Corp. (NYSE: RRC), Rex Energy Corp. (Nasdaq: REXX) and Southwestern Energy Co. (NYSE: SWN).

Michael Bodino, senior E&P analyst for Madison Williams & Co. (formerly SMH Capital), cites another Marcellus player, Ultra Petroleum Corp. (NYSE: UPL), as having great potential from its position there. Long noted for its Pinedale gas-play success in the Rockies, the company plans 70 net wells in the Marcellus this year that may produce some 17 billion cubic feet equivalent, Bodino says. He has a 12-month target of $71 on Ultra’s stock. The shares were approximately $48 each at press time.

Fayetteville producer. Stephen Richardson, senior analyst for Morgan Stanley & Co. Inc., launched coverage of Southwestern Energy Co. at press time and cites the stock for the Street’s underweighting of its continued Fayetteville shale upside. “Southwestern has lagged (the producer index) by 6% year to date on (gas-price) sentiment and concerns that the core asset, Fayetteville, has stopped improving. We believe these concerns are significantly overstated…Given intense investor focus on rate of change, we think Southwestern—and its superior asset—is being overlooked.” His target for the stock, which was approximately $44 at press time, is $60. “Our bull-case assumption of 40-acre spacing should be confirmed in 2010, at least across a portion of Fayetteville, as Southwestern is testing tighter spacing.”

Haynesville player. KeyBanc’s Aydin also likes Comstock Resources Inc. (NYSE: CRK) and thinks its stock, which was approximately $37 at press time, is worth $55 a share. “…Management now estimates that the 2010 Haynesville drilling program has the potential to add between 400 and 500 Bcfe to proved reserves, which could be conservative.” Average initial production rates from nine new Haynesville wells was 14.8 million cubic feet per day, with most completed with 10 to 12 frac stages. “Our guess is, as the company begins to complete wells with greater frac stages, it should have higher IPs.”

Diversified producer. KeyBanc’s Mitch Wurschmidt says South Texas, Cana-Woodford shale and Permian producer Cimarex Energy Co. (NYSE: XEC) is worth $68 a share, compared with the $57 it was trading at at press time. Two South Texas discoveries have IP’ed at 42 million cubic feet equivalent per day. In the Cana-Woodford play in Oklahoma, 58 Cimarex wells may make more than 6.5 Bcfe. In the Permian, two 100%-working-interest Abo formation wells made between 310 and 490 barrels of oil per day. Other recent Permian wells made between 325 and 560 barrels per day. “These are impressive wells, and (the numbers) are all 30-day-average, gross rates.”

Bakken producer. Chris Pikul, senior E&P analyst for Morgan Keegan & Co., says Bakken player Whiting Petroleum Corp., whose quarterly results were not announced yet at press time, “will exceed our estimates on a number of fronts.” He thinks the stock could hit between $90 and $110 this year. “We are hoping Whiting’s year-end 2009 results…will pleasantly surprise investors.”

He adds that producers’ announcements of 2009 results should “provide investors with several positive catalysts to offset the early weakness we are seeing in E&P names in 2010.”

Stock up.

The NAPE Video Files: Interviews With More Than 30 Industry Leaders

ndarbonne — Thu, 18 Feb 2010 19:07:09 +0000

Oil and Gas Investor and E&P editors interviewed more than 30 industry leaders at NAPE 2010 this week. Stay tuned to OilandGasInvestor.com in the coming weeks for videos of these interviews with:

–Charlie Chambers, CEO, Chambers Oil & Gas: Bill Weidner, Managing Director, The Rodman Energy Group: Greg Pipkin, Managing Director, Energy Group, Barclays Capital: Dan Steele, SVP and Manager, Energy Lending Group, Bank of Texas: Aliza Dutt, VP, Senior Equity Analyst, IHS Herold: Scott Noble, Founder & President, Noble Royalties Inc.: Steve Kennedy, SVP and Energy-Group Manager, Amegy Bank: Bryan Chapman, EVP, Energy Lending Manager, Iberia Bank: Adrian Goodisman, Managing Director and Co-Head, U.S., Scotia Waterous: Mike Lakin, Founder, Envoi Ltd.: Ward Polzin, Managing Director, A&D, Tudor, Pickering, Holt & Co. Securities Inc.: Andy Clifford, President, Saratoga Resources Inc.: Kamil Tazi, Vice President, Engineering & Planning, Cordillera Energy Partners: Kurt Abraham, Texas Alliance of Energy Producers:

–Phil Martin, CEO & Founder, New Century Exploration Inc.: Phil Martin, chief executive officer and founder of onshore U.S.-focused New Century Exploration Inc., describes public vs. private E&P companies’ access to shale-gas plays, New Century’s plans to grow its shale-gas portfolio and how he has formed a retail electric provider, True Energy, that serves as a hedge against natural gas prices.

Jim Parkman: Red Flags To Note When Investing Into The Next E&P Up-Cycle

ndarbonne — Sun, 07 Feb 2010 17:31:16 +0000

For next-cycle reference, a few words and conditions should be alarming to oil and gas producers and investors, says Jim Parkman, co-founder of energy investment-banking firm Parkman Whaling LLC. Set the alarm for words like “contained” and “peak oil,” and watch-out for “the super-abundance of capital.” Add “insatiable” in there too, as in “insatiable demand.”

“When you hear the use of the word ‘contained’ by thought leaders and politicians that something is contained to one sector, that is a red flag,” Parkman says in the videocast at 10 a.m. CST, Thursday, Feb. 25, “Jim Parkman’s Observations On The Recent Reorg Cycle, And Forward Markets.” The videocast of his remarks will be accompanied by a live Q&A with webinar attendees.

Parkman Whaling has worked, since oil and gas prices peaked in the summer of 2008 on the restructuring/reorgs of Energy Partners Ltd., Edge Petroleum Corp., Foothills Resources, Beryl Oil and Gas, Bigler, Storm Cat Energy Corp. and four other energy companies, representing debtors in seven, creditors in two and investors in one. Among the 10 recent bankruptcy/reorg assignments, eight involved Chapter 11 cases and two were out-of-court resolutions. Two resulted in asset sales, three were closed with debt-for-equity transactions, two resulted in reorganization and merger, and three remain under way.

The hyper-inflated mortgage market of early 2008 was supposed to be contained to that sector, he notes; it was not.

As for peak oil, talk of this in 2005-08, combined with an incredibly weak U.S. dollar and a terrorism premium, helped to drive oil prices to nearly $150 in July 2008. “’Contained’ and ‘peak oil’ are two good signs that we’re heading to another meltdown,” Parkman says.

And, then there is the super-abundance of capital that was targeting oil and gas production in early 2008. Parkman presented in an energy-capital program in June 2008 in which he cited more than $10 billion in private-equity capital ready to invest in start-up E&P companies.

“I should have known it then,” he says of the red flag. “That was enough capital to form, comfortably, 100 new start-ups.”

In the past up-cycle, “there were, literally, companies formed with no money down.” Investors are trying to recover that investment now. “I know at least one of them,” he says.

The up-cycle begins with burned-investor contempt that becomes optimism and full commitment. Those who stick through the new up-cycle into the next down-cycle end up with contempt. In working on reorgs and recaps, often, “the client company may be in stage of depression while investors are in a stage of contempt.”

Tricky business.

Helping prevent fire sales in this past E&P down-cycle has been a perpetrator itself: the credit crunch. Potential fire-sale buyers have had limited access to capital themselves, he notes.

Parkman discusses the Chapter 11 reorganizations and stalking-horse strategies of three, recent, high-profile bankruptcies, with some surprising results: Crusader Energy, Edge Petroleum Corp. and TXCO Resources.

In the end, cash flow foretells the story. Parkman describes this leading indicator of going-forward unworthiness in the webinar “Jim Parkman’s Observations On The Recent Reorg Cycle, And Forward Markets” at 10 a.m. CST, Thursday, Feb. 25, that includes Parkman’s slides and a live Q&A.

Squeezing Oil Out Of Barnett Shale—EOG Resources Optimistic About Potential

ndarbonne — Wed, 20 Jan 2010 18:46:11 +0000

EOG Resources Inc. remains optimistic for its potential for economic oil from the northern Barnett shale, while other E&P companies, some industry members and analysts remain skeptical. EOG has worked the Barnett oil window mostly alone, a fact that Ben Dell, senior E&P analyst for Bernstein Research, says makes it “extremely difficult to corroborate costs and volume expectations.”

The company holds 194,000 net acres in Cooke and Montague counties in northeastern Texas, including the 25,000 net it added just this past year for $134 million in cash and stock.

In November, the company reported its Christian A #1H had initial production of 1,000 barrels of oil per day and its Christian B #1H made 600 per day, both in Cooke County and horizontal. Its vertical Fitzgerald #1 had an IP of 1,100 barrels a day and its vertical Stephenson #1 made 450.

Earlier in 2009, its horizontal Bowen A#1H, Bowen A#2H and Bowen B#1H went into sales at between 150 and 400 barrels per day. Seibold Unit #3H was completed at 500 per day and Seibold Unit #4H was completed at 550. Its Tunnicliff B#1H and Tunnicliff B#2H went into sales at 400 barrels per day each.

Initial gas production from each of the 11 wells ranged from 1.2 million cubic feet per day to 3 million.

EOG had four rigs working its “Barnett Combo” play in 2009 and expected to increase that to seven rigs by year-end. While its fourth-quarter report is due February 10, it estimated in November that its results from eastern Montague and western Cooke counties suggest reserves of more than 280,000 barrels of oil equivalent per well, up 80% from 2008 expectations.

“There is more experimenting to be done,” says Ramona Hovey, senior vice president, product management, for DrillingInfo, in a recent OilandGasInvestor.com webinar. “We are looking at pretty steep declines in the oil window, so the maximum production rate may not be the best indicator of estimated ultimate recovery. We feel there is still potential there, but more work is needed.”

Using examples of three 2008 EOG Barnett Combo wells in Palo Pinto County and one in Montague County in fourth-quarter 2007, initial decline is about 90% on oil production and about 60% on gas production, she says.

Dell says the Barnett Combo play is controversial. “The debate about producing oil from unconventional reservoirs is simple. Proponents such as EOG argue that properly used fracturing technology and proppants will create large enough temporary porosity that the larger oil molecules can flow through them for a sustained period of time. On the other hand, skeptics argue this is not the case and that only in limited reservoir situations will fracs remain open long enough to allow economic flow rates.”

Investors may want to apply the North Dakota Bakken play’s results to Barnett oil potential, but Dell notes that the Bakken is the only North American unconventional-oil play that is economic so far and that the Bakken is not really a shale; instead, “it is a carbonate sandwiched between two shales.” In the Barnett Combo, “EOG is trying to produce oil directly from a shale, a technique that to date hasn’t been employed to produce commercial volumes.”

Of EOG’s 32 Barnett Combo wells, five are useful for examining unconstrained decline curve, he adds. “Given this, it is extremely challenging to confirm or deny company guidance. If indeed the five wells are repeatable, then the guidance of initial production rates of 200 to 500 barrels per day is not unreasonable.”

He adds that EOG recently began to call the play a “combo,” suggesting “an increasing share of the economic value being derived from gas and gas liquids, rather than just oil.”

EOG has a conservative record of providing guidance, playing its potential close to the vest and is well known for “under-hype.” That EOG is including the Barnett Combo at all in its guidance suggests the company is only giving fair notice.

For more details on the Barnett oil play, see the webinar “The Barnett Bottom Line: Leasing, Gas-Well Results, Oil-Well Results.” For details on more North American oil-prone shales, see senior exploration editor Peggy Williams’ January cover story, “Oil-Prone Shales.”

–Nissa Darbonne (ndarbonne@hartenergy.com), E-Editor, Oil and Gas Investor, A&D Watch, Oil and Gas Investor This Week, OilandGasInvestor.com Today, OilandGasInvestor.com, A-Dcenter.com, UGcenter.com.

John Olson Talks About The Midstream—And Other ‘Smart Money’

ndarbonne — Thu, 17 Dec 2009 02:17:14 +0000

Billions of dollars are flowing into midstream infrastructure—by producers, pipeline operators and storage companies. Is new capacity being overbuilt? Will some existing capacity become obsolete?

“There are some companies out there that are professing they may never drill another vertical well again,” says John Olson, managing partner of energy hedge fund Houston Energy Partners and the analyst who first called Enron Corp. on its business model and profitability, in the webinar The Energy-Industry Economy Today, and Where the Smart Money’s Going.

“If you look at the rig count in the Gulf of Mexico,” he says, “it is a fraction of what it used to be and some of the supporting gathering lines have already run out of steam here, or will sooner or later. It has happened offshore Texas, for instance.”

The traditionally predictable midstream space is surprising lately, and investors are courting her like a girlfriend these days, instead of like a wife. “A substantial overflow of private-equity money is now out there looking for gathering deals,” he adds. “This comes atop of all the normal MLP (master limited partnership) spending there, and could make this arena more crowded and more expensive.”

So, there is a definite risk, “depending on where you are in the country,” Olson says. “The shale is clearly going to become a very important contributor to the marketplace. The problem is somewhat aggravated by virtue of the new pipelines that have come into being in the past year, such as the Rockies Express (Rex), which has changed the basis differential from the Rockies rather substantially and also changed the basis once you get to Appalachian markets and the storage in Pennsylvania, New York state and Ohio.

“I can’t give you a final answer but the situation is somewhat still in flux and may create disincentives to drill a deep gas well in the Gulf of Mexico or some other place.”

Olson lists energy-sector investment strategies for value investors:

– Dollar/crude arbitrage. Crude oil has become a proxy for U.S. dollars, with oil prices fluctuating this year largely in step with the value of the dollar. “For value investors like me, we’re still playing very strongly this dollar/crude arbitrage.” E&P stocks that fit well with that strategy include Apache Corp., Occidental Petroleum Corp. and Petrobras. “(These) look like very strong candidates as long as this dollar/crude play continues and all of these companies have attractive exploration and exploitation agendas.”

– NGL relative attractions. The natural gas liquids space is a niche play currently. “A year ago at this time, the frac spreads on NGLs on the Gulf Coast were running a negative, unbelievably. Usually, long term, it’s about $6 a barrel. Today, those NGL frac spreads, or gross margins, are $30 a barrel. So there are companies that are able to exploit that very nicely.” These include Spectra Energy Corp., which owns 50% of DCP Midstream Partners with ConocoPhillips and is the largest NGL producer in the U.S. “Those margins are going to come back rather nicely and you’ll get yourself more than a 5% yield on that.” Another major NGL player he cites is Oneok Partners LP that has done well in the past.

– Niche oil-service sectors. Subsea completions is notable among subsectors of oilfield services that are going to be attractive. High-end companies in this space include Cameron International Corp., Dril-Quip Inc., FMC Technologies Inc. and Oceaneering International Inc.

– Well-hedged producers and integrated gas companies. “It is a rare company I’ll go even close to that doesn’t have good hedges on,” he says. Both well-hedged and integrated in gas are EQT Corp. and Energen Corp., and each has a track record of low acquisition costs and low all-in costs.

Among speculators, Olson says, popular strategies include the traditional ideas—take-over stories, discovery plays and momentum ideas. There will be a growing number of take-over stories in the market, he forecasts. As for bets on discoveries, some have not worked out , such as the pervasiveness of the Utah Hingeline play or the potential of the Columbia River Basin play, in which investors in Delta Petroleum Corp. had great hopes for both.

And, there will continue to be momentum ideas “run by your prop shops that are not your friends. They are going to continue to trade stocks, options…and all of the above.”

For all of Olson’s remarks, see the webinar The Energy-Industry Economy Today, and Where the Smart Money’s Going, including remarks and a presentation by Stephens Inc. managing director, energy investment banking, Keith Behrens.

The Marcellus Transcripts—Q&As With 5 Of The Play’s Leading Chiefs

ndarbonne — Fri, 13 Nov 2009 22:51:11 +0000

While nearly 1,400 E&P, oilfield-service and financial leaders were hearing executives’ Marcellus reports at Oil and Gas Investor and E&P’s Developing Unconventional Gas—East conference in Pittsburgh recently, many attendees followed presenters to post-presentation Q&A sessions to drill for more intelligence on the surface and subsurface details of the play. Here are some of their remarks.

Question: While gas prices are so low right now, why does everyone continue to drill as hard as they can, particularly in the Marcellus?

Jeff Ventura, president and chief operating officer, Range Resources Corp.: All companies are going to high-grade and direct cash flow into the strongest projects they have. We’ve compared the Marcellus against the Haynesville, Fayetteville, Barnett. The Marcellus’ economics are the most robust.

Q: What about spacing and the potential to double the number of wells?

Ventura: If you look at other gas fields, with time spacing tends to get tighter and recoveries tend to go up, and I think you have the potential for that in the Marcellus.

Q: What gas price do you need in the Marcellus?

Murry Gerber, chairman and chief executive officer, EQT Corp.: Our wells are in the $3-million range, and the reserves are in the 3.5-Bcf (billion-cubic-foot) per-well range. We break even at $2.50 natural gas, Nymex. We make another 10% after-tax return. So, somewhere between $3.50 and $4.

Q: What is the Appalachian market for propane and ethane?

Gerber: The Appalachian region is a net importer of propane. I was surprised by that, but it is a net importer. So, that’s relatively easy to dispose of. If you’ve got a good use for ethane, we’d like to find that out. We need to think of ethane as a benefit, not as a problem. This is the most amazing thing that’s happened to us here. I’m not sure we know it.

Q: You tested verticals at first.

Mike Walen, senior vice president and COO, Cabot Oil & Gas Corp.: We drilled our first vertical well in the Marcellus in 2006, the Teal #1. The original completion on the vertical well was 7 million cubic feet a day.

Q: On a vertical well?

Walen: On a vertical well, yes. That was our test, and that was a 24-hour test. It caught our attention; we kept it quiet. We went in and drilled an offset. It tested very, very similarly. We picked up more leases. The geochemistry of these rocks was vastly superior to what we were expecting.

Q: How does the lack of forced pooling in Pennsylvania affect drilling?

Rich Weber, president and COO, Atlas Energy Resources LLC: Pooling will negate the need to drill vertical wells along irregular lease lines and will be very good for development—for the producers and the land-holders. If we don’t have some sort of unitization law in Pennsylvania, producers are going to have to drill vertical wells along irregular lease lines if they want to fully develop their acreage.

Q: What is your biggest challenge?

Weber: We produce about $300 million a year in free cash flow. We will be dedicating all of that to the Marcellus, but our position is so large it would take us over 35 years to develop it at that pace.

Q: What are the technology gaps in the Marcellus?

Aubrey McClendon, chairman and CEO, Chesapeake Energy Corp.: Remember, from northeastern to southwestern Pennsylvania, it’s basically the difference between the Haynesville and the Barnett. That’s an enormous piece of real estate, so there will be a lot of differences.

Q: How much potential does the Marcellus hold?

McClendon: We’re only getting 25% to 30% of the gas out of these (and other shale) rocks. We’re going to find ways to extract that additional 5%, 10%, 15%, 20%. It’s one of the reasons I wanted to own so much acreage in shale plays. I really think they are “forever” assets—you will be looking back 20, 30, 40, 50 years from now and see that the winners were people who recognized the value of these assets and how they would get better and better over time.

For full transcripts of each of these Q&A sessions, see the Marcellus Week series of webcasts of DUG—East presentations.