Denbury has set up the structure as a reverse exchange. They just need a buyer, and the sooner the better, says CFO Phil Rykhoek. “Sharpen your pencils and bring your checkbook.”

Denbury holds some 20,000 acres in Parker County currently producing 80.6 MMcfe/d. Proved reserves year-end 2007 were 369 Bcfe with another 170 probable. The company has been drilling 50 wells per year since 2006 and that is ongoing at present. The land is developed on 500-foot spacing, Rykhoek says, but downspacing is possible.

Rykhoek says a data room is going to open within a couple of weeks, but inquirers are welcome now. Contact Tracy Evans at 972-673-2028, or Brad Cox at 972-673-2129.

Steve Toon, Editor, A&D Watch; Contributing Editor, Oil and Gas Investor; www.OilandGasInvestor.com; stoon@hartenergy.com

The super majors dominated the Western Gulf of Mexico Lease Sale 207, accounting for more than half of all high bids, but the lower-tiered companies were focused and largely successful with their targeted prizes. “Interest in deepwater exploration continues to be robust,” says Calyon Securities (USA) Inc.’s Jeb Armstrong, “especially for the super majors, which accounted for half of all bidding.”

ExxonMobil took home the Gulf gold by a fraction with $127 million in total winning bids for 130 blocks, a third of the total, and Chevron took silver just a few hundred dollars behind for a selected 20 blocks. Per the analysts at Tudor, Pickering, Holt & Co. Securities Inc., Chevron brought its “flash money” as three bids alone totaled $105 million for three deepwater blocks.

Norway’s StatoilHydro took the bronze with a total of $87 million in high bids—and the gold for single individual bid at $61 million for a 100% working interest in deepwater block Alaminos Canyon 380. If StatoilHydro’s modus operandi holds, expect a nice farm-down forthcoming.

Privately held LLog Exploration steppped up with 11 out of 11 successful bids totaling $23 million, ranking fourth in total bids. Its bid of $8 million for High Island 169 was the eighth highest bid in the sale. All of LLog’s bids were on the shelf in the High Island area and one in West Cameron.

Anadarko Petroleum was one of the most active bidders, securing $20 million in wins mostly centered around NW Nansen with some in the southwestern corner of the Gulf, “which is likely to be prospective for the lower tertiary trend,” says Armstrong.

In their respective weight classes, domestic companies took home medals with Hess securing 22 out of 27 tries for $14 million; Devon bagging 20 of 26 for $6 million; Focus getting 14 of 18 for $4 million; Century going one for one at $3 million;El Paso going four for four with $1 million; Cobalt landing two out of two for $1 million; and Galvez Energy sweeping five for five for $1 million.

Overall, the sale netted $487 million in high bids, an average of $267 per acre, compared with $183 per acre a year ago per TPH, and well below the “eye-popping” $1,107 an acre from the most recent Central GOM lease sale in March. European firms were active, says Calyon, but bidding by Asian firms was limited.

.

Top 10 GOM Lease Sale 207 Winning Bidders

Company                                     Total high bids             Sum of high bids ($MM)
Exxon Mobil                                     130                                    $127.33

Chevron                                             20                                     $127.28

Statoil                                                    5                                    $87.35

LLOG Exploration                             11                                     $23.17

Shell GOM Inc                                     15                                   $20.20

Anadarko Petroleum                          19                                     $14.81

Hess Corp                                             22                                     $14.16

Eni                                                            5                                     $11.13

ConocoPhillips                                         2                                     $10.50

Devon Energy                                       20                                     $6.67

.

Steve Toon, Editor, A&D Watch; Contributing Editor, Oil and Gas Investor; www.OilandGasInvestor.com; stoon@hartenergy.com

Texas District 17 should be on the hot sheet of every U.S. oil and gas producer affected by federal energy legislation. With heated debate in Washington on windfall profits taxes, capital gains taxes and opening up drilling in presently off-limits U.S. areas such as the Outer Continental Shelf and the Arctic National Wildlife Refuge, every seat in the Congress counts when determining the future of energy.

Every E&P in the nation should know Rob Curnock’s name.

Texas District 17 is notable in that it encompasses Johnson and Hood counties of the Barnett shale to the north, Robertson, Madison and Limestone counties of Deep Bossier fame to the south, and the population center of Crawford in the middle, the home of the current president’s ranch and where he will retire when the new Congress takes over.

Unfortunately, Democratic presidential candidate Barack Obama has come out gunning against the oil and gas industry in his campaign, portraying the industry as the bad guy causing rising energy prices and parlaying voter sympathy with proposals to stick it to ‘em. It’s hard to be nonpartisan when you’re under attack.

As Obama’s Texas spokesman, Edwards too hitches his horse to Obama’s detrimental policies. His voting record parallels the Democratic hard line of no new reserves in legislatively off-limits areas.

Congressional leaders Nancy Pelosi and Harry Reid have already shot across the bow with failed legislation for a windfall profits tax and held their ground on a Republican push-back to open up offshore reserves. Combine Obama with a Democratic Congress and the oil and gas industry should prepare to hunker down and weather the hurricane. Combine sometimes-Republican presidential candidate John McCain with a Democratic Congress and the oil and gas industry should button up for a tropical storm.

Either way, the oil and gas industry suffers under a Democratically-controlled Congress. Texas District 17 hangs in the balance with a two-vote swing in the U.S. House.

Although represented by Edwards since 1990, ushered into office when Texas still voted predominately Democrat, Texas District 17 polls at 64% Republican. Imagine the opportunity. He has been largely unchallenged by any significant candidates during that time and certainly held the financial advantage.

Curnock is a well-known small businessman in the district’s population power base of Waco, the first candidate to come out of there in memory. He has high visibility in the area and is well connected. Importantly, Curnock is passionate about conservative issues and has worked in political roles for two decades, including as election judge and on Gov. Rick Perry’s small business task force. He owns royalties in oil and gas wells. He believes the hands of the energy industry should be untied so it can meet our nation’s energy needs.

With two-thirds of the population base already voting Republican on other tickets, the Texas District 17 House seat is ripe for taking. The effort requires money to campaign.

With three months to go to the vote, producers and service providers with operations in the district should open up their political earmarks without delay and fund Curnock’s campaign. Energy companies nationwide counting votes in the House of Representatives should look to Texas District 17 as a Republican vote in the next Congressional session and donate now to the energy friendly candidate.

Every House vote counts on U.S. energy policy. Every energy campaign dollar swings the momentum. Wake up. Texas House District 17 will affect U.S. energy producers one way—or the other.

Rob Curnock For Congress

Steve Toon, Editor, A&D Watch; Contributing Editor, Oil and Gas Investor; www.OilandGasInvestor.com; stoon@hartenergy.com

Encore CEO and president Jon Brumley states, “We have been studying strategic alternatives at Encore that would bring the most value to our shareholders. The board and management have decided that a sale or merger of the company is not currently in the best interest of our shareholders. The energy and credit markets became very indecisive during the second quarter. Due to timely acquisitions, a put-based hedging strategy and our financial flexibility, Encore Acquisition Co. has always excelled in times of market indecisiveness.”

And, “The plan is to divest of non-core properties, drop down properties into Encore Energy Partners, and purchase puts struck at $110 per barrel for calendar year 2009. We expect the divestment of the non-core properties and the drop down will pay off most or all of our bank debt, and the puts will ensure that we have good cash flow in 2009. The main advantages of this strategy will be to situate Encore for a larger drilling program in 2009 and to increase our acquisition capabilities for long-life properties in our core areas.”

So here’s what’s core: “We will be focusing on increasing our drilling program in our 240,000-acre Bakken /Sanish play from two rigs currently to six rigs by the middle of 2009, exploiting the high rate of return development wells in our West Texas JV, and drilling our growing Haynesville, Lower Cotton Valley and Bossier potential in North Louisiana and East Texas.”

By omission, what does that leave? How about Midcontinent assets in the Anadarko Basin in western Oklahoma and the Arkoma Basin in eastern Oklahoma and Arkansas? No mention of Big Horn Basin and Powder River assets in Montana and Wyoming. Or goods in the Paradox Basin in Utah.

Be quick, before they drop down.

Steve Toon, Editor, A&D Watch; Contributing Editor, Oil and Gas Investor; www.OilandGasInvestor.com; stoon@hartenergy.com

That unnamed person, of course, is Chesapeake Energy’s CEO Aubrey McClendon, who has confidently touted the big number in the hot new shale play, in which Chesapeake has the commanding lead.

Simpson continued to say “hype artists in the shale plays” are creating a tailspin in natural gas prices. “You have to be careful following some of these people. It’s dangerous. Our credibility is on the line with that kind of hype.”

McClendon took it personally. In his conference call Friday, he fired back:

“As to recently expressed doubts about our calculations for Haynesville gas in place, if you had studied the 100 existing Haynesville logs and taken Haynesville shale cores from your first four vertical Haynesville wells and had been able to evaluate them in your own proprietary shale laboratory, then maybe you would have been able to do the same math for gas in place and recoverable gas that we have.

“Our experience and analysis tells us that on average every square mile of core and Tier 1 Haynesville shale has an average of 180 billion cubic feet of gas in place. From that gas in place we are estimating that we will recover about 52 Bcf per square mile to the drilling of eight wells per square mile. This would result in per well average recoveries of about 29% of gas in place which is consistent with expected Barnett recoveries although Barnett drilling is 50% more dense than planned Haynesville drilling.

“With about 3 million acres in (core area identified by Chesapeake), that’s about 4,700 square miles. At 52 Bcf of recoverable gas per square mile, that equals about 245 Tcf of recoverable gas in the Haynesville, exactly consistent with what we have predicted from the beginning. So instead of this number being hype, it is an entirely reasonable number based on thorough scientific examination reinforced by actual drilling results to date. Those who have followed Cheseapeake know how conservatively we have historically been in estimating the initial potiential of the Barnett, Fayetteville, Woodford and Marcellus shale plays. Our approach with the Haynesville has not changed.”

McClendon highlighted one of its last two out of 11 wells drilled in the play as producing 14 million cubic feet per day after one week of production, completed with eight stages on a 24/64th choke. He said out of 2,000 wells Chesapeake has drilled into shales, “this is the best shale well we have ever drilled. We know of no other well in any other shale play that has averaged more than 9 million cubic feet per day over the first several weeks.”

Negative comments about the Haynesville last week “had some people express concerns to us,” he said. “When you consider who all is involved in that play and the well results to date, its not very smart to start dogging that play because the well results to date are so exceptional and are only going to get better over time.”

So there. That’s some good smack coming from some heavy hitters. Maybe Simpson will keep it fun and announce another billion dollar deal to add to its YTD total of some $10+ billion—maybe this time in the Haynesville.

The report notes six emerging Rockies plays that are particularly worth watching: Gothic, Cody, Cane Creek, Baxter, Pierre and Lewis.

These plays are at depths of 3,000 to 16,000 feet with multiple pay zones and initial production rates as high as 12 MMcf/d so far. The Cane Creek and Pierre shales may hold multiple Tcfs of reserves. The Baxter, Gothic and Cody are still in the testing phase with lots of unknowns. The Manco is currently in production and commingled with other formations and just now being tested as standalone.

Here is what the analysts say about each:

Cane Creek: “While perhaps the most unknown of the six, the Cane Creek Shale stands out as the highest-performing play based on recent well results. The formation consists of stacked shales, interbedded with sandstones and carbonates. The total organic content of Cane Creek can be up to 28%. The formation is estimated to have resources of several Tcf. Delta Petroleum, the play’s only known operator, has drilled several producing vertical wells, and is in the process of drilling horizontal completions which should improve recoveries. We expect DPTR to comment on its latest drilling results near term.”

Gothic & Cody: “Bill Barrett is the main operator in the Gothic and Cody shales. In the Paradox Basin Gothic Shale, the company is partnered with Williams and is currently shooting 3-D seismic to identify horizontal test well locations. Another potential pay zone that lies above the Gothic Shale is the Hovenweep Shale, where BBG plans to drill a vertical test this year. In the Cody Shale, Bill Barrett and partner Devon are assessing test well results and 3-D seismic. Should the company develop the Cody Shale, it will be required to build infrastructure in the Montana Thrust Belt.”

Pierre: “The Pierre Shale is operated by Pioneer Natural Resources, the top producer in the Raton Basin and the only company to release results from the shale to date. XTO and El Paso hold acreage adjacent to Pioneer and are assumed to be testing the shale. So far, Pioneer has drilled 10 vertical wells targeting one zone. Although this shale is still being tested, Pioneer estimates it has up to 21 tcf of gas in place. Significant upside may be realized following the drilling of horizontal wells which will test the four remaining zones inthe Pierre Shale. Pioneer sees 1,200 drilling locations based on 80-acre spacing.”

Baxter: “The Baxter Shale is an overpressured reservoir in the Vermillion Basin, which is located within the Greater Green River Basin. It has one of the largest gas in place resources of any US shale, estimated to be 440 bcf/sq. mile. However, Questar, Kodiak and its partner Devon have not been able to fully exploit the shale due to the high well cost and low IPs. We expect further drilling tests from Kodiak and Devon in the Baxter over the next 12-18 months.”

Lewis: “The Lewis Shale, a sandy siltstone with four pay intervals, is commingled with the deeper Mesaverde and Dakota formations in the San Juan Basin and the shallower Almond formation in the Greater Green River Basin. Operators typically complete the Lewis as a secondary zone. In the San Juan Basin, the main players are ConocoPhillips, BP, Chevron and XTO. Within the Greater Green River Basin, Continental Resources, BP and Anadarko are assumed to be testing the Lewis Shale, due to their large positions in Wamsutter.”

Steve Toon, Editor, A&D Watch; Contributing Editor, Oil and Gas Investor; www.OilandGasInvestor.com; stoon@hartenergy.com

“For this reason, we believe M&A and/or ongoing joint venture announcements will be prevalent, as larger, better-funded entrants seek to consolidate positions within the play, or to initiate footholds outright.”

Using Chesapeake Energy as an example, the analysts forecast the company will require more than 5,000 wells to fully develop its current 440,000-net-acre position on 80-acre spacing. With a 60-rig all-out program, it will take some $35 billion and 15 years to drill out this position—before considering additional outlays for leasehold or infrastructure.

Says Nome, “Given the steep financial requirements, but also the massive reserves potential and production ramifications, we believe a play of this scale is sufficiently large to attract the attention of a major integrated company, and would therefore not be surprised to see future joint venture and/or M&A announcements along those lines.”

Like Shell did in the Montney, announcing last week they intend to buy Duvernay in one big cash chunk. Or BP taking a big Woodford position from Chesapeake days later for $1.75 billion—the “high end” of expectations, according to the DB analysts. Are the majors on the move? Are they coming to Haynesville?

They surmise Shell and ExxonMobil at least have “starter” stakes in the Haynesville, to which I can confirm at least for Shell for some family acreage in the southern part of the play they leased for $125/acre two years back. I doubt if they knew about Haynesville then, so just count them lucky.

Nome and Johnston conclude, “While these sophisticated, yet large and less-nimble entities clearly have the financial and technical resources to be a dominant force in domestic shale plays, to date it has been the independents leading the way. However, as more datapoints unfold with respect to the Haynesville in particular, the true financial requirements begin to beg questions as to whether this will finally be the catalyst to get the majors interested in scaling back up investment in the U.S. after decades of downscaling.”

While I agree the majors may be waiting and watching for a chance to step in with a big foot, I wouldn’t count on Chesapeake being the bait. More likely it would rather be the Big Fish in the Haynesville food chain, as it is selling and pawning everything in sight to get cash to buy more and drill more (read more in Editor’s Commentary in this month’s A&DW Watch). Chesapeake started the consolidation by JV’ing with Goodrich Resources then—bam—with Plains Exploration. Petrohawk, too, is in the consolidation game with a JV with Mainland Resources.

I predict five players in the Haynesville: Chesapeake/Plains, EnCana, Petrohawk, Devon from behind, and Forest as a darkhorse (I just think they have the hudspah to do it). Everybody else will be dealing. But will Shell grab up the loose pieces?

Steve Toon, Editor, A&D Watch; Contributing Editor, Oil and Gas Investor; www.OilandGasInvestor.com; stoon@hartenergy.com

The two companies are getting married with a lot of debt baggage—about $1.6 billion pro forma—and could use some payola for paydown.

OK City-based Chaparral CEO Mark Fischer says the company might consider divesting assets along the Louisiana Gulf Coast and in the Rockies. Arkansas shale gas properties were not for sale, he emphasized, although they have been considered for divestiture previously.

Edge Gulf Coast assets include 2,011 gross (575 net) acres in southern Louisiana in Acadia, Calcasieu, Lafayette, St. Landry and Vermilion parishes; 25,706 gross (13,563 net) acres in the Mississippi Interior Salt Basin and 44,732 gross (38,340 net) undeveloped acres in the Floyd shale play, although no reference was made to the MS/AL properties specifically.

Additionally, Chaparral holds some 51.5 MMcfe proved reserves in the Texas and Louisiana Gulf Coast with total production of 10.4 MMcfe. Its Rockies assets consist of some 44,000 gross developed acres (15,000 net) and 20,000 gross undeveloped acres (9,800 net). Total proved reserves are 22.3 MMcfe with average daily production of 2.6 MM.

No word as to what properties are specifically offered up, but feel free to ask. Fischer said they wanted to mesh the two portfolios and see what fit before deciding, suggesting South Texas properties from the two companies would likely come together as keepers and result in a Corpus Christi office. “We want to be sure we get our hands around everything before making a decision,” he said.

Not to mention the present 32% of Chaparral shares owned by Chesapeake Energy, bought for $277 million in 2006 at a time when the private needed a cash infusion. If you’re looking to buy into an equity position, CHK is hungry for cash to dig into its Haynesville and the time to sell Chaparral seems ripe.

Yeehaw. Round up them thar loose assets.

Steve Toon, Editor, A&D Watch; Contributing Editor, Oil and Gas Investor; www.OilandGasInvestor.com; stoon@hartenergy.com

A&D Watch’s half-day tutorial, A&D - The Workshop on Sept. 3, is the must-attend event for every Business Development team. The workshop is a great primer by some of the industry’s crackerjack acquisition experts for those breaking into business development and those wanting to update their BD best practices.

A&D - The Workshop, sponsored by The Oil & Gas Asset Clearinghouse, is an overview of the upstream Business Development space for newcomer and veteran professionals on BD teams and firms that provide services to E&P A&D. Attendees will hear the Business Development 101 basics on current upstream M&A trends, reserve analysis, negotiating skills, networking, screening acquisition prospects, financing, due diligence, and tricks and traps.

Hear from the experts at A&D – The Workshop. Keep yourself and your BD team in the know and ahead of the competition! Learn more about the Sept. 3 A&D - The Workshop. Click here to register.

Following the workshop and now recognized as “the BEST A&D event in the Industry,” is Oil and Gas Investor’s 7^thA&D Strategies and Opportunities on Sept. 4. The all-day conference features industry players in the trenches offering up-to-the-minute updates and market trends and nuances that affect your dealmaking.

Last year’s event drew nearly 600 of your peers and asset competitors, and seating is limited. Don’t miss hearing about current asset market metrics, buying in shale plays, best practices and pre-emptive opportunities. Learn more about the Sept. 4 A&D Strategies and Opportunities Conference. Click here to register.

Both events will be held at the Fairmont Hotel in Dallas.

Be there. And look me up. I look forward to networking with the industry’s top players. So will you.

The deal involves a 20% working interest in 550,000 Haynesville prospective acres both in northern Louisiana and East Texas for $1.65 billion. Beyond that Plains will fund half of all of Chesapeake’s costs on its remaining 80% share up to another $1.65 billion. In addition, Plains has first dibs on 20% of any more acreage Chesapeake gets in the play.

Chesapeake went to the alter and got married at the hip on its Haynesville operations in exchange for Plains’ up-front endowment payment.

Chesapeake’s CEO Aubrey McClendon suggests the deal values the total 550,000-acreage position at $16.5 billion, leaving Chesapeake with about a $13.2 billion piece.

The late-day breaking news kept the analysts up most of the night working out the details and implications. Calyon Securities’ Jeb Armstrong estimates the transaction equates to a per-unit basis to $30,000 per acre and $1.39-$2.67 per Mcfe of net unrisked reserves, which the companies postulated to be some 23-44 Tcfe.

Armstrong says the deal provides Chesapeake with a quick cash infusion. “While it still had ample liquidity available in its credit facility, the company may have been anticipating that by the end of Q2 it would have been able to raise $1 billion through the formation of an MLP and an additional $1.5 billion through the sale of its 85,000 net acres in the Woodford shale. The Woodford sale may still be in the works. However, spinning off an MLP right now would be extremely difficult. Since it had just tapped capital markets for almost $3 billion in equity and debt, selling a working interest in the Haynesville may have been the least worst way to get cash.”

At J.P. Morgan Research, Joe Allman calculates that Plains is paying $27,000 per acre, inclusive of the incremental $1.65 billion “promote” for drilling costs. Like Armstrong, he says the deal solves a short-term cash crunch for the big gas guys.

“Chesapeake’s aggressive buying of acreage in the Haynesville shale play and other spending apparently led CHK to a short-term cash crunch. Though CHK had to sell down an interest in its premium Haynesville asset, this JV transaction brings in $1.65B of cash, which satisfies CHK’s immediate cash needs. Assuming an additional $1B in cash from its planned midstream partnership, CHK should not need to seek capital from outside sources to fund its current development budget. We view this transaction as a significant financial improvement for CHK.”

Analysts at Tudor, Pickering, Holt & Co. Securities call the transaction a “transcendent moment” for the Haynesville play and pinpoint that Plains is paying some $30,000 per acre for “some of the play’s best acreage.” They suggest Plains paid full value on current metrics.

“Using the NPV of the $1.65B in drilling costs (assumed to be fully funded within 4 years) coupled with the upfront cash, PXP is effectively paying $3.03B for 110K net acres ($27.5K/acre). Under our Haynesville assumptions (50% acreage productive; 80-acre spacing; 6 Bcfe wells; $8/Mcf LT gas; $7MM well costs), PXP is paying NPV10 and is therefore betting on higher acreage productivity or gas prices. While we are not ready to change our underlying Haynesville assumptions, we must acknowledge PXP’s management team has an envious track record of buying/selling well.”

As the TPH gang succinctly puts it: “Giddy up!”

Steve Toon, Editor, A&D Watch; Contributing Editor, Oil and Gas Investor; www.OilandGasInvestor.com; stoon@hartenergy.com