Académique Documents
Professionnel Documents
Culture Documents
MARCH 2015
MACQUARIE SEES
OPPORTUNITIES
IN DOWN MARKET
SPECIAL REPORT:
ENERGY BANKING
E&P IMPAIRMENTS
BAKKEN BOOM BUSTED?
RESERVE-BASED LENDING
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1503ogfj_C2 2
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CONTENTS
V12/N O . 3 | MARCH 2015
FEATURES
16
24
COVER STORY
MACQUARIE BANK
Headquartered in Sydney, Macquarie is
Australias largest investment bank. OGFJ
recently spoke with senior officials Nick
OKane, Head of Energy Markets; Paul Beck,
Head of Upstream Capital; Nick Butcher,
Head of Americas Infrastructure and US
Energy; and Nicholas Gole, Head of Energy
and Infrastructure Financing. The four
executives came together in Houston to talk
with OGFJ about Macquarie and its place in
the energy sector.
28
14
24
E&P IMPAIRMENTS
28
50
ON THE COVER
From left: Nick
OKane, Paul
Beck, Nick
Butcher, and
Nicholas Gole.
Photo by
Sylvester Garza
32
50
53
DEPARTMENTS
06 EDITORS COMMENT
08 CAPITAL PERSPECTIVES
10 UPSTREAM NEWS
12 MIDSTREAM NEWS
56 DEAL MONITOR
58 INDUSTRY BRIEFS
60 ENERGY PLAYERS
64 BEYOND THE WELL
35
64
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EDITORS COMMENT
about the history of oil prices and the extreme volatility that has characterized
global oil prices since the 1970s. We went
from a flat-line graph from 1946 to 1973,
and from then to the present day, prices
have tended to ascend and descend rapidly, based mainly on simple supply-and-demand economics.
DON STOWERS
Oil prices and forecasts about future
EDITOR OGFJ
pricing are the focus of nine out of ten conferences and meetings Ive attended the past six months, or at the
least theyre the elephant in the room. Therefore, lets delve into
that issue a little more this month.
Conventional wisdom about the oil price downturn is that what
went down quickly will recover just as fast. The most common scenario I hear these days is that prices will remain somewhat stagnant until mid-year when they will start to recover, and that oil
prices will be in the $65 to $70 range by year-end. However, I seldom hear a convincing explanation as to why that is going to happen. As this is being written, the WTI price has dipped below $50
again, and Brent has dropped below $60.
Rusty Braziel, head of RBN Energy and a member of OGFJs Editorial Advisory Board, recently delivered a compelling analysis on
US natural gas and oil production during a Genscape webinar in
February. He predicts that we could see WTI prices return to the
$80 per barrel range by 2017, assuming the market responds correctly to energy demands. On the other hand, if resilient production
by US operators keeps volumes growing while demand does not
respond, we could see WTI prices trading in the $50 to $60 range or
lower through 2020.
The latter scenario would not be good for the oil industry in
North America shale producers, in particular. Although oil economics vary considerably from play to play and even within plays,
the widely accepted break-even price on a macro scale is about
$65/bbl. If prices remain below $65 for the next five years, there will
be a shake-out in the industry like weve never seen before.
Braziel says that if producers pull back on drilling and focus
their existing rigs on their highest yield sweet spots, we will see
enough resiliency and efficiency to avoid harsh impacts on production growth.
Ole Hansen, head of commodity strategy at Saxo Bank, recently
noted that there are some positive drivers that may help oil prices
recover this year. Among them:
a sharp reduction in the US rig count to a three-year low;
major oil companies reducing future investment plans;
a US refinery strike that has (temporarily, at least) given products a lift;
shorts covering after short positions have doubled in the past
month;
a weaker US dollar;
reduced supplies from Libya as fighting there intensifies; and
6
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CAPITAL PERSPECTIVES
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CAPITAL PERSPECTIVES
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UPSTREAM NEWS
BRIEFS
IRAQ SECONDLEADING
CONTRIBUTOR TO
GLOBAL OIL SUPPLY
GROWTH IN 2014
Despite some supply
disruptions and security threats, Iraq was the
second-leading contributor to global oil supply
growth in 2014, behind
only the United States.
Iraq accounted for almost 60% of production
growth among the Organization of the Petroleum
Exporting Countries
(OPEC), although this
growth was more than
offset by production
declines in other OPEC
countries. Iraqs crude oil
production, which averaged almost 3.4 million
barrels per day (bbl/d)
in 2014, was 330,000
bbl/d above 2013 levels,
despite the heightened
security threat from the
Islamic State of Iraq and
the Levant (ISIL) and
disrupted production in
northern Iraq.EIA
10
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to Raoul LeBlanc, IHS energy senior director, financial markets and report co-author.
So much can happen over the course of a
year, LeBlanc said. If oil prices remain weak and
confidence in future prices remains shaken, US
production in 2016 could possibly flatten or even
decline. But there is plenty that could happena
recovery in oil prices, lower upstream costs and
improved well productivitythat would quickly
change the calculus of drilling new wells and
reinvigorate US production growth.
WILLIAMS AND DPM ACHIEVE FIRST GAS
FROM ULTRA-DEEPWATER GOM
Williams, through its general partner ownership
of Williams Partners, with DCP Midstream Partners
LP, has achieved first gas from an ultra-deepwater
area of the Gulf of Mexico, as the new extended
Discovery natural gas gathering pipeline system
is now flowing natural gas. The Keathley Canyon
Connector deepwater gas gathering pipeline
system and the South Timbalier Block 283 junction platform are serving producers in the central
ultra-deepwater Gulf of Mexico.
The 20-inch, 209-mile Keathley Canyon Connector, which is capable of gathering more than
400 million cubic feet per day (MMcf/d) of natural
gas, originates in the southeast portion of the
Keathley Canyon protraction area and terminates
into Discoverys 30-inch-diameter mainline at
Discoverys new junction platform. The pipeline
was constructed in depths of up to 7,200 feet of
water. Williams owns the controlling interest in,
and is the general partner of, Williams Partners
LP, which owns 60% of the Discovery system and
operates it. DCP Midstream Partners LP owns the
remaining 40% of the Discovery system.
The Keathley Canyon Connector extension is
supported by long-term agreements with the
Lucius and Hadrian South owners, as well as the
Heidelberg and Hadrian North owners, for natural
gas gathering, transportation and processing
services for production from those fields. In addition to the offshore gathering system, the Discovery system includes the 600 MMcf/d Larose
natural gas processing plant providing market
outlets to six interstate/intrastate gas pipelines
and the 35,000 b/d Paradis fractionation facility.
MARATHON FURTHER REDUCES
DRILLING BUDGET
After reporting an operating loss in the final quarter of 2014, Marathon Oil Corp. plans to further
reduce its drilling budget. The company now
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UPSTREAM NEWS
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BR I EF S
STATOIL,
PARTNERS SUBMIT
DEVELOPMENT
PLAN FOR JOHAN
SVERDRUP
Statoil and its partners
have submitted the plan
for development and
operation for Johan
Sverdrup, Phase 1, to the
Norwegian Ministry of
Petroleum and Energy.
Capital expenditures for
Phase 1 are estimated
at NOK 117 billion (2015
value) and the expected
recoverable resources
are projected at between
1.42.4 boe. The development in Phase 1 has
a production capacity
in the range of 315,000
380,000 b/d and first oil
is planned for late 2019.
3/3/15 3:39 PM
MIDSTREAM NEWS
BRIEFS
VENTURE GLOBAL
LNG RAISES
$125M IN EQUITY
FINANCING
Venture Global LNG Inc.
has closed two rounds
of equity investment
bringing Venture Global
to an aggregate of $125
million in new capital.
The proceeds from the
equity investments will
fund the development of
LNG export facilities in
the US, including Venture
Globals Calcasieu Pass
project in Cameron Parish, Louisiana.
WILLIAMS PARTNERS,
CRESTWOOD
COMMISSION
NIOBRARA PLANT
Williams Partners LP and
Crestwood Midstream
Partners LP have commissioned the Bucking
Horse gas processing
facility in Converse
County, Wyoming,
adding 120 MMcf/d of
processing capacity in
the Powder River Basin
Niobrara shale play. The
Bucking Horse plant,
along with the Jackalope
Gas Gathering System, is
owned through a 50/50
joint venture between
Williams Partners and
Crestwood Midstream
Partners.
12
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MIDSTREAM NEWS
Coronado operates three cryogenic gas processing plants and a gas gathering system in the North
Midland Basin including 270 miles of gathering
pipelines, 175 MMcf/d of processing capacity, and
35,000 horsepower of compression. Construction
of an additional 100 MMcf/d of processing capacity
and gathering system expansions of the Coronado
system are under way. The system has current inlet
volumes of 100 MMcf/d. EnLink plans to connect
the Coronado system with its Bearkat system to
create a multi-county rich-gas gathering and processing system.
Baker Botts provided counsel to EnLink Midstream Partners in connection with the acquisition.
Sidley Austin LLP provided counsel to Coronado
Midstream Holdings LLC.
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BR I EF S
DCP MIDSTREAM
REDUCES
WORKFORCE BY 20%
Denver, CO-based
DCP Midstream has
reduced its workforce
by approximately 20%.
In a statement, the company called the move a
corporate restructuring
resulting in the closing of
the companys Oklahoma
City regional office, as
well as a headcount
reduction in the Tulsa
and Midland offices.
Functions of those locations would be moved
primarily to its Denver
headquarters and Houston regional office.
NISOURCE FILES FOR
CPG SEPARATION
NiSource Inc. has filed an
initial Form 10 registration statement with
the US Securities and
Exchange Commission
(SEC) in connection with
the companys plan to
separate its natural gas
pipeline and related
businesses into a standalone publicly traded
company, known as
Columbia Pipeline Group
(CPG), in mid-2015.
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14
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120
100
80
60
40
20
0
Historical
2010
2011
Gas wells
<40
2012
40-50
2013
50-60
2014
60-70
70-80
2015
80-90
2016
90-100
>100
2.5
2
1.5
1
0.5
0
14 14 14 14 14 14 14 14 14 14 14 14 15 15 15 15 15 15 15 15 15 15 15 15
n- b- r- r- y- n- y- g- t- t- v- c- n- b- r- r- y- n- y- g- t- t- v- cJa Fe Ma Ap Ma Ju Jul Au Sep Oc No De Ja Fe Ma Ap Ma Ju Jul Au Sep Oc No De
Eagle Ford
Bakken
Permian
Niobrara
Note: Forecasted values based on 30% rig reduction since December 2014, figures do not account
for possible delays in completion.
Source: Rystad Energy NAS WellData
MARCH 2015
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While investment levels show very strong reactions to the market, the resulting effect on production is limited.
Trusted Operator
& Capital Provider
for over 30 Years
MARCH 2015
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WWW.OGFJ.COM
www.usedc.com
15
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EDITORS NOTE: Headquartered in Sydney, Macquarie is Australias largest investment bank. OGFJ recently spoke with four
senior officials with Macquarie Nick OKane, Head of Energy
Markets; Paul Beck, Head of Upstream Capital; Nick Butcher,
Head of Americas Infrastructure and US Energy; and Nicholas
Gole, Head of Energy and Infrastructure Financing. We were
able to get the four busy executives together in Houston for a
group photo and to talk with us about Macquarie and its place
in the energy sector.
OIL & GAS FINANCIAL JOURNAL: Thank you all for taking
the time to speak with us. First, let me ask you how the current low price environment has affected Macquaries energy
business. Have some groups been affected negatively while
others are actually seeing a bump in activity?
NICK OKANE: Shifts in market environments create opportunities for our business. The shale gas revolution in North America, for example, dramatically shifted the landscape for the US
natural gas market. We were able to identify early that exporting
LNG would be attractive as a result of these changes, and were
able to work with Freeport LNG to take advantage of this
opportunity.
The lower oil price environment has already begun to alter
the supply and demand dynamics in that market. Some producers are becoming stressed, increasing the need for structured
financing solutions. Other projects are becoming more attractive, which results in new customers looking for the products
and services which we provide. Our business is well positioned
to capitalize on opportunities such as these as the market
continues to change.
1503ogfj_16 16
As a large international bank that is in multiple industries around the globe, is Macquarie better insulated against
a down market than certain regional banks that focus mainly
on oil and gas?
NICK BUTCHER: As a diversified financial institution, our
breadth of expertise is very broad, including investment banking, advisory and capital markets, trading and hedging, funds
management, asset finance, financing, securities, and research.
In the investment bank in addition to the global energy and
commodities sectors, we have a range of sector specializations
that include infrastructure, utilities and renewables, industrial
companies, financial institutions, real estate, telecommunications, media and technology and gaming
We are also diversified by geography weve 28 offices around
the world and the diversity of our operations, combined with
a strong capital position and robust risk management framework, have contributed to our firms 45-year record of unbroken
profitability.
MARCH 2015
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Price downturns can create compelling consolidation opportunities for well-positioned players. Operators with strong balance sheets, ample liquidity,
and hedged production are positioned to emerge
from the downturn with enhanced scale, improved
operating cost structure and higher-quality assets.
Conversely, highly levered companies with inadequate liquidity will struggle to survive.
Nick Butcher
MARCH 2015
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BUTCHER: Midstream is a key practice area for us on the investment banking side, and we continue to invest in the business.
Weve a broad offering including M&A, project finance advisory,
capital markets, and principal capital. Market activity remains
high in the sector and our team is very active across a number
of deals.
GOLE: Despite the recent decline in commodity prices, we continue to expand in the energy infrastructure sector as demonstrated through our continued hiring efforts as well as my own
recent relocation from New York to Houston. The goal here has
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MARCH 2015
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2014 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please
see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation
1503ogfj_19 19
3/3/15 3:40 PM
OKANE: We identified early that exporting LNG would be attractive as a result of the changing market landscape where
supply and demand regions have dramatically shifted as a result
of shale gas. Our longstanding relationship with Freeport LNG
is one example of where we were able to help a client take advantage of this opportunity.
1503ogfj_20 20
MARCH 2015
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Macquaries Paul Beck (right) confers with Janet Dietrich and Ozzie Pagan in the Houston office.
1503ogfj_21 21
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Macquarie trading
floor in Houston
1503ogfj_22 22
but its unlikely theyll sell off core assets unless forced. The first
wave of activity is going to be non-core assets that distressed
companies can monetize while retaining their core focus areas
for reserve growth and replacement.
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has not been slowed by low prices, slow demand growth, and
even logistical constraints. While we do expect significant
demand growth, beginning in 2016, there is very limited demand
growth in 2015 as a result of new projects startup schedules. In
fact, by the end of summer 2015, the US natural gas industry
may be facing a significant inventory problem. If natural gas
storage reaches the maximum capacity of approximately 4.2
trillion cubic feet, it will create an overhang for 2016 forward
prices that could take at least several months to work off. Our
$3.25 price expectation is anchored by our view that demand
growth in 2016 will be a source of optimism. Additionally, forward prices may be buoyed by the potential for the first deceleration of gas production growth in five years as a result of lower
wet gas drilling and lower associated gas production growth.
OKANE: It is worth reiterating that our business is not dependent
on directional moves in prices. We are a client-centric business,
and while our clients needs may change as a result of market
conditions, our range of capabilities allows us to provide valuable
products and services regardless of where prices are at.
23
3/3/15 3:40 PM
Successful Efforts
For companies following the Successful
Efforts method of accounting, the rules
governing impairment are specified in
ASC 932-360 and ASC 360-10. Note that
these rules are very different from all
depletion calculations and the Full Cost
ceiling-test.1
The Successful Efforts impairment calculation is a two-part test requiring further
evaluation if reserves undiscounted cash
flows are less than book value (Step 1), in
which case, an impairment is calculated
by comparing the reserves book value to
their fair value (Step 2, discounted cash
flows). Unlike a depletion calculation, a
Successful Efforts impairment test requires cash flows to be valued using a
24
1503ogfj_24 24
forward market strip price curve and a companys credit-adjusted market discount
rate as of the measurement date (e.g., quarter- or year-end).
The cash flows should consider proved reserves as well as risk-adjusted probable
and possible reserves based on the companys development plans. The estimates
and development plans utilized in such determination should be reasonable in relation to the assumptions used by the entity for other purposes (e.g., internal budgets,
projections regarding the realization of deferred tax assets, and information communicated to the companys board of directors). Under Successful Efforts, hedgeadjusted prices are not considered. Also note that unevaluated properties should
be assessed on a property-by-property basis, and if not practical, companies should
assess in the aggregate or by groups.
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MARCH 2015
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Full Cost
For companies following the Full Cost method
of accounting, the ceiling test under Rule
4-10 of SEC Regulation S-X specifies that
evaluated properties capitalized costs, less
accumulated amortization and related deferred income taxes (the Full Cost Pool),
should be compared to a formulaic limitation
(the Ceiling) each quarter.
The Ceiling is equal to the following:
present value of proved reserves estimated
future net revenues;
plus,
lower cost or estimated fair value of unproven properties included in the costs
being amortized; and cost of properties
not being amortized;
less, the book-tax differences related to,
and any NOLs generated by, oil and gas
properties currently included in the companys depletion calculation.
The reserve pricing utilized in calculating
the Ceiling is the arithmetic average of the
trailing 12 months first-of-month pricing
(SEC Pricing), which will potentially delay
impairments until prices from early 2014 rollout of the 12-month average and are replaced
with lower pricing from 2015. Cash flows must
be discounted at 10% (PV10). Hedge-adjusted pricing is only available to Full Cost companies if the derivatives were formally designated as cash flow hedges for accounting
purposes.
If the companys Full Cost Pool exceeds the
Ceiling, an impairment must be recorded.
Unevaluated properties are assessed on a
property-by-property basis, and if not practical, companies should assess in the aggregate
or by groups.
REPORTING CONSIDERATIONS
120
Oil $/bbl
100
80
60
40
20
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Two year price strip
6/30/2008
26
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1/9/2009
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6/30/2014
1/9/2015
MARCH 2015
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Josh Sherman is the partner in charge of Opportunes complex financial reporting group. He has
more than 16 years experience providing clients
across the energy spectrum with technical research,
capital markets, and SEC reporting assistance.
Sherman specializes in IPOs, variable interest entities, purchase price allocations, energy trading, and derivatives,
stock-based compensation and oil and gas disclosures.
Wade Stubblefield is a managing director in the
corporate finance and complex financial reporting
practices of Opportune. He has 25 years experience
in corporate finance and technical accounting with
experience across the energy spectrum (upstream,
midstream, downstream and wholesale and retail
energy trading and marketing). Stubblefield has served in a
number of industry roles from CFO to CAO and controller.
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MARCH 2015
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3/3/15 3:40 PM
Like Bakken prices, North Dakota crudeby-rail loading volumes have also declined, as the benchmark price spread
between Brent and WTI crudes, a leading
indicator of US crude-by-rail volumes,
narrowed. The spread tightened over $8/
bbl from January 2014 to January 2015 to
$3.73/bbl with January average rail loadings at 506,000 bpd, 55,000 bpd lower
than average rail loading volumes in January 2014, according to Genscape.
Rail volumes have decreased in part
with an increase in relatively cheaper
pipeline takeaway capacity options from
the state, including Tallgrass 230,000 bpd
Guernsey, Wyo.-to-Cushing, Okla., Pony
Express pipeline, which began operations
in October 2014, according to Tallgrass.
When Hiland Partners 50,000 bpd
Double H pipeline is operational, even
more Bakken barrels are likely to shift
from rail to pipeline. Double H is expected
to start operations in Q1 2015. Recently,
Hiland Partners and its assetsincluding
Double Hwere acquired by Kinder Morgan. The deal closed in mid-February.
Continental Resources, a large Bakken
producer, which in 2014 railed 70% to
80% of its North Dakota crude, was planning to get off the train as soon as possible, Stephen Bradley, vice president of
oil marketing said during a 2014 presentation. In preparation, the company
planned to grow its pipeline connected
barrels by 5% a year until all production
is connected, he said.
However, total rail and pipeline takeaway capacity from North Dakota already
exceeds Bakken production, which may
result in the cancelation of some planned
pipeline projects, sources said. In mid30
1503ogfj_30 30
With Brent trading very close to WTI, Cushing (Okla.) seems like the
best market for Bakken crude now. It would be better to send it there
by pipeline than rail, but if you have a bunch of rail-cars and a terminal, then I guess it makes sense. Sandy Fielden, RBN Energy analyst
December 2014, Enterprise Products Partners announced plans to shelve its 340,000
bpd North Dakota-to-Cushing Bakken pipeline, citing that they had too few committed
shippers. Other pipeline projects, including Energy Transfer Partners 450,000 bpd
North Dakota-to-Illinois pipeline and Enbridges 225,000 bpd Sandpiper pipeline,
remain slated for completion in 2017.
CHANGING CRUDE-BY-RAIL OPTIONS
the average price of West Texas Intermediate falls below $57.50/bbl. The second,
broader tier tax incentive would take
effect if the average price of WTI remains
at or below $55.09/bbl for five consecutive
months and applies to all wells for the
first 24 months in production. Should
both of these price thresholds be met,
North Dakota could face tax revenue
losses near $100 million a month.
400,000
300,000
200,000
100,000
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
Weeks
2013 Genscape monitored rail
2013 Genscape monitored pipeline
2014 Genscape monitored rail
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bpd
300,000
250,000
200,000
150,000
100,000
50,000
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 1 3 5
2014
2015
Weeks
Unloading Cushing
Unloading East Coast
Pipeline in the second quarter of 2009. The frequency of rail movements into the
terminal often shows the value of moving Bakken crude to Cushing versus coastal
markets.
At the beginning of 2015, the cheapest destination for Bakken crude sent on rail
was to Stroud, according to Genscape. US West Coast destinations were the next
inexpensive over US Gulf Coast destinations, while East Coast destinations boasted
the most expensive rail-delivered Bakken price at that time.
Spot rail movements declined greatly in the past year to the Gulf Coast, namely
the hub at St. James, La., as a flood of regional light sweet and relatively cheap crude
competed with Bakken imports. In addition, at the start of 2015, North Dakota Bakken
crude-by-rail spot movements into the East Coast slowed because of narrow arbitrage
and attractive imported crude prices.
With Brent trading very close to WTI, Cushing seems like the best market for
Bakken crude now. RBN Energy analyst Sandy Fielden said in January. It would be
better to send it there by pipeline than rail, but if you have a bunch of rail-cars and a
terminal, then I guess it makes sense.
Cowen and Company senior analyst Sam Margolin agreed, saying that the increased
contango is making Cushing more attractive these days. Its possible that Bakken
production field prices are at material discounts to most hubs including Cushing
and Clearbrook, (Minn.), Margolin added.
Crude may have also been railed to the Cushing market to blend with other grades,
a trader said, adding that Cushing is as good a market as any for current rail economics, with rail costs to Oklahoma cheaper than to coastal markets. With Bakkens
crude quality similar to WTI, some barrels may be blended into domestic sweet crude
to deliver against the NYMEX light sweet crude futures contract.
Given the steep WTI contango, rail transportation cost advantages and blending
capability, railing Bakken shipments to Cushing have been economically appealing,
and the US Midcontinent or PADD 2 is the home of the Bakken crude Citgo general
manager of crude supply Jorge Toledo said in a recent presentation.
RAIL SAFETY REGULATIONS TO INCREASE
1503ogfj_31 31
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Kansas
Anadarko Basin
Granite
Wash
Missouri
Oklahoma
W Ca STACK
oo na
df
or
d
SCOOP
Fayetteville
Arkoma Basin
Arkoma
Woodford
Ardmore/Marietta
Basins
Arkansas
Mississippi
Texas
Louisiana
shale plays in Oklahoma have helped turn around that states oil
and natural gas production over the past decade, reversing a severe
slump that began in 1985 for oil and the 1990s for natural gas.
More recently, the Cana Woodford play and extensions such as
the SCOOP, also known as the South Cana Woodford, and the
STACK, have highlighted the shift in interest away from pure natural
gas plays, especially in Oklahoma, toward those with more liquids
potential. A key feature of these Anadarko Basin plays is their
multiple, stacked geologic horizons compared with some other
major plays across the US, highlighting the added importance of
managing efficiency and costs.
Other plays in Oklahoma such as the Granite Wash, straddling
the border with Texas, and the Mississippian Lime, extending down
from Kansas into Oklahoma, have also contributed to the states
dramatic turnaround. Shale activity has boosted the states natural
gas output by nearly 38% between 2003 and 2013, to 2.14 trillion
cubic feet annually, according to US Energy Information Administration (EIA) data.
One fourth of Oklahomas natural gas production now comes
from shale formations. The states output of natural gas liquids also
32
1503ogfj_32 32
rose over that period, from 74.7 billion cubic feet equivalent in
2003 to 140.3 billion cubic feet equivalent in 2012. Oklahomas
crude oil production jumped 25% in 2013 from 2012, and this years
first-half production, averaging over 350,000 barrels per day, was
more than double the 2005 level, according to the EIA.
GEOLOGY AND RECENT ACTIVITY
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1503ogfj_33 33
to 7,000 feet deep, or the Barnett and the Marcellus, typically in the 5,000- to 10,000-foot
category.
With its relatively costly wells, the Cana Woodford/STACK is a clear example of how
the higher relative value of liquids versus natural gas in current markets has driven the
focus of operators from natural gas to liquids over the past three years. In 2011, nine out
of 10 rigs were drilling for natural gas, according to Baker Hughes data. So far in 2014, the
shift towards liquids has transformed the natural gas share to just 15%. As with the Eagle
Ford and Utica plays, liquids content varies by location. The STACK tends toward greater
liquids content toward the northeast, where liquids content of 30 to 40 percent would not
be uncommon.
One offshoot of the play, announced in 2012, is variously called SCOOP ( for South
Central Oklahoma Oil Province) or South Cana Woodford. As the name implies, this play
has extended activity further south in the state. However, the area is hardly new to the
industry, experiencing its first production more than 100 years ago with the Sho-Vel-Tum
700
400
600
350
300
500
Natural gas
250
400
Crude oil
300
200
100
200
150
100
50
0
0
1989:Q1 1993:Q1 1997:Q1 2001:Q1 2005:Q1 2009:Q1 2013:Q1
Source: Energy Information Administration
70
60
Cana gas
Cana oil
Arkoma gas
Arkoma oil
Ardmore gas
Ardmore oil
50
40
30
20
10
4/
2
5/ 011
4/
2
8/ 011
4/
11 201
/4 1
/2
2/ 011
4/
2
5/ 012
4/
2
8/ 012
4/
11 201
/4 2
/2
2/ 012
4/
2
5/ 013
4/
2
8/ 013
4/
11 201
/4 3
/2
2/ 013
4/
2
5/ 014
4/
2
8/ 014
4/
11 201
/4 4
/2
01
4
2/
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field a field that has produced hundreds of millions of barrels since then. However, the
main targets of the SCOOP play lie deeper, at perhaps 10,000 to 14,000 feet. The plays high
liquids content is held to be especially attractive, with yields of 30%, 30% NGLs, and 40%
natural gas reportedly a representative result. Lower initial decline rates have been another
positive feature of many SCOOP wells, based on recent operator data.
The STACK is another recent extension of the Cana Woodford. Announced in the fall
of 2013 by Newfield Exploration Company, the STACK play has expanded Woodford activity towards the northeast. As the name implies, this is a stacked play, with a major target
being the upper Meramec formation. The Meramecs source rock, the Woodford shale,
lies close below it, separated by the thin Osage. These formations, along with the Hunton
below the Woodford, comprise additional targets of the STACK. Hydraulic fracturing
comes into play because the Meramec is relatively impermeable without natural or manF3: WELLS COMPLETED, CANA WOODFORD
120
Cana Woodford
Arkoma Woodford
Ardmore Woodford
100
PERSPECTIVES
Wells
80
60
40
20
:Q
14
20
14
20
:Q
:Q
4
14
20
13
:Q
:Q
20
13
20
20
13
:Q
1
:Q
4
:Q
13
20
3
:Q
12
20
12
:Q
20
12
20
20
12
:Q
Jobs
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Oil and gas field machinery and equipment
Natural gas distribution
Pipeline transportation
Oil and gas pipeline construction
Source: Bureau of Labor Statistics. Oil and gas field machinery and equipment not available for 2003-2004.
34
1503ogfj_34 34
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@1503OGFJ35-49-p01.psd@
ENERGY BANKING
Expertise & Relationships
MARCH 2015
1503ogfj_35 35
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Good reading!
Don Stowers
EDITOR OGFJ
36
1503ogfj_36 36
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1503ogfj_38 38
MARCH 2015
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Although RBL has some similarities to traditional lending facilities, there are some key differences, including the discretion
given to lenders to revise commodity pricing assumptions in
order to value the reserves and to set the credit limit in the
course of the life of the RBL loan, which is generally shorter
MARCH 2015
1503ogfj_39 39
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Asset
Bank
Loan
Asset
1503ogfj_40 40
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MARCH 2015
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Energy Banking
Power up your growth with Capital One Securities, Inc. Our Energy Banking team has over
100 years of combined industry experience, including equity and bond underwriting, raising
private equity capital, M&A, and other financial advisory services. For trusted advice and
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Russ Johnson
Russell.johnson@ capitalone.com
713-435-5762
Bob Mertensotto
bob.mertensotto @ capitalone.com
713-435-5710
Securities products and services are offered through Capital One Securities, Inc., a non-bank affiliate of Capital One, N.A., a wholly-owned subsidiary of Capital One Financial Corporation and
a member FINRA/SIPC. The products and services offered or recommended are: Not insured by the FDIC; Not bank guaranteed; Not a deposit or obligation of Capital One; May lose value.
2014 Capital One. Capital One is a federally-registered service mark. All rights reserved.
1503ogfj_41 41
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Project finance
MUHAMMAD WAQAS, MECHANICAL ENGINEER, UNITED ARAB EMIRATES
500
Emerging markets number of deals
450
400
US $, Million
100
350
300
80
250
60
200
150
40
100
20
0
Number of deals
120
50
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
42
1503ogfj_42 42
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By the late 1980s, the developed countries had made full use of
project financing and there was little room for new opportunities.
In this scenario, adventurous entrepreneurs headed to developing
countries. This eastward move by project sponsors was driven by
the fact that ECAs were fully supporting the project finance while
poorer developing countries offered a new horizon for expansion.
These developing countries lacked funds and general know-how
to undertake ambitious infrastructure projects. Project sponsors
were armed with both funds and knowledge, leading to the second
wave of project finance expansion and thus evolved the present
day project finance.
sponsor are isolated. So even if the project fails, the net effect on
the project sponsor is the equity stake in the SPV. Though project
finance is typically more expensive than corporate finance, its main
advantage is that existing assets are not liable to compensate in
case of project failure. Additionally, in project financing, the project
sponsor can take on higher debt compared to its equity contribution which is done based on future cash flows of SPV. While in
corporate financing, the debt is based on the financial strength of
the project sponsor and hence lower debt is granted. Table 1 shows
a comparison between the two.
PARTIES TO PROJECT FINANCE
While project finance saw steady growth over past two decades,
the trend was slightly reversed by the recent recession. Western
economies faced a general economic meltdown along with credit
crunch. This led to the decrease in the industrial and economic
output which made the setting up of new industrial units unfeasible.
Thus, project finance faced a downward trend in established
economies.
Emerging economies like BRICS (Brazil, Russia, India, China
and South Africa), largely remained unaffected and escaped the
credit crunch faced by established economies. The project finance
market expanded in these emerging economies due to a wide gap
available for infrastructure projects and the disbursal of cheap
credit by their respective governments. This trend between established and emerging economies appears to be widening with the
creation of the New Development Bank ( formed on 15th July 2014,
formerly BRICS Development Bank).
Figure 1 shows the project finance market well over $250 billion
in emerging markets in the middle of recession, making it larger
than the $170 billion Initial Public Offering (IPO) market.
WHY PROJECT FINANCE
Corporate financing
Project financing
Guarantees
Existing assets
of the borrower
Project assets
Accounting
On balance sheet
Financial soundness
Leverage
Depends on
balance sheet
MARCH 2015
1503ogfj_43 43
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Project sponsor
The project sponsors in an entity or group of entities which envisages the actual project. They contribute equity to the SPV. Broadly
speaking, there are three distinct kinds of project sponsors depending upon their motivation to sponsor a project.
Existing industry players - The intent of this group is to maximize
the value for shareholders by creating new business lines or
increasing the value of existing businesses. This is done by
optimizing the supply chain or by expanding the existing core
business. While optimizing the supply chain, the sponsoring
entity becomes a supplier or an off taker to the project output.
The entity may also be interested in becoming an eventual
construction contractor or operations and maintenance contractor once the project is in the cash generation phase, thus,
guaranteeing itself with a business. However, later arrangements
are uncommon in Public Private Partnership (PPP) due to
stringent procurement rules.
Public entities - This group forms the national governments or
designated entities like a municipalities or national companies.
The main agenda is to create welfare for the public and embark
on sustainable economic development for the country. In doing
so, jobs are created; economic output is increased; and masses
are educated in new fields. This group is most common in the
F2: TYPICAL PROJECT FINANCE
ENVIRONMENT ENTITIES
Project
sponsor
Raw
material
supplier
Project
company
(SPV)
EPC
contractor
Product
buyer
Operations
contractor
43
3/3/15 3:40 PM
1503ogfj_44 44
bonds are floated in the market and payments are done by SPV
based on principal amount and interest accumulated on the
bond.
EPC contractor
The Engineering, Procurement and Construction (EPC) contractor in a project can also be one of the project sponsors in non
PPP initiatives as discussed earlier. This entity is most crucial to
the project success as it assumes the responsibility to bring the
project from the drawing board to a full-fledged running plant
along with completing the project on time and within budget.
In case the project is delayed beyond the envisaged time, then
the estimated future cash flows of the project gets hampered thus
putting the company in default to its lenders. In order to incentivize the contractor, a bonus is set aside in case an early completion
is achieved by the contractor. On the other hand, a time liquidated
damage clause is also included in case of delayed completion.
However, it is to be noted that the project company has an agenda
to have an early completion and may put an ambitious project
completion timeline so that the project heads into early cash
generation phase. On the other hand, the contractor would like
to see a relaxed completion timeline so that work acceleration
cost can be avoided. In case a tight deadline is imposed by the
company, the contractor is ought to pass on the charges of liquidated damages to the project company as part of its quotation.
In case of over running the cost, the estimated budget of the
whole project gets distressed, which leads to shrinking the other
elements of the project along with the additional debt burden.
The project sponsor is usually reluctant to raise additional funds
from lenders once the project is underway due to which it is highly
desirable to complete the project within budget by the
contractor.
The EPC contracts can be:
Lump sum, in which case the contractor is obligated to deliver
the project on a turnkey basis for a fixed amount. This is only
possible when the scope of the project is well defined. This
kind of contract promotes innovation and efficiency along
with productivity as the contractor tries to keep the cost of
the project to a minimum.
Reimbursable, in which case the contractor is paid on a unit
rate basis for the work done. This is applicable where the
boundary of work is not well defined. This type of contract is
favorable to the contractor as payment is made for all work
done in addition to a mark-up.
Recently, there have been other innovative types of contracts
that combine elements of both lump-sum and reimbursable
contracts like cost plus contract, reimbursable with lump sum
conversion at a certain stage of a contract. Another type of contract
called an open book estimate (OBE) allows a project company
full access to a contractors estimation of the project. In this case,
the project company has thorough knowledge of the contractors
mark up. This is usually done in regions where there are limited
contractors and a proper estimation of a project scope is not
achievable.
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1503ogfj_46 46
Activity planning
Technological
Construction
Turnkey EPC
contract
Postcompletion
Supply risk
Operational risk
Market risk
Put or pay
agreement
O&M agreement
Offtake
agreement
Common
Use of derivative
contract
Use of insurance
policies
600
500
400
300
200
100
0
2010
2011
Equity
Bank loans
2012
2013
Project finance
Bonds
Hybrid bond
0.4%
Public bond
77.7%
Source: Ernst & Young 2014, Funding Challenges in Oil & Gas Sector
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MARCH 2015
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Enbridge Inc.
In business to deliver
Thank you...
At Scotiabank, we make deals happen. We have the market intelligence, technical expertise and
full-service product suite to help clients gain a competitive advantage. Our unwavering client
focus and innovative approach have earned us the privilege of working with many of the worlds
leading energy companies. Thank you to all our valued clients for allowing us to contribute to
your success.
gbm.scotiabank.com/energy
Corporate Banking
Capital Markets
Research
Cash Management
Trade Finance
Trademark of The Bank of Nova Scotia, used under license where applicable. Scotiabank is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of
Nova Scotia and certain of its affiliates in the countries where they operate, including Scotia Capital Inc. Scotia Waterous Inc., Scotia Waterous (USA) Inc., Scotia Waterous (UK) Limited and Scotia Capital
Inc. are non-bank affiliates of The Bank of Nova Scotia and authorized users of the mark. Scotia Capital Inc. is a Member of the Canadian Investor Protection Fund. Scotia Capital (USA) Inc. is a broker-dealer
registered with the SEC and a member of FINRA, NYSE and NFA. Not all products and services are offered in all jurisdictions. Services described are available only in jurisdictions where permitted by law.
1503ogfj_47 47
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The project company has two distinct phases which come with
their own inherent risks. However, few risks are common in
both these phases (see Figure 3).
48
1503ogfj_48 48
Muhammad Waqas is a mechanical engineer currently pursuing a degree in energy law. He resides
in the United Arab Emirates where he has gained
experience in the oil and gas sector. His areas of
expertise include energy politics in the Middle East
and European regions.
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MARCH 2015
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T A I L WAT E R C A P I T A L
$650,000,000
to be used to invest across the
midstream value chain
December 5, 2014
BUILDING ON PAST SUCCESSES WELL POSITIONED FOR THE FUTURE.
GROWTH CAPITAL FOR THE ENERGY INDUSTRY
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MARCH 2015
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ASSESSING VULNERABILITY
Assessing the effectiveness of existing control measures forms a key part of the Vulnerability Assessment.
When assessing vulnerability, security
professionals must:
Consider how attractive the assets might
be to threat actors and how easily they
can be identified and accessed.
Assess how well these assets are already
protected against this threat activity.
Consider how well equipped an organization is respond to an incident, should
it occur despite control measures.
Like a threat assessment, this vulnerability assessment needs to be ongoing to ensure controls not only function correctly
now, but also are still relevant to the everchanging security environment in which
the project operates.
The Statoil The In Anemas Attack report, which followed the January 2013 attack
in Algeria, made recommendations for the
development of a security risk management
system that is dynamic, fit for purpose and
geared toward action. A standardized, open
and well-defined security risk management
methodology will allow both experts and
management to have a common understanding of risk, threats and scenarios and
evaluations of these.
But maintaining this essential process
is no small task and requires specific skillsets and experience. According to the same
report, in most cases security is part of
broader health, safety and environment
positions and one for which few people in
those roles have particular experience and
expertise. As a consequence Statoil overall
has insufficient full-time specialist resources dedicated to security.
Anchoring corporate security in effective
MARCH 2015
1503ogfj_51 51
and ongoing security risk analysis not only facilitates timely and effective decision making
but also introduces a broader quiver of security controls that may not have been considered
as a part of the corporate security system before.
AN INCLUSIVE AND CEREBRAL APPROACH
Before jumping into a one size fits all, military approach to security system design one
which depends on the standard, costly combination of physical security, technology and
armed security personnellet us blow the dust off the SRA and consider how else we
might begin to mitigate the security risks we have identified.
Today, international oil companies engage social scientists to carry out Social Impact
Awareness (SIA) studies to inform Corporate Social Responsibility (CSR) programs. But
how often is such activity considered a part of corporate security? An SIA study may
identify, for example, the key subsistence activity of the locals in a particular Area of Operation (AOO) such as farming, which relies on minimizing the environmental impact of an
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T1: CORRELATION BETWEEN GPI AND INDICES QUANTIFYING MANAGEABLE SECURITY THREAT DRIVERS
Country
Global
Peace
Index
GPI
Ranking
GDP Per
Capita $
GDP pc
Ranking
United
Kingdom
1.63
$35,313
United
States
2.06
Saudi
Arabia
2.22
Algeria
Nigeria
Iraq
Literacy %
Lit.
Ranking
Health
Index
Health
Ranking
Food
Security
Index
Food
Ranking
98
0.859
0.686
$46,521
97
0.815
0.564
$22,934
86
0.730
0.570
2.28
$7,464
78
0.683
0.480
2.76
$3,779
75
0.339
0.233
3.41
$2,152
68
0.607
0.494
1503ogfj_52 52
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One of the substantive areas that drew the most comments from
the staff during the 2013-14 review period was disclosures of material changes from year to year in companies proved reserves. FASB
ASC 932-235-50-4 requires disclosure of the net quantities of a
companys PDs and PUDs as of the beginning and end of each fiscal
year. In addition, FASB ASC 932-235-50-5 requires a tabular presentation of the specific causes of the changes in net quantities of
proved reserves during the year. Changes identified as resulting
from specific causes must be disclosed separately, along with an
appropriate explanation of significant changes. These specific
causes are: (i) revisions of prior estimates; (ii) reserves added by
improved recovery methods; (iii) purchases and sales of minerals
in place; (iv) extensions and discoveries; (v) production and (vi)
conversions to developed reserves (Sanchez Energy (Dec. 24, 2013);
Lucas Energy (Mar. 18, 2014)).
The staff observed that it appeared a company had combined
two specific causes of its changes in its proved reserves (i.e., an
increase resulting from drilling and from reservoir performance)
into one line item in the summary of changes (a Revision in estimate). The staff informed the company to disaggregate the single
item and show separately the changes in reserves caused by each
of the specific causal agents (Kosmos Energy (June 12, 2014)).
Additionally, Item 1203(b) of Regulation S-K requires disclosure
of material changes in PUDs that occur during a year, including
PUDs converted into PDs. The disclosures should be accompanied
by a discussion of the investments and progress (including capital
expenditures) made by the company during the year to convert its
PUDs to PDs.
Revisions to prior reserve estimates were often the catalyst for
comments. In many cases, the staff remarked that insufficient
explanation had been given about companies reasons for their
revisions. If revisions had been disclosed as resulting from well
performance issues, the staff asked for clarification to describe
the reasons for the performance revisions; for example, were the
revisions merely concentrated in just a few wells or else spread
across all proved reserves (Southwestern Energy (Sept. 25, 2013))?
A company disclosed additions to its PUDs for fiscal 2012 partially as a result of restoring to PUD status certain of its reserves
that had been previously downgraded to probable status due to
the five-year rule (WPX Energy (Aug. 23, 2013)). In response to
staff questions, including those about managements drilling plans,
the company explained that the restoration of these reserves to
PUD status was because of changes in its drilling plans and the
passage of time. The staff then requested additional information
describing the circumstances that had led to the initial reclassification of the reserves from PUDs to probable reserves, and an explanation of how those circumstances had later changed to the degree
that it would warrant a finding to support their restoration to PUDs.
Assuming that the reserves had been moved from PUD status to
probable status in the prior period due to economic considerations,
the staff asked for an explanation of how company management
had concluded that as of year-end 2012, the expected rate of return
for those reserves would be sufficient to restore them to PUDs.
54
1503ogfj_54 54
The staff also requested that the company discuss the proportion
of the restored PUDs associated with locations scheduled to be
drilled during 2013 that had actually been drilled during 2013 to
the date of the companys response (WPX Energy (Dec. 3, 2013)).
Similarly, where a company reclassified certain reserves as PUDs
that had previously been downgraded from PUDs to probable
status due to a decline in natural gas prices, the staff requested the
company to provide justification for its decision to upgrade, along
with a development schedule and an investment plan for the next
five years that addressed whether the company had the ability to
complete its development plan at current costs (Matador Resources
(Dec. 27, 2013)). The staff requested another company to provide
it with a detailed explanation about its development plan, which
would address the development rate assumptions it had considered
in light of a deterioration in the economic environment, rig cancellations and ceiling test write-downs (Hyperdynamics (Feb. 7, 2014)).
OTHER RESERVES COMMENTS
MARCH 2015
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flows and reserves associated with the NPIs, because the total
cumulative revenues credited to the NPIs had not yet exceeded
the cumulative direct operating expenses and capital expenditures
charged against the cumulative revenues.
In Endeavour International (Sept. 19, 2013), the staff noted the
companys sale during 2013 of a monetary production payment
for $107.5 million, and requested a detailed explanation of the
transaction, including addressing whether the oil and gas quantities associated with the production payment would be included
as part of the companys year-end 2013 disclosed proved reserves.
The company replied that the transaction was classified as a
monetary (and not volumetric) production payment. As such, the
companys obligation under the production payment was to repay
specified dollar amounts, and not to repay in a specified quantity
of future production. Citing relevant accounting literature, the
company asserted that all reserves estimates and production data
with respect to the monetary production payment would be reported with those of the company; therefore, the associated oil
and gas quantities would be included in its proved reserves disclosures at December 31, 2013.
Probable and possible reserves. Finally, there appeared to be
more disclosures of estimated unproved reserves probable and
possible reserves contained in filings for 2013-14. Where estimated
unproved reserves disclosures appeared in filings, companies often
failed to include disclosures of all matters required by Regulation
S-K with respect to probable and possible reserves. Probable and
possible reserve estimates disclosures must include much of the
same categories of information as are applicable to proved reserves
under Regulation S-K Item 1202. These requirements include
summary tabular information showing both developed and undeveloped probable and possible reserves, categorized as either
developed or undeveloped, classified by final product sold (oil,
natural gas, NGLs, synthetic oil, etc.) and in the same geographic
detail as is required for proved reserves. The staff noted one companys failure to disclose its probable and possible reserves as
developed or undeveloped as required by Regulation S-K Item
1202(a) (Sanchez Energy (Dec. 24, 2013)).
Where companies disclose probable and possible reserves,
Regulation S-K Item 1202 mandates that they also discuss the
uncertainty related to estimates of probable and possible reserves
(Antero Resources (Aug. 16, 2013)). The staff has stated, for example,
that companies should address the degree of certainty regarding
the underlying cash flows for probable and possible reserves (and
their associated risks) and discuss the assumptions used by management in their calculation. Because the categories of proved,
probable and possible reserves estimates each have different risk
profiles due to the disparities in their respective levels of certainty,
it is not appropriate for a company to add the individual categories
together and then present the sum as one total reserves estimate
(Dune Energy Inc. (Aug. 5, 2013 and Sept. 6, 2013)).
NGLS AS SEPARATE PRODUCT TYPE
One of the most recurring comments since 2012 has been that
companies should report their natural gas liquid (NGLs) reserves
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and production volumes separately from the reserves and production data of their other hydrocarbons. FASB ASC 932-235-50-4
provides that if a companys NGL reserve quantities are significant,
then information regarding its NGL reserves must be disclosed
separately and not aggregated with its crude oil quantities. Also,
Regulation S-K Item 1202(a) requires disclosure of production
volumes broken down by final product sold for each of the three
prior fiscal years. Item 1204(b) mandates disclosure, broken down
by geographical area, of (1) the average sales price per unit of oil,
gas and other products produced and (2) the average production
cost, not including ad valorem and severance taxes, per unit of
production. The staff has made it very clear in its comments that
it considers NGLs to be a separate product type for disclosure
purposes given the generally wide price differentials between NGLs
and crude oil.
Staff guidance as to whether NGL reserve quantities are significant is not clear (Southwestern Energy (July 10, 2014)). Companies contending that their NGL reserve quantities were not
significant have generally lost their arguments (Enduro Royalty
Trust (Dec. 30, 2013); Rex Energy (Dec. 30, 2013)). However, one
company, contending that Regulation S-K Item 1202(a)(4) only
requires separate disclosures of material reserves by product type,
argued that its NGL reserves and production were not material.
The company represented in its response that its NGLs represented
only approximately 4% of its total estimated proved reserves, 7%
of its total estimated liquid reserves, 3% of its total production and
less than 2% of its total oil and gas revenues for fiscal 2012. The
staff appeared to concede the point, although the company did
confirm in its response that it would disclose separately information required for NGLs under Items 1202 and 1204 of Regulation
S-K for any annual period after 2012 in which NGLs were material
to its estimated proved reserves and/or production (EPL Oil & Gas
(Dec. 19, 2013); response letter (Jan. 21, 2014)).
Under an instruction to Regulation S-K Item 1204, reported
volumes of natural gas produced should include only the marketable production of natural gas on an as sold basis, and gas consumed in operations should be omitted from the production
quantities. Thus, where a wide difference existed between a companys disclosed historical average natural gas price ($3.67/Mcfg)
and its gas price used for purposes of its proved reserves determination ($5.03/Mcfg), the staff inquired whether ethane rejection
by the gas processor had produced any significant effect that resulted in such a variance (Viper Energy Partners (March 21, 2014)).
ABOUT THE AUTHOR
Marc Folladori has been an M&A and securities attorney in Texas since 1974, and has extensive experience representing energy companies and firms engaged in energy investment and finance. Before his
retirement from Mayer Brown LLP in 2014, he served
as the head of the firms Global Energy Practice. The
author wishes to acknowledge the research and other contributions in connection with this article made by Amelia Xu while she
was an associate at Mayer Brown LLP during 2014.
55
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DEAL MONITOR
crawl following the oil price downturn that began last summer and accelerated towards years end, cutting oil prices
by more than half. Spot WTI reached a high of $107.95 on
June 20, 2014 before tumbling to a low of $44.08 on January
28, 2015. The full impact of this down cycle is reflected in
this months tally of deals. From January 17 to February 16,
2015, there were just 15 deals (with values disclosed) struck
for a total of $1.4 billion. This is down substantially from 43
deals and $13.4 billion in deal value for the similar period a
year ago. In fact, the first quarter of 2015 has the potential
to be the slowest upstream deal market since at least 2007,
eclipsing the low-water mark of $19 billion (121 deals) in
upstream transactions in Q3 2009 a period following the
market meltdown in late 2008.
The downturn has stretched across the globe.This
Date Announced
Buyer
Seller
12-Feb-15
Undisclosed
Energen
Asset Location
Rockies: NM, CO
30-Jan-15
US Government
Rockies: Wyoming
22-Jan-15
Undisclosed
19-Jan-15
Matador Resources
Asset Location
INTERNATIONAL TRANSACTIONS
Date Announced
Buyer
Seller
19-Jan-15
Undisclosed
Lightstream Resources
Canada: AB, BC
22-Jan-15
Canada: Multiple
9-Feb-15
Surge Energy
Canada: Viking
5-Feb-15
Undisclosed
Canada: Saskatchewan
10-Feb-15
Petrogrand AB
Ripiano Holding
Russia
5-Feb-15
Seplat Petroleum
Chevron
Nigeria
5-Feb-15
Chevron
Nigeria
20-Jan-15
PetroRio SA
Shell
Brazil
PLS Inc. Validity of data is not guaranteed and is based on information available at time of publication.
Prepared by PLS Inc. Source: PLS Derrick Global M&A Database. For more information, email memberservices@plsx.com
56
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OI L & G AS FI NA N CI AL J OU RN A L
MARCH 2015
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DEAL MONITOR
Proved Reserve
Value ($MM)
Non Proved
Reserve Value
($MM)
Proved
Reserves
(MMBoe)
Production
(Boe/D)
Category
Deal Type
Hydrocarbon
Deal Value
($MM)
Conventional
Property
Gas
$395
$395
69.0
18,082
Conventional
Property
Oil
$45
$45
NA
240
Unconventional
Property
Oil
$10
$10
NA
120
Unconventional
Acreage
Oil + Gas
$137
$36
$101
1.3
530
$587
4
$486
$101
70.3
18,972
Category
Deal Type
Hydrocarbon
Deal Value
($MM)
2P Reserve
Value ($MM)
Production
(Boe/D)
Conventional
Royalty
Oil + Gas
$10
$3
$7
NA
61
Unconventional
Royalty
Gas
$7
$7
0.2
153
Unconventional
Property
Oil
$28
$28
2.4
510
Conventional
Property
Oil
$102
$102
5.0
1,318
Conventional
Corporate
Oil
$21
$21
8.9
735
Conventional
Development
Oil + Gas
$255
$255
NA
NA
Conventional
Property
Oil + Gas
$235
$235
NA
NA
Conventional
Property
Oil
$150
$150
NA
NA
$810
8
$802
$7
16.6
2,777
MARCH 2015
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INDUSTRY BRIEFS
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INDUSTRY BRIEFS
with the evaluation of the companys options to address nearterm debt maturities, enhancement of its liquidity position, and
evaluation of strategic alternatives. The company stated there
are no assurances it will be able to successfully restructure its
indebtedness, improve its short- and long-term liquidity position, or complete any strategic transactions in a timely manner
or at all. Accordingly, the company said it may need to seek
voluntary protection under chapter 11 of title 11 of the US Code
to restructure its capital structure.
RIGNET REALLOCATES RESOURCES
RigNet Inc., a Houston-based provider of digital technology
solutions to the oil and gas industry, said Feb. 19 that it will
shift resources from its US land rig communications business
and certain back office support functions to expand its
global sales team and boost its business development and
global expansion initiatives. RigNet expects to take a
one-time charge of approximately $6.2 million in the first
quarter of 2015 for facilities closures, employee severance
expenses, and related matters. Separately, with the downturn in the oil and gas industry, RigNet also anticipates
taking a pre-tax, non-cash goodwill impairment charge of
approximately $2.7 million in the fourth quarter of 2014
related to RigNets Telecommunications Systems Integration
business segment.
BAYSIDE COMPLETES $5M SALE OF SUBSIDIARY
Bayside Corp. has completed the 100% sale of the common
stock of Bayside Petroleum Co. Inc. to Technis Energy Ltd.
Bayside Petroleum Co. is now a wholly owned subsidiary of
Technis Energy Ltd. Consideration for the sale includes $5 million of preferred stock of Bayside Petroleum Co. and cash
consideration. Common stock shareholders of Bayside Corp.
will also receive a stock dividend of Bayside Petroleum Co. Inc.
Upon approval of the corporate action, and the appointment
of the new Bayside Petroleum Co. management team, Bayside
Petroleum Co. will seek to file a registration statement to initiate the quotation of its common stock on the OTC Bulletin
Board.
BLACKEAGLE ACQUIRES ASSETS OF POLARIS DRILLING
Blackeagle Energy Services, which provides oil and gas construction and fabrication, has purchased the assets of Polaris
Drilling Inc., a company specializing in directional drilling. The
acquisition of Polaris Drilling, and its capabilities in trenchless
underground utility construction, complements Blackeagles
capabilities in pipeline, facility, maintenance, and fabrication
services. The new company will operate under the name Polaris
Drilling and will be led by Jeramy Wulkan, Polaris former
president and owner.
SILICON VALLEY BANK OPENS HOUSTON OFFICE
Silicon Valley Bank has opened an office in Houston in order
to support the growing number of technology, life science, and
MARCH 2015
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ENERGY PLAYERS
Schock
Gordon
Brown
Barr
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ENERGY PLAYERS
www.ralphedavis.com
Since 1924 the Ralph E. Davis firm has provided independent consulting
services in the evaluation of oil and gas reserves to the international energy
industry. Evaluations are based upon the latest technical applications tempered
by a knowledge gained through experience and a professional integrity reflected
in the firms acceptance by the regulatory and financial institutions throughout
the industry.
The Davis firm will work with its clients to complete a timely, reliable and fact
based analysis of the available data.
MARCH 2015
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ENERGY PLAYERS
van Zadelhoff
van Kemenade
Payne
62
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Companies mentioned in this issue of Oil & Gas Financial Journal are listed in
alphabetical order with advertisers in boldface type. The index is provided as
a service. The publisher does not assume any liability for errors or omission.
COMPANY
PAGE
44
Accenture
Access Midstream
13
Addax Petroleum
ADNOC
11
Antero Resources
14,53
COMPANY
COMPANY/ADVERTISER INDEX
PAGE
COMPANY
PAGE
COMPANY
PAGE
Delta Hydrocarbons
62
Kosmos Energy
54
Devon Energy
33
Legacy Reserves LP
60
DLL
62
LINN ENERGY
1,57
Rice University
64
54,59
RigNet Inc.
59
16
Rimrock
13
58
54
BC
Rystad Energy
14
55
Macquarie
32
ARCO
62
Enbridge
44
Endeavour International
55
10
64
60
55
Matador Resources
54
Sanchez Energy
54
Baker Botts
13
Energen
57
55
62
30
61
13
25
Baker Hughes
32,62,64
30,64
59
55,60
BASF
64
ENERGYNET
Bayside Corp.
59
ENERTIA SOFTWARE
59
14,61
Black River
54
Saxo Bank
60
SCOTIABANK
EnLink Midstream
12
39
SEC
30
Morgan Stanley
EOG Resources
30
NASA
6
47
26,53
Seplat Petroleum
57
64
Shell
16
59
55
58
13
45
62
43
59
EQUITY METRIX
29
34
58
44
Evercore Partners
12
12
NiSource Inc.
13
Statoil
11,64
Noble Energy
64
49
BNP-Paribas
BOK FINANCIAL
37
BP
11,16,62
60
34
ExxonMobil
C & C Technologies
58
Freeport LNG
53,62
28
59
58
CB&I
64
61
CenterPoint Energy
64
57
Cheniere Energy
64
Chesapeake Energy
62
Halcon Resources
Chesapeake Midstream
13
6,28
Tervita LLC
59
NYMEX
23,31
57
58
58,62
Total
9,11
53
OHADA
40
5,56
50
58
UK Export Finance
44
60
OPEC
62
62
Opportune
24
Unit Corp.
54
58
Pemex
11
US Department of Transportation
31
54
Phillips 66
12
15
US Geological Survey
32
12
59
12
Hyperdynamics
31
IEA
28,61
62
IHS
Continental Resources
30
Inpex Corp.
11
12
42
31
13
10,34
31
IPAA
12
60
10
JODCO
11
32,IBC
Deloitte
64
60
27
12
Kinetic Partners
60
58
6,10,28,62
PLS Inc.
1503ogfj_63 63
33
36,38
Teck Resources
58
Citgo
MARCH 2015
31
Tengizchevroil LLP
Cimarex Energy
11,51,60
11
41
9
54
61
58
Southwestern Energy
Genscape
11,57,58,61
Sinopec
12
16
Chevron
13,58
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56
59
PWC
19
58
Rabobank International
62
61
IFC
RBN Energy
6,30
Williams
54
10,12
World Bank
44
WPX Energy
54
62
63
3/3/15 3:41 PM
MIKAILA ADAMS
SENIOR ASSOCIATE
EDITOR OGFJ
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MARCH 2015
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2015 MEETINGS&EVENTS
Connecting the Upstream Oil & Gas Industry Across America
Since 1929, IPAA has provided opportunities for Americas upstream independent oil and gas
industry from across the country to examine current issues, strategize for the future and network with
the decision makers from E&P to service and supply companies.
Make plans to participate in these 2015 meetings and events.
For sponsorship and program information, contact Tina Hamlin at 202.857.4768 or thamlin@ipaa.org.
PCC
IPAA EDUCATIONAL
FOUNDATION
FUNDRAISERS
DCATTER
WSIPLORTING CLAYSS
WILDCATTERS
SPORTING CLAYS
WILDCATTERS BALL
Hilton Americas
Houston, TX
NAPE
WILDCATTERS
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PROFESSIONALS FOR A CASUAL
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NAPE Summit
NAPE
WILDCATTERS OPEN
Houston, TX
Denver, CO
NAPE
AUG. 19-20, 2015
Houston, TX
OGIS
CONNECTING PUBLIC OIL AND GAS COMPANIES WITH THE INVESTMENT COMMUNITY AS THEY PRESENT
THEIR STRATEGIC CORPORATE PORTFOLIOS.
OGIS FLORIDA
OGIS TORONTO
FEB. 3, 2015
JUNE 4, 2015
The Ritz-Carlton
Fort Lauderdale, FL
The Ritz-Carlton
Toronto, ON
CONGRESSIONAL
CALL-UP
CONGRESSIONAL
CALL-UP
MARCH 2-4, 2015
MEMBERSHIP
MEETINGS
ANNUAL&
MIDYEAR
MEETINGS
Washington, DC
I N D E P E N D E N T P E T R O L E U M A S S O C I AT I O N O F A M E R I C A
1503ogfj_C3 3
MIDYEAR
ANNUAL
The Ritz-Carlton
New Orleans, LA
W W W. I PA A . O R G / M E E T I N G S - E V E N T S
3/3/15 3:41 PM
BC
C CC C
C CC
BC
C
CC CCCE C C
C E
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BC~"#8C( C%
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