Oil Deals of the Week: Majors Continue To Look Further Afield For New Opportunities

by: Evaluate Energy

Some of the largest oil and gas companies in the world continued to venture into the less conventional regions of the world this week in their quest to locate their next megaproject. Fresh from their negotiation of exploration blocks in Kurdistan, ExxonMobil’s (NYSE:XOM) next target materialised via a farm-in of Block LB-13 in the ultra deep waters offshore Liberia from Canadian Overseas Petroleum. Although the $91 million acquisition is minor compared to the more headline grabbing acquisitions from ExxonMobil such as the $41 billion acquisition of XTO in 2009, it signifies an increasing willingness from big oil companies to move into riskier areas both geologically and politically. The U.S. home of ExxonMobil has always formed a major focus for the company, whether it be as a source of politically stable reserve or as an end customer as the world’s largest consumer of oil and gas resources. The need to further diversify has been made ever more apparent however by the fast pace of foreign economic development and a price disparity brought about by the runaway success of shale resources. Historically the United States based crude benchmark of WTI has always traded at a premium to the U.K. North Sea based Brent benchmark, primarily due to its lighter gravity. Recently though, the WTI has been trading just short of $100, which is $10 shy of the Brent crude price. Even in Ghana, Kosmos Energy (NYSE:KOS), a previous target of ExxonMobil in 2010, reported realisations of $115 during Q3 2011.

In another frontier region, Statoil (NYSE:STO) farmed into Block 47 in the deepwater offshore area of Surinam from Tullow Oil (OTCPK:TUWLF). The region received a significant credibility boost when the Tullow operated Zaedyus well discovered 72 metres of net oil pay in the neighbouring French Guiana in September 2011 and put the region firmly onto the radar of Tullow’s peers. Statoil (STO) also added to their Canadian operations this week, targeting the little developed offshore Newfoundland & Labrador area. Statoil will be joined in the asset by Chevron (NYSE:CVX) and Repsol (OTCQX:REPYY), with the partnership committing to spend C$374 million in work commitments.

Kodiak Oil & Gas Corp (OTCPK:KDKN) continued its aggressive acquisition programme this week with a $590 million purchase of Bakken acreage in the Williston basin. There were already liquidity concerns from the market concerning the company in late September, when Kodiak (OTCPK:KDKN) agreed to purchase Bakken acreage for a then company record of $245 million. Even though the acquisition metrics in the September acquisition worked out at less than $3,500 per acre for a shale asset that was already producing, the market responded by pushing the share price down by 20%. Shareholders were won over by subsequent operating updates but history was repeated when Kodiak announced its latest acquisition, with the metrics looking again like good value, the share price opened almost 5% down.

Evaluate Energy estimates that the 19.7 million boe of proved reserves were acquired for $21 per boe, this is after giving a conservative value to the untested Three Forks acreage included in the deal, which could bring considerable upside if management predictions from Kodiak prove to be correct. Financing fears were partially subsided with a $650 million loan but at a sizeable coupon of 8.125%.

In Canada win Butte acquired Emerge Oil & Gas Inc (OTC:EMGGF) in an all stock deal worth C$170 million. The consideration represented only a 14% premium to the trading price of Emerge prior to the deal. The normalised cost per proven barrel of oil equivalent equates to just $15, which appears good value given that the proven reserves of Emerge are 98% oil and 94% developed and at a time when the WTI is trading over $95. Even with the bulk of the reserves emanating from heavy oil, the associated lifting costs reported by Emerge Oil are only 32% higher than its Canadian peers as per data gathered from Canoils.com. The inferred rate of return from the NPV of the reserves also points to an advantageous deal with the NPV suggesting a 20%+ return per year. The shareholders of Twin Butte welcomed the deal and the shares are now trading 10% higher compared to the day prior to the announcement.

In the midstream sector, ConocoPhillips (NYSE:COP) announce the sale of interests in two US pipeline companies to Caisse de dépôt et placement du Québec and Enbridge Inc for $2 billion. The interests in Colonial Pipeline Company, Colonial Ventures LLC and Seaway Crude Pipeline Company were already due to be included in the refining assets spin-off that ConocoPhillips expects to complete in the second quarter of 2012.


Target Company

Target Business Segment

Brief Description

Total Acquisition Cost ($000)

Enbridge Inc. (NYSE:ENB)

Seaway Crude Pipeline Company


Enbridge Inc acquires a 50 per cent interest in the Seaway Crude Pipeline System from ConocoPhillips


Caisse de dépôt et placement du Québec

Colonial Pipeline Company and Colonial Ventures LLC


Caisse de dépôt et placement du Québec acquires a 16.55% interest in Colonial Pipeline Company and Colonial Ventures LLC from ConocoPhillips


Kodiak Oil & Gas Corp.



Kodiak Oil & Gas Corp acquires additional land in the Williston basin of North Dakota


Statoil ASA

Government body


Statoil ASA acquires a 50% in Parcels 1 & 2 in the Flemish Pass/North Central Ridge region of the Newfoundland and Labrador 2011 calls for bids


Twin Butte Energy Ltd (OTC:TBTEF)

Emerge Oil & Gas Inc


Twin Butte acquires Emerge Oil & Gas Inc.



Government body


Chevron acquires a 40% in Parcels 1 & 2 in the Flemish Pass/North Central Ridge region of the Newfoundland and Labrador 2011 calls for bids



Canadian Overseas Petroleum Limited


ExxonMobil acquires a 70% interest in the Production Sharing Contract governing Block LB-13 in Liberia from Canadian Overseas Petroleum Limited



Premier Oil


TAQA acquires Encore Oil's interest in the Cladhan field in the North Sea from Premier Oil



Government body


Repsol-YPF acquires a 10% in Parcels 1 & 2 in the Flemish Pass/North Central Ridge region of the Newfoundland and Labrador 2011 calls for bids


American Midstream Partners, LP (NYSE:AMID)

Marathon Oil Corp


American Midstream Partners LP acquires a 50% interest in the Burns Point Gas Plant from Marathon Oil Company



Eaglewood Energy Inc


ExxonMobil acquires a 20% interest in PPL 260 in Papua New Guinea from Eaglewood Energy


Paxton Energy Inc (OTC:PXTE)

Black Cat Exploration & Production, LLC


Paxton Energy Inc acquires a 2% Override Interest in the entire Mustang Island 818-L Lease, covering 14,400 acres in the Gulf of Mexico,


Statoil ASA

Tullow Oil


Statoil acquires a 30% interest in block 47 offshore Suriname from Tullow Oil


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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