Land Rigs: May 13, 2013

Monday, May 13, 2013

Chesapeake to Sell $2.3B of Senior Notes

Chesapeake Energy Corp. intends to offer $2.3 billion of senior notes to help fund a tender offer for roughly $938 million in outstanding senior notes.

The natural-gas producer said it plans to issue the $2.3 billion of senior notes in three separate series: one maturing in 2016, another maturing in 2021 and the last maturing in 2023.

The company also launched a tender offer for all of the $464.1 million principal amount outstanding in 7.625% senior notes due 2013 and all of the $473.7 million principal amount outstanding in 6.875% senior notes due 2018.

The total price per $1,000 principal amount, including a $30 early-tender premium, will be $1,020.00 for the 2013 notes and $1,074.50 for the 2018 notes.

The company said the remaining proceeds will be used to redeem its 6.775% senior notes due 2019, pending a favorable ruling in a declaratory judgment playing out in U.S. District Court in New York.

Chesapeake Energy wants to buy back $1.3 billion of the 2019 bonds. But a group of hedge funds have said the company failed to give proper notice to buy back the bonds and demanded a 30% premium, or roughly $400 million.

U.S. District Judge Paul Engelmayer, in a ruling Thursday, refused to declare that Chesapeake could redeem bonds at face value. But, he added it was "overwhelmingly clear" that Chesapeake cannot be forced to pay a premium in a game of "Gotcha." He asked to see more information.

Patrick McGee contributed to this report.

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Cairn Continues to Target North Sea Plays

Cairn Energy will continue to target new plays within the UK North Sea and Norwegian continental shelf, the firm said Tuesday as it outlined plans to explore frontier basins in the Atlantic Margin and Mediterranean in its annual results statement.

Cairn will use cash generated from its share in various producing North Sea assets to fund several operated exploration wells offshore Morocco and Senegal, West Africa, during 2013 and 2014. It is also planning a 3D seismic campaign in the Gulf of Lion, offshore Spain, as well as conducting geological studies into opportunities offshore Malta.

The company also announced Tuesday farm-in into three blocks offshore Senegal. Cairn is taking a 65-percent working interest and operatorship of three blocks – Rufisque, Sangomar and Sangomar Deep – that are currently operated by Far Limited with Petrosen (the Senegalese national oil company) as a joint venture partner. In return it has agreed to fully fund the costs of one exploration well and to fund 72.2 percent of subsequent exploration costs.

In the UK and Norway, Cairn is involved in four non-operated exploration and appraisal wells during 2013, two of which are underway. It also has new interests in 10 licenses that have been acquired in recent licensing rounds.

Meanwhile, work continues on the North Sea's Greater Catcher area (where Cairn has a 30-percent, non-operated interest) and the Kraken oil field (25 percent). These fields are now a late pre-development stage and are expected to lead to first oil and cash flows in sometime around 2016/2017.

"With a strong cash position and a disciplined approach to capital expenditure, we look forward to the start of our multi-well, multi-year operated exploration programme commencing in Q4 2013 targeting more than 3.5 billion barrels of oil equivalent," Cairn Chief Executive Simon Thomson commented in a company statement.

Oil analysts at London-based investment bank FirstEnergy was positive about Cairn's announcements Tuesday, noting that the farm-in offshore Senegal adds "further high-impact exploration potential to the portfolio".

Cairn reported a pre-tax loss for 2012 of $194.2 million (2011: $1.2 billion loss) and stated that it had cash at the end of December amounting to $1.6 billion. The firm also retains an approximately 10 percent residual shareholding in Cairn India.

A former engineer, Jon is an award-winning editor who has covered the technology, engineering and energy sectors since the mid-1990s. Email Jon at jmainwaring@rigzone.com.

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Statoil Confirms Extension to Johan Sverdrup Field

Norway's Statoil reported Tuesday that it has confirmed that the Johan Sverdrup field extends into production license 502 after completing appraisal well 16/15-3.

The well was drilled into production license 502, which neighbors PL265 and PL501 where the Johan Sverdrup discovery resides. Statoil said that well 16/15-3 proved a 44-foot oil column in a high-quality Jurassic reservoir and confirmed communication with the rest of the Johan Sverdrup field, which means additional upside to the field's resources.

Øivind Reinertsen, Statoil's senior vice president for Johan Sverdrup field development, commented in a company statement:

"Results of well 16/5-3 will be integrated in the on-going development work for the Johan Sverdrup field. The PL502 volumes will be included in the total resource estimate for Johan Sverdrup which Statoil as pre-unit operator will communicate by the end of 2013."

Meanwhile, Statoil believes that the results of the well indicate there may be further upside potential in the area. The company's vice president for exploration in Norway, Gro Haatvedt, said that new subsurface data indicates further upside potential west of the current outline of the Johan Sverdrup field.

"Later this year Statoil will drill an exploration well in the Cliffhanger prospect in PL265. This will be an important step to clarify and capture the full potential in the Johan Sverdrup area," added Haatvedt.

Statoil is the operator of PL502, with a stake of 44.4 percent. Petoro and Det norske oljeselskap hold interests of 33.3 percent and 22.2 percent respectively.

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Hess to Sell Some Eagle Ford Assets to Sanchez Energy

Hess Corp. has agreed to sell assets in the Eagle Ford shale in south Texas for $265 million to Sanchez Energy Corp. as it continues to whittle its operations.

The deal includes around 43,000 acres in the Eagle Ford shale in Dimmit, Frio, LaSalle and Zavala Counties, and was effective March 1.

The deal comes as Hess has been selling assets to fund drilling and exploration concerns and reduce costs, and amid shareholder pressure to focus its operations.

The transaction is expected to boost the smaller oil and gas explorer Sanchez' production by around 4,500 barrels of oil equivalent a day, more than doubling its production from its rate of 3,800 boe in the first two months of 2013. The acquisition also increases Sanchez' total proved reserves by 13.4 million boe, and increases its proved developed reserves by around 6.6 million boe. It adds 50 wells, for a total count of 84 producing wells.

"The Eagle Ford assets we are acquiring are highly strategic and accretive on a variety of metrics, and provide critical mass and scale for the company by significantly increasing our reserves and more than doubling our current production rate," said Sanchez Chief Executive Tony Sanchez III.

Mr. Sanchez said the company plans for continuous drilling of development locations on the newly acquired assets with one rig.

Hess has said it aims to turn itself into a pure exploration and production company, as hedge fund Elliott Management has urged it to restructure its operations. The energy company has said that it is exploring options for its entire downstream business and pruning its Asian portfolio.

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Local Participation Push for Major Australian Developments

Leaders of Australia's oil and gas industry are working together in an effort to develop methods towards increasing the amount of local content on major developments.

Locally based suppliers servicing the growing liquefied natural gas sector in Western Australia (WA) have expressed concern in recent years about being overlooked for development contracts.

Developers have cited the high Australian dollar, high labor costs and rising energy costs as reasons for opting to award contracts to competing foreign companies, often from Asia.

Despite these obstacles, developers have been urged to do more to increase local participation in projects.

Local suppliers are also being encouraged to develop a better understanding of the criteria to help them win contracts.

The issue was a key topic at the Australasian Oil & Gas Conference in Perth recently where industry groups, government representatives, and oil and gas companies discussed how more local participation could take place.

Paul Johnson, the Australian Government's Energy Resources Supplier Advocate, spoke at the conference and believes oil and gas developers need to take into account the capability and capacity of Australian suppliers if they want to boost the level of local content on their projects.

Johnson, who was appointed to this position in August of last year, said there was much good work happening in the sector to raise the capability of Australian firms to win work, but more could be done by both developers and suppliers.

"Project developers should take into account the limitations faced by Australian suppliers in undertaking large procurement packages, accessing the necessary finance and obtaining sufficient numbers of skilled workers," Johnson said.

"Small adjustments to the way projects are designed, engineered and procured can make a big difference to local suppliers.

"Early consideration of what can be done here should inform the design and engineering approach and basing some of the procurement team in Australia will lead to better engagement with local suppliers."

While major developers have been questioned for the amount of local content on their projects, Chevron reinforced its commitment to local suppliers through its conference presentation.

Colin Beckett, Chevron's general manager at the Gorgon LNG development, explained that the project had so far awarded $18.7 billion (AUD $18 billion) in contracts to local suppliers and created 9.000 jobs in the country.

However, he conceded that many Australian companies had not met the pre-conditions for tendering for work, with reasons including a lack of experience or capacity.

To assist in preparing local firms to win work, Australia's Department of Industry, Innovation, Science, Research and Tertiary Education last year engaged economic advisory firm, Development Impacts, to undertake a project examining best practices by companies successfully supplying into the sector to determine how they meet the needs of project proponents.

Pia Turcinov, Development Impacts director, explained to Rigzone that it found there was more to the issue than obstacles such as a high Australian dollar, a lack of financial profile and Australia's skills shortage.

"They are huge hurdles for Australian companies, but there are other issues surrounding what the benchmarks are that local companies need to meet before they are considered… even in the tender stage," Turcinov, who also addressed the conference, said.

"Our work on this project identified 22 key factors companies need to focus on.

"Yes, price was a major factor, but other key factors were about quality, flexibility, design capabilities, QA systems, technical expertise, after sale service, and financial capabilities and risk profile.

"We looked at factors such as these and how the better performing companies compare and where they are outperforming against expectations."

Turcinov explained that suppliers needed to establish a clear capability beyond just a normal website and marketing brochure, and it was advisable for them to look at forming alliances with other local companies to build profile and capability.

In an election year, both at a federal and state level in WA, political parties in Australia have been prioritizing this issue.

WA's governing Liberal Party regularly produces an industry participation framework aimed at ensuring the local industry receives opportunity to participate in major resource projects.

The opposing Labor Party in WA has also shown its commitment by releasing a discussion paper outlining its openness to the issue.

At a federal level, the governing Labor Party is focusing on strengthening opportunities for the local industry through a proposed plan administering the issue.

Under the plan, major projects worth $519 million (AUD $500) million or more will be required to have an Australian industry participation plan identifying opportunities for local firms.

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CFO: Petrobras Will Need to Raise Net $4.3B Per Year to Fund Investments

RIO DE JANEIRO - Brazilian state-run oil company Petroleo Brasileiro, or Petrobras, expects to raise a net $4.3 billion in global capital markets each year to fund its investment plan over the next five years, Chief Financial Officer Almir Barbassa said Tuesday.

Speaking during a presentation to analysts, Mr. Barbassa said increased crude oil production during the 2013-2017 period covering the investment plan had allowed Petrobras to reduce its net financing needs by 50% compared with the 2012-2016 investment plan. Petrobras also expects to raise about $9.9 billion from divestments as part of the plan, Mr. Barbassa said.

Petrobras plans to invest $236.7 billion to develop massive offshore oil fields recently discovered off Brazil's coast, virtually the same level as last year's investment plan. Crude oil production is expected to reach 2.75 million barrels per day by 2017, according to the company.

Gross debt needs are expected to be about $12.3 billion annually over the next five years, Mr. Barbassa added.

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Iraq Plans to Invest $130B in Oil, Gas Over 5 Years

Iraq plans to invest some $130 billion over the next five years in order to triple the country's output, which is currently stood at 3.25 million barrels a day, the country's oil minister said Saturday.

Abdul Kareem Luaiby said that his country would allocate $18 billion to raise natural gas output and $25 billion to upgrade refinery capacity. Iraq expects to earn some $600 billion in revenue from these oil expansion plans, Mr. Luaiby told an energy conference held in Basra.

Iraq has boosted its crude oil production last year by 24%, thanks to several oil deals Iraq signed with international oil companies such as Royal Dutch Shell PLC, BP PLC, Exxon Mobil Corp., Eni SpA, OAO Lukoil Holdings and China National Petroleum Corp.

Iraq's crude oil exports have, over the last few months, surpassed those of Iran and became the Organization of the Petroleum Exporting Countries' second-largest producer.

Iraq's crude oil exports in February rose by 7.5%, to 2.536 million barrels a day on month, compared with 2.359 million barrels a day in January, according to figures released by the State Oil Marketing Organization, or SOMO. Iraq plans to raise exports to 2.9 million barrels a day this year.

Production from Iraq's super-giant Majnoon oil field, which is being developed by Shell, will reach 100,000 barrels a day in May and 200,000 barrels a day by the end of the year, Luaiby told the conference.

Last year, the Paris-based International Energy Agency estimated that Iraq would be able to pump up to 6.1 million barrels a day in 2020 and 8.3 million barrels a day in 2035. Iraq said it would be able to reach 8 million to 9 million barrels a day in 2020.

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Eni CEO Cautiously Optimistic about Zubair Field

MILAN - Eni SpA's chief executive says he is cautiously optimistic about the further development of the Zubair oil field in Iraq, given how it is taking longer than expected.

"We entered the Zubair project with a lot of enthusiasm and the conviction that, in time, the situation of the country would have normalized. But things are going more slowly than expected and we ask ourselves if the effort...that we are putting into it is adequately remunerated," Paolo Scaroni is quoted as saying in an interview published Monday in Italian newspaper la Repubblica.

"We have spoken of the problem, which is not just ours, to the Baghdad authorities and opened a dialogue from which we have perceived some positive signals and for which we are cautiously optimistic."

Since winning a 20-year service contract in 2009, Eni is leading a group to develop the field, which is producing about 300,000 barrels per day and is expected to increase it to 1.125 million barrels in 2016.

In Venezuela, where production at the Jumin 5 field in the Orinoco region has begun, Mr. Scaroni says Eni will build a plant next year to lighten the extracted crude in order to make it easier to sell.

"Relations are good and I don't see any reason for them to change," he says, in reference to the likely political developments in the country following the death of the country's leader Hugo Chavez.