Drilling advances

	Vol. 231 No. 5
JIM REDDEN, CONTRIBUTING EDITOR

Need a program to see who’s playing where

Among the cast of legendary characters of the Texas oil patch, Eddie Chiles managed to stand out. The late founder of the erstwhile Western Company of North America was straight out of central casting, somewhat bombastic, a tad salty—especially when irritated, which was quite often—and always a magnet for attention.

When Eddie Chiles spoke, folks tended to listen. Then again, if you lived anywhere in the vicinity of US oil fields in the 1970s, he was hard to miss. In a move that most marketing gurus today would consider a bit unorthodox at best, Eddie bought television time throughout the US to tell primetime audiences how his company, which pioneered the acidizing process, was such a joy to work with that, “If you don’t have an oil well, get one; you’ll love doing business with Western.”

For those who didn’t follow Eddie’s advice back then, well, now’s your chance. That is, if you happen to find a couple billion dollars or so of discretionary income lying around.

Since the first of the year, oil and gas properties—producers and prospects alike—seem to be changing hands with the regularity of a politician apologizing for some boo-boo. Nothing particularly newsworthy about that. Operators routinely have put up “for sale” signs on leases ever since “Colonel” Edwin Drake decided it might be cool to drill an oil well in Pennsylvania. What is surprising in this go-round, however, are some of the prices being paid, which would seem to suggest the buyers believe the industry has turned a corner. During past down cycles, majors and small independents alike managed to scoop up attractive properties at a discount from sellers desperate to raise capital and appease antsy shareholders. But not this time, as the recent spate of property buying has been anything but a global fire sale.

The latest case-in-point is China’s Sinopec gobbling up ConocoPhillips’ 9% stake in Syncrude Canada, a seven-company consortium that is the largest producer in the Alberta oil sands. That came as no surprise since ConocoPhillips has not been bashful in saying it intends to pay down debt and become a leaner and more focused operator. What is a bit eyebrow-raising is the $4.65 billion premium Sinopec paid for the assets, which industry analysts say was nearly double what the holdings were expected to fetch. With its high-octane economy returning to pre-recession levels, China’s mushrooming, auto-crazed middle class has the nation looking for oil anywhere it can find it, and, obviously, at any price.

One of the biggest check writers was independent powerhouse Apache Corp., which shelled out nearly $4 billion in separate deals to gain a position of strength in both the Gulf of Mexico shelf and deepwater plays. In mid-April, Apache took its very first steps in the deep water with the acquisition of Mariner Energy and the seven discoveries it operated on its nearly 100 deepwater GOM blocks. The deal also gave Apache some 240 blocks on the shelf, which augmented its $1.1 billion acquisition of all of Devon Energy Corp.’s shallow-water GOM assets a couple of weeks earlier. That deal came only a few months after MacMoRan’s giant Davy Jones discovery promised to breathe new life into the once-quiescent shelf.

Shortly before the Apache acquisition came to light, Devon added another $7 billion to its purse when BP agreed to procure all of the operator’s deepwater assets in the Gulf of Mexico, Brazil and Azerbaijan. The Brazil liquidation reminded me of the trip I took to Rio de Janeiro three years ago, where I met with local Devon hierarchy who said the operator was firmly committed to Brazil, telling me, “We’re looking at Brazil as one of our largest international markets.”

But, as we all know, change is inevitable, strategies evolve and, of course, money speaks loudly. Then again, all this should come as no surprise, considering Devon has told anyone who would listen that it wanted out of the offshore and would put its focus onshore North America. As proof, around the same time BP purchased Devon’s deepwater properties, the two companies announced they would establish a joint venture to develop BP’s Kirby oil sands leases in Alberta.

Also in April, W&T Offshore entered into an agreement to acquire the interest Total E&P USA holds in three deepwater Gulf of Mexico blocks that include the French operator’s Matterhorn Field on Mississippi Canyon Block 243 and Virgo Field on Viosca Knoll Blocks 822 and 823, in 2,800 ft and 1,130 ft of water, respectively. This time, no purchase price was announced. Ironically, in March 2008 Total was high bidder on 13 deepwater blocks in the Central GOM Lease Sale 206.

These are the biggies, but there have been a smattering of other acquisitions in the last couple of months that, by comparison, flew somewhat under the radar. Suffice it to say, documenting them all would require much more space than we have here. Non-oilfield players even got in on the action, with coal miner Consol Energy Inc. of Pittsburgh, Penn., offering a reported $3.475 billion for Dominion Resources’ Marcellus Shale holdings.

While everyone speculates on what all this means, the service and supply companies are left scrounging for programs so they can find out what players are playing on what fields. As someone who spent more than a few years in that side of the business, I know firsthand the value of relationships for these guys. For instance, say Technical Sales Representative A has a long and mutually beneficial relationship with Operator A on a particular asset. Then Operator A sells off to Operator B, who happens to have a long and satisfying relationship with Sales Rep B from a competing supplier. Where does that leave Sales Rep A?

As a “glass half full” kind of guy, the magnitude of these deals tells me the folks behind the closed boardroom doors see this as an industry with an upside definitely worth these hefty, and reportedly above-market, investments. So perhaps Sales Rep A has little to worry about, because if what we’re seeing bears fruit, there promises to be plenty of work to go around.