COMPANY NEWS: BP, Chesapeake establish Fayetteville shale JV

BP America and Chesapeake Energy Corp. plan to establish a joint venture that will produce 180 MMcfd of gas equivalent from shale assets in Arkansas.

According to a letter of intent signed Sept. 2, BP will pay $1.9 billion for a 25% interest in Chesapeake’s Fayetteville shale assets. The assets cover 540,000 net acres, which the companies believe could support the drilling of as many as 6,700 future horizontal wells. Following the deal’s completion, BP will own 135,000 net acres and Chesapeake will own 405,000 net acres.

In other recent company news:

1. TNK-BP Ltd., long under fire from its Russian backers, said the firm’s executive vice-president for downstream Tony Considine would leave Sept. 15 to “pursue other opportunities.”
   
   “Tony has led the transformation of our refining and marketing business, including value chain optimization,” said TNK-BP Chief Operating Officer Tim Summers, who added that Considine’s work had improved the company’s bottom line.
2. Chevron Corp. said two subsidiaries agreed to sell Chevron’s fuels marketing business in Brazil to a subsidiary of Ultrapar Participacoes SA for $730 million plus a working capital adjustment. The closing price will be based on exchange rate fluctuations and the actual working capital sold, said officials.
3. Imperial Energy Corp. has recommended that its shareholders accept a £1.4 billion takeover deal from Jarpeno Ltd., a wholly owned subsidiary of ONGC Videsh Ltd. (OVL) of India.
4. The Canadian government has approved Shell Canada Ltd.’s acquisition of unconventional gas producer Duvernay Oil Corp. for $5.9 billion (Can.). The deal adds to Shell’s portfolio acreage in the Western Canadian Sedimentary Basin.
5. Australia’s Federal Court has approved the merger plans of Arc Energy Ltd., Perth, and Australian Worldwide Exploration Ltd. (AWE), Sydney (OGJ, May 19, 2008, p. 33).

BP, Chesapeake shale deal

This most recent deal marks the second such deal signed between BP and Chesapeake. It follows closely after a $1.7 billion acquisition for the Arkoma basin Woodford shale assets in Oklahoma.

Andy Inglis, BP chief executive of exploration and production, said the JV was a strategic entry into three top-tier shale plays in North America, and BP could acquire 1 billion boe from the shale resources. This deal was critical to BP’s developing a leading position in unconventional gas technology and boosting North American onshore natural gas production from its current level of 470,000 boe/d.

It will give Chesapeake $1.1 billion in cash at closing and will pay for Chesapeake’s 75% share of drilling and completion expenditures until the outstanding $800 million has been met throughout 2008 and 2009.

Chesapeake is reportedly planning to continue acquiring leaseholds in the Fayetteville shale play. BP said it will have the right to a 25% participation in any such additional leasehold.

Chesapeake is also in discussions with other companies to reach a similar agreement over its Marcellus shale assets, which it hopes to complete by yearend.

Considine to leave TNK-BP

TNK-BP’s announcement of Considine’s departure came just a month after TNK-BP Chief Executive Robert Dudley left Russia in the face of what he said was “sustained harassment.”

Dudley, who has been banned by a Moscow court from working in Russia for 2 years, continues to run TNK-BP from the UK. In the course of his duties this week, Dudley accused Russian labor authorities of abusing their power.

In a letter sent to top officials in the employment, security, justice, and corruption authorities, Dudley said the frequency and timing of inspections carried out against the company suggested “an abuse of power by the (Moscow) State Labor Inspectorate as well as a possible interest on its part in the outcome of the inspections.”

In his seven-page letter, Dudley suggested that the abuse of power was instigated by higher authority, saying, “The unambiguous conclusion is that the said officials were carrying out somebody’s orders.”

Yuri Gertsy, who heads Russia’s Federal Service for Employment and Labor Regulations, denied Dudley’s claims. Gertsy said the Moscow division acted properly as indicated by the court decision, which said Dudley broke labor laws and [that] barred him from holding executive office for 2 years.

Dudley’s leadership of the company is said to be one of the major issues that threatens to break up the 5-year-old partnership between BP PLC and its billionaire Russian partners. The Russian backers have called for Dudley’s resignation.

Ultrapar buys Chevron assets

Under terms of the agreement, Ultrapar will acquire a network of 2,000 service stations operating under the Texaco brand, an equity interest in associated terminal operations, and Chevron’s commercial and industrial fuels business. Other terms of the agreement were not disclosed.

The sale of retail fuels marketing operations in Brazil is consistent with the company’s move to concentrate downstream resources and capital on strategic global assets, said Mike Wirth, Chevron executive vice-president, global downstream. “By restructuring our worldwide portfolio, we intend to reduce capital employed, deliver stronger returns and achieve more profitable growth,” he said.

“Brazil remains an excellent country in which to do business,” noted Shariq Yosufzai, president, Chevron global marketing. “We plan to continue growing our presence there by focusing on our lubricants and upstream operations,” he said.

Texaco is the fourth-ranked fuel brand in Brazil by sales volumes. Under the Texaco brand, Chevron sells an average of 120,000 b/d of fuel in Brazil.

Jarpeno-Imperial Energy deal

Jarpeno’s buyout offer of Imperial Energy continues a major trend where larger operators look to build asset bases overseas to offset dwindling domestic production.

Last month, Imperial announced that an unnamed suitor—believed to be ONGC—had offered a higher, 1,290 pence/share approach. Analysts have concluded that the reduced price was fair and resembled changing market conditions.

R.S. Butola, managing director of OVL, said the company was interested in Imperial because its operations would increase in size and value. “We believe OVL’s financial strength and technical expertise will further enhance the attractive growth potential of the business in the Tomsk region. Additionally, we view this as an important opportunity to expand on the continuing cooperation between Russia and India in the energy sector.”

Imperial has assets in western Siberia and has reported 450 million bbl reserves under Russian standards. Sinopec, China’s biggest state-owned oil company, has also expressed an interest in acquiring Imperial. According to reports, Su Shulin, the company’s chairman, said its parent company was doing preliminary work on a bid for Imperial Energy.

OVL, the overseas arm of ONGC, has a 20% stake in the ExxonMobil-led Sakhalin-1 oil and gas project. The Kremlin is preventing the consortium from exporting gas. Analysts have questioned whether OVL can operate in Russia without interference from the authorities if its transaction to buy Imperial Energy goes ahead as the Kremlin increases its control over the oil and gas sector.

Imperial Energy was launched in 2004 on the Alternative Investment Market in London with a market capitalization of £2 million. It has progressed to the FTSE 250 and is valued at more than £1.4 billion.

Shell Canada-Duvernay

Wholly owned Shell Canada subsidiary BRS Gas Corp. acquired 97.7% of Duvernay’s common shares and will pay for them on or before Aug. 27. BRS Gas offered $83/share for Duvernay in July (OGJ Online, July 14, 2008).

Duvernay has 25,000 boe/d of production, predominantly gas. It plans to increase production to 70,000 boe/d by 2012. Duvernay owns and controls the gas processing and delivery infrastructure in both large project areas.

BRS Gas will buy the remaining Duvernay common shares that were not deposited to the offer. It will then delist Duvernay’s common shares from the Toronto Stock Exchange and apply to securities regulatory authorities to stop issuing them, Shell Canada said.

Arc-AWE merger approved

The approval of the Arc-AWE merger paves the way for a spin-off of Arc’s Canning basin assets in Western Australia into exploration vehicle Buru Energy Ltd., which is to be chaired by Arc’s managing director Eric Streitberg.

Arc shares were suspended after close of trade on the Australian Stock Exchange Aug. 11 pending the merger.

Arc says the merger and the spinoff of Buru are expected to be implemented Aug. 25, with trading in Buru to begin Sept. 1 on the Australian Stock Exchange.

The new Arc-AWE entity will own a 57.5% stake in the producing Cliff Head oil field in the offshore Perth basin of Western Australia as well as a 42.5% interest in the BassGas gas-condensate project in Bass Strait to pipe gas to Victoria (based on Yolla field reserves in Tasmanian waters).

The combined portfolio also will contain AWE’s share of Tui oil field off New Zealand, Casino gas field in the Otway basin off western Victoria, and Arc’s onshore Perth basin oil and gas fields.