Houston-based Baker Hughes Inc. has reached settlements with the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). These settlements resolve the investigations, disclosed in 2002 and 2003, into Baker Hughes’ operations in Angola, Kazakhstan, and Nigeria.
The total agreed-upon payments are $44.1 million, for which the company recorded a reserve in the fourth quarter of 2006. The criminal fine to settle the DOJ allegations is $11 million. Ten million is being paid as a civil penalty for violating a September 2001 cease and desist order from the SEC, and $23 million is being returned from profits made in Kazakhstan.
Under the terms of the settlements with the DOJ and SEC: A subsidiary of the company pleaded guilty to violations of the Foreign Corrupt Practices Act (FCPA) as a result of payments made between 2001 and 2003 to a commercial agent retained in 2000 in connection with a project in Kazakhstan.
The related allegations accused the company of paying $4.1 million over the 2-year period to Kazakhstan middlemen knowing they would use part of it as a bribe. Soon after the money was paid, Baker Hughes won a $219 million contract in the Karachaganak oil field.
The company agreed with the SEC to the entry of a Consent Judgment charging violations of the anti-bribery provisions of the FCPA arising from the engagement of agents to obtain contracts in Kazakhstan.
The Consent Judgment also charges violations of the books-and-records and internal-controls provisions, and the terms of a September 12, 2001 cease-and-desist order, arising from these and other activities in Kazakhstan, Angola, Nigeria, Indonesia, Russia, and Uzbekistan.
The company entered into a deferred prosecution agreement with the DOJ, under which the government will not further prosecute the company for these activities if the company meets the conditions of the agreement for two years. The company will hire a government-approved monitor to oversee its compliance activities for a 3-year period.
Chad Deaton, chairman and CEO of Baker Hughes, said, “Since the commencement of these investigations in 2002, we have cooperated fully with the SEC and DOJ. The acts which resulted in these enforcement actions are contrary to our core values, our policies and our expectations for ethical behavior. The company has terminated employees and commercial agents that it believes were directly involved. In addition, we have further strengthened the compliance culture within the company by making extensive improvements and enhancements to our compliance program.”
The news did not appear to affect stock prices, or company earnings. According to a company spokesperson, Baker Hughes had roughly $46 million in reserves in anticipation of a settlement.
GE Unit invests $154 million with exploration companies for reserves in Oklahoma, Texas
GE Energy Financial Services has partnered with 2 operators to acquire $154 million in oil and gas reserves in Oklahoma and Texas. With Bays Exploration Inc., the GE unit acquired oil and gas reserves in western Oklahoma for $79 million. In addition, Energy Financial Services plans to invest up to $60 million for the development of the reserves.
In the second transaction, GE Energy Financial Services partnered with Southern Bay Energy, a subsidiary of GeoResources Inc. to acquire oil and gas properties in the Austin Chalk trend of East Texas for $75 million. GE Energy Financial Services plans to invest an additional $27 million for the development of these properties.
Additional financial and operational details of the two transactions were not disclosed. An affiliate of GE Energy Financial Services holds limited partnership interests in 2 separate partnerships, with Bays Exploration Inc. and an affiliate of Southern Bay Energy serving as general partners of the 2 entities and operators of the respective properties.
“Our partnership combines the Bays Exploration team with the financial strength of GE,” said Joe Bays, president of Bays Exploration. “This blend will allow us to accelerate the development of our proved reserves in an efficient manner.”
Frank A. Lodzinski, CEO and president of GeoResources, stated: “Adding this asset to our existing properties will allow us to continue our profitable growth and provide additional drilling opportunities. With the multiple locations provided by this acquisition, we will be able to grow our production rate, reserves and cash flow at reasonable costs. We expect to keep a rig busy drilling on these properties for at least the next two years.”
“These two investments present excellent growth opportunities for GE working with experienced management teams,” said John Schaeffer, managing director and head of the oil and gas unit at GE Energy Financial Services. “Bays’ and Southern Bays’ experience in oil and gas development, together with GE Energy Financial Services’ deep industry knowledge and commitment, create the potential for strong operating results.”
Based in Stamford, Conn., with offices in Houston, the oil and gas unit’s partnership investments produce an estimated 100 MMcf of natural gas and 15,000 barrels of oil daily.
Bays Exploration Inc., a wholly-owned subsidiary of Bays Enterprises Inc., is an exploration and production company with offices in Oklahoma City, Okla., and Boerne, Tex. Merrill Lynch Petrie Divestiture Advisors advised Bays throughout this transaction.
As a result of the merger completed April 17, 2007 between GeoResources Inc., Southern Bay Oil & Gas LP, and Chandler Energy LLC, Southern Bay became a wholly-owned subsidiary of GeoResources. The management of Southern Bay and Chandler became the principal management of the combined entity. The company headquarters and southern region operating offices are located in Houston, and its northern region office is located in Denver.
ExxonMobil drills world-record well
ExxonMobil’s subsidiary, Exxon Neftegas Ltd., has completed drilling of the Z-11 well, the longest measured depth extended-reach drilling well in the world. Located on Sakhalin Island offshore Eastern Russia, the record-setting Z-11 achieved a total measured depth of 37,016 feet or over 7 miles. The multiphase Sakhalin-1 Project includes the Chayvo field which is located 5 to 7 miles offshore. The Z-11 was drilled to the Chayvo reservoir from the Yastreb rig, the world’s largest land-based drilling rig. Overall, the Chayvo field reached its peak production rate of 250,000 b/d in February 2007 after an on-schedule startup in October 2005. The Z-11 is the 17th ERD producing well to be completed as part of the Sakhalin-1 Project. It was drilled in 61 days, more than 15 days ahead of schedule and below expected cost with no safety or environmental incidents. Houston-based Parker Drilling designed, built, and operates for the Sakhalin-1 Consortium.
Noble Energy to plug, abandon Adriana Southwest well; continues West Africa drilling plans
Noble Energy Inc.’s ‘O-2’ exploration well (the Adriana Southwest prospect) on block ‘O’ offshore Equatorial Guinea did not contain commercial hydrocarbons. The well, located in 1,500 feet of water and about 13 miles offshore Bioko Island, was drilled to a total depth of 12,638 feet. The well did encounter thicker than expected sands in the target Miocene interval. The well will be plugged and abandoned.
Adriana Southwest is the first of 6 to 8 wells the company plans to drill in West Africa through 2008. The Songa Saturn drill ship will be mobilizing to the second location, the Benita prospect on block ‘I’. Benita is located 24 miles offshore Bioko Island in 2,880 feet of water. The well will drill to a total depth of 11,150 feet.
Alan Bullington, senior vice president of International, said, “We remain optimistic about the resource potential on our acreage in West Africa. The Adriana Southwest prospect had the weakest amplitude versus offset response of the Miocene prospects on our current drilling schedule. This was important to understand due to the potential of it being indicative of crude oil or natural gas with higher condensate yields. While Adriana Southwest was unsuccessful, we have now gained a great deal of insight into the geology and seismic responses in this lightly explored area. We now have two control points to calibrate the seismic responses as we move ahead with our West Africa drilling program as planned.”
Noble Energy is the technical operator of blocks ‘O’ and ‘I’ with 45% and 40% participating interests, respectively. Its partners on Block ‘O’ include GEPetrol (the national oil company of the Republic of Equatorial Guinea) as administrative operator with a 30% participating interest (10% carried) and Glencore Exploration Ltd. with a 25% participating interest. Its partners on block ‘I’ are Atlas Petroleum International Ltd. (54% working interest) who is the administrative operator, and Osborne Resources Ltd. (6% participating interest). GEPetrol has a 5% carried interest once commerciality has been determined.
Noble Energy is an independent energy company that operates throughout major basins in the US including Colorado’s Wattenberg field, the Mid-continent region of western Oklahoma and the Texas Panhandle, the San Juan basin in New Mexico, the Gulf Coast, and the deepwater Gulf of Mexico. Noble Energy also operates internationally in Argentina, China, Ecuador, the Mediterranean Sea, the North Sea, West Africa, and Suriname.
Right of first refusal stops Gastar interests acquisition; Chesapeake continues urban Barnett shale campaign
A previously announced transaction between Chesapeake Energy Corp. and Gastar Exploration Ltd. will not take place due to a third-party exercising its right of first refusal through an existing agreement.
Originally, Chesapeake was to acquire all of Gastar’s right, title, and interest in a portion of its East Texas undeveloped leasehold and purchase 10 million newly issued Gastar common shares. The original letter of intent would have cost Chesapeake $92 million.
However, because of certain anti-dilution rights previously obtained, Oklahoma City-based Chesapeake will acquire approximately 1.8 million additional shares from Houston-based Gastar at the price of $2.00 per share.
Chesapeake will own about 34 million Gastar common shares instead of the planned 42.2 million. Chesapeake’s fully-diluted ownership in Gastar is now 14.95% of Gastar’s basic shares outstanding instead of the 20.5% the company would have held after the now-defunct transaction.
According to Chesapeake chairman and CEO Aubrey McClendon, the aforementioned acerage block that Chesapeake was trying to acquire is located several miles northwest of Chesapeake’s currently drilling 22,000 foot deep Bossier test, the Theiss #1. It also is located on trend with two recently completed wells drilled by Encana Corp. that are reportedly together producing more than 100 million cubic feet of natural gas (MMcf) per day from deep Bossier sands. The leading edge of the acreage is located within 1.5 miles from the nearest Encana well.
In other news, Chesapeake has signed a lease with Colonial Country Club to drill for natural gas under the club’s 157-acre site in southwest Fort Worth. Chesapeake will drill from just north of the northern boundary of the club at a site off of Rogers Road.
The company purchased 8.3 acres from Elk River Investments that was previously scheduled to become an office park. Chesapeake will instead use the site to drill north underneath the Union Pacific Railroad Davidson rail yard and south underneath Colonial and surrounding neighborhoods.
Colonial’s board of governors appointed an energy committee comprised of club members to analyze and evaluate options from different energy companies. “We ultimately chose Chesapeake for several reasons,” said Bill Bowers, president of Colonial Country Club. “We realized that this is a 20-year-plus relationship and we wanted to make sure we selected a partner who had the proven history and industry expertise to go the distance.”
“We were also impressed with Chesapeake’s environmental responsibility and urban sensitivity,” Bowers noted. “With drilling occurring within our neighborhoods and adjacent to our fairways, we wanted an operator who demonstrated concern for noise abatement and air quality as well as aesthetics. Chesapeake is a proven leader in those areas.”
With the Colonial lease secured, Chesapeake will also be able to reach surrounding areas such as Park Hill to the east and Alamo Heights to the north without having to physically access the neighborhoods. “Our average Barnett Shale horizontal well lateral length is 3,000 feet,” said Julie Wilson, vice president of corporate development in Chesapeake’s Barnett shale headquarters. “Depending on the leasehold available, we may be able to drill as far as 5,000 feet, or just about a mile away from the drillsite. This will give a lot of homeowners the opportunity to have their minerals produced in a very convenient and non-intrusive manner.”
Drilling under the Colonial Country Club and Davidson rail yard is tentatively scheduled to begin in 2008.
Rockies Express Pipeline to begin construction on REX-West
The Federal Energy Regulatory Commission (FERC) has approved construction of the Rockies Express-West project, 713 miles of 42-inch diameter pipeline that will extend from the Cheyenne Hub in Weld County, Colo., to an interconnection with Panhandle Eastern Pipe Line located in Audrain County, Mo. The pipeline will also interconnect with the pipeline systems of Kinder Morgan Interstate Gas Transmission, Northern Natural Gas Co., Natural Gas Pipeline Co. of America, and ANR. The construction has an in-service target date of Jan. 1, 2008.
“The sponsor companies appreciate the timely manner in which the FERC completed its environmental review and subsequently authorized the certificate for Rockies Express-West,” said Scott Parker, president of Kinder Morgan Energy Partners’ Natural Gas Pipelines group. “We look forward to completing another significant segment of the Rockies Express project, which will transport natural gas from the prolific Rocky Mountain supply basins to markets in the Midwest.”
Rockies Express Pipeline LLC is a $4.4 billion joint venture of Kinder Morgan Energy Partners, Sempra Pipelines and Storage, a unit of Sempra Energy, and ConocoPhillips, and is one of the largest natural gas pipelines to be constructed in North America. When completed, after receipt of all necessary approvals, the 1,678-mile pipeline will have a capacity of about 1.8 billion cubic feet per day. Binding firm commitments from creditworthy shippers have been secured for virtually all of the capacity on the pipeline. KMP is overseeing construction of the project and will operate the pipeline.
The first 328-mile segment of the Rockies Express project, which runs from the Meeker Hub in Rio Blanco County, Colo., to the Wamsutter Hub in Sweetwater County, Wyo., to the Cheyenne Hub, is in service and has a current capacity of 500,000 dekatherms per day. The final segment of the project is Rockies Express-East, which will consist of 637 miles of pipeline from eastern Missouri to the Clarington Hub in eastern Ohio. Subject to receipt of regulatory approvals, Rockies Express-East is expected to begin interim service as early as Jan. 1, 2009, and to be fully operational by June 2009.
Contract launches Apache’s Van Gogh development in Australia’s Exmouth basin
Apache Corp. has signed a contract for a floating production, storage, and offloading (FPSO) vessel to be used in the company’s $500 million Van Gogh development in Western Australia’s Exmouth basin. When it comes on line in 2009, the project is expected to add 20,000 b/d to Apache’s net worldwide oil output.
Apache, on behalf of its joint venture with Inpex Corp., signed the contract with a subsidiary of Prosafe SE, of Stavanger, Norway, for use of the tanker MT Kudam, which will be converted for FPSO service. Apache and Inpex will pay $40 million plus operating expenses per year for a 7-year term with options for an 8-year extension or to acquire the vessel. Apache owns 52.5% of the development; Tokyo-based Inpex owns 47.5%. Apache’s net share of the drilling and subsea development project will be about $260 million.
The moored FPSO will be linked to 2 subsea drill centers with 10 production wells, 2 water injection wells, and one gas injection well. The MT Kudam will have processing capacity of 63,000 b/d and storage capacity of 620,000 barrels of oil. The oil will be marketed in Asia. Development drilling at Van Gogh is expected to begin by June.
“Apache has a strong growth profile in Australia, with the Van Gogh and Pyrenees oil developments in the Exmouth basin, the Reindeer gas discovery and, most recently, the Julimar-1 gas discovery,” said G. Steven Farris, Apache’s president and CEO. “Drilling is under way on Apache’s 5-well exploratory program slated for the Exmouth basin in 2007. In Australia and our other core growth areas - Canada and Egypt - we have an arsenal of maturing exploration prospects that will be drilled this year.”
The Pyrenees development, operated by BHP-Billiton, is expected to receive a formal go-ahead in the near future. It is also expected to add 20,000 b/d to Apache’s net production during 2009. The Van Gogh and Pyrenees developments will provide production volumes equivalent to roughly 15% of Apache’s current net worldwide oil production. Apache Corp. is a large oil and gas independent with operation in the US, Canada, the UK, North Sea, Egypt, Australia, and Argentina.
Hydril stockholders approve Tenaris merger
Houston-based Hydril Co. stockholders approved the merger agreement with Tenaris S.A. and the previously announced merger with a subsidiary of Tenaris S.A. Hydril will become an indirect, wholly-owned subsidiary of Tenaris. Hydril stockholders will receive $97.00 in cash for each share of Hydril common stock and class B common stock they own. Hydril is engaged worldwide in designing, manufacturing, and marketing connection and pressure control products used for oil and gas drilling and production.
Sonoran Energy reports West Texas KWB progress
Sonoran Energy, the independent oil and gas exploration and production company, has started production from its West Texas KWB asset. These fields were part of the Baron Oil acquisition, expanded by new leases concluded during the last several months.
Sonoran’s plans for KWB focus on re-entering existing wells for re-completion. The plan for new production zones is to apply latest-technology stimulation techniques and more completely exploit the Strawn reservoir. The Strawn is believed to contain a significant reservoir of largely untapped hydrocarbons. Once meaningful baseline production has been established in KWB, a limited number of development wells will be drilled in this area.
Sonoran re-entered the long-abandoned KWB field and repaired and revitalized existing infrastructure. With the re-completion and fracture-stimulation of three gas wells in the Canyon and the repair and re-activation of one plunger-lift well, initial production rates have met or exceeded management expectations. Steady improvements made in the completion and stimulation of these initial wells has allowed the latest well to test at an initial rate of almost 600 Mscfpd. Restrictions in the gas collection system presently limit field production but as these bottlenecks are removed, field performance is expected to benefit. The field is producing roughly 600 Mscf and 20 bbl of high-gravity oil per day as the wells continue to clean up.
Peter Rosenthal, Sonoran chairman and CEO, said, “I am very pleased to report progress from this our third production area in the US and expect a long lasting and profitable development program in this area. What makes this development particularly interesting is that we have a significant number of existing well bores in the area that are candidates for a similar re-entry program. It is a good example of what we can do with the right technical skills and a sharp focus. This new and growing production stream will help finance our further capital program as well as support complementary acquisitions.”
Ralph Watkins, Sonoran senior vice president operations commented, “Our approach to reactivation of the abandoned but under-exploited KWB field is typical of how we pursue low-risk production and reserves additions at minimal cost. With an inventory of over 70 inactive well-bores and drilling potential in this and offsetting acreage, we are very encouraged by these initial results.”
