Industry Briefs

Apache to acquire Cordillera Energy Partners for $2.85B

Apache Corp. has agreed to acquire Cordillera Energy Partners III LLC, a privately held company with operations that include nearly 254,000 net acres in the Granite Wash, Tonkawa, Cleveland and Marmaton plays in western Oklahoma and the Texas Panhandle, for $2.85 billion. The sellers, including EnCap Investments, other institutional investors and Cordillera management will receive approximately $600 million in Apache common stock. The balance of the consideration, $2.25 billion, will be funded with debt. In addition to estimated proved reserves of 71.5 million barrels of oil equivalent and current net production of 18,000 boe per day, Cordillera has assembled a large acreage position with significant resource potential including 14,000 potential drilling locations in liquids-rich Anadarko Basin plays. Cordillera will continue to acquire acreage in the area on Apache's behalf through closing, which is expected to occur by April 30, 2012. As noted by Global Hunter Securities January 23, 2012, Apache held 200,000 acres in the Granite Wash before the deal and that this acquisition adds liquids-rich acreage in the Cleveland and Marmaton plays (~60% liquids). The geographic spread isn't mentioned, nor are the reserve proportions, but Apache noted that 80% of revenue comes from liquids. "As of Q311, Cordillera had eight rigs in the play, four in Western Oklahoma and four in the Texas Panhandle around the Cleveland and Marmaton. Apache averaged 6.5 net rigs in the Central Region in 2011, the bulk of which are horizontals, with a planned 428 locations out to 2015 – Cordillera adds another 14,000 potential drilling locations across the Granite Wash," noted the analysts. Apache's advisers on the transaction were Goldman, Sachs & Co. and Tudor, Pickering, Holt & Co. Jefferies & Co. Inc. and JP Morgan Securities LLC acted as financial advisors, and Andrews Kurth LLP and Thompson & Knight LLP acted as legal advisors to Cordillera in the transaction. The acquisition is expected to be accretive to Apache's earnings and cash flow beginning in 2012. The development drilling program is self-funding beginning in 2013.

Stellus Capital Management spins off from DE Shaw

Stellus Capital Management LLC, an independent investment firm, has officially launched after its spin off from the D.E. Shaw group. The Stellus team will continue its current strategies of providing secured and unsecured loans to middle market companies and private equity sponsors in a wide range of industries to support growth, leveraged buyouts and refinancings, as well as its current strategies of providing equity and equity-linked debt to the North American energy sector with a focus on the upstream oil and gas segment. Most of the senior team members have worked together for more than 12 years, founding the Direct Capital unit at the D.E. Shaw group in 2004. Stellus has 15 investment professionals in four office locations, including its Houston headquarters, the New York area, San Francisco, and the Washington, D.C. area. Stellus will continue to focus on investing in companies with $5 million to $50 million in EBITDA. Stellus provides flexible capital solutions at all levels of the capital structure, including: first lien, second lien, unitranche, mezzanine, and convertible debt and preferred and common equity. Capital solutions can range from $10 million to over $100 million for public and private entities seeking capital for various purposes, including: acquisitions, recapitalizations, growth opportunities, leveraged buyouts, rescue finance, distressed or turnaround situations, and bridge loans.

Monterey Shale's Venoco plans merger

Venoco Inc., an independent energy company with substantial holdings in California's oily Monterey Shale, said Jan. 16 that it has entered into a definitive merger agreement under which Timothy M. Marquez, Venoco's chairman and CEO, who controls 50.3% of Venoco's common stock, will acquire Venoco through a wholly owned entity, Denver Parent Corp. Under the agreement, Venoco shareholders, excluding Marquez and his affiliated entities, will receive $12.50 per share in cash upon completion of the transaction. The price represents a premium of 63% to Venoco's closing price on Friday, Jan. 3, 2012, the last trading day before the announcement of the transaction and a premium of 75% to the volume-weighted one-month moving average for that date, and implies a total enterprise value of approximately $1.5 billion. Completion of the transaction is subject to certain closing conditions, including receipt of shareholder approval, regulatory approvals, a financing condition, and other customary conditions. BofA Merrill Lynch and Strategic Energy Advisors, LLC are acting as financial advisors to the special committee, and Squire Sanders is acting as legal advisor to the special committee. Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Marquez, and Citigroup and BMO Capital Markets are working with Marquez on the transaction.

Aon to move corporate headquarters to London

Aon Corp., a provider of risk management and HR solutions, plans to move its corporate headquarters to London. Aon believes the move will have several near- and long-term financial benefits, including increased financial flexibility and improved capital allocation. As part of this move, Chicago will continue as headquarters of the Americas for Aon. Building on its base of 6,000 employees in Chicagoland, Aon will be moving 750 jobs into the Aon Center in downtown Chicago where the company recently signed a letter-of-intent for a 15-year lease. Aon will change its jurisdiction of incorporation from Delaware to England. The change in corporate domicile will occur through a transaction that will require stockholder approval, and if approved, each stockholder will be entitled to receive one Class A Ordinary Share (US dollar denominated) of the newly formed English public limited company in exchange for each share of common stock of Aon the stockholder holds. Aon UK expects to be listed on the NYSE and to report earnings and other financial statements in accordance with Securities and Exchange Commission regulations, including dollar denominated financial statements. The transaction is expected to close in the second quarter of 2012.

Williams, DCP to expand Gulf of Mexico pipeline

Williams Partners LP and DCP Midstream Partners LP plan to expand the Discovery natural gas gathering pipeline system in the deepwater Gulf of Mexico. Discovery intends to construct the Keathley Canyon Connector, a 20-inch diameter, 215-mile subsea natural gas gathering pipeline for production from the Keathley Canyon, Walker Ridge and Green Canyon areas in the central deepwater Gulf of Mexico. Discovery has signed long-term agreements with the Lucius and Hadrian South owners for natural gas gathering and processing services for production from those fields. The Keathley Canyon Connector will originate in the southeast portion of the Keathley Canyon area and terminate into Discovery's 30-inch diameter mainline near South Timbalier Block 283. The pipeline will be capable of gathering more than 400 million cubic feet per day (MMcf/d) of natural gas. Construction on the project is expected to begin in 2013, with a mid-2014 expected in-service date. Total capital expenditures for the Keathley Canyon Connector are estimated near $600 million. Williams Partners' portion of capital expenditures on this project was included in its 2012 forecast issued on Nov. 1, 2011. In addition to the offshore gathering system, the Discovery system includes the Larose natural gas processing plant and Paradis fractionation facility. Williams Partners owns 60% of the Discovery system and operates it. DCP Midstream Partners LP owns the other 40% of the Discovery system.

Santos awards Subsea 7 contracts worth $60M

London-based oilfield engineering firm Subsea 7 has been awarded a $60 million SURF (subsea umbilicals, risers and flowlines) contract on the Fletcher-Finucane development offshore Western Australia. The contract, which is with Australian oil and gas firm Santos, involves the project management, engineering and installation of approximately 34 miles of flexible flowlines, more than 37 miles of umbilicals and associated structures to connect the wells to the existing Exeter Mutineer facilities. The contract also includes pre-commissioning activities and other associated services. Project management and engineering will begin immediately with offshore operations scheduled to commence late 2012 using Rockwater 2.

Pembina to buy Provident Energy in $3.1B deal

Pembina Pipeline Corp. has agreed to acquire all of the issued and outstanding common shares of Provident Energy Ltd. Provident shareholders will receive 0.425 of a Pembina share for each Provident share held, representing a 24.7% premium to Provident's closing share price of C$9.51 (all financial figures are approximate and in Canadian dollars unless otherwise noted) on January 13, 2012. Based on the 20-day weighted average TSX share price of Pembina of $29.11, the Provident Exchange Ratio represents a premium of 26.2% to Provident's 20-day weighted average TSX share price of $9.80. Based on the Provident Exchange Ratio and Pembina's share price quoted above, the combined company will have a market capitalization of C$7.9 billion and total enterprise value of C$10 billion, making it one of the largest publicly traded energy infrastructure companies in Canada. In addition, the transaction exposes the combined company to growth areas including Montney, Duvernay, Alberta Deep Basin, Pelican Lake heavy oil, Athabasca oil sands, Cardium, Swan Hills, Bakken, Marcellus, and Utica. The combined capital program of approximately $700 million of announced spending in 2012 (Pembina: $550 million, Provident: $150 million) will be allocated to major near-term projects including: Saturn and Resthaven liquids extraction facilities; Peace NGL pipeline expansion; Redwater liquids storage development; and Redwater fractionator capacity expansion. The combined entity will be led by Bob Michaleski, president and CEO of Pembina, and a combination of Pembina's and Provident's executive teams. Grant D. Billing and Jeffrey T. Smith, current members of the Provident board, will accept positions on the Pembina board. Randy Findlay, currently a director of both Pembina and Provident, will continue as a director of Pembina. Scotia Waterous Inc. is acting as financial advisor to Pembina with respect to the proposed transaction. Blake, Cassels & Graydon LLP is acting as Canadian legal advisor to Pembina and Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as US legal advisor to Pembina. TD Securities Inc. is acting as financial advisor to Provident. Norton Rose Canada LLP is acting as Canadian legal advisor to Provident and Andrews Kurth LLP and Dorsey and Whitney LLP are acting as US legal advisors to Provident.

Petrobras awards contract to DeepOcean

DeepOcean, part of DeepOcean Group Holding AS, has been awarded a two year contract valued at roughly $60 million from Petrobras E&P Services. The contract includes management, engineering, maintenance and repair of flexible pipelines and electro-hydraulic umbilicals recovered from Petrobras subsea installations in Brazilian waters. The work will be carried out by DeepOcean's Brazilian organization. The company will provide its own vessel, which will undergo a project upgrade for the contract. Additionally, DeepOcean will provide one ROV-system, the repair spreads system and onshore local engineering expertise. Preparations for conversion of vessel and start-up of the contract have already started. Offshore operations are due to commence in the second half of 2012.

Caballo Energy acquires Eagle Chief Midstream

Tulsa, OK-based Caballo Energy LLC has acquired Eagle Chief Midstream LLC, which owns a natural gas gathering and processing system in northwestern Oklahoma. The Eagle Chief assets are located at the intersection of the liquids-rich Mississippi Lime and Cana Woodford Shale plays. Eagle Chief is connected to more than 370 wells and serves 25 producers. The Eagle Chief system includes more than 600 miles of natural gas gathering pipelines, compression and processing assets located in Alfalfa, Blaine, Garfield, Major and Woods counties. In early 2013, the company plans to install a new cryogenic plant, bringing total natural gas processing capacity to approximately 100 million cubic feet per day. Caballo delivers processed gas to ONEOK Gas Transportation and Panhandle Eastern Pipe Line. Natural gas liquids are delivered to ONEOK NGL Pipeline. The Eagle Chief system also includes salt water disposal and crude oil gathering systems. Caballo Energy is backed by private equity commitments from EnCap Flatrock Midstream of San Antonio.

Lufkin Industries expands automation offering

Lufkin Industries, a global provider of artificial lift products, services and automation solutions for the oil and gas industry, has completed the acquisition of Datac Instrumentation Ltd. and RealFlex Technologies Ltd. Datac, based in Dublin, Ireland, provides systems integration for supervisory control and data acquisition to the oil and gas, power, water and wastewater, and transportation and marine industries. RealFlex, also based in Dublin, offers real-time server software packages for systems integration for supervisory control and data acquisition and process control applications. While terms of the deal were not disclosed, funding is expected to come from cash and availability from Lufkin's $175 million credit facility (ability to increase to $225 million, if needed), noted Global Hunter Securities analysts January 19.

Texcom opens liquid disposal site in heart of Eagle Ford Shale

Houston-based TexCom Inc., an environmental services company for the oil and gas industry, has opened its new liquid disposal site, owned and operated by its wholly owned subsidiary Eagle Ford Environmental Services LLC (EFES). The site is engaged in the responsible disposal of salt water generated by oilfield drilling operations in the Eagle Ford Shale. Located adjacent to Highway 16, 18 miles south of Jourdanton, Texas and three miles north of McMullen County, TexCom's new disposal site is positioned in the heart of the Eagle Ford Shale. Initially accepting salt water for injection disposal, EFES plans to soon expand services at the site to include the processing and disposing of frack water and providing truck wash-out services.

Surmont Energy completes Alberta oilsands 3-D seismic program

Calgary-based private company Surmont Energy Ltd., in conjunction with its operating partner Bounty Developments Ltd., has completed field acquisition of a $3 million 13 square kilometer 3-D seismic program southwest of Ft. McMurray, Alberta.The seismic program's results are being used to select locations for approximately 12 oilsands coreholes that are planned to be drilled before March 15, 2012 at a cost of approximately $6 million. The company plans to utilize the results of this year's seismic and drilling program, together with the results of previous years' seismic and coreholes, to make regulatory applications for a 10,000-12,000 barrel per day steam-assisted-gravity-drainage (SAGD) project.

Court order dismisses Dril-Quip from Deepwater Horizon litigation claims

Judge Carl J. Barbier, the federal court judge in the Eastern District of Louisiana presiding over the multi-district proceeding In Re: Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010, issued an order granting Dril-Quip's Motion for Summary Judgment and dismissing all claims asserted against Dril-Quip. The court stated that it found no evidence showing that any equipment manufactured by Dril-Quip Inc. played any role in causing or contributing to the blowout. Dril-Quip is a manufacturer of highly engineered offshore drilling and production equipment.