November 2017
SPECIAL FOCUS:
MIDSTREAM
PRIVATE EQUITY JVS
MLP FUNDAMENTALS
DEBT-EQUITY STRUCTURE
ELIGIBILITY REQUIREMENTS
For the first three categories listed above, the Project, Product, Solution or Environmental Awareness activities (or significant phases of a phased
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One winner from each category will be selected and recognized during the Pipeline + Energy Expo keynote session in April 2018 in
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OIL, GAS
&petrochemequipment
¨
FEATURES ®
24
16
INCREASING YOUR MARKET CAP EXPORTS ARE CHANGING
35
CRUDE OIL LOGISTICS
20
battle
64
bank that provides strategic advice to
a diverse client base. OGFJ caught up
with him in Houston during a visit to the HOW SUSTAINABLE IS PERMIAN TIGHT
financial services firm’s local office, which OIL GROWTH?
focuses on energy.
42 24
PRIVATE EQUITY JVS
Shortage of traditional capital in oil and gas DEPARTMENTS
creates opportunities for private equity 4 EDITOR’S COMMENT
ON THE COVER
28
HYBRID APPROACH TO DEBT-EQUITY
6
8
CAPITAL PERSPECTIVES
SECOND THOUGHTS
Ken Moelis is STRUCTURE 10 UPSTREAM NEWS
chairman and CEO of
Moelis & Company
MLPS
31 12
46
MIDSTREAM NEWS
DEAL MONITOR
Photo by 48 OGJ150
Sylvester Garza Fundamentals and related structuring and
formation considerations 56 INDUSTRY BRIEFS
59 ENERGY PLAYERS
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Paula Dittrick, Brian Lidsky, Per Magnus Nysveen, Nick Snow, Leslie Wei, John White
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Technology is a game-changer
IS THERE ANY DOUBT that the future of and downhole technologies, sensors, and many other tech-
the energy industry is intertwined with ad- nology innovations coming into the traditional oil and gas
vances in technology? Surely not. In fact, I space. We believe there is a business in advising energy
think it’s fair to say the changes that all companies around the development, acquisition, and use of
industrial sectors are undergoing today are technology, private and public investors around their invest-
as significant as those that occurred about ment strategy in the space, technology companies trying to
200 years ago with the onset of the Industrial better penetrate the energy industry, and private energy
DON STOWERS
CHIEF EDITOR Revolution. And the pace of change has technology companies regarding their M&A and IPO
– OGFJ certainly accelerated. options.”
The old saying “Lead or get left behind” He added, “There are literally hundreds of companies
seems to be applicable in the current environment. With focused in this space, ranging from the integrateds, the large
current soft oil prices, it’s crucial to find ways to improve technology companies, independents, oilfield service com-
efficiency throughout the enterprise. If your competitors are panies, E-Tech startups, as well as private equity and venture
using a technology that helps bring this about, you had better capital players. We believe this is a great opportunity for TPH
be willing to do the same just to keep pace. to establish a new wing of the energy advice business.”
Maynard Holt, CEO at Tudor, Pickering, Holt & Co., recently With this E-Tech investment banking effort in mind, TPH
asked me to visit with him in the bank’s offices in downtown recently announced it will host its inaugural Energy Disrup-
Houston. After I arrived, he intro- tion Conference in Austin, Texas,
duced me to two colleagues, John on Nov. 10. The conference will
“We believe there is a business in advising
Gibson and Robert Steel. focus on showcasing companies
energy companies around the development,
Gibson joined TPH in May as a involved in developing and de-
acquisition, and use of technology, private and
senior advisor. He previously ploying disruptive technologies in
public investors around their investment strategy
served as president and CEO at the energy industry.
in the space, technology companies trying to
Tervita Corporation, and prior to Gibson is spearheading the
better penetrate the energy industry, and private
that was a director at Parker Drill- strategy to build out an energy
energy technology companies regarding their
ing for over a decade. Before that, technology banking practice. He
M&A and IPO options.” – Maynard Holt
he held several senior positions will help TPH identify and follow
with Halliburton, including presi- the technologies with the greatest
dent of the Energy Services Group. He is an active member promise for materially changing the performance of the
of the University of Houston’s Energy Advisory Board, is a sector.
trustee for Houston Baptist University, and assists the Uni- “We are in the midst of significant technological disruption
versity of Texas at Austin’s Bureau of Economic Geology in the energy industry, and we believe the best technologies
Visiting Committee and the Institute for Global Ethics, Ad- have yet to be uncovered,” asserts Gibson. “Our Energy Dis-
visory Committee. ruption Conference is an opportunity for those companies
Steel is a partner and CEO at Perella Weinberg Partners and startups in this space to promote their businesses to a
in New York. (TPH was acquired by Perella Weinberg last C-Suite audience of oil and gas clients, venture capital firms,
year.) He spent nearly 30 years with Goldman Sachs, rising and private equity investors.”
to head of the Global Equities Division, and also served as Steel recalled his experience as deputy mayor of economic
vice chairman of the firm. Later, as CEO of Wachovia Cor- development in New York during the Bloomberg administra-
poration, he oversaw the sale of the bank to Wells Fargo & tion. He remarked that a key initiative of Mayor Bloomberg
Co. He also was New York City’s deputy mayor for economic was to encourage and grow the technology sector of that
development where he was responsible for the Bloomberg city’s economy. Steel led the applied sciences initiative, which
administration’s economic strategy and job creation established the Cornell-Technion campus on Roosevelt Island
efforts. and the New York University Center for Urban Science and
What they wanted to talk about was TPH’s new emphasis Progress initiative in Brooklyn.
on technology. If these three men have their way, TPH will Steel, who serves as chairman emeritus of the Aspen In-
be leading the way as an investment bank and trusted advisor stitute’s Board of Trustees as well as numerous other groups
related to new technology adoption in the energy industry. and organizations dedicated to furthering scientific and
Holt commented, “We have been watching all the changes economic education and interests, expressed strong support
happening in oil and gas around the use of data, predictive for TPH’s efforts in this area. It’s likely that this new wave of
analytics, machine learning, artificial intelligence, completion technology will be transformational, he said.
© Andreykuzmin | Dreamstime
Billions of dollars of bad oil
and gas loans: A rebuttal
LARRY DERRETT, HOUSTON, TX
AN ARTICLE TITLED “Billions of dollars of bad oil and gas loans” author who seems well qualified and has published informative
recently published by Oil & Gas Financial Journal suggests that articles in the past. In addition, if I have gathered conclusions
despite the substantial decline in oil prices over the last three from the article that were not purposefully intended, I apologize
years, banks have delayed write-offs by changing the rules as to ahead of time. Regardless, there were certain comments impli-
how borrowing bases have been calculated. The article, which cating banks which were quite clear. I have a quite different
ran in the September issue, goes on to imply the market has been view and want to address some of these topics.
distorted because there have been so few borrowing base reduc- To start, the assertion that many “borrowing bases were not
tions and bankruptcies. At its conclusion, the author poses the reduced” despite the reduction in oil prices over the past four
question how long can this shell game last? years is simply not true.
Please note this is not intended as an effort to discredit the After the mid-year borrowing base season in 2016, 44 out of 63
public companies reported a reduction in their borrowing base. it—the math doesn’t work. There is one exception to this with
Of those 44, 21 had reductions of at least 30% (based on information recently drilled wells but it seldom happens and the explanation
from a July 2016 article by Haynes and Boone LLP, 2016 Spring Oil is not worth the detailed discussion.
and Gas Borrowing Base Redetermination: The Day of Reckoning,
that ran in Practical Law Finance). Again, these are public com- ADDING OTHER PUDS THROUGH VARIOUS MEANS
panies generally with diversity of production and potential access Changes to PUD values often do not translate into increases in
to the equity markets. One can only imagine the number of smaller borrowing bases. Many borrowing base calculations are already
private companies who were affected. constrained as non-PDP reserves cannot account for more than
As to the banks having been overly lenient and “the math 20-30% of the total. For example, if a producer has a $100 million
doesn’t work” given the significant decline in oil prices, I agree borrowing base but is already constrained, their non-PDP reserves
that on the surface it might seem odd. However, it’s not that simple. can increase from $80 million to $200 million, but in isolation
Banks can’t be robotic by relying on math only to govern credit would contribute little additional value in a borrowing base
decisions. Lenders take several factors into account such as wheth- calculation.
er borrowers could issue equity or sell assets. Understanding that
these actions take time to implement, banks selectively granted BANKS LOWERED D&C COSTS, OPERATING EXPENSES
extensions to borrowing base determinations to some producers. Banks are supposed to lower these costs if they have gone down.
In exchange, lenders received the benefits of anti-hoarding pro- A reduction in operating expenses is accretive to a borrowing
visions, mortgages on additional properties and the establishment base, but would have to be evidenced in Lease Operating State-
of deposit account control agreements (DACAs). For lenders, ments, or, proven reductions in future costs. A decline in D&C
these protections might not have been available (or at least delayed) will affect PUD value, but is irrelevant if the borrower is already
if the borrower was pushed into bankruptcy. PUD constrained.
There is an assertion that the rules were changed to avoid large
losses. Even if that was true, it didn’t work for the period 2015 – ADDING MORE WELLS TO THE COLLATERAL (ALTHOUGH
early 2016 as three large energy banks took a $3.5 billion reserve MANY COMPANIES WERE AT 80% OR MORE IN 2014)
against potential oil and gas loan losses (again, based on informa- This doesn’t increase the borrowing base since the reserves were
tion from the aforementioned July 2016 article by Haynes and already accounted for in prior borrowing base calculations. It
Boone LLP). merely improves the banks collateral position by mortgaging more
When a bank establishes loan loss reserves, scrutiny of ques- properties.
tionable loans is maddeningly detailed and subject to many layers No doubt, in the early part of the decade, banks started relaxing
of internal as well as external review from regulators. I can’t imagine lending standards to remain competitive. But there is no set of
a bank being so naïve as to suddenly change the rules and think rules to protect a bank from the dramatic drop we’ve seen in oil
it will go unnoticed. In fairness, the OCC has implemented new prices. Once the bottom fell out, new rules of engagement had to
rules that can affect how lenders set borrowing bases, but it was be created since banks had very little experience in handling
not the result of banks changing the rules. problem RBLs. Banks likely made some mistakes in restructurings,
As to whether changing the rules created artificial market especially in the early stages in 2015 and early 2016. Despite taking
dynamics and prevented companies from distress or bankruptcy, some lumps in navigating through an industry restructuring,
the facts show a different story. According to the Haynes and banks did not conduct “shell games.” It’s simply not in their DNA.
Boone LLP Oil Patch Bankruptcy Monitor from December 2016, When you add in the regulatory oversight suddenly thrust onto
in 2015 and 2016, 144 North American oil and gas companies filed the industry, the risk of being caught playing “shell games” was
for bankruptcy. never an option.
Considering the number of bankruptcies and the number of
companies experiencing borrowing base reductions, market dy- ABOUT THE AUTHOR
namics were certainly affected despite the action, or, inaction of Larry Derrett is an energy finance consultant based
banks. in Houston, TX. He has over 30 years of experience
The article cited numerous examples as to how the rules were in the upstream, midstream, oilfield services, and
changed, but in my opinion, few of the actions would move the trading sectors as a banker, consultant, and VP
needle substantially (if at all) to “prop-up” a borrowing base. In Finance/CFO. He has served as CFO of ARM Energy,
my opinion, these changes could not materially increase a bor- a privately held provider of risk management and
rowing base. Here, the examples in question. physical marketing services to producers throughout the US,
CFO of ERG Resources LLC, and as a managing director with
INCREASING PDP RESERVES THROUGH LOWER DECLINE CIT Energy, among other roles. Derrett holds a BBA from The
RATES AND LONGER WELL LIVES University of Texas at Austin.
Unless the total remaining EUR is increased, lower decline rates
generally do not result in a higher PV of PDP reserves. Think about
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EXXONMOBIL MAKES FIFTH nology and big data. Our experience as a non-operator, and
DISCOVERY OFFSHORE GUYANA now operator, coupled with our high-quality asset base and
Exxon Mobil Corp. has made a fifth new oil discovery after proprietary technology, has put us in a compelling position to
drilling the Turbot-1 well offshore Guyana. expand further in the Super Core of the Marcellus.”
Turbot is ExxonMobil’s latest discovery to date in the country, The acquisition follows the Fund’s previous transactions with
adding to previous discoveries at Liza, Payara, Snoek, and Liza Zena Energy LLC, Radler 2000 LP - Tug Hill Marcellus LLC; Chief
Deep. Following completion of the Turbot-1 well, the Stena Exploration and Development LLC; and Range Resources –
Carron drillship will move to the Ranger prospect. An additional Appalachia LLC, all located in the Marcellus Shale.
well on the Turbot discovery is being planned for 2018. Upon completion of this transaction, the fund will have an
ExxonMobil affiliate Esso Exploration and Production Guyana interest in 355 active wells. These transactions provide the fund
Ltd. began drilling the Turbot-1 well on Aug. 14, 2017 and en- with net natural gas production of 160 million cubic feet per
countered a reservoir of 75 feet (23 meters) of high-quality, oil-bear- day.
ing sandstone in the primary objective. The well was safely drilled
to 18,445 feet (5,622 meters) in 5,912 feet (1,802 meters) of water ENERGEAN SEES FIRST CPR RESULTS FOR TWO 100%
on Sept. 29, 2017. The Turbot-1 well is located in the southeastern OWNED BLOCKS, OFFSHORE MONTENEGRO
portion of the Stabroek Block, approximately 30 miles (50 kilo- Energean Oil & Gas has received the first Competent Persons
meters) to the southeast of the Liza phase one project. Report (CPR) for its assets offshore Montenegro, compiled by
The Stabroek Block is 6.6 million acres (26,800 square kilome- Netherland Sewell & Associates (NSAI), detailing the recover-
ters). Esso Exploration and Production Guyana Ltd. is operator able gas and liquids resource estimates in respect to Energean’s
and holds 45% interest in the Stabroek Block. Hess Guyana 100% interest in blocks 4218-30 and 4219-26.
Exploration Ltd. holds 30% interest and CNOOC Nexen Petro- The CPR shows the combined net unrisked prospective
leum Guyana Ltd. holds 25% interest. recoverable resources (P50) for the two blocks, awarded to the
company earlier this year, as 1.8 TCF natural gas and 144 MMbbls
KALNIN VENTURES MAKES FIFTH liquids (438 MMboe in total).
MARCELLUS ASSET ACQUISITION Energean is currently the sole operator, with 100% working
An affiliate of Kalnin Ventures LLC’s BKV Oil and Gas Capital interest, of offshore blocks 4218-30 and 4219-26. The blocks
Partners LP fund has entered into Purchase and Sale Agreements were officially awarded in March 2017, following the signing of
with respect to the fund’s fifth acquisition of assets in just over a Concession Agreement between the company and the State
two years in the northeast portion of the Marcellus Shale. The of Montenegro. The two blocks cover a surface area of 338 km2
fund is financially backed by its sole investor, Banpu Pcl, a in shallow waters.
Thailand-based coal mining and power generation company The CPR is part of the first three-year exploration phase,
with total assets of more than $6 billion. which entails a mandatory work program including a 3D seismic
The transaction is valued at an aggregate price of $210 survey covering the two blocks that is planned to be acquired
million, with potential additional payments to the sellers of up in 2018, and geological and geophysical studies. The total cost
to $18.75 million over the next three years depending on natural of this initial exploration phase is estimated at US$5 million.
gas prices. Separate purchase and sale agreements were en-
tered into with Carrizo (Marcellus) LLC and Reliance Marcellus KRISENERGY COMMITS TO CAMBODIA
II LLC, to acquire their respective interests in the assets (subject APSARA OIL DEVELOPMENT
to customary closing conditions), which are comprised of in- KrisEnergy Ltd., an independent upstream oil and gas company,
terests in 112 wells, including 98 producing wells, 11 drilled is pleased to announce it has made a final investment decision
and uncompleted (DUC) wells and three wells that are tempo- to proceed with the first phase of development for the Apsara
rarily abandoned. oil field, the first hydrocarbon development project in the
The assets are predominantly located in Pennsylvania’s Kingdom of Cambodia.
Wyoming and Susquehanna Counties. Located in Cambodia Block A in the Gulf of Thailand, Phase
Kalnin has invested, through the fund, $417 million in the 1A of the Apsara development envisages a single unmanned
Marcellus Shale and is poised to fully invest its first fund. With minimum facility 24-slot wellhead platform producing to a
this acquisition, the fund is now one of the top 20 natural gas moored production barge capable of processing up to 30,000
producers in Pennsylvania. barrels of fluid per day with gas, oil and water separation facilities
“This deal is unique from our previous four in that it provides on the vessel. Oil will be sent via a 1.5 km pipeline for storage
us the opportunity to naturally expand into an operator position to a permanently moored floating, storage and offloading
while also acquiring additional midstream assets,” said Chris- vessel.
topher Kalnin, managing director and co-founder of Kalnin KrisEnergy is the operator of Cambodia Block A and holds
Ventures LLC. “However, it is similar to prior deals in that we 95% working interest. The General Department of State Property
are acquiring profitable assets and enhancing them with tech- and Non Tax Revenue of the Ministry of Economy and Finance
holds the remaining 5% on behalf of the Royal Government of With political agreement still some way off, international oil
Cambodia. companies have taken differing stances to the country’s up-
The Cambodia Block A contract area covers 3,083 sq. km over stream sector. North American players continue to view Libya
the Khmer Basin in the Gulf of Thailand where water depths range with trepidation and some may seek to mitigate their exposure
between 50 meters and 80 meters. The individual oil accumulations by divesting. But for many European companies, the risks are
in Cambodia Block A are small and spread over a large geographic manageable and a gradual re-entry into familiar projects without
area, requiring significant funds and time to fully develop. Addi- committing capital makes sense.
tionally, reservoir production performance in the Khmer Basin OPEC has ruled that Libya will remain exempt from any
has yet to be proven. For these reasons, among others, there is production cap: a tacit acknowledgement of the upside lim-
some uncertainty regarding long-term production rates, reserves itations to the country’s production recovery. Wood Mackenzie
and commercial viability and therefore a phased development expects that it will be well into next decade before production
approach has been prudently adopted. Once the initial Phase is restored to pre-war levels. Maintaining stable output of one
1A platform is on stream, there will be a period to monitor reservoir million b/d and realizing incremental gains in the interim could
performance before commencing Phase 1B, which envisages up be considered a success and may help avert a deepening of
to three additional platforms producing to the Phase 1A facilities. the country’s crisis.The possibility of longer-term political nor-
A Phase 1C will potentially add up to six additional platforms for malization and a reduction in conflict will depend on the country
the full 10-platform Apsara development. being able to maintain oil production.
RIO GRANDE LNG, CAMERON COUNTY Encana’s midstream agreement with Veresen
AGREE TO PROPERTY TAX INCENTIVES Midstream enables Encana, via the Cutbank Ridge
B RIEFS Rio Grande LNG LLC, a wholly-owned subsidiary Partnership, to construct and operate the Tower,
of NextDecade Corp., a liquefied natural gas Sunrise and Saturn plants, as well as any future
EXXONMOBIL (LNG) development company focused on LNG build opportunities, on behalf of Veresen Mid-
ACQUIRES DELAWARE export projects, has executed agreements with stream on a contracted basis. Veresen Midstream
BASIN TERMINAL Cameron County, Texas to receive Chapter 312 funds and owns the facilities and Encana pays to
Exxon Mobil Corp. has tax incentives for its proposed Rio Grande LNG use them through a fee-for-service agreement.
acquired a crude oil
export project at the Port of Brownsville.
terminal in Wink, Texas
from Genesis Energy LP. The tax abatement agreements are aligned BRAZOS MIDSTREAM ACQUIRES
The terminal is located in with distinct phases of the project and provide NATURAL GAS GATHERING SYSTEM
the Delaware Basin. The for the full abatement of County property taxes IN DELAWARE BASIN
terminal is positioned
for each phase’s first 10 years of operations. Sub- Brazos Midstream Holdings LLC subsidiaries have
to handle Permian Basin
crude oil and conden- ject to a positive final investment decision, Rio closed on the purchase of a natural gas gathering
sate for transport to Gulf Grande LNG agrees to pay $2.7 million in pay- system from Callon Petroleum Co. As part of the
Coast refineries and ments-in-lieu-of-taxes during each year of tax acquisition, Brazos signed a long-term, fee-based
marine export terminals.
abatement for all phases. Additionally, the Rio agreement with Callon for gas gathering and
The facility is intercon-
nected to the Plains Grande LNG agrees to provide up to $10 million processing services for acreage under develop-
Alpha Crude Connector to fund community projects and to maximize the ment in Ward and Pecos counties in the Southern
pipeline system, and is hiring of local residents during construction and Delaware Basin. Including the Callon dedication,
permitted for 100,000
operations. Brazos’ midstream infrastructure is anchored by
b/d of throughput with
the ability to expand. Currently one of the largest proposed private long-term acreage dedications covering approx-
This acquisition marks investments in the State of Texas, Rio Grande imately 240,000 acres with Permian operators.
ExxonMobil’s first LNG and its associated Rio Bravo Pipeline could The acquired natural gas gathering system will
terminal in the Permian
invest more than $15 billion in the County. At full connect to Brazos’ existing system and the pre-
Basin to be anchored by
the corporation’s newly build-out, the proposed facility and pipelines are viously announced Comanche II natural gas pro-
acquired Delaware Basin expected to create approximately 6,000 direct cessing plant. When complete in January 2018,
acreage, announced in jobs during construction; more than 250 perma- Brazos’ total operated processing capacity will
January.
nent jobs at the facility during operations; and be 260 MMcf/d. In addition, Brazos is accelerating
more than 3,000 indirect permanent jobs in the plans to build a third natural gas processing plant,
County. Comanche III, to meet continued volume growth
The Rio Grande LNG project is in the advanced in the region. The company has secured a site
stages of its regulatory approval process with the for the plant and will begin construction in early
US Federal Energy Regulatory Commission and 2018.
hopes to receive all necessary approvals by mid-
2018, allowing for a final investment decision later MUSTANG FUEL MAKES $65M
that year and first LNG in 2022. The terminal is MIDSTREAM INVESTMENT
to be engineered and constructed by CB&I, and Oklahoma-based Mustang Fuel Corp.’s mid-
will utilize a design based on equipment supplied stream subsidiary, Mustang Gas Products LLC
by Air Products and Chemicals Inc. and Baker (MGP), is undertaking a $65 million capital pro-
Hughes GE. gram aimed at increasing the capacity, efficiency,
and reach of its midstream assets.
ENCANA STARTS UP SECOND Within the next 18 months, the company an-
MONTNEY PLANT ticipates its capital spending program to result
Encana started up the Sunrise processing plant in increased system-wide gathering capability
on September 27. Sunrise is the second of three and increased plant capacity – to more than 225
processing plants that support Encana’s conden- million cubic feet per day (MMCFD). Scheduled
sate-focused growth plan in the Montney. In par- improvements include upgrading horsepower,
allel with the Sunrise and Tower facilities ramping replacing older equipment, installing new pipe
up, the third plant, Saturn remains ahead of and adopting new technologies for process, ef-
schedule and is on track to start up before year- ficiency and control enhancements.
end. In addition, the Towerbirch lateral pipeline MGP currently operates a system consisting
which connects all three plants to the NGTL sys- of four cryogenic gas processing plants, a straddle
tem started up on October 1. plant, over 4,200 miles of pipe and 110,000 horse-
power of compression spread over 10 counties contracts in place to expand the terminal’s oper-
in central and north central Oklahoma. The ma- ations. Dauphine is a portfolio company of Pelican
jority of MGP’s footprint is in Oklahoma’s STACK Advisors LLC. BR I E F S
play and is concentrated in Kingfisher, Blaine,
Canadian, Garfield, and Major counties, where BP ENERGY PARTNERS TO SELL PINNACLE EUREKA MIDSTREAM
MGP gathers gas from nearly 2,000 sections. MGP MIDSTREAM TO I SQUARED CAPITAL HOLDINGS ENTERS
can currently process up to 175 MMCFD and Dallas, TX-based BP Energy Partners LLC (BPEP) NEW STRUCTURE
offers both high-pressure and low-pressure gath- and I Squared Capital have entered into a defin- Eureka Midstream
Holdings LLC has a new
ering. MGP connects to multiple pipelines and itive agreement by which BPEP will sell Houston,
ownership structure. Blue
has contracted for 70 MMCFD of firm takeaway TX-based Pinnacle Midstream LLC, a portfolio Ridge Mountain Resourc-
capacity. company of BPEP, to I Squared Capital through es Inc. (BRMR), formerly
its ISQ Global Infrastructure Fund II. Pinnacle is known as Magnum Hunt-
er Resources, entered
COPPERBECK ENERGY SEES a provider of crude and natural gas gathering,
into a definitive agree-
COMMITMENT FROM TAILWATER CAPITAL natural gas processing and related midstream ment to divest 100% of
Copperbeck Energy Partners LLC has received solutions in the Delaware portion of the Permian its equity investment
an equity commitment from Tailwater Capital, an Basin of West Texas. in Eureka Midstream.
BRMR formerly had an
energy-focused private equity firm based in Dal- RBC Capital Markets served as the exclusive
equity partnership in the
las, Texas. Copperbeck is focused on providing financial advisor to Pinnacle in the transaction company with Morgan
midstream and downstream-adjacent infrastruc- and Thompson & Knight LLP served as legal Stanley Infrastructure Inc.
ture and services for refineries, petrochemical, counsel to BPEP. (MSI). MSI has entered
into a new partnership
and industrial concerns. Copperbeck recently
in the company with SK
closed the purchase of a 62.5% interest in Saconix CRESTWOOD CLOSES BUY-IN OPTION Holdings Co. Ltd. (SK).
LLC from MRMC. Saconix combines MRMC’s WITH SHELL MIDSTREAM SK now has a direct
contribution of Martin Product Sales LLC’s sulfuric Crestwood Equity Partners LP has closed on the ownership interest in the
company.
acid business with the addition of Copperbeck previously announced equity option agreement
to help drive growth through new equity invest- with Shell Midstream Partners LP, a master limited
ment. The business continues to be headquar- partnership formed by Royal Dutch Shell plc, to
tered in Roswell, Georgia with all employees purchase a 50% equity interest in Crestwood
retained in their existing roles. MRMC will con- Permian Basin LLC which owns the Nautilus gas
tinue to own a 37.5% interest in Saconix. Cop- gathering system. The other 50% equity interest
perbeck was represented by Gardere Wynne continues to be owned by Crestwood Permian
Sewell LLP. Thompson & Knight LLP advised Basin Holdings LLC. The Nautilus system gathers
Tailwater Capital. the majority of Shell’s operated Delaware Basin
gas under a 20-year tiered, fixed-fee contract.
PIN OAK CORPUS CHRISTI CLOSES Crestwood Permian Basin Holdings LLC is a
ON GMCC ACQUISITION 50%/50% joint venture between Crestwood Equity
Pin Oak Corpus Christi LLC has closed on the Partners LP and First Reserve.
acquisition of 100% of the equity interests in
Gravity Midstream Corpus Christi LLC (GMCC) VENTURE GLOBAL LNG CLOSES $108.6M
from EnCap Flatrock Midstream, a venture capital PRIVATE PLACEMENT
firm based in San Antonio. The owners of Pin Oak Venture Global LNG Inc. has raised additional
Terminals LLC, Dauphine Midstream LLC, and capital of approximately $108.6 million, marking
Mercuria Energy Group Ltd. provided equity fi- its seventh round of equity investment. This Reg.
nancing for the transaction. Dauphine and Mer- D private placement brings the company’s ag-
curia also recently commissioned a new liquids gregate funding total to $470 million. The trans-
terminal in Mt. Airy, Louisiana, Pin Oak Terminals, action proceeds will fund Venture Global LNG’s
which has approximately four million barrels of continued development activities for its proposed
contracted capacity. LNG export facilities in Louisiana. The company
Pin Oak Corpus Christi is currently operational is developing both the 10 MTPA Calcasieu Pass
with pipeline connections into nearby refineries, facility on the Gulf of Mexico and the 20 MTPA
737,500 barrels of storage, a crude processing Plaquemines LNG facility in Plaquemines Parish.
unit, a polymer modified asphalt plant, rail loading Morgan Stanley & Co. LLC and Goldman Sachs
and unloading facilities, a truck rack, and access & Co. LLC assisted the company in connection
to Aframax and barge docks. There are long-term with the private placement.
From capital raising in the debt and equity markets to mergers and acquisitions advice, our bankers are here to help
you and your company take the next step.
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ENERGY COMPANIES that leverage the F1: COMBINING DIGITAL TECHNOLOGIES TO UNLOCK VALUE
right combination of new technology could
increase their market capitalization by an
average of more than US$16.4 billion, ac- 28%
Augmented Reality/
cording to Accenture’s evaluation of 10
8% Virtual Reality
digital technologies across eight
Autonomous
industries. Robots
Accenture carried out the economic
modeling after its initial research revealed 8%
that only 13% of executives at more than Digital Twin
900 large companies said their businesses
are getting both greater efficiency and 27%
12%
Big Data
business growth through new revenue Artificial Intelligence
streams from their investments in digital
technologies. The number for respondents
Note: Chart comprises of only top 5 technologies and their weights
from energy companies is even lower, at
9%. Accenture believes this is due largely Source: Accenture
THROUGH OPERATIONAL EXCELLENCE programmes and “Careful budgeting is also in play,” Dr. Gibson added. “Slashed
smart spending, operators have managed to maximize produc- capex now predominantly targets short-cycle opportunities with
tion and improve efficiencies, bucking expectations of an in- high returns potential, while development plans and service-sector
crease in decline rates. In fact, non-OPEC decline rates have cost cuts have bolstered spending efficiency.”
remained stable since 2015. A new report by Wood Mackenzie, While some shorter-term measures may relax, longer-term
Non-OPEC Decline Rates: Lower for Longer, looks at the factors factors, such as increased production from zero decline assets
influencing this stability, how long it can be maintained and and early-life assets, will help keep decline rates steady. Wood
the impact future shifting de- Mackenzie’s analysis shows
cline rates may have on the oil F1: ANNUAL AVERAGE NON-OPEC DECLINE RATE early-life assets increasing their
market. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
proportion of production from
0%
Dr. Patrick Gibson, re- 6% in 2010 to 30% by 2020. The
search director, Global Oil –1% lower decline rates of these
Non-OPEC decline rate
FROM 2012 UNTIL the end of this year, total North American per day, or 23%. For the same period, total shale production has
shale oil production is expected to grow from 1.9 to 5.8 million grown 3.5 MMbbl/d, or 177%. This shows that even though
barrels per day (MMbbl/d). As a result, shale has changed the shale production has grown considerably, shale producers have
global oil market. When considering this production growth, not been able to fully capitalize on the growth.
one would expect the production for the main shale producers A key reason why shale companies’ production growth has
to have grown considerably during this period. However, looking been lower than the total shale growth is the cost of developing
at the reported production for the main shale operators, we the shale. Since 2010, the largest shale companies have invested,
don’t see this trend. In fact, for the last two years, the total on average, US$46 billion in shale on a yearly basis, and these
production has declined. investments have been larger than the cash from operations.
Comparing total shale oil production with the total reported Figure 2 shows the reported breakdown of the yearly reported
oil production for the main shale producers, Figure 1 shows cash flows for the peer group of shale companies. It illustrates
two different trends. Here, the main shale producers are defined the cash from operations, cash going to investments, and cash
as the 34 largest public shale producers, where the company’s from financing. By comparing the cash from operations (black
main activity is shale (excludes the Majors). Figure 1 shows that columns) with Capex (gray columns), a clear pattern is that
since 2012, total production for the main shale companies has these companies have invested more than they’ve earned. In
grown from 3.1 MMbbl/d, to 3.8 MMbbl/d as of the second 2014 and 2015, this difference was around US$35 billion. This
quarter of 2017. This is a net growth of 700 thousand barrels gap has been financed by various sources, but the key source
Million bbl/d
assets, and ConocoPhillips sold its share 4.0
in Kashagan. In total, shale companies
have raised US$120 billion in additional 3.0
financing through asset sales from 2013 2.0
until the second quarter of 2017. Total oil production for shale companies
The implication of selling these assets 1.0 Total NA shale oil production
is that the non-shale production for the
shale producers has declined consider- 0.0
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
ably from 2012 to 2016. Rystad Energy 2012 2013 2014 2015 2016 2017
estimates that for this peer group of com-
panies, the non-shale production has Source: Rystad Energy NASWellCube, company reporting. Included companies: APC, AR, APA, BBG, CRZO, CHK, XEC,
CXO, COP, CLR, DVN, ECA, EGN, EOG, EPE, EQT, HK, LPI, MRO, MUR, NFX, NBL, OAS, OXY, PE, PDCE, PXD, QEP, SN,
declined by 21% from 2012 to 2017. Com- SD, SM, SWN, WLL, WPX
panies such as Marathon, Murphy, and
Apache have seen non-shale production
decline more than 30%. Figure 3 shows F2: SHALE PEER GROUP’S REPORTED CASH FLOW BREAKDOWN
the total net oil production for this peer 180 Cash from operations Capex
group of companies split by shale and Other net
160 Sale of assets
non-shale. Clearly, shale production has Net financing activities investment
140 activities
grown from 2012, while conventional
production has declined. Total shale pro- 120
Billion US$
A decade of growth
MOELIS & COMPANY ACTS AS A FINANCIAL ADVISOR AND PARTNER TO ITS CLIENTS
IN SOME OF THE MOST IMPORTANT DECISIONS THEY MAKE
DON STOWERS CHIEF EDITOR — OGFJ
PHOTOS BY SYLVESTER GARZA
reaction born from the challenges faced over the past few years. water. There is also a consolidation story developing on the Shelf,
This likely means that more equity capital will be used to finance as many companies in this region work through their balance sheet
transactions as compared with what we saw prior to the cyclical challenges, and recognize that bigger is better in this region for a
decline. variety of reasons.
Aside from upstream, which typically accounts for the largest While oil appears to have stabilized around $50 to $55 per barrel,
share of private equity in the oil and gas space, we know sponsors the threat of volatility still looms in the back of executives’ minds.
are focused on quality companies and management teams in the We constantly hear from companies all along the value and distri-
midstream and oilfield services and drilling sectors. Suffice it to bution chain that cost reduction is absolutely paramount.
say, when you combine private equity interest with the industrial
logic behind corporate consolidation and mergers, this seems to OGFJ: What are some of the ways you have helped your clients
be an interesting time to think about this strategically for many think about taking out costs and not just surviving, but thriving
companies. Ultimately, sellers need to be strategic, consider the in this commodity price environment?
long-term vision for their company, and properly assess their
value. KM: The first big step for a lot of our clients, particularly those in
the upstream space, is looking at their portfolio and making a clear
OGFJ: For the past seven or eight years, US oil and gas producers decision about the viability of core assets and where they want to
have focused on unconventional plays, mainly shale formations. invest. That typically leads to the next discussion around divesting
For the past few years, the Permian Basin has been the hottest non-core assets. These tend to be costly and capital-intensive
of all the shale plays. Land prices there have skyrocketed, but businesses that, at the current breakeven cost, create little to no
upstream companies are still selling assets in other areas to buy value for the company. Conducting both of those exercises strength-
into or focus their presence in the Permian, and much new ens the company’s financial position. We have seen companies
infrastructure is being built there. How long will this West Texas throughout the oil and gas value chain tighten their belts dramat-
boom continue and does it hamper activity elsewhere, including ically in this environment, from reducing workforce to pushing
offshore? their vendors and suppliers to cut prices. Much of this has been
very good for the industry, as companies are laser-focused on the
KM: We have seen a significant number of transactions in the entire income statement. But some of these costs have to be rein-
Permian Basin, particularly during the first two quarters of 2017, troduced as the industry recovers – there is a requirement for labor,
so prices rose dramatically in the region. We are having discussions increases in wages, and increases in service costs in order to make
with companies that had been focused on growing in that basin, adequate returns. As mentioned earlier, strategic transactions have
and would still be very interested if the right opportunity or trans- also created an opportunity to find synergies and take out costs.
action were to manifest itself. However, due to the flurry of trans-
actions and very competitive nature of the region, they are looking OGFJ: How will renewable energy impact the oil and gas sector
to deploy capital elsewhere. globally?
Clearly, the Permian Basin will continue to see growth as it is
one of the most prolific basins in the world, but we also expect KM: As a result of the volatility and price pressure, we have seen
companies to continue to focus on regions across North America a rebalancing of the oil and gas sector over the last couple of years
to invest capital and drive their growth. Other regions are seeing that should help the industry remain competitive and strong. Costs
increased activity such as the Mid-Continent, particularly around are coming down, and consolidation and technology have helped
the SCOOP/STACK, Appalachia, and even ARKLATEX, are seeing reduce breakeven levels. While we expect to see renewable power
an uptick in activity. As it relates to the offshore and the GOM, generation continue to increase, it still only represents less than
these are obviously very large projects that take years to design 20% of total demand in the United States. Demand for oil and gas
and complete. We believe that offshore will recover. However, we is rapidly expanding in emerging markets, which creates greater
expect that recovery timetable to be behind onshore. We think opportunities abroad.
you will start to see more activity there, particularly in the Deep-
“As the markets appear to have stabilized, there are new and different sets of
challenges and opportunities. Many companies underinvested during this period,
which is leading to capital requirements. It’s also become apparent that there are
real benefits to consolidation, as well as high-grading assets. As a result, we envision
that both the corporate and asset M&A/A&D markets will continue to accelerate
in this environment.”
© Mast3r | Dreamstime
gas sector remains resilient. Crude oil
production in the US is forecast to reach
an average of 9.9 million barrels per day
in 2018, surpassing the prior record of 9.6
million barrels per day in 1970. Similarly,
record domestic natural gas production downturn in mid-2014, PE firms have reportedly raised more than $100 billion for in-
is expected to continue into 2018, with vestment in the oil and gas space. Much of this capital has been deployed through the
the US likely becoming a net exporter of use of joint ventures across the industry, often serving as marriages of necessity between
natural gas next year for the first time. PE firms seeking to invest in oil and gas projects and industry players in need of devel-
The strength of domestic oil and gas pro- opment capital.
duction is expected to continue for the As we head into 2018, it is expected that joint ventures will play an increasingly
foreseeable future, with combined oil and important role in the sector, as it appears that over half of the $100 billion raised since
gas demand (globally) projected to in- 2014 has not deployed, making this an opportune time to review the various joint
crease for several decades (even in the venture structures that are commonly used by PE firms to make oil and gas investments.
most aggressive “peak oil demand” sce- This article will provide a brief overview of those structures.
narios so often written about these days),
a significant portion of which is expected DEFINING JOINT VENTURES
to be provided by domestic sources. Before proceeding further, we should clarify this article’s use of the term “joint ventures.”
The lack of traditional financing sourc- The term does not have one accepted definition in the oil and gas industry and is often
es noted above, paired with the industry’s used loosely by industry participants to describe a multitude of commercial arrange-
projected growth in production, has cre- ments. Moreover, the term can have a very distinct meaning when used in the legal
ated a significant opportunity for private context, especially with regard to the allocation of liability and whether fiduciary duties
equity firms in the last several years. Since exists between parties. For purposes of this article, the term is used in a very general
the beginning of the commodity price sense to describe arrangements whereby a PE firm is making an investment with a
DRILLCOS to 20% (or some other agreed return metric) on its investment
The last few years have seen the emergence of a transaction (the IRR Hurdle).
structure called the DrillCo, a large-scale drilling joint venture For an operator holding acreage with development potential,
arrangement, the contours of which are often very similar to a but with limited access to capital, a DrillCo presents an attractive
farmout of the drill-to-earn variety. It should be made clear that mechanism by which to develop its acreage. For an investor, a
drilling joint ventures have been utilized in the oil and gas industry DrillCo provides an opportunity to deploy large amounts of
for a very long time, so DrillCos are not new structures. Also, for capital, while accessing management expertise and quality oil
the sake of clarity, it should be pointed out that there is no new and gas assets not otherwise available to the investor. DrillCos
company (no “co”) formed in a DrillCo. Rather, each party to the involve significant capital commitments, typically staged in
transaction will ultimately hold an interest in the properties tranches, with the capital commitment for each tranche poten-
included in the transaction, subject to a variety of agreements. tially being in the hundreds of millions of dollars.
While it is tempting to try to identify what is “market” in regard The description in Figure 1 of a basic DrillCo highlights four
to any type of transaction, there is really no market for DrillCo key commercial points that are likely to be the first to be nego-
transactions, as each DrillCo transaction is a uniquely negotiated tiated, and that will become the foundation of the term sheet
transaction. Nevertheless, it can be helpful to identify common that is typically agreed prior to negotiation and preparation of
terms used, and perhaps trends, in these transactions. This can definitive agreements for the transaction: (1) the percentage of
be tricky, as it requires making generalizations based on a some- the operator’s share of certain costs that will be borne (i.e., carried)
what limited sample size. by the investor in addition to the investor’s share of those costs
In its most basic form, a DrillCo involves the contribution of prior to reversion (i.e., before the IRR Hurdle is met); (2) the
acreage by an operator and the contribution of cash by an investor. working interest (WI) to be earned by the investor prior to re-
The investor pays for its share of all costs and some—or, in rare version; (3) the WI (or other interest) to be retained by the investor
instances, all—of the operator’s share of certain defined costs in subsequent to reversion (i.e., after the IRR Hurdle is met); and
wells drilled. In return, the investor earns, and is assigned, a (4) the IRR Hurdle.
working interest in the wells drilled. The assigned interest is These four key commercial points are often reflected in the
subject to partial reversion to the operator upon the investor term sheet by a chart similar to the one shown in Table 1, although
achieving an agreed internal rate of return typically between 10% in the definitive agreements these commercial points would be
described more comprehensively.
F1: FOUR COMMERCIAL POINTS LIKELY TO BE FIRST Of course, transactions may be structured differently. For
NEGOTIATED instance, partial reversions may occur incrementally at different
return levels, and any of the other commercial points could be
handled differently. Nevertheless, the chart above represents a
WI in Tranche Wells,
subject to partial reversion typical treatment of the key commercial points. t is only after
at IRR Hurdle these points are agreed that the real work begins. The term sheet
will also address a significant number of additional items, which,
together with the other deal terms and boilerplate, will be ex-
I NCLUDI NG
WHETHER THE OIL PRICE will be $80 or $50 by 2020, two in return with respect to volatility as pseudo capital-market
challenges are here to stay. They are: 1) reduce variability, and line, and finally determine the optimal debt-equity mix.
2) create a finance program that can weather “lower for longer”
oil price scenarios. FIRST PRINCIPLE
In our previous article in the December 2016 issue of OGFJ We equate reducing variability to narrowing the spread of re-
(“Operating profitably with $50 oil”), we demonstrated how turns. It can be accomplished by upgrading acreage and, or
alpha-seeking portfolio adjustment works. While pruning a adjusting portfolio allocation. While portfolio adjustment can
portfolio can enhance return on the edge, adjustment in itself do only so much, heavy lifting will come from more impactful
may not suffice to move the needle. By extension of the hybrid’s acquisition which often requires financing.
bottom-up, highly granular, asset-level well economics modeling The key is lower cost of capital. More concretely, quantify
and top-down portfolio simulation, we illustrate how a da- how the weighted average cost of capital (WACC) varies with
ta-driven approach delivers actionable insights and helps drive debt/equity ratio. For the purpose of illustration (Figure 2), we
prudent decision-making on the optimal debt-equity mix. When use a reference interest rate of 2.5% and equate the cost of equity
coupled with improved acreage and margins, the hybrid helps to the expected return of portfolio.
reduce variance and strengthen execution. As evident in Figure 3, for rates higher than 8%, there is no
tangent portfolio for the underlying assets. When there is no
USE CASE tangent portfolio, borrowing works for borrower, but is sub-op-
First we simulate the universe of portfolios with different weights timal for lender. Within the pseudo capital-market line sweep
of the underlying assets. Figure 1 shows the expected return on positive rates (solid lines), there exist viable portfolios along
and volatility of portfolios. Next, express the incremental gain the efficient frontier. For each suitable reference rate, there is
Sharpe ratio
can be optimal for both the borrower and 0.0
the lender, at an appropriate reference 0.0
–0.1
rate. This makes the hybrid a quick strike-
zone scanner and viable loan optimizer, –0.2 –0.2
especially for recurring semi-annual re- –0.3
determinations (see “Billions of dollars –0.4
of bad oil and gas loans” by Laura Free- –0.4
man, September 2017 OGFJ). –0.6
The hybrid approach can help guide 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
an operator moving closer to the tangent Expected volatility
portfolio along the efficient frontier, as Note: The outer envelope defines the efficient frontier, on which reside portfolios with minimal volatility for a
given return.
well as the lender “redetermining” a loan
portfolio’s “sweet spot” – i.e., arc span on
the efficient frontier within the strike F2: WEIGHTED AVERAGE COST OF CAPITAL
zone. The transparency afforded by using VARIES WITH DEBT/EQUITY RATIO
the hybrid facilitates borrowers and lend-
ers to arrive at a win-win outcome, name- 24
ly, lowering the cost of capital, executing
the “right” projects, and delivering a 22
higher risk-adjusted return.
WACC (percent)
20
With a Fed rate hike, leading to higher
reference rates, debt-equity financing’s
18
sweet spot will shrink accordingly. On
the other hand, with a Fed rate cut, the 16
sweet spot will grow. For example, during
a period of historical low Fed fund rates 14
from 2010 to 2014 with oil prices hovering
above $80, borrowing mushroomed and 12
junk-rated debts peaked in Q2 2014. This 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
scenario is elaborated by the hybrid Debt-equity ratio
approach. Note: For cost of equity 17.5%, the mean of cost of debt 7.6%, and tax rate 32%, the optimal debt-equity cost
is around 2/3. Dots are data points connected by curve-fit solid line.
What happens when we have access
0.2
Sharpe ratio
When we have access to more data
0.0 and train machines to learn, it will be
0.0
–0.1 possible to minimize the avoidable bias,
i.e., closing the gap between how well an
–0.2 –0.2
experienced practitioner can do versus
–0.3 a machine. Our ultimate goal is to digitize
–0.4
prudent decision-making by capitalizing
–0.4
–0.6
on the advances in algorithm and com-
puting, come up with a better way to
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 quantify and manage risk, as well as op-
Expected volatility timize debt-equity funding. Connect
Note: Sweep of capital-market lines anchored by interest rates varying from 2.5% to 8% (i.e., solid lines with positive strategy to execution and move the nee-
intercepts). Strike zone (dashed box) associated with interest rate of 2.5%, shrinks with Fed rate hike and expands with
cut (imagine base moving up and down). dle.
ACKNOWLEDGEMENT
F4: WEIGHTED AVERAGE COST OF CAPITAL SWEEP WITH We thank Rystad Energy for providing
INTEREST RATE AND COST OF EQUITY the production data for portfolio simu-
lation and analysis.
IT HAS BEEN A ROUGH THREE YEARS in the energy sector. We stream sector will adversely impact throughput volumes in the
all witnessed the precipitous decline in oil and gas prices and the future. Moreover, a number of analysts predict that the lack of
wide-spread carnage that followed. As of July 2017, about 130 oil significant capital available to fund infrastructure projects may
and gas producers have filed for bankruptcy since 2015, involving negatively affect future takeaway capacity in some areas.
approximately $79.3 billion in debt obligations. While the midstream In the aftermath of the downturn, some are speculating that
sector has not experienced the same level of distress experienced the upstream MLP may never recover, at least not in its traditional
by the upstream oil and gas sector, it was not unscathed. As of July form. As it is, the midstream MLP has always been the most reliable
2017, roughly 20 midstream companies have filed for bankruptcy of the bunch – yet, many anticipate the midstream investor base
since 2015, involving nearly $20.3 billion in debt obligations. will be more discriminating, favoring midstream companies with
During the downturn, upstream Master Limited Partnerships strong sponsors and attractive infrastructure projects. The general
(or MLPs), large and small, were disproportionately affected. Unable consensus is that there is a market for “brand names” in the space.
to hedge a significant portion of future production, they were left So, why write about MLPs? Fair question. Reflecting on the
almost completely exposed to the sharp, sustained decline in oil significant contributions made by MLPs in the energy sector can
and gas prices. Reserves values decreased and borrowing bases be therapeutic in turbulent times. As some begin to cast doubt on
were reduced, leaving many producers significantly overdrawn the durability of the structure, we should remind them that the
and unable to repay excess borrowings. To conserve capital, many MLP has been solely responsible for funding the development of
stopped paying quarterly cash distributions and slashed capital oil and gas pipeline infrastructure in the United States for nearly
expenditures. In the end, it was not enough. Unable to stem the 30 years. But more than that, it is an opportunity to get back to
tide, virtually all fell into bankruptcy. basics.
Although few midstream MLPs have sought bankruptcy pro- This article briefly discusses certain fundamental principles of
tection, it is unclear whether the extreme dislocation in the up- MLPs, and then it identifies and explains common structuring and
__% Limited
Partner Interest
MLP FUNDAMENTALS 0% General Partner
Interest
MLPs are publicly traded limited partner-
ships that are listed on a national securities
exchange – typically, the NYSE or Nasdaq. The MLP
Similar to stock in a corporation, interests
in MLPs (referred to as “units”) are bought 100% Indirect
ownership
and sold in public offerings and over the
counter through ordinary brokerage trans-
actions, similar to stock in a corporation. OLP
The primary objective is to structure
and form a tax efficient investment vehicle
that generates sufficient current cash flows STRUCTURING CONSIDERATIONS
to pay distributions to unitholders, has low Organizational structure of an MLP
capital expenditure requirements to grow The basic organizational structure of a MLP involves two tiers, with the MLP being a
its asset base, and has significant long-term limited partnership whose sole asset is the ownership of all of the membership interests
growth opportunities to increase cash dis- in a limited liability company or all of the partnership interests in another limited part-
tributions to unitholders over time. nership that owns and operates the assets of the operating business (See Figure 1).
Designing an MLP that achieves the The general partner of the MLP typically owns a non-economic interest in the MLP,
objectives of the sponsor and meets the and may own rights to increasing portions of cash distributed by the MLP, which are re-
expectations of investors requires a detailed ferred to as “incentive distribution rights.” The limited partnership interests in the MLP
analysis of the MLP’s expected cash flows. are allocated between the sponsor of the MLP and the public investors.
It is critical that the MLP’s stated cash dis- The two-tier structure is based upon the desire for operational, legal, tax, and financial
tribution policy reflects the projected cash flexibility. For instance, the two-tier structure allows a MLP to effect “double breasted”
flow profile of MLP. For example, midstream financing – debt financing at the subsidiary level and debt financing at the MLP, which is
companies that are supported by long- structurally subordinated to subsidiary level debt. Additionally, the two-tier structure
term, fee-based contracts typically generate enables the MLP to segregate assets and debt among multiple subsidiaries for operational
stable cash flows and, therefore, are suitable accountability, liability, regulatory, tax, or various other reasons.
for a distribution policy that pays a mini-
mum quarterly distribution. On the other Economic structure of an MLP
hand, companies with significant unhedged Cash distribution policy – The economic structure of an MLP is centered around cash
commodity price exposure are not good flow and the expectation of cash distributions. Under the terms of the partnership agree-
candidates for a minimum quarterly dis- ment, an MLP is required to distribute all “available cash” to its unitholders, quarterly or
tribution policy – rather, a more appropri- monthly.
ate distribution policy would be variable • Minimum quarterly ddistributions – Businesses that generate stable and consistent
cash distributions. cash flow from quarter-to-quarter are able to commit to paying a “minimum quarterly
Recognizing that there are material, distribution” to unitholders. In the offering documents, the MLP makes a statement as
sometimes subtle variations in asset char- to its “intention” to distribute a specific minimum quarterly distribution on each out-
acteristics, cash flow volatility, and the standing unit. This stated intention is the basis for the “yield” at which the MLP is
perceived ability to mitigate cash flow vol- marketed to investors. When the MLP intends to pay a minimum quarterly distribution
atility over the long term are prerequisites to its unitholders, the sponsor will retain a portion of its equity in “subordinated units”
to selecting an appropriate MLP to support the distribution on the common units. In exchange, the sponsor will receive
structure. incentive distribution rights.
• Variable distribution MLPs – Businesses that do not generate stable or consistent cash
RECRUITING
the MLP. What is more, the MLP is required by law to withhold
taxes at the maximum rate from the foreign investor’s cash distri-
butions, forcing the investor to file a US tax return to request what
NOW!
would likely be a significant refund.
CONCLUSION
Cash flow. Cash flow. Cash flow. Understanding the cash-flow
profile associated with a set of assets or a segment of the energy
sector is a prerequisite to selecting a distribution policy. Once you
have identified the appropriate policy, the rest is belts and sus-
penders. That is, the other economic considerations are available
to “support” the selected policy.
Railcars may be used for storage of crude oil while waiting to load a tanker.
Even without trucking or blending, the movement to export markets can become complex.
Production Truck Storage Transload Rail Transload Vessel Refinery Vessel Refinery
Movement Movement movement Delivery movement Delivery
DURING A NATURAL DISASTER, you need supply options. portant to build relationships with suppliers in surrounding
Ensuring that you have allocations and truck time to supply areas and be authorized to fuel at nearby terminals to save time
your customers can be the difference between keeping or losing and effort and avoid the risk of having a truck return with an
a long-time valued business relationship. It is during tight supply empty tank altogether.
times, like we saw recently with hurricanes Harvey and Irma, Like having relationships with terminals outside of your
that you should have a contingency plan in place to secure the normal loading area, another important precautionary question
fuel you need. As wholesalers and marketers, several questions to ask is whether you have carrier relationships that allow you
and considerations should be addressed in order to have con- to move product from locations outside your normal geographic
fidence that you can obtain product, and obtain it quickly, area. Having this capability can drastically improve your chances
during times of tight supply. of securing the fuel you need during a large-scale supply dis-
ruption in your normal geographic area. And if so, are your
SUPPLIER RELATIONSHIPS ARE KEY drivers carded at these new terminals? This variable will affect
When everyone is scrambling to get their hands on the same your driver’s ability to secure fuel from a sophisticated and
product, having sufficient supplier relationships is critical to robust terminal automation systems or legacy terminal solutions
ensure your trucks get loaded with the necessary product. In which both require an authorization process to fuel.
some cases, like if one of your suppliers communicates a sig- Building these contingency plans takes forethought, and
nificant supply disruption, your best option may be to send can’t be done by simply picking up the phone when you have
trucks to load elsewhere. In situations such as these, it’s im- trucks turned down at another terminal. Making sure you have
THE UPCOMING New Year may present some nasty surprises partnerships. To accomplish these goals, the BBA authorizes
to oil and gas partnerships that have not prepared for the the IRS for the first time to assess and collect tax adjustments
new partnership tax audit rules. Entirely new Internal Rev- at the partnership level, effectively imposing taxes directly
enue Service (IRS) audit procedures will become effective on entities taxed as partnerships. In effect, partnerships will
for partnership taxable years beginning after Dec. 31, 2017. no longer be taxed entirely as pass-through entities.
These new rules drastically change the way the IRS will assess Congress expects to raise $11 billion in revenue as a result
additional tax on partnership income. Moreover, the new of these rules, so oil and gas partnerships should expect the
regime will make partnerships directly liable to pay any IRS to be aggressive in using its new tools. Fortunately, there
additional taxes, not the individual partners. are actions tax partnerships can take now to reduce the
The new partnership audit rules were enacted as part of potential for negative consequences in the coming years.
the Bipartisan Budget Act of 2015 (BBA). The BBA adopted
a streamlined set of rules designed to make it easier for the OIL AND GAS PARTNERSHIPS
IRS to audit and collect tax from large partnerships, partic- The term “partnership” is broader than most folks expect.
ularly hedge funds, private equity firms, and oil and gas The Internal Revenue Code (IRC) defines “partnership” ex-
OWNED & PRODUCED BY: PRESENTED BY: SUPPORTED BY: CONNECT WITH US ON:
US UPSTREAM DEAL VALUE came in at $11.4 billion in the in execution. At the same time, execution risk may be rising as
third quarter, down 40% from the $20.1 billion in upstream deals demand for rigs, labor, and sand pushes costs up. In addition,
during the second quarter and far below the high-water mark Wall Street sentiment has become more cautious about E&P
of $25.5 billion during the first quarter. Driving the decline was stocks, making the overnight equity raises that funded much
a remarkable slowdown in Permian deal making, where the of the Permian boom more difficult. The new focus is less on
total value transacted slid to just $1.3 billion. That is the lowest eye-popping IP rates and rapid growth and more about balance
total seen in the Permian since the first half of 2015 and is down sheet management and investor returns. This affects all basins,
90% from the $18.4 billion that transacted during the peak of but especially the Permian as it is the industry’s biggest growth
the Permian boom during the first quarter. story.
Value was split between $735 million in the Midland Basin The STACK ended up with top honors during Q3, hitting
and $531 million in the Delaware Basin. Midland Basin value $4.2 billion in deals. A majority of that value came from the $3.8
was almost entirely from QEP Resources Inc.’s acquisition of billion merger of Silver Run II with Alta Mesa and Kingfisher
property from the Cox family for $732 million. While total Midstream. The Bakken saw a surprising resurgence, recording
transacted value fell, acreage values have remained strong. The $2.0 billion in transactions. That was the best total for the play
$51,400/acre paid by QEP Resources for the Cox family assets since before the oil price crash in 2014. Selling was led by Halcón
is near the top value paid in either basin and not far off the Resources, which transacted $1.5 billion in Bakken assets to
$59,000/acre QEP Resources paid in June 2016 for RKI Petroleum support its earlier Permian buying and future development. In
assets in the same area. a trend spanning several quarters, Halcón’s Bakken assets were
Sky high seller expectations for leasehold in the Permian snapped up by private equity portfolio companies. Private equity
may be one factor in the rapid slowdown of Permian transac- was very active on the buyside during the third quarter, ac-
tions. Buying acreage at these prices leaves little room for error counting for nearly 50% of acquisitions. On the flip side, private
equity only made up 5% of sales. More public operators are likely to continue to focus attention
Outside of the STACK/SCOOP and Bakken, no unconven- on one or two key plays in order to highlight operational effi-
tional play had more than $1.0 billion in value during the third ciencies on Wall Street. At the same time, private equity is likely
quarter. Instead of concentration in a few hot plays, the market to continue to take advantage of tepid buying by public firms
was mostly characterized by geographically diverse buying. to snap up assets, especially in plays like the Barnett, Bakken,
Nine unconventional plays recorded at least one deal over $100 and Eagle Ford. An interesting future story will be private equity’s
million, and a number of notable conventional assets also execution on these assets to meet investor expectations for
changed hands. Oil deals returned to favor after a preference timelines and returns on capital. Unlike the recent Delaware
for gas in the largest deals of the second quarter. Eight of the Basin boom, companies are unlikely to be able to quickly flip
top ten deals of the third quarter were for oily assets. acreage for a price several times their cost. While this latest
The trends established during the third quarter look likely round of acquisitions may end up ultimately being good invest-
to carry forward through the rest of the year. Through the first ments, patience may be needed to see the returns.
part of the fourth quarter, we have seen a continuation of di- Outside of the US, deal value surged forward during the third
versified buying with most deals $200 million or under. Notable quarter with a total of $28.7 billion, including $3.0 billion in
recent transactions include Chaparral Energy Inc.’s $170 million Canada. Driving the bulk of the increased value were a number
sale of EOR assets in Oklahoma and the Texas Panhandle to of large deals and spinoffs, including the acquisition right at
newly formed Perdure Petroleum. Taking a page out of the the end of the quarter of Lattice Energy (a newly formed sub-
playbook of the Permian drillers, Chaparral Energy is selling off sidiary of Origin Energy) by Beach Energy for $1.2 billion. It is
non-core assets to sharpen its focus in the STACK, hoping the typical for the international deal market to be driven by a handful
strong regional focus plays well on Wall Street. of large deals, making quarterly totals there more volatile and
The same approach is being taken by Linn Energy Inc. At future direction tougher to guess than in the US.
press time, the company announced it was selling its Williston
Basin non-op assets for $285 million to an undisclosed private
buyer. That deal pushed Linn’s divestments since emerging from
its financial reorganization in February to over 10 and its total
proceeds to more than $1.5 billion. At the same time, Linn
strengthened its position in the Merge by forming a JV with
Citizen Energy II named Roan Resources.
Here is a glimpse at net income fig- THE TOP 20 IN NET INCOME AND STOCKHOLDERS’ EQUITY*
Stockholders’
ures for the group for the past 11 quar- Net income, equity,
ters (brackets indicate a net loss): Rank Company $1,000 Rank Company $1,000
• 2Q17 — $3.2B 1 ExxonMobil Corp. 3,264,000 1 ExxonMobil Corp. 185,838,000
• 1Q17 — $9.9B 2 Chevron Corp. 1,466,000 2 Chevron Corp. 147,388,000
• 4Q16 – [$17.5B] 3 Apache Corp. 613,000 3 ConocoPhillips 30,499,000
• 3Q16 – [$1.0B] 4 Occidental Petroleum Corp. 507,000 4 Occidental Petroleum Corp. 21,037,000
• 2Q16 – [$17.1B] 5 Ultra Petroleum 499,037 5 Hess Corp. 15,078,000
• 1Q16 – [$18.9B] 6 Chesapeake Energy Corp. 495,000 6 Anadarko Petroleum Corp. 14,656,000
• 4Q15 – [$58.5B] 7 Devon Energy Corp. 451,000 7 EOG Resources Inc. 13,901,715
• 3Q15 – [$47.3B] 8 Southwestern Energy Co. 284,000 8 Marathon Oil Corp. 12,405,000
• 2Q15 – [$28.5B] 9 Pioneer Natural Resources Co. 233,000 9 Devon Energy Corp. 11,330,000
• 1Q15 – [$15.2B] 10 Consol Energy Inc. 227,413 10 Pioneer Natural Resources Co. 10,602,000
• 4Q14 — $2.5B 11 Kinder Morgan CO2 Co. LP 221,000 11 Noble Energy Inc. 10,098,000
The good news is that the OGJ150 12 Linn Energy Inc. 220,057 12 Concho Resources Inc. 8,729,000
group is on a two-quarter winning 13 Diamondback Energy Inc. 164,128 13 Antero Resources Corp. 8,302,862
streak. The forecasters who predicted a 14 Concho Resources Inc. 152,000 14 Apache Corp. 8,265,000
return to profitability this year, after 15 Rice Energy Inc. 137,249 15 Parsley Energy Inc. 5,873,176
eight consecutive quarters of net losses, 16 Exco Resources Inc. 120,750 16 Range Resources Corp. 5,661,891
have been proved correct. 17 Gulfport Energy Corp. 105,936 17 Diamondback Energy Inc. 5,286,934
18 Newfield Exploration Co. 98,000 18 Whiting Petroleum Corp. 4,996,107
EXXON STILL ON TOP 19 Cimarex Energy Co. 97,262 19 Murphy Oil Corp. 4,977,688
Among the top companies in net in- 20 Bonanza Creek Energy Inc. 93,356 20 WPX Energy Inc. 4,304,000
come, ExxonMobil still reigns supreme. Total 9,449,188 Total 529,229,373
The supermajor realized nearly $3.3 bil- *Based on 2nd quarter ended June 30, 2017
6
2 Chevron Corp. 197,705,631
4.2 3 ConocoPhillips 53,497,088
4 3.8 3.8 3.5
2.9 2.9 2.9 Anadarko Petroleum
2.3 4 26,481,325
2.2 Corp.
2
Occidental Petroleum
5 45,774,990
Corp.
0
6 EOG Resources Inc. 52,265,801
Dorchester Minerals
LP (96)
Chesapeake Energy
Corp. (16)
Abraxas Petroleum
Corp. (89)
W&T Offshore
Inc. (72)
SilverBow Resources
Inc. (81)
SRC Energy
Inc. (64)
Seneca Resources
Corp. (59)
7 Hess Corp. 13,943,802
8 Devon Energy Corp. 16,803,432
9 Marathon Oil Corp. 10,072,500
10 Apache Corp. 17,271,276
11 Noble Energy Inc. 13,867,000
80 TOTAL REVENUE
Pioneer Natural
67.3 12 27,144,079
Return on total revenue, %
70 Resources Co.
60 54.7 13 Antero Resources Corp. 6,816,831
50 Continental Resources
40.6 37.6 14 12,130,440
40 37.2 34.5 Inc.
33.8
30 27.7 27.0 26.1 15 Concho Resources Inc. 17,730,867
20 Chesapeake Energy
16 4,501,035
Corp.
10
2
17 EQT Production 10,155,229
0
Dorchester Minerals
LP (96)
Abraxas Petroleum
Corp. (89)
Callon Petroleum
Co. (46)
WildHorse Resource
Development
Corp. (48)
SRC Energy
Inc. (64)
Rice Energy
Inc. (22)
Sandridge Energy
Inc. (66)
W&T Offshore
Inc. (72)
Parsley Energy
Inc. (21)
42.7
40 The remainder of the top 10 in total
30
revenue includes:
• ConocoPhillips — $8.9B
20 • Occidental - $3.6B
10.4 9.4 • Devon — $3.3B
10 8.1 7.2 6.8
4.2 4.0 3.1 • Anadarko — $2.7B
0 • EOG Resources — $2.6B
Isramco Inc. (91)
US Energy
Corp. (103)
Dorchester Minerals
LP (96)
Newfield Exploration
Co. (38)
Rice Energy
Inc. (22)
Abraxas Petroleum
Corp. (89)
Cimarex Energy
Co. (39)
Devon Energy
Corp. (8)
SRC Energy
Inc. (64)
*Includes companies whose accounting methods vary. Excludes companies whose results were inflated by TOP 10 IN SPENDING
identifiable extraordinary gains. Excludes royalty trusts. Numbers in parentheses indicate rank by total assets.
(YEAR TO DATE)
ExxonMobil moved past Chevron in
spending in 2Q17 with $6.8 billion in
$3.4B); Stone Energy (net loss of $6.5M); Resources, No. 19 Murphy Oil Corp., and capital spending in 2Q17. Chevron fell
and Antero Resources (net loss of No. 20 Whiting Petroleum Corp. to the No. 2 position with $6.5 billion in
$5.1M). spending.
Of the top 20 companies ranked by TOP 10 IN TOTAL REVENUE The rest of the top 10 in spending
total assets, nine showed net losses for ExxonMobil again leads the pack with includes:
the quarter: No. 3 ConocoPhillips, No. $63.3 billion in total revenue, virtually • Anadarko — $2.3B
4 Anadarko, No. 7 Hess Corp., No. 9 the same as in the previous quarter. Chev- • ConocoPhillips — $2.0B
Marathon Oil, No. 11 Noble Energy, No. ron remains No. 2 with $34.5 billion, up • EOG Resources — $1.9B
13 Antero Resources, No. 14 Continental from $33.4 billion in the first quarter. • Occidental — $1.5B
2Q17
——————–––––––– 2nd quarter ending June 30, 2017 ––––––––——————
Rank
Stockholders’ Total Net YTD Capital & expl.
by total Total
—— equity —— —— revenue —— —— income —— ––– spending –––
assets assets
2Q17 Company $1,000 Rank $1,000 Rank $1,000 Rank $1,000 Rank $1,000
1 ExxonMobil Corp. 343,012,000 1 185,838,000 1 62,876,000 1 3,264,000 1 6,791,000
2 Chevron Corp. 254,599,000 2 147,388,000 2 34,480,000 2 1,466,000 2 6,539,000
3 ConocoPhillips 78,004,000 3 30,499,000 3 8,882,000 117 (3,426,000) 4 1,986,000
4 Anadarko Petroleum Corp. 44,348,000 6 14,656,000 6 2,716,000 114 (334,000) 3 2,296,000
5 Occidental Petroleum Corp. 41,982,000 4 21,037,000 4 3,603,000 4 507,000 6 1,492,000
1
6 EOG Resources Inc. 29,263,617 7 13,901,715 7 2,612,472 42 23,053 5 1,885,417
7 Hess Corp. 27,798,000 5 15,078,000 11 1,228,000 115 (417,000) 16 786,000
8 Devon Energy Corp. 26,814,000 9 11,330,000 5 3,273,000 7 451,000 7 1,468,000
9 Marathon Oil Corp. 24,241,000 8 12,405,000 12 1,059,000 111 (139,000) 17 775,000
10 Apache Corp. 22,602,000 14 8,265,000 10 1,384,000 3 613,000 13 883,000
11 Noble Energy Inc. 21,574,000 11 10,098,000 13 1,059,000 116 (1,498,000) 9 1,215,000
12 Pioneer Natural Resources Co. 16,271,000 10 10,602,000 9 1,630,000 9 233,000 10 1,074,000
13 Antero Resources Corp. 15,442,221 13 8,302,862 15 790,389 90 (5,132) 12 938,502
14 Continental Resources Inc. 13,871,257 21 4,254,335 17 661,486 106 (63,557) 14 877,115
2
15 Concho Resources Inc. 13,591,000 12 8,729,000 19 567,000 14 152,000 15 863,000
16 Chesapeake Energy Corp. 11,920,000 105 (684,000) 8 2,281,000 6 495,000 11 1,031,000
17 EQT Production3 11,884,454 — — 18 2
631,101 28 2
52,765 8 1,401,179
18 Range Resources Corp. 11,621,336 16 5,661,891 16 673,111 23 69,550 25 469,644
19 Murphy Oil Corp. 10,136,801 19 4,977,688 21 474,497 97 (17,571) 28 431,654
20 Whiting Petroleum Corp. 9,405,419 18 4,996,107 30 311,958 108 (65,981) 34 323,404
21 Parsley Energy Inc. 8,085,602 15 5,873,176 40 213,677 26 55,794 31 361,742
2
22 Rice Energy Inc. 7,995,050 33 1,900,284 27 398,307 15 137,249 18 644,326
23 WPX Energy Inc. 7,962,000 20 4,304,000 25 413,000 21 76,000 22 542,000
2Q17
——————–––––––– 2nd quarter ending June 30, 2017 ––––––––——————
Rank
Stockholders’ Total Net YTD Capital & expl.
by total Total
—— equity —— —— revenue —— —— income —— ––– spending –––
assets assets
2Q17 Company $1,000 Rank $1,000 Rank $1,000 Rank $1,000 Rank $1,000
24 QEP Resources Inc. 7,265,500 23 3,635,000 28 383,700 30 45,400 24 477,900
25 Southwestern Energy Co. 7,150,000 36 1,573,000 14 811,000 8 284,000 19 619,000
26 Diamondback Energy Inc. 6,783,809 17 5,286,934 35 269,434 13 164,128 35 291,767
27 Oasis Petroleum Inc. 6,261,721 25 2,977,610 39 254,091 47 16,568 39 252,461
28 SM Energy Inc. 6,212,605 30 2,501,828 51 120,721 110 (119,907) 30 366,743
29 California Resources Corp. 6,154,000 103 (491,000) 20 516,000 103 (47,000) 51 132,000
30 Consol Energy Inc.4 5,924,105 — — 37 260,305 10 5
227,413 41 243,097
31 RSP Permian Inc. 5,859,073 22 4,151,547 43 183,100 35 31,090 37 268,205
4
32 Freeport McMoran Inc. 5,546,000 — — 24 445,000 109 (89,000) 65 61,000
33 Gulfport Energy Corp. 5,294,155 27 2,914,839 29 323,953 17 105,936 27 460,765
34 Cabot Oil & Gas Corp. 5,219,459 29 2,642,031 22 460,457 43 21,527 29 393,333
2
35 EP Energy Corp. 4,888,000 53 559,000 33 296,000 89 (3,000) 38 266,000
36 Energen Corp. 4,746,732 24 3,187,742 38 256,824 37 29,481 26 466,508
37 PDC Energy 4,656,928 28 2,714,442 34 275,926 31 41,250 32 334,406
38 Newfield Exploration Co. 4,595,000 38 1,207,000 26 402,000 18 98,000 23 507,000
39 Cimarex Energy Co. 4,562,980 31 2,311,755 23 456,452 19 97,262 20 582,172
40 Denbury Resources Inc. 4,425,341 56 514,199 36 261,184 50 14,399 52 129,884
41 Kinder Morgan CO2 Co. LP6 4,106,000 — — 32 307,000 11 7
221,000 — NA
8
42 BreitBurn Energy Partners LP 3,947,834 57 452,677 48 141,109 107 (65,792) 70 44,327
43 Linn Energy Inc. 3,201,516 32 2,256,817 31 307,819 12 220,057 60 88,821
9
44 Centennial Resource Development Inc. 3,098,569 26 2,925,952 57 91,064 41 23,198 47 198,299
45 Extraction Oil & Gas Inc. 2,796,527 35 1,652,354 54 119,766 59 7,240 21 572,105
2
46 Callon Petroleum Co. 2,581,664 34 1,815,897 60 82,283 32 33,390 50 146,090
47 Unit Corp. 2,523,310 37 1,244,463 45 170,581 56 9,059 55 107,933
2
48 WildHorse Resource Development Corp. 2,373,550 39 1,149,575 67 70,173 39 26,366 45 211,264
49 Sanchez Energy Corp. 2,218,053 101 (447,323) 44 175,854 29 46,309 44 217,680
2
50 Halcon Resources Corp. 2,081,350 46 732,029 53 120,137 46 20,177 53 121,210
51 Carrizo Oil & Gas Inc. 1,963,819 66 131,831 46 166,483 25 56,306 36 290,625
52 Laredo Petroleum Inc. 1,941,254 59 324,403 42 187,001 24 61,110 42 232,219
53 Matador Resources Co. 1,777,076 40 962,371 49 129,611 34 31,687 33 328,929
54 Cobalt International Energy Inc. 1,774,348 109 (1,326,532) 88 15,520 113 (185,568) 46 206,430
55 Ultra Petroleum 1,762,003 107 (940,103) 41 212,657 5 499,037 43 225,057
2
56 Jones Energy Inc. 1,726,019 45 749,983 74 48,626 112 (145,332) 56 107,250
8
57 EV Energy Partners LP 1,489,343 48 684,619 71 56,052 102 (25,161) 91 3,635
58 Chaparral Energy Inc. 1,414,771 41 950,745 63 74,048 44 21,365 58 92,377
59 Seneca Resources Corp.10, 11 1,394,320 — — 47 151,161 36 30,123 — NA
60 Bill Barrett Corp. 1,323,194 55 542,264 73 51,558 98 (18,447) 57 104,236
8
61 Legacy Reserves LP 1,318,043 98 (214,290) 56 92,852 95 (11,077) 64 61,910
62 Vanguard Natural Resources Inc. 1,290,560 108 (957,130) 55 93,992 104 (53,872) 84 17,873
63 Black Stone Minerals LP 1,250,086 44 770,802 52 120,557 27 54,174 79 33,903
64 SRC Energy Inc. 1,233,633 42 894,367 62 75,056 38 27,936 48 178,606
65 Eclipse Resources Corp. 1,212,257 52 597,305 58 86,191 54 11,494 49 166,012
66 Sandridge Energy Inc. 1,132,678 43 864,161 59 84,851 40 23,499 59 88,904
2Q17
——————–––––––– 2nd quarter ending June 30, 2017 ––––––––——————
Rank
Stockholders’ Total Net YTD Capital & expl.
by total Total
—— equity —— —— revenue —— —— income —— ––– spending –––
assets assets
2Q17 Company $1,000 Rank $1,000 Rank $1,000 Rank $1,000 Rank $1,000
67 Approach Resources Inc. 1,106,267 54 550,322 80 24,969 93 (8,896) 76 37,819
68 Amplify Energy Corp. 966,625 58 389,751 66 70,216 22 75,484 86 15,727
2
69 Rex Energy Corp. 905,570 88 3,698 75 47,462 94 (9,603) 67 54,004
11
70 Comstock Resources Inc. 901,831 100 (305,307) 69 61,471 99 (21,442) 61 85,829
71 Jagged Peak Energy LLC 888,753 49 678,564 72 53,051 48 16,403 40 249,636
72 W&T Offshore Inc. 874,971 104 (597,957) 50 123,323 33 33,315 71 43,800
73 Stone Energy Corp. 868,719 61 288,947 61 76,891 92 (6,461) 81 25,492
74 Earthstone Energy Inc. 824,111 50 674,158 79 25,777 105 (54,967) 87 10,048
75 Midstates Petroleum Co. Inc. 801,648 51 598,671 70 60,679 52 13,742 66 54,369
76 Bonanza Creek Energy Inc. 786,544 47 686,411 77 44,144 20 93,356 88 10,036
77 Resolute Energy Corp. 728,549 97 (62,232) 64 71,026 53 13,228 54 118,484
78 Exco Resources Inc. 696,346 106 (741,126) 65 71,015 16 120,750 69 44,484
79 Lonestar Resources US Inc. 582,355 64 160,853 86 18,135 101 (23,161) 77 37,750
80 Northern Oil and Gas Inc. 481,306 102 (455,471) 68 64,902 51 13,802 73 42,748
81 SilverBow Resources Inc. 460,146 65 151,768 76 45,782 49 16,241 62 85,655
82 Contango Oil & Gas Co. 376,168 63 234,173 84 20,276 91 (6,034) 78 35,553
83 Gastar Exploration Inc. 371,300 95 (9,061) 82 22,646 88 (2,779) 68 48,274
84 Penn Virginia Corp. 337,152 62 236,696 78 36,282 45 21,329 72 43,583
85 Ring Energy Inc. 329,932 60 296,974 89 14,551 67 1,911 63 73,912
86 Mid-Con Energy Partners LP 255,605 70 99,736 87 16,480 96 (15,199) 90 4,341
87 PrimeEnergy Corp. 230,021 72 89,398 83 21,532 73 173 80 30,463
88 Panhandle Oil and Gas Inc.13 205,476 67 115,986 93 12,437 71 1,261 83 18,012
89 Abraxas Petroleum Corp. 187,137 68 106,362 90 13,153 60 7,195 74 40,453
90 PetroQuest Energy Inc. 148,573 99 (253,437) 81 24,251 87 (2,100) 82 21,661
91 Isramco Inc. 144,982 81 8,989 85 18,379 63 4,252 96 566
92 Goodrich Petroleum Corp. 143,353 75 55,645 92 12,477 85 (1,214) 85 17,519
93 Lilis Energy Inc. 125,007 85 6,976 100 5,425 100 (23,148) 75 40,280
94 Black Hills Corp.4 103,044 — — 99 6,149 86 (1,946) — NA
95 Enduro Royalty Trust 99,965 69 99,965 102 3,546 65 3,271 — NA
8 2
96 Dorchester Minerals LP 91,341 71 89,624 91 12,553 57 8,449 95 608
97 Yuma Energy Inc. 89,690 76 34,313 97 6,555 80 (163) 89 4,527
98 Evolution Petroleum Corp.14 88,268 74 68,470 94 8,836 70 1,501 101 63
15 16
99 VOC Energy Trust 81,682 73 81,682 101 3,811 64 3,570 — NA
2
100 Reserve Petroleum Co. 36,552 77 31,916 106 1,631 77 (65) 93 1,525
101 Spindletop Oil & Gas Co. 24,002 79 17,480 107 1,327 74 138 100 70
102 MV Oil Trust 18,334 78 18,334 103 3,077 66 2,875 — NA
103 US Energy Corp. 15,808 91 3,241 104 1,992 72 336 103 22
104 Mexco Energy Corp.17 12,145 82 8,415 110 668 82 (295) 98 200
15 16
105 Cross Timbers Royalty Trust 11,192 80 9,680 105 1,635 69 1,522 — NA
15 16
106 San Juan Basin Royalty Trust 10,021 84 7,206 98 6,452 62 5,981 — 0
107 Apache Offshore Investment Partnership 9,368 83 7,373 115 164 78 (126) 102 31
108 Tengasco Inc. 8,068 86 5,351 108 1,318 81 (178) 99 140
109 FieldPoint Petroleum Corp. 8,020 93 474 109 900 68 1,747 97 326
110 Royale Energy Inc. 8,013 94 (5,436) 113 246 76 71 94 1,053
111 New Concept Energy Inc. 7,139 90 3,425 114 243 79 (135) 104 10
112 Adams Resources & Energy Inc.4 5,070 — — 111 410 75 95 — NA
113 Houston American Energy Corp. 4,861 87 4,245 116 46 84 (466) 92 2,170
15 16
114 Sabine Royalty Trust 4,723 89 3,647 95 8,579 58 7,900 — 0
2Q17
——————–––––––– 2nd quarter ending June 30, 2017 ––––––––——————
Rank
Stockholders’ Total Net YTD Capital & expl.
by total Total
—— equity —— —— revenue —— —— income —— ––– spending –––
assets assets
2Q17 Company $1,000 Rank $1,000 Rank $1,000 Rank $1,000 Rank $1,000
15 16
115 Permian Basin Royalty Trust 3,534 92 566 96 7,477 61 6,972 — NA
116 EnerJex Resources Inc. 2,367 96 (9,806) 112 286 55 11,170 105 5
117 Forestar Group Inc. 188 — — 117 5 83 (348) — NA
— American Eagle Energy Corp.18 NA — NA — NA — NA — NA
— American Natural Energy Corp.19 NA — NA — NA — NA — NA
— Armada Oil Inc.20 NA — NA — NA — NA — NA
— Avalon Oil & Gas Inc.21 NA — NA — NA — NA — NA
— Blacksands Petroleum Inc.21 NA — NA — NA — NA — NA
— Camber Energy Inc.21 NA — NA — NA — NA — NA
— Daybreak Oil & Gas Inc.21 NA — NA — NA — NA — NA
— Escalera Resources Co.22 NA — NA — NA — NA — NA
— GeoPetro Resources Co. 21
NA — NA — NA — NA — NA
— Venoco Inc.25 NA — NA — NA — NA — NA
— Wexpro 26
NA — NA — NA — NA — NA
upon closing of the transaction. Co-founder David Schulte, WARD SELLS SCOOP AND HOXBAR ASSETS
who left Tortoise in 2015, will also sell his remaining interest in Ward Energy Partners LLC (WEP) has sold assets located pri-
Tortoise. Lovell Minnick is joined by a premier group of insti- marily in Stephens and Grady Counties in Oklahoma to an
tutional investors, including HarbourVest Partners, AlpInvest undisclosed buyer. The assets are prospective for the Woodford,
Partners, and several additional limited partners, who are sup- Mississippian, and Springer reservoirs in the SCOOP and Hoxbar
porting the transaction. BMO Capital Markets acted as exclusive oil trend. Pro forma for this sale, WEP will continue to own and
financial adviser to Mariner Holdings and Evercore acted as operate assets in the STACK play in Oklahoma and the Den-
exclusive financial adviser to Lovell Minnick. Key Strategic ver-Julesburg basin in Colorado. WEP is an oil and gas explo-
Advisors advised management on the transaction. UBS and ration and production company formed in July 2014 by Ward
Credit Suisse are providing committed debt financing for the Petroleum Corp., a diversified exploration and production
transaction. Independent directors and the full boards of Tor- company based in Oklahoma and Colorado, and Trilantic Capital
toise’s registered funds have approved new advisory agreements Management LP, a private equity firm based in New York and
as a result of the transaction. The transaction is expected to Texas. RBC Richardson Barr acted as a financial advisor to WEP
close by the end of the first quarter of 2018, subject to standard on the transaction. Vinson & Elkins LLP acted as legal advisor
regulatory, client and fund shareholder approvals. to WEP.
Chase Bank NA (Joint Lead Arranger, Sole Bookrunner and Founding partners of ISME are Burns & McDonnell, Kansas City
Administrative Agent) and SunTrust Bank and SunTrust Robinson Southern Railroad, Emerson, and Siemens Financial Services.
Humphrey Inc. (Syndication Agent and Joint Lead Arranger, Founding academic partners are Tulane University Business
respectively). The credit facility has an initial borrowing base School in Houston and the EGADE Business School at Tecno-
of $40 million and contains customary terms and conditions, logico de Monterrey in Mexico City. With the start of the Mexico
including semi-annual borrowing base redeterminations. The City chapter, ISME will rotate its monthly meetings between
company had $31.1 million of cash on hand as of September Mexico City and Houston. Each monthly meeting features a
30, 2017 and has $23.3 million currently available under the series of educational sessions updating members on latest
credit facility. Additionally, the company has entered into an developments within Mexico’s energy sectors along with other
additional swap of undeveloped acreage on a portion of its items of interest from around the world.
core North Louisiana Haynesville Shale acreage. Goodrich
swapped approximately 900 net acres out of its Metcalf area GORDON TECHNOLOGIES SEES INVESTMENT
of central Caddo Parish for a similar amount of acreage in its FROM PELICAN ENERGY PARTNERS
Bethany-Longstreet area in southern Caddo Parish. The swap, Pelican Energy Partners has invested in Gordon Technologies
that increased its inventory of long laterals and operated acre- LLC, an independent provider of Measurement-While-Drilling
age which carries lower gathering fees, equates to an increase (MWD) technology to the oil and gas industry. Headquartered
in proved undeveloped reserves of 25.5 Bcfe based on the in Scott, LA, with a service facility in Midland, TX, Gordon was
year-end 2016 SEC Reserve Report with SEC Henry Hub spot founded in 2014 by Terry Frith, a veteran of the MWD sector
price of $2.481 per MMBTU and $42.75 per barrel West Texas with more than 30 years of experience. Gordon’s product of-
Intermediate pricing. ferings were designed to specifically address needs in today’s
challenging drilling environments, namely MWD failures due
CONTINENTAL SELLS 1M BARRELS OF BAKKEN OIL to high shock and vibration, as well as high temperature envi-
FOR EXPORT TO CHINA ronments. Founded in 2011, Pelican Energy Partners is a spe-
Continental Resources Inc. noted its first-ever sale of Bakken cialized private equity firm based in Houston. The team, focused
oil specifically for delivery overseas. The company has sold on making investments in energy services and manufacturing
1,005,000 barrels of Bakken crude oil for November delivery to companies, has raised $330 million of committed capital and
Atlantic Trading and Marketing (ATMI), which intends to export is investing out of its second fund.
the oil to China. Daily sales transactions of 33,500 barrels per
day in November will take place in Cushing, Oklahoma. ATMI WORLEYPARSONS COMPLETES AFW UK ACQUISITION
then plans to transport the oil for loading on tankers at Texas WorleyParsons has completed the acquisition of AFW Oil and
ports. In December 2015 the US lifted its ban on oil exports, Gas UK Ltd. (AFW UK). AFW UK is a provider of engineering
allowing foreign sales to be transacted without a license. Oil and construction, operations and maintenance and hook-up
exports have grown steadily in the past two years, primarily to services markets in the UK oil and gas market. AFW UK has
foreign refineries configured specifically to process light sweet over 45 years’ experience operating in the North Sea providing
crude oil. services across the full asset lifecycle. The business represents
the majority of Amec Foster Wheeler’s former UK upstream oil
BURNS & MCDONNELL JOINS ISME and gas operations, to be divested as a remedy to competition
AS FOUNDING PARTNER concerns raised in relation to the John Wood Group’s acquisition
The International Society for Mexico Energy (ISME), a non-profit of Amec Foster Wheeler.
energy business advocacy group formed three years ago in
Houston, is launching its Mexico City chapter with an inaugural CONSOL BOARD GIVES APPROVAL TO SEPARATE COAL,
meeting to be held on Nov. 14 at the EGADE Business School E&P BUSINESSES
in Mexico City. Burns & McDonnell is a founding partner of The board of CONSOL Energy Inc. has given final approval of
ISME, an organization chartered to help businesses navigate the company’s previously announced separation into two pub-
Mexico’s evolving energy and power markets in the wake of licly-traded companies–a coal company and a natural gas ex-
deregulation and partial privatization of its power and energy ploration and production company. The current parent CONSOL
sectors. Mexico has implemented far-reaching reforms of its Energy will change its name to CNX Resources Corp., and will
power and energy industries, opening both sectors up to private retain its ticker symbol “CNX” on the NYSE. CoalCo will change
investment in 2013 after decades of monopoly control by state- its name to CONSOL Energy Inc., and its common stock will
run enterprises PEMEX and Comisión Federal de Electricidad. trade on the NYSE under the ticker symbol “CEIX”. CNX Coal
The reforms are creating a surge of attention among both US Resources LP will change its name to CONSOL Coal Resources
and international businesses. ISME is chartered to help serve LP. CNX Coal Resources will change its NYSE ticker symbol to
as a clearinghouse of best practices and accurate information “CCR” from “CNXC”, and its common units will continue to
for businesses and others looking for business opportunities. be listed on the NYSE.
PRESIDENT OF TEXAS ALLIANCE OF ENERGY AEGIS ENERGY RISK NAMES SANSBURY COO
Sternadt
PRODUCERS TO RETIRE AEGIS Energy Risk, a provider of hedge advisory,
Alex Mills will retire from the Texas Alliance of Energy execution, and back office services to the upstream
Producers effective December 31, 2017, as president oil and gas industry, has named Bryan Sansbury as its
and chief of staff. Mills became President of the Texas COO. Sansbury is a founding partner and has been
Alliance of Energy Producers in 2000, following the an outside advisor to the firm since its inception in
merger of the North Texas Oil & Gas Association 2013. In his new role, Sansbury will be responsible for
(NTOGA) and the West Central Texas Oil & Gas As- leading the operations, technology, and financial
sociation (WeCTOGA). Mills moved to Wichita Falls management of the firm. He joins AEGIS from Alight
in 1994 as executive vice president of NTOGA after Solutions, where he most recently served as president
Farmer
living eight years in Washington DC where he served of the Health & Wealth Solutions business. Prior to
as vice president of the Independent Petroleum As- this role, he served as the COO and chief information
sociation of America, the national organization for the officer of Aon Hewitt. Sansbury earned a bachelor’s
independent oil and gas industry. He also served as degree in finance from Berry College and is a Fellow
executive vice president of the West Central Texas of the CEO Perspectives Program through the Kellogg
Oil & Gas Association in Abilene from 1981 to 1986. School of Management at Northwestern University.
He is a frequent speaker on energy topics, including
speaking engagements at Texas Tech University and ARB MIDSTREAM ADDS VANDERHOEF
has participated in the Distinguished Lecture Series TO CRUDE SUPPLY AND TRADING TEAM
at the Dillard Business School at Midwestern State ARB Midstream LLC has hired Alison Vanderhoef to
University. Texas Governor Ann Richards appointed the crude supply and trading team. Vanderhoef will
him to the Interstate Oil & Gas Compact Commission be responsible for identifying new opportunities to
in 1994 and Governor George W. Bush re-appointed acquire and market crude oil from various regions
him in 1995. throughout North America. She will also work to iden-
tify and assess business development opportunities
RUIZ STERNADT NAMED CEO for midstream solutions including gathering and pro-
FOR DRESSER-RAND BUSINESS cessing. Before joining ARB Midstream, Vanderhoef
Paulo Ruiz Sternadt has been appointed CEO of the was a crude oil marketer for Petro China. She received
Dresser-Rand business, part of Siemens Power and her undergraduate degree from Texas A&M and an
Gas Division. He succeeds Judith Marks who will leave MBA from the University of Phoenix. Prior to Petro
the company at her own request. Ruiz Sternadt brings China, Vanderhoef worked for various companies in
the energy space including Kodiak Oil and Gas, Whit- EnLink’s predecessor company in 2006, most recently
ing Petroleum, and Vitol. ARB Midstream is an inde- as senior vice president of engineering and operations
pendent, growth-oriented company, providing com- services. EnLink provides integrated midstream ser-
plete midstream and marketing solutions for crude vices across natural gas, crude oil, condensate, and
oil, LPGs and refined products. ARB was formed with NGL commodities.
a strategic financing relationship with BV Natural
Alley
Resources LLC, the energy division of Ball Ventures INEOS SHALE APPOINTS COYLE AS CEO
LLC. INEOS Shale has today announced Ron Coyle, the
former Commercial Director of INEOS Phenol, has
ALLEY JOINS SILVERBACK EXPLORATION AS CFO been appointed CEO of INEOS Shale. Coyle brings
Matthew Alley has joined Silverback Exploration II over 20 years of experience to the UK shale gas com-
LLC as CFO. Alley brings more than 15 years of cor- pany. Coyle began his career in the US military where
porate and energy finance and investment experience he reached the rank of Army Captain. After completing
to the Silverback team. In his new role, Alley is respon- his term, he earned an MBA from Emory’s Goizeuta
sible for all financial functions of the company including Business School, joined INEOS Phenol in 1998 and
Coyle
structuring potential transactions, financial modeling became its Commercial Director in 2010. INEOS Shale
and analysis, budgeting and reporting, and strategic is now ready to move into an operational phase. INEOS
planning. Prior to Silverback, Alley spent two years as Shale plans to begin drilling test wells in the
CFO and vice president of finance with Palomar Nat- short-term.
ural Resources, an oil and gas operator with assets in
the United States and Poland. Additionally, Alley was NEW MANAGING DIRECTOR
manager of corporate finance at Aspect Energy, an NAMED AT CLEARWELL
independent energy exploration and investment com- Flow assurance and production optimization specialist,
pany, where he focused on corporate and financial ClearWELL Oilfield Solutions, has appointed a man-
Fergusson
matters relating to projects in the Gulf Coast and aging director as the company looks to increase its
multiple unconventional basins in the United States, international footprint. Alasdair Fergusson brings
as well as international projects in Hungary, Kurdistan, more than 25 years of oilfield management and mar-
and Italy. Alley holds a Bachelor of Science degree in keting experience to ClearWELL, having worked for
economics and computer science from the University major service companies in Europe and the Middle
of Puget Sound. Silverback Exploration II is an inde- East. Most recently he held the Paris-based position
pendent oil and natural gas exploration company of Business Manager Europe and Africa, Production
based in San Antonio. Silverback II is backed by a $500 Technologies at Schlumberger’s M-I SWACO. Before
million equity commitment from EnCap Investments joining Schlumberger, Alasdair was Director Eastern
LP. Hemisphere, Engineered Chemistry for Weatherford,
based in the UAE. He was also responsible for man-
RRC COMMISSIONERS APPOINT INTERIM aging the ClearWELL product line, then distributed
EXECUTIVE DIRECTOR exclusively by Weatherford. This was preceded by a
Texas Railroad Commission Chairman Christi Craddick 10-year stint at Baker Hughes in production chemistry,
and Commissioners Ryan Sitton and Wayne Christian drilling fluids and completion tools businesses. The
voted unanimously to appoint Wei Wang to serve as appointment follows FrontRow Energy Technology
interim executive director, effective Oct. 16, 2017. Group Ltd.’s acquisition of 50% of ClearWELL from
Wang currently serves as the agency’s CFO. Wang will previous owner MSL Oilfield Services, which retains
serve in this dual capacity while the Commission con- the remaining 50%.
ducts a search for a permanent executive director to
lead the agency’s day-to-day operations. BEYOND LIMITS APPOINTS NEW HEAD
OF OIL AND GAS TECHNOLOGIES
ENLINK MIDSTREAM NAMES JAGGI SVP Beyond Limits, an artificial intelligence (AI) and cog-
EnLink Midstream has named Cynthia L. Jaggi as the nitive computing company, has appointed Dr. Shahram
new senior vice president - strategic process transfor- Farhadi as the head of oil and gas technologies at the
mation, a new team within the company. Through company. Before joining Beyond Limits, Dr. Farhadi
Jaggi’s leadership, EnLink’s engineering and major worked with Occidental Petroleum Corp. on many
projects teams improved processes, applying lessons projects including unconventional exploration and
learned from a “Project Playbook” spearheaded by chemical flooding. Most recently he worked on sim-
Jaggi. She has held several key roles since she joined ulations of a propulsion component for the Orion
project. He holds a PhD in petroleum engineering from the ENTEK ENERGY APPOINTS EXECUTIVE CHAIRMAN
University of Southern California. Launched in 2014, Beyond Entek Energy Ltd. has appointed the non-executive chairman,
Limits secured $20 million in Series B funding from BP Ventures, Mark McAuliffe, to the role of executive chairman and managing
the corporate investment arm of global energy business British director. In a prepared statement the company noted that the
Petroleum, earlier this year. The investment will accelerate the view that process of reconfiguring the company’s asset base
delivery of Beyond Limits’ industrial-grade AI software aimed away from unconventional oil and gas could be accelerated if
at providing the energy sector with operational insight, business there was an executive member of the board with the authority
optimization, and process automation across operations. of managing director. The company believes the structure is
the best way to pursue objectives during the asset transition
TIDEWATER PRESIDENT, CEO RETIRES and is not intended to be long term.
Jeffrey M. Platt has elected to retire from his roles as CEO,
president, and as a director of Tidewater Inc., effective October SHAY JOINS BOARD OF PERPETUAL ENERGY
15, 2017. The board of directors appointed Larry T. Rigdon as Perpetual Energy Inc. has appointed Ryan Shay to the board
the company’s interim CEO and president. Rigdon, who was of directors. Shay brings over 20 years of experience in the oil
appointed to serve on the board following the financial restruc- and gas industry, retiring in June 2016 from his position as
turing, has prior experience as an executive at Tidewater, retiring managing director, head of investment banking for Cormark
as executive vice president in 2002 after joining the company Securities. Prior to transitioning to investment banking, Shay
in 1992 with the merger with Zapata Gulf Marine Corp. Following was Cormark’s senior energy research analyst for eight years.
his retirement, Rigdon founded and grew Rigdon Marine Corp. Perpetual is an oil and natural gas exploration, production and
to 28 offshore service vessels and sold the company in June marketing company headquartered in Calgary, Alberta. Per-
2008. Rigdon currently serves as a director of Professional Rental petual operates a diversified asset portfolio, including liq-
Tools LLC. In light of Rigdon’s interim dual role as CEO and uids-rich natural gas assets in the deep basin of west central
president, he has stepped down from the audit committee and Alberta, heavy oil and shallow natural gas in eastern Alberta,
the board has appointed Steven Newman as his replacement. with longer term opportunities through undeveloped oil sands
Tidewater is a provider of Offshore Service Vessels (OSVs) to leases in northern Alberta.
the global energy industry.
FRANK ELECTED TO CHEVRON BOARD
FORTIS ENERGY SERVICES HIRES ALFORD Chevron Corp. has elected John B. Frank to the company’s
AS VP, OPERATIONS board of directors, effective November 2, 2017. He will serve
Jason Alford has joined Fortis Energy Services as vice president on the company’s audit committee. Frank is vice chairman of
of operations. Alford has over 27 years’ experience in the oil Oaktree Capital Management LP, a firm he joined in 2001 as
and gas industry, with more than 12 in a management role. general counsel. Frank was Oaktree’s managing partner from
Alford has spent time working in some of the largest oil and 2005 until 2014. Previously, Frank was a partner with the law
gas plays in the world including: Norway, Kuwait, Venezuela, firm of Munger, Tolles & Olson LLP. Prior to joining Munger
Algeria, Libya, UAE, the Gulf of Mexica, North America, and Tolles in 1984, Frank served as a law clerk to the Honorable
Egypt, where he was the Country Manager for Boots & Coots, Frank M. Coffin of the United States Court of Appeals for the
a Halliburton company. Fortis Energy Services is an oil and gas First Circuit. He holds a bachelor’s degree in history from Wes-
well servicing company with corporate headquarters in Michigan leyan University, as well as a Juris Doctor degree from the
and operations throughout the Rocky Mountain and Northeast University of Michigan Law School.
regions, specializing in well completions, down-hole repairs,
maintenance, workovers and plugging and abandonment. SIDLEY AUSTIN ADDS FIVE PARTNERS
TO ENERGY CAPITAL MARKETS TEAM
ELLIOTT STEPS DOWN AS NON-EXECUTIVE Sidley Austin LLP will add a team of five partners to its Capital
DIRECTOR OF ROYAL DUTCH SHELL Markets and M&A practices, four of whom – David Buck, Jon
Guy Elliott has stepped down as a non-executive director of Daly, Angela Richards and George Vlahakos – will be based in
Royal Dutch Shell plc. In a prepared statement, Royal Dutch its Houston office, with the remaining partner – Bill Cooper –
Shell plc chair, Charles Holliday, said Elliott’s decision to step splitting his time between Houston and Washington, D.C. Buck,
down is “related to his involvement in legal proceedings re- Daly, Vlahakos, Cooper will join Sidley November 1, while
garding his former employment at Rio Tinto. We will miss his Richards will follow in early December. The addition of the
insightful counsel and leadership and would like to thank him group continues the firm’s expansion in the energy sector and
for his seven years of valuable contribution to the Shell Board. supplements its energy capital markets capabilities. Buck is a
We sincerely hope he satisfactorily resolves those proceedings senior capital markets and M&A partner with a corporate and
and, that in that event, he would like to be considered for re- securities law practice emphasizing transactional and gover-
joining the Board.” nance matters. Cooper concentrates his practice on complex
AAPL 42 Dauphine Midstream LLC 13 King & Spalding LLP 31 Rio Tinto 61
Abu Dhabi Crude Oil Pipeline LLC 23 DEA 59 Kingfisher Midstream 36 RKI Petroleum 36
Abu Dhabi National Oil Company 23 Devon Energy 49 Kirkland & Ellis LLP 56 Roan Resources 37
Accenture 8,16 Donald Lufkin & Jenrette 20 Kodiak Oil and Gas 60 Rowan Companies plc 57
AEGIS Energy Risk 59 Dresser-Rand 59 KPMG 8 Royal Dutch Shell plc 61
AFW UK 58 Drexel Burnam Lambert 20 KrisEnergy Ltd. 10 Rystad Energy 18,30
Air Products and Chemicals Inc. 12 Drillinginfo 57 Lattice Energy 37 Saudi Aramco 57
Alight Solutions 59 DTN 38 Linn Energy 37,49,56 Schlumberger 60
Allegro Development Corp. 35 Dutch Ministry of Economic Affairs 56 Lovell Minnick Partners 56 SCOTIABANK 3
AlpInvest Partners 57 Emerson 57 Marathon Oil 19,50 Scottish Development International 57
Alta Mesa Holdings 36 Emerson 58 Mariner Holdings 57 Seaqualize 56
Amec Foster Wheeler 58 Encana 12 MDU Resources Group Inc. 62 SEC 34,51,58
Ampelmann 56 EnCap Flatrock Midstream 13 Merey Sweeny LP 14 Shell 11
Anadarko 19 EnCap Investments LP 60 Microsoft 8 Shell Midstream Partners LP 13
Anheuser-Busch 20 Energean Oil & Gas 10 Mobil Corp. 59 Sidewinder Drilling LLC 62
Aon Hewitt 59 Energy Transfer Crude Oil 14 Moelis & Company 20 Sidley Austin LLP 61
Apache Corp. 19,49 Company LLC Morgan Stanley & Co. LLC 13 Siemens Financial Services 58
ARB Midstream LLC 59 ENERGYNET 5 MRC Global 62 Silver Run II 36
ARO Drilling 57 EnLink Midstream 60 MSL Oilfield Services 60 Silverback Exploration II LLC 60
Arsenal Resources 59 EOG Resources 50 Munger, Tolles & Olson LLP 61 SK Holdings Co. Ltd. 13
Aspect Energy 60 EQT Production 51 Murphy Oil Corp. 19,50 Southwestern Energy 49
Atlantic Trading and Marketing 58 Esso Exploration and Production Mustang Fuel Corp. 12 Spark Cognition 8
Axium Infrastructure Canada II LP 14 Guyana Ltd. 10 NICE Actimize 40 Sparrows Group 57
Baker Hughes 11,12,60 Eureka Midstream Holdings LLC 13 Noble Energy 50 Statoil 11
Banpu Pcl 10 Evercore ISI 8 North Texas Oil & Gas Association 59 Stone Energy 49
Barclays 14 Exxon Mobil Corp. 10 NYSE 14 SunTrust Robinson Humphrey Inc. 58
Beach Energy 37 ExxonMobil 12,49 Oaktree Capital Management 61 TAILWATER CAPITAL 13,BC
Beyond Limits 60 Falcon Partners 59 Occidental Petroleum Corp. 49,60 Tervita Corp. 4
Blue Ridge Mountain Resources Inc. 13 FERC 12 OPEC 11,17 Texas Alliance of Energy Producers 59
BMO Capital Markets 57 First Reserve 13 Origin Energy 37 Thompson & Knight LLP 13
BP 11 FLOTEK INDUSTRIES INC. IBC Palomar Natural Resources 60 Tidewater Inc. 61
BP Energy Partners LLC 13 Fortis Energy Services 61 Paradigm 57 Tortoise Investments 56
BP Midstream Partners LP 14 FrontRow Energy Technology 60 Parker Drilling 4 TransCanada Corp. 14
Group Ltd.
BP Ventures 61 Parsley Energy Inc. 51 Trilantic Capital Management LP 57
Gardere Wynne Sewell LLP 13
Brazos Midstream Holdings LLC 12 Pelican Advisors LLC 13 Tudor, Pickering, Holt & Co. 4
Genesis Energy LP 12
Burns & McDonnell 58 Pelican Energy Partners 58 UBS 20,57
Gibson, Dunn & Crutcher LLP 24
BV Natural Resources LLC 60 PEMEX 58 UBS Investment Bank 14
Goldman Sachs & Co. LLC 4,13
Callon Petroleum Co. 12 Perdure Petroleum 37 Ultra Petroleum 49
Goodrich Petroleum Corp. 57
Carrizo (Marcellus) LLC 10 Perella Weinberg Partners 4 UNION BANK 9
Gordon Technologies LLC 58
Carrizo Oil & Gas 51,57 Perpetual Energy Inc. 62 University of Houston 4
Gravity Midstream Corpus Christi 13
CB&I 12 Petro China 59 University of Texas at Austin 4
LLC
Centennial Resource Development 51 Petrobras 20 Valeo 59
Halliburton 4,61
Chamberlain, Hrdlicka, White, 42 Petroleum Geo-Services ASA 59 Vanguard Natural Resources LLC 51
HarbourVest Partners 57
Williams & Aughtry Phillips 66 62 Venture Global LNG Inc. 13
Haynes and Boone LLP 7
Chaparral Energy 49 Phillips 66 Partners LP 14 Veresen Midstream 12
Hess Corp. 50
Chaparral Energy Inc. 37 Pin Oak Corpus Christi LLC 13 Vinson & Elkins LLP 57
Hess Guyana Exploration Ltd. 10
Chesapeake Energy 49 Pinnacle Midstream LLC 13 Vitol 60
Hilton Hotels 20
Chevron 11,49,61 Pioneer Natural Resources 49 Wachovia Corp. 4
Hydra Group Ltd. 57
Chief Exploration and Development 10 PLS Inc. 36 Ward Energy Partners LLC 57
LLC I Squared Capital 13
Professional Rental Tools LLC 61 Weatherford 60
Citigroup 14 IAM Legacy 28
QEP 36 Wells Fargo & Co. 4
Citizen Energy II 37 Independent Petroleum Association 59
of America Quorum 8 West Central Texas Oil & Gas
ClearWELL Oilfield Solutions 60
INEOS Shale 60 Radler 2000 LP - Tug Hill Marcellus 10 Association 59
Concho Resources 49 LLC
International Society for Mexico 58 Whiting Petroleum 50,60
ConocoPhillips 19,49,59 Railroad Commission of Texas 11,60
Energy WildHorse Resource Development 51
Consol Energy 49,58 Range Resources – Appalachia LLC 10
IRS 42 Wood Mackenzie 11,17,64
Continental Resources Inc. 50,58 RBC Capital Markets 13
JBT Corp. 59 WorleyParsons 58
Copperbeck Energy Partners LLC 13 RBC Richardson Barr 57
Jefferies LLC 56 Zapata Gulf Marine Corp. 61
Credit Suisse 14,57 Real Core Energy 28
JP Morgan 14,58 Zena Energy LLC 10
Crestwood Equity Partners LP 13 REGIONS FINANCIAL 15
Kalnin Ventures LLC 10,57
Dakota Access LLC 14 Reliance Marcellus II LLC 10
Kansas City Southern Railroad 58
DataGenic 57 Rio Grande LNG LLC 12
Key Strategic Advisors 57
HARNESS
THE POWER
OF CITRUS OIL FROM OR ANGE PEEL S TO
IMPROVE WELL PERFORMANCE & PRODUCTIVITY.
FLOTEKIND.COM FLOTEKIND
World Trends and Technology for Offshore Oil and Gas Operations
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Offshore
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uper duplex tubes are the main cost item in a steel tube
umbilical, and optimizing the wall thickness to minimize the
material required can provide significant cost savings. Vallourec
Umbilicals’ newly developed super duplex seam-welded tube
offers a guaranteed high material yield and tighter manufac-
turing tolerances, enabling more cost-effective tube designs without
compromising safety.
The first successful installation was the 18-km (11.2-mi) umbilical A seam-welded tube. (Courtesy Vallourec Umbilicals)
that TechnipFMC supplied for Total’s Glenlivet gas/condensate field
west of Shetland, which came onstream this August via a tie-in to the
subsea production infrastructure serving the Laggan-Tormore fields. testing and shipping. Any ‘red’ marks detected previously are at this
Glenlivet was co-developed with the Edradour field in water depths point removed and replaced by circumferential welds on the line. All
of 300-435 m (984-1,427 ft), but the benefits of seam-welded tubes orbital welds are X-ray controlled in real time; the tube is then reeled
are equally applicable to longer-distance umbilicals in much deeper onto a customer process reel, which will undergo hydraulic testing,
water. Work on the new super duplex tube manufacturing process cleaning and conditioning prior to shipment.
started in 2008, and the recent industrialization followed an extensive By applying these procedures, long-length super duplex umbilical
qualification program, which continues with various offshore opera- tubing can be produced with a minimum yield strength of 750MPa and
tors, umbilical manufacturers and third-party type approval bodies. a minimum ultimate tensile strength (UTS) of 900MPa, for each tube
The new process, developed in accordance with ASTM A789/ size and wall thickness. Vallourec undertook demonstrations of tube
A789M-10a, employs the established super duplex stainless steel property reliability as part of an extensive, Bureau Veritas-witnessed
grade UNS S32750 or 2507, used widely by umbilical manufacturers qualification program and in line with stringent testing requirements
for subsea applications. Main benefits are strong pitting and cor- specified by TechnipFMC Umbilicals and Total.
rosion resistance; high levels of strength and hardness; and tight The manufacturing process provides further benefits in terms of
dimensional tolerances properties (in the case of Glenlivet, ovaliza- manufacturing tolerances and general geometry of the tube. Con-
tion is +/-0.03 mm). structing the tubes from strip raw material means that the tube wall
There are four principal features of seam-welded tube manufactur- thickness tolerances are directly linked to the manufacturing tolerances
ing: a longitudinal welding line, an orbital welding line, hydraulic test- of the strip wall thickness, so from the strip manufacturing process a
ing/cleaning/conditioning, and packaging. The longitudinal welding tolerance below 5% is guaranteed. For seamless tube, wall thickness
line is configured to transform a raw material, flat super duplex stain- tolerances selected for the design and calculations are usually around
less steel strip into a 100% NDT (non-destructive testing) controlled 10%, but for seam-welded tube the tolerances can be set at up to 5%,
coiled tube. The strip is formed into a round tube, which is welded depending on results of the qualification program. Residual ovaliza-
by a laser source and then heat treated and calibrated before being tion is below 3%, which compares with 5% typically for seamless tube.
controlled by ultrasonic testing and eddy current testing methods: the Yield strength, wall thickness tolerance and ovality all play an
latter ensure detection of any possible defect greater than 5% of the important role in the tube performance. The qualification program
wall thickness. Defect indications are automatically ‘red’ marked on showed that tube wall thickness could be optimized and significantly
the tube prior to intermediate reeling on the longitudinal welding line. reduced, in turn lessening the weight and quantity of raw material.
Several intermediate reels packed with completed tube are welded Another benefit of reduced wall thickness is an increased bending
together (TIG, with super duplex filler material process) on an orbital performance of the tube. The tube’s bending capacity drives the
welding line to produce a final spooled product ready for pressure manufacturing process, as well as the packing and installation method
Tables show (left) high pressure and burst resistance and collapse resistance (right) of three samples with the following dimensions: (1) 15.25 mm outer
diameter (OD) x 1.15 mm wall thickness (WT); (2) 28.5 mm OD x 1.45 mm WT; (3) 18.1 mm x 1 mm WT. (Courtesy Vallourec Umbilicals)
for the umbilical. For the main manufacturing phase of the fabrication yield strength of the seam-welded tubes is independent of the tube
and for the final packing, the tube and the umbilical are spooled onto size, something which is not the case for seamless tubes. This has
a reel at a radius at which the tube will be plasticized. Typically, the a significant impact on the project as all manufacturing design and
maximum level of plastic deformation allowed per spooling is around installation constraints on steel tube umbilicals are directly driven by
2%. Increasing the bending capacity of the tube enables use of a reel the properties of the largest tubes.
with a smaller inner core. There are further potential benefits for the umbilical, such as fatigue
Results show that the main benefits in terms of bending radius are performance and the bend stiffener design. The increased bending
for the larger seam-welded tubes. This could be explained by the fact capacity of seam-welded tubes should lead to a significant reduction
that the bending radius is driven by the wall thickness of the tube in the bend stiffener size, although this still needs to be quantified
and the nominal elastic strain. Due to the manufacturing process, the on a case-by-case basis.
Glenlivet project
The Glenlivet gas/condensate field is in block 214/30a, 35 km
(21.7 mi) east of the Laggan field in the UK’s west of Shetland area.
Glenlivet, in 440 m (1,443 ft) water depth, was developed jointly with
the Edradour field which is in shallower water, 17 km (10.6 mi) to
the south. Both are tied back to the existing Laggan-Tormore subsea
Others simply sell you a product – infrastructure, and the commingled fluids from these three fields and
we offer a solution. the Tormore field are processed at the onshore Shetland Gas Plant.
For the two-well Glenlivet development, the umbilicals provide
the required hydraulic, electric and fiber optic services along with
OHL Gutermuth
A control and shut off technique you can rely on.
A
ccurate measurement has perennially
been one of the most acute long-term
challenges to the upstream industry.
Multi-phase metering was initially
developed to meet these demands in
offshore and subsea wells by delivering the
measurement of multi-phase streams close to
the well in confined or inaccessible areas, so Non-intrusive pipe view.
that its operators and innovators could deliver
optimized production and better reservoir thinking, and a re-examination of how we ap-
exploitation. proach its development.
This trend began almost 30 years ago. The One of the biggest factors that will govern
expectation was that multiphase metering the future price of oil is the extent to which the
technology for oil, gas, and water flow would standardized, manufacturing-like processes
evolve to be able to not only provide valu- that characterize tight oil production are imple-
able data, but also to deliver cost savings. mented across the industry. In the shale plays
Those cost savings would facilitate single in the USA’s Lower 48 states, best practices
well tiebacks, shared use of existing platform have transposed swiftly between operators
and pipeline facilities, and continuous online and operations. These practices include pad
monitoring for economically marginal wells. New multi-phase meter design. drilling, high-volume completions, and tighter
However, over the years, the multi-phase (Images courtesy M-Flow) well spacing. All have made statistically vis-
market has not fulfilled these ambitions. In Until we have accurate, trustworthy data there ible differences to costs and how quickly and
large part this is because it has prioritized ex- will be little progress towards more efficient successfully projects are brought to commer-
pensive technology that embeds uncertainty oilfields.” cialization.
in flow rate measurement over accuracy and At the heart of this process has been the
repeatability in parameters that can be directly Operational changes use of reliable data to improve performance
measured. This inherently leads to complexity, In the last 10 to 15 years, the oil market has through reproducibility and tight process
human intervention, and validation-hungry evolved considerably with maturing assets and control. For offshore, with its longer lead
systems. especially the now accepted lower for longer oil times and legacy infrastructure, the need for
Cumbersome and expensive test separa- price. So much so that many of the beliefs and data is driven by different factors. But it is just
tors remain in operation attempting to fill principles that guided decision making even as badly needed to deliver the marginal gains
this knowledge gap; but they provide only a decade ago are no longer as useful as they that incrementally compound into significant
piecemeal or fragmented information that once were. The operating models from those improvements.
rarely delivers more than limited value. So years were for a long time the templates for Capital discipline has led to an austere in-
while oil and gas companies seek the benefits success, but now too many aspects of them add vestment approach because of offshore’s high-
of access to data, for wellhead metering and in cost, and stifle implementation of best practice. er capital intensity and slower payback. When
the current oil price environment are hungry Over recent years, low prices have forced operating in a price-constrained environment
to reduced costs, they’ve been consistently oil and gas companies to get serious about and looking for a competitive breakeven, the
unable to access lower cost reliable and re- rising production costs. These have included first focus in achieving sustainable improve-
producible information sets. project optimization, reducing facility size, ments is to upgrade your understanding of
A CEO of a major oil company recently changing facility concept, cutting well count, your operations and your business’s assets.
said: “When I first started attending senior improving well design and well efficiencies. To do this requires elemental knowledge of
management and board meetings, the data Now the challenge is to sustainably preserve your setup, and the ability to answer straight-
on production was often unreliable or unavail- those gains, and build upon the foundations forward questions about your wells: When and
able. Decades later, that has barely changed. that have been laid. To do that will take fresh where did the water in my process come from?
What does this mean for my reservoir planning? Do I have the basic
data to run virtual flow meters to allocate well production? Could the Tackle the
Unconventional
onset of damaging acid gas or scale be avoided?
Production optimization
By re-thinking the challenges that have inhibited the growth of
multi-phase data for the production optimization market, equipment
24 / 365
manufacturers have developed technology and global solutions that
provide confidence at the wellhead, delivering data with reliability,
repeatability, and accuracy. Heavy crude oil dewatering
In contrast to traditional meters, a new type of carbon fiber multi- with high g-force centrifugal
phase meters require minimal manpower, lower capital expenditure,
and almost zero operational expenditure, with five-year lifecycle meter separators from GEA
costs that are on average 20% of traditional multi-phase flowmeter
costs. At the same time, this new metering technology delivers directly
measured, constant data on water cut and gas fraction with certainty With GEA centrifuges you can successfully
regarding accuracy and repeatability.
handle the small density difference between
The proven reliability of this technology facilitates a shift in the
traditional engagement. Moreover, by providing this information in heavy crude oil and water with simultaneous
a packaged, discreet, and highly valuable data set, there can now be separation of fine solids from the oil – and no
a shift in focus: moving dialogue and engagement within the multi- shutdowns are required.
phase market away from the meter, and onto the impact of accurate
and reliable data to redefine upstream operations.
Since May 2017, GEA has had two package units
Next steps in 24 / 365 commercial operation, each with four
The offshore industry cannot easily reinvent its infrastructure. separators and a capacity of over 60,000+ BPD.
Consequently, a key objective is to optimize existing production and The centrifuges are processing heavy crude oil
bring in new reserves at a lower cost. Across most process industries, with an API gravity of 16 and a water content
getting more out of what exists is a game of improving control.
of up to 40 % by volume. The BS&W content of
Lord Kelvin’s words 134 years ago ring as true now: “When you can
measure what you are speaking about, and express it in numbers, you the treated crude oil is < 0.5 %.
know something about it. When you cannot express it in numbers,
your knowledge is of a meagre and unsatisfactory kind.” Data with Unconventional oil needs unconventionally
reliability, repeatability, and accuracy does not have to to be a chal- good treatment. Make the most of it with
lenge that spans generations.
GEA Separation.
Measurement technologies and systems that enable accuracy, re-
peatability and reliability are vital to meet offshore’s ability to remain
competitive in a world of resource abundance. However, to provide For contact details: gea.com/contact
GEA-OI-01-006
the actionable insights, offshore needs will first take trustworthy data
at the wellhead. •
The author
Giles Edward is CEO of M-Flow.
A
BB Oil & Gas is managing a joint in-
dustry project (JIP) with Statoil, Total,
and Chevron to develop technologies
for subsea power transmission, dis-
tribution, and conversion at greater
distances, in deeper waters, and in harsher
environments. The project started in 2013 and
is targeting a 3,000-hr shallow-water system
test in 2018, following the completion of quali-
fication of pressure-tolerant medium-voltage
switchgear, medium-voltage drives, and sup-
porting controls and auxiliary supplies.
All three partners and the Research Council
of Norway are funding the program, which
has a budget of more than $100 million. The
main targets are to prove the operability of
Medium-voltage drive cell pressure test at Statoil’s Rotvoll R&D facility.
the equipment in water depths up to 3,000 m
(All images courtesy ABB, SPE)
(9,842 ft), transmission distances up to 600
km (373 mi), and power levels up to 100 MW. Cost reduction is one of the major drivers under normal operation and fault conditions
The project is following a systematic ap- behind subsea power. The savings that can be to TRL4, the project’s final stage.
proach of technology qualification for the achieved via one long power cable distributed The JIP project has allowed flexibility for sub-
various components, sub-assemblies and to many subsea loads are substantial. Another sea optimization at all levels. The project organi-
equipment, the aim being to ensure that the advantage of boosting at the seabed close zation was defined across several divisions and
technology will function reliably in an offshore to the wellheads is potentially more optimal locations, combining the individual strengths of
field setting within the specified limits, as well recovery of the oil and gas resources; and the system, research and product areas, while
as providing improved understanding of risk importing power from shore also leads to at the same time building on long-established
management. Qualification includes extensive lower CO2 (carbon dioxide) compared with experience with subsea transformers.
trials of components subjected to test con- power generation on a platform. ABB chose to base the subsea power and
ditions based on a common understanding control equipment largely on existing in-house
of component/equipment-specific stresses VSD prototype technologies with a long record of reliable
throughout an agreed life-cycle. Sub-assembly Following verification of the main concept operation and established quality control and
testing is geared mainly to confirming the and key components in April 2015, the project obsolescence strategies. The basic power dis-
overall function, design margins, and the ther- passed Technology Readiness level 2 (TRL2). tribution, conversion, and control principles
mal and high-current performance. In February 2016, ABB successfully tested a are equivalent to those for any topsides ap-
The new products will provide the power power-switching cell, a critical module of the plication. In addition, the company has partly
needed for emerging technologies such as variable-speed drive (VSD), at 300-bar (4,351- re-packaged other core components for subsea
subsea compression and subsea oil boost- psi) pressure and at full load current at Statoil’s environmental conditions. Subsea-specific fea-
ing, and will form part of Statoil’s vision of research facility in Trondheim, Norway. ABB tures include functions for increased reliability,
the subsea factory and the all-electric subsea has since constructed the first full-scale pro- but with additional margins and redundan-
processing facility. Having power distribution totype of the VSD which is due to be shallow- cies. Since a wide range of electronics and
available on the seafloor and the flexibility to water tested later this year in Vaasa, Finland, power components need to operate in both a
take power from shore also enables staged over several weeks. The planned 3,000-hr test pressure-tolerant environment and dielectric
field development without the need for major late next year of a complete subsea power sys- oil, there has been a major focus on component
topsides modifications on remote or deepwa- tem with two VSDs in a parallel configuration screening and material technologies in relation
ter production installations. Ultimately, it could combined with subsea switchgear and controls to chemical compatibilities, material interface
also provide allow production of oil and gas will also be in shallow water. This will demon- aspects, and thermal performance.
without the need for any topsides installation. strate full system functionality and interfaces All project qualification activities follow the
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tpsddde
ABB has developed subsea-specific the subsea switchgear at 11-33 kV. The
laboratories with a range of pressure drive unit includes an integrated drive
vessels for component screening stud- transformer. For driving larger loads
ies, as well as for long-term tests on such as compressors, two or three VSD
selected components. Test pressures units can be stationed in parallel to drive
vary depending on the type of investi- 12 or 18 MVA loads.
gations, however, acceptance criteria Two VSDs in a parallel configuration
are generally based on tests at 345 bar will be installed with subsea switchgear
(5,004 psi) for components in a pres- and controls, and operated in shallow
sure-compensated environment (non- water for next year’s 3,000-hr trial. The
pressure retaining), and 450 bar (6,526 aims are to demonstrate full system
psi) for pressure-retaining components. function and interfaces under normal
operating and fault conditions; to gain
Minimized downtime reliability experience; and to prove the
The JIP is developing the following suitability of the full-scale prototypes
main products: including thermal properties, and
• Subsea medium-voltage (MV) dis- marinization for a Technology Readi-
tribution switchgear ness Level of 4+.
• Subsea medium-voltage variable During the test the thermal perfor-
speed drives (VSDs) mance and cooling efficiency of the sub-
• Subsea control and low-voltage dis- sea drives will be closely monitored. It is
tribution. essential to verify that individual material
To ensure compact and reliable solu- temperature limits are not violated to
tions, the VSD and the MV distribution Above: ABB Subsea MV switchgear in a moonpool-installable achieve the targeted design life. Design-
are enclosed in oil-filled, pressure-com- module. Below: ABB Subsea drive. wise and functionality-wise, the units will
pensated tanks, with components tested be as similar as possible to the actual
extensively under the full pressure they units to be deployed in a future pilot
will experience at the target water depth. installation; however, the drives will be
The aim is to design the equipment such operated in a back-to-back configura-
that production downtime and retrievals tion directly with the grid without motor
are minimized. loads. This is a so-called ‘power-in-the
Power can be supplied from any avail- loop’ test where only the power losses
able topsides installation or from shore. needs be supplied from the grid. Test-
When the step-out distance is long, a ing with a high-power motor load is not
higher transmission voltage (e.g. 132 performed in seawater, but rather as part
kV) is applied. The step-down trans- of a factory acceptance test.
former converts this to the distribution The final shallow-water sea trial, over
voltage, typically 11-33 kV. For very long 3,000 hours, will involve several stages
transmission distances, typically 250-600 of testing in seawater in a sheltered
km (155-373 mi), a low frequency trans- harbor. Before running with power,
mission is used (at 16.7 Hz), as normal there will be a period of system testing,
50/60 Hz solutions will not be possible. with various redundant communication
The MV switchgear distributes the tests, black-start sequences, verifica-
main power to the various loads, typically tion of ride-through (energy storage),
motors for compressors and pumps, and protection-setting adjustments, breaker
is designed to feed two MV loads. Maxi- and disconnector operations, insulation
mum feeder current is 1,250A, dependent monitoring system verifications, and op-
on the availability of subsea connection eration of the drives with one or more
systems. The switchgear can support cells out-of-service. During the 3,000-hr
an incoming breaker if required as well test, there will initially be thermal run
as a tiebreaker to support cascading of two system with energy storage maintains control stability at nominal power. Next, operating point
subsea switchgears. The subsea switchgear power during transient disturbances on the sets and overload conditions will be checked,
has a pressure-compensated design, with two main supply. Standard oil-filled subsea control and then all the drives will run at steady nomi-
auxiliary supply transformers integrated into modules (SCMs) house the control and low nal load for a longer period before a final power
the base of the unit. voltage subsea electronic modules (SEMs), cycling phase. •
A standard dual A/B redundant system pro- filled with nitrogen.
vides low voltage supply (auxiliary/control The drive unit is of a pressure-compensated
power) to the main power components as well design, with all parts submerged in oil to en-
as other auxiliary supply demands: this low sure cooling of the power components. Oil
Acknowledgment
voltage supply would typically handle 400V circulating within the drive unit employs natural This is an edited version of the paper Subsea Power
AC (200-600 V) in single- or three-phase mode. convection cooling: the unit would typically JIP – As Enabler for All-Electric Subsea Production,
The low voltage feeders have integrated isola- drive a subsea boosting pump (up to 4 MW), presented at the Offshore Technology Conference in
tion transformers and insulation monitoring with an output voltage to the motor of around Houston in May 2017, organized by the Society of
implemented. A centralized 24 V DC supply 6-7 kV. Power for the drive comes directly from Petroleum Engineers.
T
he Oil & Gas Technology Centre in Jeremy Beckman involved, and each one can combine in-kind
Aberdeen is a new initiative working Editor, Europe funding with cash funding in arrears.
to foster innovation in the UK offshore
sector and help the industry improve Offshore: What is the purpose of the recently
recovery of the North Sea’s remaining opened Innovation Hub?
resources. Offshore spoke to Chief Executive Cohen: This is a state-of-the-art facility,
Colette Cohen about the Centre’s goals and opened by Scotland’s First Minister on Octo-
achievements to date, which include over ber 2, to drive innovation and accelerate new
£15 million [$19.8 million] co-invested with five areas of focus – asset integrity, well con- technologies to help unlock the full potential
the industry, a program to fund and support struction, marginal discoveries (small pools), of the UK North Sea. The Hub brings industry
smaller companies develop their businesses decommissioning, and digital transformation. and technology providers together, connecting
and promising new technologies, and the The Technology Leadership Board will con- problems with solutions and solutions with
recently opened Innovation Hub. tinue to provide strategic input on key themes problems. By partnering with industry, aca-
••• and challenges. The Centre also has a Call demia and experts from outside oil and gas,
Offshore: What was the rationale behind for Ideas process to identify solutions for the we help innovators make their ideas tangible,
the formation of the Oil & Gas Technology challenges faced by the industry. prove the value of their concepts, and prepare
Centre, and when did the process of forming The Centre works with its members to them for deployment in the oilfield.
the centre begin? Was this prior to Sir Ian shape its work programs and focus areas, cre- Our program of innovation events and work-
Wood’s proposals for MER UK? ating projects in partnership with operators, shops is driven by the needs and priorities of
Cohen: In his 2014 Maximising Economic service companies and technology providers the industry. The Hub provides the tools and
Resources review for the UK Continental Shelf to accelerate the pace of new technologies. techniques to stimulate and capture creative
(MER UK), Sir Ian Wood made a number of contributions of participants, accelerating ideas
recommendations. This led to the creation of Offshore: How many companies, academic into actions.
the Oil & Gas Authority, a progressive new institutes provided input to the proposed Cen-
regulator for the UK oil and gas industry. Sir Ian tre and its future direction? Offshore: Can you provide details of the Asset
also identified the need for a greater focus on Cohen: There was extensive engagement Integrity and Well Construction Solutions Centres
technology on the UKCS, which was the initial with more than 50 institutions and industry and the types of projects under development?
inspiration for the Oil & Gas Technology Centre. organizations during the development of the Cohen: The Solutions Centres are based
A business case for the Centre was de- business case. at our Queen’s Road site in Aberdeen and are
veloped as part of an Aberdeen City Deal teams of employees that manage the projects
proposal, which was signed by the UK and Offshore: How many members does the the Technology Centre invests in. One of our
Scottish governments in November 2016. centre have at present, and what are the ben- key projects deal with asset integrity. In part-
With £180 million [$239 million] allocated by efits of participation? nership with Infinity Oilfield Services, we are
the two governments under a 50/50 arrange- Cohen: The Centre has more than 50 mem- developing a safety solution that could save UK
ment, the Technology Centre received the bers. We have £180 million to co-invest with North Sea operators up to £320 million [$425 mil-
lion’s share of the £210 million [$277 million] our partners to get innovative technologies to lion]. The device, which includes Kevlar, would
granted to the City Deal. Work to develop market quicker. Our members help to shape contain corroded valve equipment to eliminate
the Centre began in late 2016 and it officially the base portfolio of projects invested in by the the risk of an uncontrolled hydrocarbon release,
opened for business in February 2017. Centre, but the Centre also invests with many improving safety performance and potentially
The £180 million funding is over a 10-year non-members on projects which fit the Tech- extending asset life.
period, with the requirement for this to be nology Strategy which supports MER UK. Apollo and LifeTech are developing a tablet-
match funded by the industry – either in-kind There are four ways for companies to get based, software solution for integrity manage-
or cash. So far, the Centre has invested more
than £15 million [$20 million] with 60% lever-
aged from industry partners.
ment. It delivers integrity data and decision- extensive network of experienced men-
making across the full lifecycle of an asset, tors and partners
allowing for quicker and more accurate data • Facilities: fast access to dedicated facilities
gathering and reporting, creating a potential and tailored training
20% efficiency gain. • Field testing: opportunities to field trial
Air Control Energy aims to deliver a step through the Centre’s operator network.
change in the capability and functionality of There are three available funding pro-
unmanned aerial vehicles (UAVs) for the re- grams to accelerate the development and
mote inspection of oil and gas facilities. These deployment of new technology:
advanced drones could be 20 times faster For start-ups, there is our Pioneers pro-
than traditional inspection techniques and gram. Mentoring and support for entrepre-
reduce costs by 50% in comparison to rope neurs to develop business, validate products,
access methods. acquire customers and attract funding. Each
The Centre is also working with TRAC Pioneer will receive up to £100k funding
Oil & Gas to develop a new electromagnetic Interwell’s wireline-deployed tool creates a
and can work out of the TechX space at the
method to inspect corroded pipework under permanent barrier, without the need to remove Technology Centre’s site in the heart of Ab-
insulation and composite wrap materials. This downhole tubulars. erdeen. There are two programs each year,
innovative solution would enable companies with 10 companies per program.
to monitor the condition of hidden pipework, co-funding, developing, and deploying new For subject matter experts, there is our
saving time and money compared to current technology in the North Sea. The opportunity, Market Entry program. This is an ongoing
approaches. if this can be achieved, is significant: program for companies with a unique and
Well construction is another key focus area. • Potential production value increase of £157 near market-ready product – preferably from
With the Centre’s support, Raptor Oil has a million [$208 million] with alternative a different industry, needing operational test-
program that could transform the transmis- methods to vessel inspection ing, validation and scaling.
sion of downhole drilling data to the surface. • £700 million [$930 million] economic ben- Then, there is our Ventures program. This
The company’s acoustic telemetry technology efit of improved asset integrity technolo- program is designed for new ventures that are
could increase the speed and capacity of data gies between 2016 and 2025 looking to fill technology and supply chain
communication, helping to drive efficiency, • £14 million [$18.6 million] investment gaps through creativity, innovation and deter-
reduce costs, and improve decision-making. required meaning every £1 investment mination. This is a six to nine-month program
We are working with Interwell P&A and unlocks £50 [$66] net gain. that runs in partnership with Deep Science
various major North Sea operators to field- The AISC is initially focused on the two Ventures in London.
trial a ground-breaking concept for well themes identified in the Asset Integrity Theme
abandonment that could save the industry Landscaping Study, commissioned by Oil & Offshore: What are the aims of the Small
more than £100 million [$133 million] per Gas UK on behalf of the Technology Leader- Pools Initiative?
year. The wireline-deployed tool (a rig-less ship Board. These themes are process vessel Cohen: The Small Pools Solution Centre,
deployment is targeted), generates downhole inspection (VI) and corrosion under insula- like the Asset Integrity, Well Construction, De-
temperatures of up to 3,000°C [5,432°F] to tion (CUI). Eliminating the impact of asset commissioning and Digital Solutions Centres,
melt all well elements and create a permanent, integrity on operational uptime by 2026 means helps identify, co-fund, develop, and deploy
impermeable barrier, without the need to no shutdowns or lost production due to asset new technology in the North Sea. The goal is
remove any downhole tubulars. integrity issues by that date. to have no technically stranded UK offshore
Using technology to transform the con- field assets by 2022.
struction and operation of wells could reduce Offshore: The Centre periodically launches The Small Pools Solution Centre has co-
costs by up to 50%. To support this, the Centre “calls for ideas.” What are the goals for the invested in two projects to date: one is with
is co-funding a project with Deepwater Oil selected technologies? Exnics to develop a unique subsea flow meter
Tools to develop a special articulated joint Cohen: The goals vary depending on the that can be retrofitted to measure oil and
called ArticuLock, which could enable drill- technology readiness level of the ideas that we gas flow rates from subsea wells. Improv-
ing operations in rough weather conditions, decide to invest in. The goal of an idea with a ing measurement was one of the key focus
saving tens of millions of pounds each year. low TRL [Technology Readiness level] could areas identified by the industry’s Technology
be to prove the concept or develop a working Leadership Board.
Offshore: Can you explain how the Asset prototype; a goal for an idea with a higher TRL Another project, with EC-OG, is in the pre-
Integrity Solutions Centre (AISC) will work could be to take the technology to field trial. paratory phase for a field trial of the company’s
to achieve its goal to “eliminate the impact of subsea power hub – a subsea generation and
asset integrity on operational uptime by 2026”? Offshore: What is the purpose of the Tech storage device which harnesses ocean currents
Cohen: Corrosion has significant impact X Technology Accelerator? to provide the power needed to operate well
on uptime and operating performance. Cor- Cohen: TechX, due to be launched in De- controls and other critical subsea equipment.
rosion costs the global economy £4 trillion/ cember, is an initiative designed to stimulate The Small Pools ‘Tie-back of the future’
yr [$5.31 trillion] and £28 billion [$37.21 bil- and accelerate new technology business an- initiative involves 25 companies, with 15 tech-
lion] annually in the UK. Around 60% of pipe chored in northeast Scotland. nology proposals and six integrated studies to
failures on UKCS infrastructure are due to Our goal is to invest in 100 technology com- design new tiebacks that can be delivered for
corrosion under insulation, while the annual panies in the next decade, offering: half the cost in half the time, and significantly
UKCS cost of vessel inspection and corrosion • Unparalleled funding, up to £100,000 reduce the impact on the environment. The
under insulation is £300 million [$398 million]. [$133,000] per start-up, with no equity initiative focuses on designing for disassem-
The AISC wants to transform the way the or pay back required bly and re-use, contributing to the circular
industry maintains its assets by identifying, • Mentoring: advice and support from an economy and reducing waste. •