THE EXECUTIVE PUBLICATION FOR THE OIL AND GAS INDUSTRY

JANUARY 2016

FELIX ENERGY CEO

DISCUSSES $1.9B
ACQUISITION
BY DEVON
SPECIAL FOCUS:

ANNUAL
NAPE ISSUE
REFRACKING SHALE
INNOVATE TO SURVIVE
ENERGY OUTLOOK 2016
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 CONTENTS V13/N O . 1 | JANUARY 2016
THE EXECUTIVE PUBLICATION
FOR THE OIL AND GAS INDUSTRY

FEATURES

28
ARGENTINA
18 34
M&A IN THE GLOBAL PETROLEUM
Wood Mackenzie analysis of Argentinas INDUSTRY
Vaca Muerta shale play Part 1 in a series about the increasing
importance, relevance of deals in the global

20 petroleum industry

REFRACKING THE SHALE PLAYS

Examining the commerciality
of recompletion
39
MEETING COMPLIANCE CHALLENGES
Automating business processes helps

22
improve efficiency and reduces risk and
impact on the bottom line

34 COVER STORY
FELIX ENERGY 42
OGFJ spoke with Felix Energy president and LATEST SEC COMMENTS
CEO Skye Callantine and two members of his
executive team, Michael Horton, VP of land,
and Bill Arnold, VP of operations, following
the announcement that Devon Energy would
acquire the privately held, Denver-based E&P DEPARTMENTS
for $1.9 billion. 6 EDITORS COMMENT
8 CAPITAL PERSPECTIVES
28
OFS FIRMS INNOVATE
12
14
SECOND THOUGHTS
UPSTREAM NEWS
39 New technologies helping companies 16 MIDSTREAM NEWS
facilitate more work with less overhead 48 DEAL MONITOR

30
50 OGFJ100P
58 INDUSTRY BRIEFS
EXPANSIVE NEW MITIGATION 60 ENERGY PLAYERS
REQUIREMENTS 64 THE FINAL WORD
Obama Administration adopts wide-ranging
natural resource management objectives
ON THE COVER
Felix Energy
president and CEO
Skye Callantine

Photo by
Mark Doolittle

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 EDITORS COMMENT
What people are talking about
AS THE JANUARY 2016 ISSUE of OGFJ goes
to press, I thought it might be worthwhile to
bring up some of the things on the minds of
people involved in the oil and gas business
and what industry experts are saying about
those topics.
DON STOWERS ENDING THE USS 40-YEAR
CHIEF EDITOR OGFJ
CRUDE OIL EXPORT BAN
Lifting the outdated ban on oil exports is a significant step in our
national energy strategy that will grow our economy, strengthen
Americans national security, and provide real benefits to consum-
ers. Allowing US crude oil to be sold on the world market levels
the playing field with oil exporting countriesStudy after study
has shown that lifting the ban will boost economic growth, lower
gas prices, and create new American jobs. Randall Luthi,
president, National Ocean Industries Association
Allowing American producers to export their surplus US crude
oil will keep our nations energy revolution moving forward,
strengthening our energy security, and generating significant
savings for American families and consumers. The year-long push
to get this critical priority across the finish line has not been easy...
This is a big win for our industry and for the American people.
Barry Russell, president and CEO, Independent Petroleum
Association of America
The US is now the worlds largest producer of oil and natural
gas, and Americans are enjoying an energy renaissance that has
produced abundant supplies of domestic energy resources. With
the administrations push to allow Iran to export its oil to the global
market, its time for US producers to have the same opportunity.
Our allies around the world are eager to reduce their reliance on
energy from less-friendly nations. Jack Gerard, president and
CEO, American Petroleum Institute
Brent has traded at a premium to WTI for so long that weve
begun to accept it as the norm. It isnt.And now that the US looks
nigh on certain to lift the export ban on US oil for the first time
since the 1970s, we could be about to usher in a new era in the
battle for domination between the two global oil benchmarks. As
a result, we have a seen a sharp deterioration in the premium that
Brent crude has been commanding over WTI for several years.
WTI crude is better quality than Brent, so historically it has traded
at a $1/barrel premium. Ole Hansen, head of commodities
strategy, Saxo Bank
SAUDI ARABIA AND OPEC
I trust Saudi Arabia will act responsibly in line with its reputation.
Its up to them to decide, but Saudi Arabias reputation is that it
provides comfort to the market and balances it. Fatih Birol,
executive director, Paris-based International Energy Agency.
In a comment to the Reuters news agency, Birol added, There is
a lot of oil on the markets. Inventories are very high, but we expect
prices to rise and reach about $80 by 2020.
6 WWW.OGFJ.COM
1601ogfj_REV_6 6
The latest OPEC meeting yielded no change and no words
about how the cartel is going to deal with the additional supply
from Iran next year. With no signs of non-OPEC producers such
as the US and Russia cutting back, at least not voluntarily, the
near-term outlook for oil remains very challenging. The first
quarter is likely to be the most challenging of them all with rising
supplies from Iran combined with a seasonal increase in US in-
ventories leaving global inventory levels at high and to some extent
unsustainable levels. Ole Hansen, Saxo Bank
COMMODITY SECTOR STRESS AND CREDIT QUALITY
Moodys Investors Service says the global commodity downturn
is exceptionally severe in its depth and breadth and is expected
to be a substantial factor driving the number of defaults higher
in 2016. Commodity sectors are facing staggering adverse condi-
tions driven by a potent mix of slower-than-expected global de-
mand and excess supply, says Mariarosa Verde, a Moodys Group
credit officer. The sheer volume of commodity-related debt poses
challenges because it means that credit losses from commodity
investments will be substantial to many investors. Daniel Gates,
a Moodys managing director, adds, Many companies were
temporarily cushioned by hedging programs and fixed-price
contracts in the early stages of the downturn. Others have been
sustained by cash balances that are eroding. Diminishing liquidity
and restricted access to capital markets are now pushing more
firms closer to default.
TEXAS AND OIL AND GAS INVESTMENTS
Amid all the chatter about when crude oil production may have
peaked and rolled over in Texas and the US, the sentiment about
prospects for recovery has become increasingly pessimistic which
is to say, realistic as the year has progressed, says Karr Ingham,
the economist who created the Texas Petro Index. He adds, It
seems the most optimistic outlooks expect the beginning of
meaningful recovery to appear no sooner than the latter half of
2016. But we simply do not know how that will look at this point.
Texas remains the most attractive jurisdiction for oil and gas
investment in the world, according to a global survey of petroleum
executives recently released by the Fraser Institute, an independent,
non-partisan, Canadian public policy think tank. Texas remains
a beacon of stability in the oil and gas sector with its wealth of
proven reserves and clear and consistent regulatory environment,
says Kenneth Green, Fraser Institute senior director and head
of the Global Petroleum Survey. In terms of regions, Canada
finished second to the United States followed by Australia and
Europe. Meanwhile, countries in Latin America and the Middle
East continue to linger at the bottom of the survey. While coun-
tries like Mexico and Brazil have shown some improvement in
this years rankings, unstable and uncompetitive policies continue
to deter oil and gas investment across much of the world, said
Taylor Jackson, Fraser Institute policy analyst and survey co-
author.
| OIL & GAS FINANCIAL JOURNAL JANUARY 2016
1/14/16 4:40 PM
CAPITAL PERSPECTIVES

Energy outlook 2016

ERIC SWANSON, BRYAN FREDERICKSON, GULFSTAR GROUP, HOUSTON

NEARLY A YEAR and a half after oil prices began their march
from over $100 per barrel to current levels hovering near $40,
no confident consensus has emerged on when the market
should expect a recovery or even what such a recovery might
entail. As demand growth has softened, supply and demand
factors set the stage for near-term uncertainty and a poten-
tially prolonged period of low prices. Energy traders and other
finance industry professionals have generally declined to call
the bottom for commodity prices or to speculate about
when conditions will improve, as reflected in a forward oil
curve that is essentially flat. It is within this environment that
oil and gas producers and the companies that provide them
with services and products must evaluate operating plans, as
well as financial and strategic options.
Throughout the course of 2015, producers have come un-
der increased pressure to be even more disciplined in capital
spending. The focus on returns has become more important
as the hope of a quick recovery in commodity prices has van-
ished. Producers have acted swiftly and decisively to cut capi-
tal expenditures, work with service providers to reduce oper-
ating costs and adjust drilling plans to focus on the most
productive drilling areas. Funding for new projects faces ex-
treme scrutiny and is dependent upon the economics of spe-
cific areas of any region. As a result of increased efficiencies,
producers have found a way to make returns while sustaining
production levels, despite a dramatic drop in the rig count.
While the land grab and fracturing optimization was done in
a $100 oil environment, operating efficiency coupled with im-
proved well productivity are supporting operations in a $50 oil
environment. If any sort of agreement has been reached with-
in the industry, it is that companies facing severe earnings
pressure or liquidity shortfalls should not count on a near-
term market recovery to rescue them from these issues.
SIGNIFICANT UNCERTAINTY REMAINS IN THE UPSTREAM
While producers have adapted to operating in the current en-
vironment, M&A activity in the upstream space remains de-
pressed. Volatility in the commodity price outlook has tradi-
tionally driven a wedge between buyer and seller expectations
and inhibited their ability to reach acceptable deal terms. De-
spite more stability in oil and gas prices, the long-term outlook
remains depressed with crude and natural gas not reaching
$50 per barrel and $3.00 per MMbtu, respectively, until 2017.
Producers would prefer to retain producing assets, particularly
if they hold acreage with derisked drilling opportunities, rather
than part with an asset through a sale at this point in the cycle.
As a result, midstream and infrastructure assets will likely re-
main targeted for sale as valuations remain more attractive
relative to upstream assets. Near-term property sales are likely
to be driven primarily by forced asset divestitures, geographic
exits and distressed company sales. Owners may consider ac-
quisitions by larger competitors to realize benefits of scale and
improved liquidity while retaining equity ownership to bridge
a valuation gap and preserve upside potential.
While the market expected a wave of acquisitions led by
healthier, better-capitalized companies, such activity has
largely failed to materialize. Partially due to billions of dollars
of public capital raised in 1H-2015, many companies have li-
quidity to extend the operating runway for the next 12 to 18
months. The fall bank redeterminations of reserve-based
credit facilities have proven not to be the catalyst for activity
that many expected and resulted in only modest borrowing

F1: US CRUDE PRODUCTION

10 1,800

1,600
Millions of barrels per day

9
1,400
Average
8 oil rig 1,200
Oil rigs

count
7 1,000

US crude oil production 800

6
600

5 400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
2013 2014 2015

8 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016


base cuts. However, as commodity hedge benefits are deplet-
ed and public capital markets become choppy, reducing ac-
cess to lower-cost capital, more M&A transactions may be on
the horizon as corporate distress increases. Non-core assets
have generated interest from smaller producers, but seller ex-
pectations are rarely met. As producers continue to prioritize
limited capital to the highest rate of return projects, under-
funded assets that are unlikely to compete for capital in the
foreseeable future in larger portfolios may be targeted for sale.
Higher quality assets that are part of a regional exit are more
likely to test the market in 2016. At this point, healthier com-
panies will be better positioned to seize the opportunity to
consolidate market share and enter via acquisition. Abundant
private equity capital is available to support these transac-
tions, as investors consider
the current environment a
buying opportunity after sev- F2: WTI PRICES
eral years of heady valuations. 120
Reluctant acceptance of
the current environment is ex- 100
pected to dominate the oper-
ating outlook for the foresee- 80
able future. Drilling activity
$/bbl
will continue with a laser fo- 60
cus on cost, efficiency and re-
40
turns. Drilling of core areas
will likely continue at a mod- 20
erate pace, while the inventory
of drilled but uncompleted lo- 0 ment has been overly punished
cations is depleted. Despite 2013 2014 2015
reduced operating costs, mar-
gins continue to be squeezed
as attractively priced hedges roll off, resulting in debt metrics
likely ratcheting up in 2016. Many companies find themselves
in true financial distress when they try to maintain staff levels,
unprofitable locations or service lines beyond the time when
it is evident that underutilization is draining the business of
much-needed cash. This is not meant to suggest that this is
the new normal and things cannot improve, but it would be
overly optimistic to set business strategies that are reliant
upon improvement in commodity prices.
MIDSTREAM GROWTH OUTLOOK CONCERNS
While the midstream space held up better than upstream and
oilfield service companies during the first half of 2015, master
limited partnerships (MLPs) have more recently been nega-
tively impacted with investors focusing on the issues chal-
lenging producer growth, reflected in the Alerian MLP index
yielding near its highest levels since July 2009. The pace of
equity issuance and the number of companies seeking initial
public offerings has dropped dramatically. Similar to upstream
spending trends, MLP growth capital spending is expected to
decline in 2016 and 2017.
Over recent years, many companies formed MLPs after re-
JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
CAPITAL PERSPECTIVES
ceiving private letter rulings that added income from non-mid-
stream activities. The space had seen steady growth in non-mid-
stream MLPs that focus on segments such as upstream, oilfield
services, refining and shipping. Oilfield service examples include
service providers such as water haulers and developers of infra-
structure, such as saltwater injection wells. MLPs adhering more
closely to traditional midstream activities, such as pipeline
transportation of oil and natural gas, are best-positioned within
the current market environment, though volume and price pres-
sures will be a concern. MLPs containing a greater proportion of
upstream-derived income are likely to face similar issues as gen-
eral oilfield service providers.
With margins squeezed for upstream producers, continue to
watch for infrastructure asset sales and tariff renegotiations to
bolster producer returns in
higher cost regions. Such
changes may have a corollary
effect of spurring more up-
stream M&A activity. Mid-
stream M&A activity may re-
main focused on simplifying
organizational structures or
abandoning the MLP structure
to reduce the cost of capital.
MLP strategies that are sup-
ported by future drop-downs
are expected to be rewarded, as
many analysts believe the seg-
2016 2017 2018 and consider the stronger MLP
names to be compelling invest-
ment opportunities.
DOWNSTREAM WEATHERING THE STORM
Refineries and petrochemical companies benefiting from low
crude prices, with no indication of near-term price increases,
should continue to perform relatively well. According to the
Energy Information Administration (EIA), Texas Gulf Coast re-
fineries represent nearly 30% of US crude refining capacity.
While capacity has increased, the absolute number of operat-
ing refineries has remained stable, indicating that capacity in-
creases are the result of significant capital projects and up-
grades occurring at existing refineries.
US capital spending across petrochemical, refining and gas
processing is projected to be up over 20% in 2015 and in excess
of $26 billion. The prime beneficiaries of this expansion will be
engineering and construction companies, fabricators, testing,
inspection and certification businesses. With so much pres-
sure on the upstream segment, private equity groups and ac-
quisition-hungry corporations are increasingly turning their
attention downstream. Much of the activity required to sup-
port ongoing operations of refineries is mandated by regula-
tion, providing the guarantee of recurring revenue for provid-
ers of those services.
9
CAPITAL PERSPECTIVES
EVOLVING CAPITAL ENVIRONMENT
Traditional banks are under substantial pressure from federal
regulators to trim energy industry exposure, regardless of the
perceived quality of individual loans. Many banks are effectively
prohibited from new lending, even to companies that appear to
be strong borrowers. Further, shareholders in public financial
institutions that fall outside the regulated banking umbrella are
likewise encouraging reductions in oil and gas exposure. Man-
agement teams need to view their lenders behavior through this
prism and not be surprised by lending decisions that may not
seem rational in a pure business sense.
Banks do not, however, want to take direct ownership of com-
panies or assets through foreclosures and are therefore poten-
tially more willing to negotiate extensions and restructurings
with distressed businesses. Bank portfolio managers are well
aware that liquidating assets in the current price environment
means locking in loan impair-
ments at a low point in the mar-
ket. In addition, if a company F3: NATURAL GAS PRICES
borrowed money based upon 12
substantially higher oil (or other
asset) prices, selling those assets 10
may leave the bank in a worse
position with respect to the ratio 8 and may further reduce spend-
$/MMbtu
of remaining outstanding loan
funds to collateral asset value. 6 returns dominate. Attractively
Unless a company is rapidly
burning cash, limited downside 4 may be less readily accessible,
exists from granting forbear-
2
ance periods and allowing bor-
rowers the opportunity to opti- 0
mize operations, seek external 2013 2014 2015
capital or attempt to take mar-
ket share from competitors.
Fortunately, billions of dollars
of private capital has been raised by investment groups to take
advantage of the current environment. The early thesis was that
private equity dollars would be deployed to acquire attractive as-
sets at low prices from companies that needed immediate li-
quidity. However, such sales have generally failed to materialize
thus far and most of the available cash remains on the sidelines.
Capital is available for businesses that have stabilized and have
reasonable visibility into near-term, development opportunities
with healthy returns. This capital has continued to migrate from
acquisitions to balance sheet improvement. These investors are
seeking opportunities to invest rescue capital into businesses
to provide liquidity, repay senior debt (potentially at a discount
to par, depending upon the financial health of the borrower) or
fund consolidations. Investments are likely to be structured as
some form of equity in order to minimize interest and principal
payments that consume valuable cash flow. Existing sharehold-
ers would likely be diluted or have new, more senior securities in
the capital structure, yet retain the opportunity to participate in
a market recovery and avoid the forced shedding of assets at un-
10
favorable prices. Ultimately, it is better to own a smaller piece of
an appropriately capitalized business than a larger stake in a
bankrupt one. Selling assets should be a last option as cash flow
is weakened, loan-to-value ratios are damaged and paper invest-
ment losses are realized.
The general advice to business owners and decision-makers
is to engage in early and frequent discussions with lenders. To
preserve a constructive relationship, borrowers need to be forth-
right regarding the current state of the business and present an
actionable plan. Initiating discussions with non-bank, capital
providers can help preserve lender confidence that manage-
ment has such a plan in place should financial conditions dete-
riorate. A passive approach in the current environment may in-
vite further lender involvement and oversight, removing control
of the situation from managements hands.
CONCLUSION
Looking forward, the outlook
for 2016 remains cautious as
the industry works through
this downcycle. The industry
has reigned in the momentum
of capital programs in 2015
ing in 2016 as efficiency and
priced public market capital
but private capital remains
available for balance sheet re-
pair and the pursuit of oppor-
2016 2017 2018 tunistic M&A. While a contin-
ued lack of urgency to sell
assets persists, those that can
survive and take advantage of
unique opportunities to acquire, should be best positioned to
benefit from a recovery.
ABOUT THE AUTHORS
Eric Swanson is a managing director at GulfStar
Group. He has more than 16 years of investment
banking and corporate finance experience that in-
cludes mergers and acquisitions transactions, debt
and equity offerings and corporate finance advisory.
He joined GulfStar from Morgan Stanleys investment
banking group in Houston, where he spent eight years focused
on the E&P segment of the oil and gas industry.
Bryan Frederickson is a managing director at GulfStar
Group. He has 18 years of investment banking and
corporate finance experience that includes execution
of merger and acquisition, financing, venture capital
placement, recapitalization and restructuring
transactions.
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SECOND THOUGHTS
Could M&A ramp-up refuel oversupply concerns?
YOU DONT WANT TO hear it again, I know,
but let me frame my column with what we
already know: A three year period during which
crude oil prices hovered near US$100 has
morphed into the gut-check that is the current
state of the industry. Also transpiring during
MIKAILA ADAMS
that time: Unprecedented production growth
EDITOR OGFJ from the US, continued production growth
from OPEC, and lower than expected demand
came together to create an oversupplied mar-
ket. Lifting of Iranian sanctions is expected to add to supply
concerns.
The irritating-on-many-levels phrase lower for longer has stuck
as forecasts continue to roll in. Moodys Investors Service added its
thoughts in December when it sharply reduced its oil and natural
gas price assumptions in light of continuing oversupply in both
the global oil markets and the United States natural gas market.
Acknowledging widespread capital spending cuts and a decline
in the US rig count by more than half, Moodys pointed out that it
was only recently that US production began its decent. Outside the
US, both Saudi Arabia and Russia have increased production to
levels not seen since the early 90s. We do not think global produc-
tion will fall before the second half of 2016 at the earliest, when the
effects of this years investment cuts lead to less new production to
offset existing declines, Moodys declared, warning that the increase
in world oil supply continues to outpace demand.
So what happens when you add another variablethat of in-
creased M&A activityto the mix? Companies continuing to
struggle with low prices are apt to sell assets in 2016 to patch gaps
in cash flow. While some companies may encounter difficulty
accessing capital, money is available, and there will be no shortage
of potential buyers for key assets. Companies can smell a deal,
right?
Oil price volatility challenged the M&A space in 2015, but deal
activity is expected to pick up in 2016. Almost 90% of oil and gas
executives surveyed the October 2015 release of EYs Capital Con-
fidence Barometer said they expect the oil and gas deal market to
improve over the next 12 months. More than two-thirds of the oil
and gas executives surveyed said they expect to pursue an acquisi-
tion during that same time. According to the survey, companies
plan to use the downturn to make opportune acquisitions, with
26% of capital allocated toward acquisitions, alliances and JVs.
Will those assets be tucked away until prices rebound, or will
better-capitalized companies make quick plans for development?
Does that add to the threat of prolonged oversupply and continued
pressure on prices?
Looking back to mid-2015 and a June 2015 OGFJ article on capital
availability for E&Ps, Josh Sherman and Sean Clements, partner
and managing director, respectively, of Opportune LLP, pondered
one potential impact of increased M&A in the current climate. A
concern is that a feeding frenzy among the better-capitalized owners
12
able to drill and develop assets could further stress the market by
refueling oversupply and reinvigorating the downward pressure on
commodity prices.
I took this concern back to Sherman and Clements for their
thoughts as we enter the New Year. Given that oil and gas reserves
are depleting assets, E&P companies must feed the beast, either
through acquisition or capital deployment to maintain both their
balance sheets and cash flow. Capital deployment through the drill
bit is currently difficult to justify, so it is not surprising that the
majority of oil and gas executives forecast that they will be acquisi-
tive in 2016 (probably looking for either cash flow based acquisitions
or upside assets that do not require much current capital to be
preserved). The challenge for buyers will be finding assets of dis-
tressed companies, or those that are trying to reposition their
portfolio, that work in this market considering the current cost of
capital, they offered.
Seasoned energy investors and private equity firms have likely
learned their lessons from the last A&D cycle; the more likely risk
is that an unprecedented amount of inexperienced (with respect
to E&P) domestic and foreign capital will bid-up acquisition pricing
in attempt to aggressively buy low based on historical crude pric-
ing. The more new entrants pay for reserves/acreage, the faster
they will have to drill to achieve their goal IRRs, which will prolong
depressed commodity pricing absent significant changes in global
demand, OPEC production and/or the strength of the US Dollar,
they continued.
I posed the same question to Andy Brogan, EYs Global Oil &
Gas Transactions Leader, upon receipt of the aforementioned EY
survey. His thoughts? A&D may lead to the emergence of some
larger better capitalized companies. Whilst these would have more
financial capacity to drill than their predecessors, they will also have
a larger and more varied portfolio which will enable them to con-
centrate spending in the more cost effective plays. Therefore, A&D
should accelerate the targeting of capital on the most productive
opportunities rather than encourage more indiscriminate
development.
The deal market may indeed heat up this year, but variables
remain. As mentioned by Moodys in its forecast, many CAPEX
budgets are on ice. A December update by Wunderlich Securities
on a survey of 71 independent E&Ps and 10 large integrateds showed
CAPEX estimates down $17.1 billion from the previous check-in in
September. Given that some companies hadnt yet reported, the
door was left open for even greater reductions, thus lower produc-
tion. Additionally, some growth will be offset by declining fields, the
analysts said, but that will take time. In the near-term, the signifi-
cant spending reduction could lead to a shift from an oversupply
to an under-supply of oil as fields decline and new investment
wanes.
The stage is set for a reshuffling of the industry in 2016. The
fate of production as assets change hands will be something to
watch.
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016
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UPSTREAM NEWS
BR I E FS
W&T MAKES EWING
BANKS DISCOVERY
W&T Offshore has
made a discovery at
Ewing Banks. Production
from the Ewing Banks
954 A-8 exploratory
well (anticipated at a
restrained gross rate of
nearly 2.3 Mboe/d) is
slated for the first quarter
of 2016. Success at the
954 A-8 exploratory well
should further help WTI
navigate 2016 across a
backdrop of suppressed
commodity prices, said
Seaport Global Securi-
ties analysts after the an-
nouncement. On Q3s
call, management spoke
of potential plans to run
a free cash flow neutral
program which greatly
benefits from recent
large offshore projects
coming online. Addi-
tional production from
the 954 A-8 well should
further aid these efforts,
the analysts said.
14
BDO: ENERGY INDUSTRY EXPECTS
STORMY 2016
Sixty percent of energy CFOs expect changes in
oil and gas prices to be the single most important
factor dictating whether the industry recovers in
the coming yearmore than double the number
expressing similar sentiments last year, according
to results released from BDO USA LLPs 2016
Energy Outlook Survey. Though 2015 got off to
a tumultuous start for the sector, CFOs seemed
cautiously optimistic in last years study that the
oil price slump would be short-lived. However,
the anticipated recovery has yet to materialize,
and CFOs now expect the pain to continue well
into 2016.
Low oil prices have forced a number of up-
stream energy companies to reassess their current
portfolios and make strategic cuts in an effort to
save. With oil giants like Shell and Statoil an-
nouncing plans to abandon major drilling proj-
ects, it comes as little surprise that more than half
of the CFOs surveyed (53%) say they have expe-
rienced project terminations or delays in the past
year. This is up from 27% in last years study and
is the highest proportion reporting cancellations
since the last industry downturn. Of those respon-
dents experiencing project disruptions, an over-
whelming majority (96%) cite poor project eco-
nomics as the leading cause.
2015 was a difficult year for the US energy
sector as we exited the boom period and entered
a bust phase, says Charles Dewhurst, leader of
the Natural Resources practice at BDO. Though
the industry has historically been able to bounce
back fairly quickly, the duration of the current
price decline is forcing companies to step back
and identify ways to survive with fewer resources
at their disposal and no clear end in sight.
Aggravating the tenuous industry environment
is continued uncertainty about the economy and
whether low prices will help move the oil demand
curve in the coming year. Fifty-six percent of CFOs
say they feel worse about the US economy and
its impact on demand for oil and gas products,
in contrast to last year, when nearly two-thirds
felt better about economic conditions. CFOs are
similarly pessimistic that demand will grow sub-
stantially in 2016, with only 28% and 38% expect-
ing global and domestic oil demand to increase,
respectively. This aligns with recent projections
from the International Energy Agency, which es-
timates global demand reaching just 900,000
barrels per day through 2020.
WWW.OGFJ.COM |
These findings are from the BDO 2016 Energy
Outlook Survey, which examines the opinions of
100 chief financial officers at US oil and gas ex-
ploration and production companies. The nation-
wide survey was conducted from September
through November 2015.
Additional findings
Managing supply will be critical to industry
rightsizing. With global oversupply continuing
to hold prices down, the CFOs surveyed expect
to see supply cuts in the year ahead. For-
ty-three percent believe the domestic supply
of oil will decreasea nearly threefold increase
over the number expecting declines in 2015
and 17% plan to decrease their own exploration
activities in an effort to improve profitability.
And as OPEC continues its game of oil price
brinksmanship by flooding the market with
supply, 41% of CFOs say the organizations
actions will be the foremost influencer of com-
modity price volatility in the next year.
Pricing and supply pressures extend to natural
gas. While the crash of the oil market remains
top of mind for the industry, CFOs are also
carefully watching natural gas inventory and
prices. Oversupply and lower prices are
squeezing natural gas producers, with Decem-
ber delivery prices on the New York Mercantile
Exchange hovering around $2 per million Brit-
ish thermal units. As a result, only 40% of CFOs
expect the domestic supply of natural gas to
increase in the coming yeara decrease of
38% from last years survey (64%). Nevertheless,
CFOs are somewhat optimistic that demand
will remain robust: Forty-six percent believe
global demand for natural gas will increase in
the next year, and more than half (54%) say
domestic demand will grow, as well.
The looming general election highlights lin-
gering regulatory concerns. When asked about
their leading political concerns in 2016, nearly
one-third of CFOs said that the upcoming
general election worries them most, approxi-
mately double the number expressing this
concern last year. Meanwhile, 29% cite more
restrictive government regulations, down from
38% last year.
Though concerns surrounding the regulatory
environment nominally declined this year, the
uptick in anxiety around the general election
highlights continued uncertainty throughout the
industry, says Clark Sackschewsky, partner with
BDOs Natural Resources practice. The Obama
OIL & GAS FINANCIAL JOURNAL JANUARY 2016

administration has put numerous stakes in the
ground on energy policy, from incentivizing al-
ternative energy production to rejecting the Key-
stone XL pipeline, but it remains unknown which
policies and regulations the next administration
will affirm, reject or introduce.
CHEVRON CONFIRMS FIRST PRODUCTION
FROM MOHO BILONDO PHASE 1B
OFFSHORE THE REPUBLIC OF CONGO
Chevron Corp. subsidiary, Chevron Overseas
(Congo) Ltd., and partners have started produc-
tion from the deepwater development Moho
Bilondo Phase 1b offshore the Republic of
Congo.
Located approximately 46 miles off the coast
of Pointe-Noire in water depths ranging from
2,400 to 4,000 feet, Moho Bilondo Phase 1b is
part of the Moho Nord joint development project,
the largest-ever oil and gas project undertaken
in the Republic of Congo. The Moho Bilondo
Phase 1b project includes 11 wells tied back to
an existing floating production unit and is ex-
pected to produce a total of 40,000 barrels of oil
per day.
The Phase 1b development targeted reserves
in the southern portion of the Moho Bilondo
permit area. The Moho Nord subsea develop-
ment, which will be the second phase of the Moho
Nord joint development project, is in the northern
part of the area.
The Moho Nord development project involves
a tension-leg platform, a floating production unit
with a processing capacity of 100,000 barrels of
oil per day, and a 50-mile pipeline to the onshore
Djeno Terminal.
Chevron Overseas (Congo) Ltd. has a 31.5%
working interest in the Moho Bilondo permit area,
along with Total E&P Congo (53.5% working in-
terest and operator) and the national oil company,
Socit Nationale des Ptroles du Congo (15%
working interest).
CNOOC SIGNS PSC WITH HUSKY
CNOOC Ltd.s parent company, China National
Offshore Oil Corporation (CNOOC), has signed
production sharing contract (PSC) with Husky Oil
Operations (China) Ltd. for Block 15/33 in the
South China Sea.
Block 15/33 is located in the Pearl River Mouth
Basin of the South China Sea. The block covers
a total area of 155 square kilometers with a water
depth of 80-100 meters.
According to the terms of the PSC, Husky shall
JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
UPSTREAM NEWS
act as the operator during the exploration period
and conduct exploration activities in the block
mentioned above, in which all expenditures in- BR I E FS
curred will be borne by Husky. Once entering the
development phase, CNOOC has the right to BP US LOWER 48
participate in up to 51% of the working interest ONSHORE BUYS
in any commercial discoveries of the block. After DEVONS SAN JUAN
signing the above-mentioned PSC, except for ASSETS
those relating to CNOOCs administrative func- BP is expanding its
operations in the San
tions, CNOOC will assign all of its rights and
Juan basin, acquiring all
obligations under PSC to CNOOC China Limited, assets in the region from
a subsidiary of CNOOC Ltd. Devon Energy, through
its US Lower 48 Onshore
business. Following
ANADARKO REACHES
government agency ap-
MOZAMBIQUE LNG MILESTONES provals, BP plans to take
Along with the concessionaires of Offshore Area over operation of the
1 and Offshore Area 4, Anadarko Petroleum has assets, located mostly
in the Northeast Blanco
signed a unitization and unit operating agreement
Unit, a plot of federal
(UUOA) for the development of the natural gas lands in New Mexico.
resources that straddle the two blocks. The unit, in San Juan
Under the terms of the UUOA and previously and Rio Arriba counties,
holds 480 wells spread
announced Decree Law, the Prosperidade and
across 33,000 gross
Mamba straddling natural gas reservoirs, which acres. The transaction is
comprise the unit, will be developed in a separate expected to close in the
but coordinated manner by the two operators first quarter of 2016.
until 24 tcf of natural gas reserves (12 tcf from
each area) have been developed. Subsequent
development will be pursued jointly by the Area
1 and Area 4 concessionaires through a JV oper-
ator (50/50 Anadarko and Eni). The UUOA is sub-
ject to approval by the Government of
Mozambique.
In addition, Anadarko reached a memorandum
of understanding (MOU) with the Government
of Mozambique to provide natural gas from its
Mozambique LNG development for domestic
use. Under the terms of the MOU, Offshore Area
1 will provide initial volumes close to 50 MMcf/d
per train (100 MMcf/d) for domestic use in Mo-
zambique. An additional 300 MMcf/d may be
sold in future years.
Anadarko is the operator of the Offshore Area
1 Block with a 26.5% WI. Co-venturers include
the National Oil Company Empresa Nacional de
Hidrocarbonetos (15%), Mitsui E&P Mozambique
Area 1 (20%), Beas Rovuma Energy Mozambique
(10%), BPRL Ventures Mozambique (10%), ONGC
Videsh (10%), and PTTEP Mozambique Area
1(8.5%). Eni operates Area 4 with a 50% indirect
interest owned through Eni East Africa, which
holds 70% of Area 4. Other partners are Galp
Rovuma (10%), KOGAS Mozambique (10%), and
ENH (10%). CNODC owns a 20% indirect partic-
ipation in Area 4 through Eni East Africa.
15
MIDSTREAM NEWS
ENLINK TO ACQUIRE TALL OAK
SUBSIDIARIES FOR $1.55B
BR I E FS Tall Oak Midstream LLC and its equity partner
EnCap Flatrock Midstream said that a subsidiary
TSO ACQUIRES of EnLink Midstream Partners LP and EnLink Mid-
BAKKEN LOGISTICS stream LLC have signed definitive agreements
ASSETS FOR DROP- to acquire subsidiaries of Tall Oak Midstream for
DOWN approximately $1.55 billion. The subsidiary entities
In early December hold substantially all of Tall Oaks Oklahoma assets
2015, Tesoro Logistics
which include the STACK Natural Gas System,
LPs (TLPP) parent and
general partner TSO said the STACK Crude Oil System and the CNOW
it plans to acquire Great Natural Gas System.
Northern Midstream LLC Under the terms of the definitive agreements,
and its logistics assets in
approximately 84% of the combined acquisition
the Bakken and Williston
basin to then drop down will be acquired by the Partnership (EnLink Mid-
the assets to TLLP in stream Partners LP), and the remainder will be
2016. Acquired assets acquired by the General Partner (EnLink Mid-
include the BakkenLink
stream LLC) in exchange for ENLC common units
crude oil pipeline, a
gathering system, a rail which will be issued at closing. The purchase price
loading facility and a will be paid in installments, with the first install-
storage facility in Fry- ment of $1.05 billion paid at closing and the final
burg, North Dakota. The
installment of $500 million paid no later than the
Bakken assets are close
to TLLPs High Plains first anniversary of the closing date with the option
Pipeline System and to defer $250 million of the final installment up
integration of the Great to 24 months following the closing date. The first
Northern Midstream as-
payment will be funded primarily through issuance
sets into TLLPs existing
assets will help supply of $750 million in convertible preferred units and
TSOs West Coast refin- $250 million of ENLC common units to the sellers
eries with advantaged and the second installment will be funded with
crude oil and provide
non-core asset sales, preferred equity issuances,
third-party producers
additional market access, or (less likely) addition common equity, noted
said Seaport Global Raymond James analysts.
Securities analysts. Oklahoma City, OK-based Tall Oak was estab-
lished in January 2014. The companys manage-
ment team will continue to pursue new midstream
opportunities across North America through Tall
Oak Midstream II LLC.
STACK
Tall Oaks STACK systems serve multiple oil and
gas producers targeting the plays liquids-rich,
stacked pay zones in Blaine, Canadian, Kingfisher
and Grady counties. The STACK Natural Gas
System includes nearly 200 miles of gathering
pipelines with an additional 75 miles under con-
struction or in development, two compressor
stations and the Chisholm Plant, and a cryogenic
gas processing plant located in Kingfisher County.
The plant was placed in service in October 2015
and has a current capacity of 100 MMcf/d. The
facility is currently being expanded by an addi-
tional 200 MMcf/d, which is expected to be com-
pleted in 3Q16. The facility connects to the Pan-
handle Eastern Pipeline, OneOK Gas Transmission
16
for residue gas and the OneOK NGL Pipeline.
Tall Oak announced development of the
STACK Crude Oil System in May 2015. The initial
crude oil system will consist of a storage and
truck-unloading facility east of Okarche, OK, and
a 20-mile pipeline that will provide connections
to multiple downstream markets.
Tall Oaks CNOW Natural Gas System serves
multiple producers targeting stacked pay zones
in Creek, Logan, Lincoln, Noble, Payne and Paw-
nee counties. Assets include 175 miles of natural
gas gathering pipeline and three compressor
stations. An additional 50 miles of pipeline are
under construction or in development. The
CNOW System also includes the Battle Ridge
Plant, a cryogenic gas processing plant located
in Payne County. The plant has a current capacity
of 75 MMcf/d and direct access to premium down-
stream markets, including Southern Star Central
Gas Pipeline, Enable Gas Transmission for residue
gas and OneOK NGL.A 42-mile, 16-inch high-pres-
sure header pipeline is under construction to
connect the two systems.
The transaction, which is expected to close in
1Q16, is subject to customary closing conditions,
including applicable regulatory approvals and
the completion of Devon Energys acquisition of
Felix Energy, which is expected to occur concur-
rently with the Tall Oak closing.
The deal illustrates the unique benefits of the
Devon/EnLink relationship, said Raymond James
in a note following the announcement. This
transaction expands EnLinks reach into Oklahoma
by diversifying the customer base and fits with
EnLinks longer-term plans within the region (i.e.,
the multi-phase Oklahoma Express pipeline proj-
ect and the development of a crude oil gathering
system). Management expects the deal to be
executed at ~7.5-8.0x projected consolidated
adjusted EBITDA of ~$300 million by 2018, re-
sulting in DCF accretion. EnLink expects to remain
investment-grade, thanks in part to the deals
structure, they noted.
Citi is serving as sole financial adviser to Tall
Oak. Paul Hastings LLP serves as legal counsel
to Tall Oak Midstream. Thompson & Knight LLP
represents EnCap Flatrock Midstream.
FITCH: MIXED OUTLOOKS FOR US
MIDSTREAM SUBSECTORS, GIVEN
PERSISTENT HEADWINDS
Commodity price weakness continues with no
relief in sight in the near term, according to Fitch
Ratings. Despite this, the credit ratings and sector
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016
 MIDSTREAM NEWS

outlooks for US pipeline and midstream assets in size from 2-inches to 12-inches in diameter and
are generally stable. However, Fitch remains neg- a cryogenic processing plant, which has capacity
ative on midstream services, particularly gathering of approximately 30 MMcf/d. The acquisition was BR I E FS
and processing which has a negative rating and financed with equity from Warburg Pincus, Navi-
sector outlook. tas private equity sponsor. RICE MIDSTREAM
Fitchs outlooks cover the crude oil and refined HOLDINGS SET FOR
products pipelines, midstream services, master KMI, BROOKFIELD TO ACQUIRE MYRIA $500M INVESTMENT
limited partnerships, and natural gas pipeline HOLDINGS MAJORITY INTEREST IN NGPL Rice Energy Inc. has
agreed to non-binding
segments. Kinder Morgan Inc. and Brookfield Infrastructure
terms with an energy
In the upcoming year, natural gas, crude oil Partners LP have a definitive agreement whereby infrastructure fund to in-
and refined product pipelines should generate they will jointly acquire, from Myria Holdings Inc., vest up to $500 million in
fairly stable cash flows given the lack of direct the 53% equity interest in Natural Gas Pipeline preferred equity in Rice
Midstream Holdings LLC
commodity price exposure. Given expectations Co. of America LLC (NGPL) not already owned
(RMH), a wholly owned
for lower domestic crude production, crude pipe- by them for a total purchase price of $242 subsidiary of Rice, and
line volumes are likely to fall in the mid-single million. common equity in a new
digits. Refined products pipelines are expected KMI will pay $136 million and increase its own- wholly owned subsidiary
of RMH, to be called
to have a modest uptick driven by demand for ership interest from 20% to 50%, and Brookfield
GP Holdings, which will
lower priced products such as gasoline. Natural Infrastructure will pay $106 million and increase be formed to hold the
gas pipelines should be insulated from production its ownership from 27% to 50%. The transaction common units, subordi-
and price changes, as well, given their contract values NGPL at a total enterprise value of $3.4 nated units and incentive
distribution rights in Rice
profiles, though re-contracting risk on underuti- billion, inclusive of existing debt.
Midstream Partners LP
lized systems remains a concern. Should com- Fitch Ratings expects the acquisition to be currently held by RMH.
modity prices remain under pressure over a lon- neutral to Kinder Morgan Inc. (KMI; BBB-/Stable
ger-term timeframe, Fitch would expect a pullback Outlook) and believes the deal does not materially At closing, Rice Energy
plans to utilize $375 mil-
or delay in spending on new infrastructure impact KMIs credit profile in the near term. The
lion, of which it intends
projects. multiple being paid for the increased interest in to use a portion to repay
For midstream services, continued low com- NGPL is reasonable, with the transaction valuing all outstanding borrow-
modity prices, increased counterparty risk, po- the pipeline at roughly 10x 2016 EBITDA (inclusive ings under RMHs revolv-
ing credit facility, and the
tential volume declines, constricted capital market of NGPL debt). Fitch does not expect its KMI
remainder to fund Rices
access and rising leverage could pressure ratings base case credit metrics to change materially as 2016 development of its
and Outlooks for midstream services issuers. a result of the transaction. Fitch continues to core Marcellus and Utica
Slower demand for midstream services will be expect leverage at KMI on a consolidated basis shale wells.
driven by moderating NGL production growth. will be high, above KMIs targeted range of be-
Analysts with Seaport
Fitch expects low NGL prices and falling demand tween 5.0x to 5.5x debt/EBITDA, for the next Global Securities said the
to drive negative headwinds for growth in the several years as KMI works through a high growth deal creatively utilizes
midstream services segment. spending backlog. However, Fitch expects near- the often overlooked val-
ue of RICEs midstream
Across all of the sectors, liquidity remains suf- term leverage to be below 6.0x (5.7x for 2016)
assets not held in RMP
ficient though reliance on revolver borrowings is and improve to the targeted range as projects to ensure that RICEs bal-
expected in the near to medium term. Debt ma- are completed. ance sheet stays in check
turity schedules are manageable. Access to capital Fitch would expect KMI to be supportive of in FY16 (deal should
plug any E&P cash flow
market access should remain sufficient though the pipeline and help fund any growth capital
outspend).
more costly, particularly for low-investment-grade needs provided it is not deleterious to its own
and all high-yield issuers. credit profile. Failure to manage leverage down
to the targeted 5.0x to 5.5x on a sustained basis
NAVITAS MIDSTREAM BUYS GATHERING, would likely lead to a negative ratings action.
PROCESSING ASSETS FROM APACHE The additional investment in highly leveraged
Marking its second acquisition in the Midland NGPL does not resolve concerns around NGPLs
Basin region since September, Navitas Midstream stressed balance sheet or challenged operating
Partners has acquired natural gas gathering and environment. There are signs that the financial
processing assets serving Midland and Upton impact of compressed natural gas basis condi-
counties in Texas from a subsidiary of Apache tions on NGPL has waned. All of NGPLs higher
Corp. for an undisclosed sum. The assets acquired rate contracts have rolled over at this point and
include approximately 114 miles of low and high management does not expect any material down-
pressure natural gas gathering pipelines ranging side to revenue going forward.

JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 17

 WoodMac: Argentinas Vaca Muerta shale
play to double production by 2018
PRODUCTION FROM Latin Americas premier shale the Vaca Muerta, with the condensate window, including the Loma
play, the Vaca Muerta, is expected to double by 2018, Campana block, driving value.
said Wood Mackenzie following results of a develop-
ment study. Argentinas massive play continues to be VACA MUERTA OPERATORS
the most prospective tight oil play out-side of North
America. Well distribution SOUTH
While a marked ramp-up can be expected by 2020, by operators AMERICA
Neuquen
the study, released in mid-November, highlights that Apache Basin Area
Argenta Energia
oil and gas output in 2016 should be moderate with Chevron
shown
year over year production at 10%. ExxonMobil FALKLANDS
Gas y Petroleo MALVINAS
Wood Mackenzie expects horizontal wells to be- del Neuquen
come the development of choice as operators are Medanito
O&G
increasingly able to target the most productive inter- Pan American
vals of the Vaca Muerta. Petrobras
Petrolera Entre Lomas
YPF and its JV partners continue to decrease drill- Pluspetrol
ing and completion costs aiming to move into ramp-up Roch
Tecpetrol
and development phases, noted Rio de Janeiro-based Total
Horacio Cuenca, a research director for Latin America YPF
at Wood Mackenzie. CHILE
In the Loma Campana block, the current average
horizontal IP30 rate is approximately 646 barrels of Geology Window
oil equivalent per day (boe/d), up from 443 boe/d in ARGENTINA Loma Campana
2014. In comparison, the first one hundred wells in Black oil
Light oil
the Karnes Trough of the Eagle Ford Shale in Texas Wet gas and condensate
had an IP30 rate of 420 boe/d (the average rate today Dry gas

is more than double). Source: ESRI Basemap; Wood Mackenzie

Said Cuenca, more joint venture deals will be nec-
essary to fully develop the Vaca Muer-
ta as YPF will need outside assistance VACA MUERTA PERCENT LIQUIDS
to develop the 6.3 million acres it
Loma Campana Buenos
holds. Aires
Neuquen
As companies prepare for full de- Argentina
velopment, Wood Mackenzie estimat-
Chile

ed a total capex of US$1.2 billion in Area

2016, but cautioned that the heavy shown
impact of unions on labor costs and
political uncertainty remain the larg-
est impediments to international Percent liquids IP30 (boe/d)
<25 <200
investment.
25-50 200-400
The firm expects fewer wells to be 50-75 400-600
brought online in 2016 than the esti- 75-100 600-800
mated 200 brought online in 2015 as 800-1200
vertical wells are phased down. There Geology Window
were approximately 460 producing Loma Campana
Black oil
wells around the time of the studys Light oil
Wet gas and condensate
release in mid-November. Dry gas
Wood Mackenzie noted a total re-
maining NPV10 of US$9.7 billion for Source: ESRI Basemap; Wood Mackenzie

18 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

 Refracking the shale plays
EXAMINING THE COMMERCIALITY OF RECOMPLETION
PER MAGNUS NYSVEEN AND LESLIE WEI, RYSTAD ENERGY

REFRACTURING OF shale wells is a

popular topic since operators can apply
the latest technology to older wells,
thereby increasing production without
incurring all the costs of a new well.
Well results indicate that the resources
per well have doubled since 2012 for
the main plays (See Eagle Ford, Bak-
ken, Permian, December 2015 OGFJ),
making refracturing of shale wells a
logical development. Operators are
optimistically discussing the possibility
of refracked wells in several different
plays, but how have the results com-
pared to expectations so far?
To refrac a well an operator goes into
an old well, or underperforming well,
stops the production and recompletes
the well with new hydraulic stimula-
tion. While this is not a new technique,

Neonriver | Dreamstime.com
its application to horizontal shale wells
is still in the initial phase. As of August
2015, less than 1% of the total ~100,000
horizontal wells in the United States
have been refracked. Figure 1 shows
the number of USwells refracked each
year split by play. Currently, the 2015
value is incomplete due to delays from
state reporting, and the dotted line in- F1: NUMBER OF REFRACTURED HORIZONTAL WELLS BY PLAY,
dicates the full year expected number. AS OF AUGUST 2015
Compared to the overall drilling activity
that decreased 40% in 2015, there is a 300
clear interest in refrac opportunities as
Bakken
indicated by the concurrent 30% in- 250 Barnett
crease. There have been targeted re-
Eagle Ford
fracks in almost all the plays, but the
200 Marcellus
majority of the activity has been in
Haynesville
Bakken, Barnett, and Eagle Ford. Fur-
150 Others
thermore, the chart only includes hori-
Full year
zontal refrac jobs; there has also been
a significant refrac campaign for verti- 100
cal wells, Devon Energy, for example,
refracked 150 vertical Barnett wells in 50
2015, where they report an average
production increase of 700%.
0
In theory, the cost of a refracked well 2011 2012 2013 2014 2015
should be similar to the cost of com-
pleting the well. On average, about 1/3 Source: Rystad Energy NASWellData and Rystad Energy analysis

20 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

 F2: AVERAGE DAILY PRODUCTION (BOE/D) FOR BAKKEN WELLS
REFRACKED IN 2014 AND 2015

500

400 Since 2013, the average cost has de-

creased for both categories with the
300 gap closing in 2015. If the trend contin-
boe/d

ues, then refracks may become a more

200
profitable approach for operators. It is
also interesting to note that there is
not one specific operator leading in the
100
number of wells refracked, rather, ap-
proximately 30 operators are testing
0 the method.
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 Refracking older wells definitely in-
creases the recovery of the well, but
Source: Rystad Energy NASWellData and Rystad Energy analysis
given current results, it is generally
more profitable for operators to drill a
F3: DEVELOPMENT COST PER BOE FOR BAKKEN WELLS new well. Recompletion is still an im-
COMPARED TO REFRACK WELLS mature recovery technique but once
better results are replicable, refracked
40
wells could hold potential for low cost
35 $/boe new well production.
35 $/boe refrack
30 31 ABOUT THE AUTHORS
25 Per Magnus Nysveen is se-
20 nior partner and head of
21
19 analysis for Rystad Energy.
15 17 He joined the company in
10 12 2004. He is responsible for
valuation analysis of un-
5 conventional activities and is in charge
0 of North American shale analysis. Nys-
2013 2014 2015 veen has developed comprehensive
Source: Rystad Energy NASWellData and Rystad Energy analysis models for production profile estima-
tions and financial modeling for oil and
gas fields. He has 20 years of experience
of the development cost of a horizontal shale well goes to drilling, while the re- within risk management and financial
maining 2/3 is allocated to completion. This means, by refracking an older well, analysis, primarily from DNV. He holds
an operator can save the cost to drill the well. Currently, the Bakken is the play an MSc degree from the Norwegian
with the largest number of refracked horizontal wells. By examining the perfor- University of Science and Technology
mance of the roughly 300 refracked wells, it is possible to quantify the success so and an MBA from INSEAD in France.
far. Figure 2 shows the development of the production for the average Bakken
well, one year before and one year after recompletion. The x-axis shows the cu- Leslie Wei (Leslie.Wei@
mulative months from re-frac, with month 0 representing the first month of RystadEnergy.com) is an
production. On average, the process increases the production by more than four analyst at Rystad Energy.
times after the new stimulation, with higher production throughout the entire Her main responsibility is
first year. analysis of unconventional
By comparing the additional production from refracs to the additional costs, activities in North America.
it is possible to determine which method is more profitable. Figure 3 shows the She holds an MA in economics from
development cost per barrel (EUR) for each well type. The values are based on the UC Santa Barbara and a BA in eco-
the average capex per well, where the refrac wells incur 2/3 of the total well cost. nomics from the Pennsylvania State
State data and operator specific decline curves are used to determine the EUR. University.

JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 21

INTERVIEW / FELIX ENERGY
Felix selling STACK assets to Devon
MOTIVATION FOR DEVON WAS 80,000 ACRES IN CORE OKLAHOMA STACK,
ONE OF THE MOST PROLIFIC AND ECONOMIC OIL PLAYS IN THE US
DON STOWERS, OGFJ CHIEF EDITOR
EXECUTIVE PHOTOS BY MARK DOOLITTLE
EDITORS NOTE: On Dec. 7, Devon Energy Corporation, the
sixth-largest US petroleum producer according to asset val-
ue, announced its $1.9 billion acquisition of Felix Energy, a
privately held, Denver-based E&P company. Prior to the deal
closing, OGFJ spoke with Skye Callantine, president and CEO
of Felix Energy, and two members of his executive team Mi-
chael Horton, vice president of land, and Bill Arnold, vice pres-
ident of operations.
OIL & GAS FINANCIAL JOURNAL: Congratulations to you
and the whole team, Skye. Im assuming this was a win-win
for Felix and Devon.
SKYE CALLANTINE: Without a doubt, Don. Our team ded-
icated countless hours assembling and proving up an industry
leading position in the most economic portion of the STACK
crude oil play in Oklahoma. Devons decision to acquire Felix
in this environment reaffirms our long-held belief that this
is a world-class asset. The acquisition adds significant re-
source and very high-quality drilling inventory to Devons
legacy position in the STACK. With the addition of our assets,
Devon now owns 430,000 net surface acres in the STACK,
which I believe represents the largest and best position in
the most economic play in country. This is a cash and equity
deal so we will soon be, and plan to remain, large Devon
shareholders. We strongly believe in the quality of Devons
asset base, their ability to execute on those assets, their
leadership and financial security, and the long-term value of
our equity position in Devon.
As a Rockies-based company, why did you choose
the Mid-Continent for your operations, and particularly,
why the STACK crude oil play?
CALLANTINE: My partners and I started Felix in early 2013.
We evaluated and pursued opportunities in numerous basins
looking for projects that fit our core competencies and had
the potential to make a return for our investors. We found
that the Anadarko Basin in the Mid-Continent had more
quality opportunities and a lower cost of entry than most
other basins. Staying true to our strategy to develop projects
of scale, we assembled positions in two different areas of the
Mid-Continent a large position focused on Pennsylvanian
sandstones in Custer and Dewey Counties (in Oklahoma)
22
and the STACK play (also in Oklahoma). Early in 2015, we
sold our assets in Custer and Dewey Counties to focus our
efforts and capital on the STACK.
Not all our readers are familiar with the STACK, Skye.
Can you tell our audience a little about it? Also, your assets
are surrounded by companies like Devon, Newfield Explo-
ration, Cimarex Energy, and Continental Resources that
seem to use different words like STACK, SCOOP, and CANA
Woodford. What zones were you pursuing and how do the
zones differ from what other companies in the area are
pursuing?
CALLANTINE: Oklahoma operators that make a new dis-
covery have traditionally used acronyms to describe the
particular geographic area of interest. Newfield discovered
and named the STACK play in 2013 which is located in the
three-county area of Blaine, Canadian, and Kingfisher Coun-
ties, west-northwest of Oklahoma City. CANA in CANA-Wood-
ford is shorthand for Canadian County, where the liquids-rich
Woodford Shale was originally discovered in Oklahoma. The
acronym STACK stands for Sooner Trend (oil field) Anadarko
(basin), Canadian, and Kingfisher (counties).
We believe the core positions of STACK and CANA can
be used interchangeably as the plays overlap and both have
tremendous potential in the Meramec, Osage, and Woodford
formations. The stratigraphic column in this area consists
of thousands of feet of potential pay and more than 10
horizontal targets. Felix primarily focused on the 400- to
500-foot thick Meramec formation, drilling more than 30
horizontal wells in multiple benches, with additional tests
in the Woodford and Osage zones. Within the core area of
STACK, the industry has drilled approximately 1,000 hori-
zontal Woodford wells and 150 horizontal Meramec wells.
You aggregated 80,000 net acres in the core of the
STACK located in Canadian, Blaine, and Kingfisher Coun-
ties, Oklahoma. And, youre producing more than 10,000
barrels of oil equivalent per day. How was Felix Energy able
to grow to a large scale in a competitive play to assemble
its current position? How expandable is it?
MICHAEL HORTON: When we started, I wasnt sure that
wed even be able to put 10,000 acres together. Newfield had
done a great job assembling its position, and the rest of the
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016
 INTERVIEW / FELIX ENERGY

On location while
Felix Energy drills the
Meramec formation.
Photo by Jamin Yeager

JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 23

INTERVIEW / FELIX ENERGY

There appears to be some confu-

Drilling operations at a Felix Energy
well-site in Oklahoma.
Photo by Nicholas DeSciose
sion about the STACK. Most of the oil
and gas industry believes operators are
still early in the exploration phase. You
believe its in development mode. Why?

CALLANTINE: Although the play has

been around a relatively short time, the
spectacular results have attracted dis-
cretionary capital from all the large
independents you named earlier. This
capital, along with the high-level tech-
nical abilities of these independents,
has rapidly de-risked the play and ad-
vanced the industrys collective knowl-
edge. Over the past six months, nearly
all of the companies operating in the
basin have been testing spacing and
stacked laterals along with continued
optimization of lateral length and stim-
ulation design. The result is the STACK
play has become very predictable and
repeatable with excellent economic
returns in multiple pay zones.

The STACK play has a large

product mix range of oil, gas, and NGL,
including oil from 25% to as much as
90% on a BOE/D basis. What decision
processes product mix, well loca-
available leasehold in the area was so fractionated that it almost discouraged us, tion, drilling costs, etc. did you use
or anyone else for that matter, from entering the STACK play. However, the bro- to meet or exceed your well economic
ken-up acreage and ownership ended up creating opportunity since no one had targets?
significant scale outside of Newfield and the traditional CANA players. Once we
got started, we built momentum quickly as our message and commitment to honest CALLANTINE: First and foremost, the
dealing really resonated with the local community and industry. The volume of play is underpinned by high reservoir
deals was incredible. It took us over 200 transactions and thousands of leases to quality, which allows for large quantities
put together our position. Im very proud of our small team of five and what theyve of all hydrocarbons to be produced by
accomplished in partnership with our excellent service providers, notably Penterra each well. Our focus in the Meramec
Land Services, the PrayWalker Law Firm, and Associated Resources, Inc. has been around the volatile oil window
Through a lot of hard work, our team built scale effectively and efficiently where the reservoir is over-pressured,
and converted acreage into drillable locations in a remarkably short time. Going has a high percentage of oil, and excel-
forward, nearly all of the acreage is accounted for in the core of the STACK. To lent reservoir quality. This area is char-
this end, we believe acquisitions, similar to the Felix acquisition by Devon will acterized by high initial production (IP)
be the only opportunity for growth in the STACK. rates and moderate well costs, a fortu-

With the addition of our assets, Devon now owns 430,000 net surface acres in the STACK, which
I believe represents the largest and best position in the most economic play in country. This is
a cash and equity deal so we will soon be, and plan to remain, large Devon shareholders. We
strongly believe in the quality of Devons asset base, their ability to execute on those assets,
their leadership and financial security, and the long-term value of our equity position in Devon.
Skye Callantine

24 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

 INTERVIEW / FELIX ENERGY

itous combination yielding the best

returns. The black oil window has slight- A drilling rig working
ly lower productivity but the well costs for Felix Energy.
are also lower yielding solid returns. Photo by Nicholas
DeSciose
Unlike other plays in Oklahoma, we
avoid the costly requirements associ-
ated with handling large water volumes
because no formation water is produced
from the Meramec or Woodford within
the Felix footprint.

How do stimulation design and

lateral length impact overall well per-
formance and economics?

CALLANTINE: As you point out, two

important variables in the productivity
and economics of all resource plays are
completion design and lateral length.
Specifically in the Meramec, we have
seen a 50% increase in the initial well
performance in 2015 from enhancement
to the completion design. We focus on
generating more complexity near our
wellbores by utilizing slickwater, more
proppant, more clusters and Hallibur-
tons diversion technology.
With respect to lateral length, both
5,000- and 10,000-foot laterals have
generated very strong returns even in
the current commodity price environ- In light of todays low oil prices, Felix undoubtedly has made some oper-
ment. We believe in many areas of the ational changes or implemented new ideas over the past year in an effort to
play, 5,000- or 7,500-foot laterals will improve your well economics. Can you describe what youve done?
ultimately generate the best returns
in the context of full development. Of BILL ARNOLD: Our primary approach to improve well economics has been to
note, our recent 5,000-foot laterals pursue better well productivity by aggressively pushing the envelope on our stim-
have initial rates ranging from 2,500 ulation strategy. We are utilizing a high-intensity style completion technique using
to 3,000 BOE/D with greater than 80% diversion material to achieve more near wellbore complexity. Other companies
liquids at an average cost of $5.5 mil- are using a different diversion approach to reduce well cost. They are using diversion
lion generating incredible rates of re- to increase frac-stage length, therefore reducing the total number of frac stages
turn. As the play evolves, understand- and the total cost of completion. We have yet to apply diversion in this manner
ing of post stimulation cleanup, testing but do believe this technique is an effective cost reduction tool.
of intermediate lateral lengths, and We have also observed that flowback methodology can have a significant impact
development layout will determine on well productivity. We believe there are several variables at play here for ex-
the optimal lateral length. ample, lateral length, pressure-volume-temperature (PVT) properties, and initial

When we started, I wasnt sure that wed even be able to put 10,000 acres together. Newfield
had done a great job assembling its position, and the rest of the available leasehold in the area
was so fractionated that it almost discouraged us, or anyone else for that matter, from entering
the STACK playThe volume of deals was incredible. It took us over 200 transactions and thou-
sands of leases to put together our position. Michael Horton

JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 25

INTERVIEW / FELIX ENERGY

tionship. Tall Oak has done an excellent

job of staying ahead of the rapid growth
in the play and has exceeded our expec-
tations in every way. In the STACK, Tall
Oak laid approximately 200 miles of
gathering pipelines in-service, installed
multiple compression stations, and
brought on a 100 million cubic feet per
day (MMcf/d) cryogenic plant in Octo-
ber 2015. To support the growth of the
Felix asset along with the expected
third-party growth, Tall Oak has an ad-
ditional 200 MMcf/d of capacity planned
for the third quarter of 2016. Devon and
EnLink are simultaneously acquiring
world-class assets that are even more
valuable with their unique structure.

In terms of rigs running, per-

mitting, and other industry activity,
how has the STACK held up during
the commodity downturn compared
to other liquids plays in the US?

CALLANTINE: The STACK is one of

The core of the STACK play is located in the few plays that experienced an in-
Canadian, Blaine and Kingfisher Counties, crease in the rig count over the past 12
Oklahoma. Photo by Jamin Yeager months. As of December 2015, there
were approximately 25 rigs running in
the play. The significant improvement
pore pressure. Since making this observation, we very carefully watch flowback in well performance coupled with the
parameters and adjust accordingly. While our primary focus has been making a large reduction in well costs has made
better well, we have also been able to achieve significant cost savings due to in- for compelling returns on drilling, even
creased efficiency in our drilling and completion operations. Our drilling times are at current commodity prices. Every
top tier, and completion cycle times continue to improve despite the continuous acreage holder in the STACK has re-
increase in completion intensity. ported that the economics are among
the best in their portfolios, attracting
You formed a JV and entered into long-term gathering and processing discretionary capital spending to be
agreements with Tall Oak Midstream LLC. In a related transaction, EnLink reallocated from other basins and plays
Midstream Partners, Devons joint midstream partner, announced on the same into the STACK. As weve said publicly,
day as the Felix acquisition that the company would acquire Tall Oak Midstream. Felix is generating greater than 40%
How valuable was the Tall Oak Midstream partnership for Felix, and what does rates of return at strip prices below $40
it mean for Devon and EnLink going forward? per barrel.
CALLANTINE: Our midstream joint venture with Tall Oak created a synergistic
relationship with our upstream business similar to the Devon and EnLink rela-

Our primary approach to improve well economics has been to pursue better well productivity by
aggressively pushing the envelope on our stimulation strategyWhile our focus has been making
a better well, we have also been able to achieve significant cost savings due to increased efficiency
in our drilling and completion operations. Our drilling times are top tier, and completion cycle
times continue to improve despite the continuous increase in completion intensity. Bill Arnold

26 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016


From left to right: Skye Callantine, president and CEO; Zack Holland, VP-Engineering; Bill Arnold, VP-Operations; Greg Anderson,
VP-Geoscience; Michael Horton, VP-Land; King Grant, CFO
What was Felixs overall response to the downturn
in commodity prices?
CALLANTINE: As with the entire industry, we are not immune
to the drop in commodity prices. First, we focused our effort
and energy on making our project economic at current service
costs and commodity prices. The downturn allowed us to get
the best people and services to reduce the marginal cost of
supply through efficiencies and improvements. Second, we
were opportunistic by aggressively growing our asset through
leasing and acquisitions. As others have been internally fo-
cused on preserving cash, we were able to significantly in-
crease our leasehold in the core of the STACK play. Our hard
work paid off.
Assuming a successful closing with Devon and EnLink,
whats next for Felix?
CALLANTINE: We have closed on new equity funding and
are currently looking for our next opportunity. Our team has
JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
INTERVIEW / FELIX ENERGY
demonstrated a number of core competencies, including
subsurface technical rigor, excellent drilling and completion
capability, and sound commercial fundamentals. We believe
our reputation in these areas, along with our financial re-
sources, will attract companies looking for partners. Wed like
to hear from any of your readers looking to bring value forward
on underappreciated assets in their portfolios.
Anything else youd like to add?
CALLANTINE: I just want to say thank you again to my
partners, all of the additional people who have supported our
growth, and our investors for their dedication over the last
few years.
Thank you for your time and best of luck on your
future endeavors.
27
 OFS companies innovate to survive
NEW TECHNOLOGIES ARE HELPING COMPANIES FACILITATE MORE WORK WITH LESS OVERHEAD
CLARK SACKSCHEWSKY, BDO USA, HOUSTON
AS 2016 BEGINS, oil and gas companies continue to grapple
with the tumultuous environment that has plagued them through-
out this past year, and there is little relief in sight. Oil prices remain
depreciated to record levels, clocking in at as low as $37 per barrel,
marking a 60% decline from the high in summer 2014.
As oil stores continue to increase and prices continue to plum-
met, the aftershocks are being felt through every sector of the
energy industry. For oilfield services companies providing critical
equipment, infrastructure, and services needed to extract and
transport oil, the impact is especially deep. For example, Paal
Kibsgaard, CEO of Schlumberger, told analysts in October that he
did not expect drilling activity to recover before 2017. Amid fewer
available projects and increased competition, many services
companies are undertaking myriad strategies in an attempt to
hunker down and ride out the storm.
HOW ARE OFS COMPANIES
NAVIGATING THE DOWN MARKET?
To help weather the current market and to protect themselves
from the stagnant oil outlook predicted for 2016, oilfield services
companies are rapidly trimming down. Many oil companies are
cutting their budgets by 10% to 15%, and these cuts will trickle to
down to service company cuts as well. By decreasing spending
and considerably limiting cash flow, companies are attempting
to keep their assets close and reduce overhead costs. Bloomberg
estimates that there have already been more than $6.5 billion in
write-downs related to the price crash, and this number is likely
to grow throughout the coming year. The Wall Street Journal has
28
characterized company executives as believing that no cut is too
small in the current environment, referencing some services
companies utilizing white rather than colored paint for their
underwater equipment in an attempt to lessen expenses.
In addition to tightening their belts, many oilfield services
companies are levering any tactics available to reduce their lia-
bilities and exposure to risk. For example, Halliburton is investing
in new technologies aimed at reducing the capital, labor and
maintenance needed to sustain rig operations in order to facilitate
more work with less overhead. Some companies are also priori-
tizing customer retention by offering current clients deep discounts
to encourage them to uphold and renew lucrative contracts. While
large firms may not get to this point, many middle market services
companies have little choice but to concede to discount demands
in order to stay afloat. All of these measures are helping companies
cushion their balance sheets during lean times.
As a last resort, many companies are shutting down lines across
the country. A recent Forbes article reports that more than 1,100
rig operations have been halted since the price downturn. Ac-
cording to a recent iteration of Baker Hughes weekly rig count,
as of November 25, the count was down to 744, a total reduction
of 1,173 since November 2014. As a consequence of the continued
collapse of the US oil rig count, layoffs are becoming increasingly
commonplace. In October, Schlumberger announced another
round of massive layoffs, bringing its total reduction in workers
over the past year to more than 15% of its total staff. One of its
major competitors, Halliburton, has downsized close to 18,000
employees.
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

WHAT DOES THE FUTURE HOLD FOR OFS COMPANIES?
Despite all of the challenging forces at play, oilfield services com-
panies can still remain hopeful. Those companies that have strong
balance sheets, and those that are taking some of the bold measures
mentioned here, should be able to wait out the downturn until
commodities prices rebound. And there is reason to believe that
they will the 2009 oil bust turned around remarkably quickly, and
while its already obvious we cant expect the same speedy rebound
this time around, demand is likely to increase again and rig activity
should pick up in response. Also, as many firms begin to cut their
capital expenditure budgets and reduce operations and exploration,
supply will decrease, which should help prices recover, as well.
The industry may also expect to see boom and bust cycles
continue to shorten, and as companies adjust to this new dynamic,
they may be better positioned to withstand future downturns.
Oilfield services companies that survive until the market normalizes
will come out on the other side leaner, shrewder, and more efficient
because of the measures they are taking today. This is already
proving true for several operators partnering with start-up FlexGen,
which developed a hybrid system that plugs into existing generators
to convert and store energy from multiple sources while limiting
expenses and maintenance.
Those companies that are having a harder time have some
available options, as well. Since the market downturn, a crop of
new buyers has sprung up, ready to buy out struggling oilfield
services companies. Most of these buyers are private equity funds,
including both large and middle-market funds.
There is also a section of funds that has been set up specifically
to take advantage of the oil price environment. For example, Mas-
sachusetts-based Intervale Capital has brought its total amount
of funds raised to $1.3 billion by systematically investing in oilfield
services companies across the United States. M&A is also an
available option, but realistically, only for companies that are large
and profitable enough to attract these deals, such as the highly
anticipated acquisition of Baker Hughes by Halliburton. While this
JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
Photo by Liberty Oilfield Services
Amid fewer available projects and increased
competition, many services companies are under-
taking myriad strategies in an attempt to hunker
down and ride out the stormOilfield services
companies that survive until the market normaliz-
es will come out on the other side leaner, shrewd-
er, and more efficient because of the measures
they are taking today.
deal is estimated to provide Halliburton with $2 billion in synergies,
it will also saddle them with $7.5 billion in Bakers debt.
THE BOTTOM LINE
There are many reasons to hope that oil prices will bounce back.
The shortening boom and bust cycle offers optimism that prices
will rebound, but it also means that oilfield services companies
will likely face this taxing situation again in the future. Companies
should be smart about their allocation of resources and continue
to cut costs and seek to mitigate risk in order to increase their
stability. They should also focus on corecompetenciesand effi-
ciencies to carry their businesses through lean times and to combat
the inevitable ups and downs of the industry.
The best-run oilfield services companies will view the current
condition of the marketplace as an opportunity to improve struc-
tures and processes. Despite continued volatility, the good news
is that the oilfield services sector is developing innovative ways to
increase efficiencies, cut costs, become more nimble, and plan
ahead for the next inevitable downturn.
ABOUT THE AUTHOR
Clark Sackschewsky is tax principal and a member
of the Natural Resources practice at BDO USA LLP.
He can be reached at csackschewsky@bdo.com.
29
 Cecoffman | Dreamstime.com
Expansive new mitigation requirements
OBAMA ADMINISTRATION ADOPTS WIDE-RANGING NATURAL RESOURCE MANAGEMENT OBJECTIVES

LOWELL ROTHSCHILD, BRACEWELL & GIULIANI LLP, AUSTIN

KEVIN EWING, BRACEWELL & GIULIANI LLP, WASHINGTON DC

IN NOVEMBER, the Obama Administration adopted an expan-
sive set of mitigation objectives for all its natural resource man-
agement agencies. Under the voluntary policy, the Environmental
Protection Agency (EPA), Department of the Interior (DOI),
Department of Agriculture (USDS), Department of Defense
(DOD), and National Oceanic and Atmospheric Administration
(NOAA) will aim to avoid and then minimize harmful effects to
land, water, wildlife, and other ecological resources (natural re-
sources) caused by land- or water-disturbing activities, and to
ensure that any remaining harmful effects are effectively
mitigated.
Depending on how it is implemented, this new policy will have
the potential to impose substantive environmental action obli-
gations not just on EPA, but also on agencies such as the Bureau
of Land Management (BLM, part of DOI), US Army Corps of
Engineers (the Corps, part of DOD), National Park Service (NPS,
part of DOI), and US Forest Service (USFS, part of USDA). This
would overshadow the current procedural environmental review
requirement mandated under the National Environmental Policy
Act (NEPA) and significantly expand the costs and obligations
associated with permitting and other federal authorizations.
In short, the mitigation policies are intended to establish a
net benefit goal or, at a minimum, a no net loss goal for natural
resources the agency manages that are important, scarce, or
sensitive, or wherever doing so is consistent with agency mission
and established natural resource objectives. This policy essentially
takes the current statutorily-mandated and Executive Order-based
requirements that the Corps uses for analyzing wetland impacts
(these being avoidance, minimization and mitigation, with mit-
igation seeking a result of no net loss of wetland functions and
values) and applies those requirements to all natural resources.
This is an expansive additional set of analyses and mitigation

30 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016


This is an expansive additional set of analyses
and mitigation obligations and has the potential
to significantly expand these agencies permit-
ting requirements and timelines. If implemented
broadly, it could significantly enhance the cost and
complexity of many permitting tasks, both on and
off federal land.
obligations and has the potential to significantly expand these
agencies permitting requirements and timelines. If implemented
broadly, it could significantly enhance the cost and complexity
of many permitting tasks, both on and off federal land.
The resources and activities covered under the policy are
broadly described harmful effects to land, water, wildlife, and
other ecological resources (natural resources) caused by land- or
water-disturbing activities. This scope covers a wide array of
environmental impacts, covering most of the resources regulated
and protected by the environmental laws as a whole. It also
applies to almost all of the activities approved by the affected
agencies. As to these resources, the agencies are to each adopt
a clear and consistent approach for avoidance and minimization
of, and compensatory mitigation for, the impacts of their activities
and the projects they approve.
Interestingly, the policy does not appear to limit the regulation
of specific resources to the agencies which have the technical
expertise with them. For example, while the US Fish and Wildlife
Service (part of DOI) regulates endangered species, the Corps
regulates wetlands, and the EPA permits projects which increase
air emissions, the new policy does not address the jurisdictional
limits or expertise of any these agencies when it calls for them
to require mitigation. The policy leaves open the possibility that,
say, NPS might require mitigation for the impacts to water re-
sources caused by construction of a pipeline over land it admin-
isters, or the Corps might require mitigation for the methane
emissions caused by emissions at a well pad among wetlands.
Mitigation of these impacts follows the structure established
under Section 404 of the Clean Water Act for mitigating wetland
impacts. First, impacts are to be avoided if practicable and then
minimized to the extent they cannot be avoided. Only once these
easy impacts have been eliminated are the remaining impacts
to be allowed and then mitigated. For these remaining impacts,
the Agencies mitigation policies should establish a net benefit
goal or, at a minimum, a no net loss goal for natural resources
the agency manages that are important, scarce, or sensitive, or
wherever doing so is consistent with agency mission and estab-
lished natural resource objectives.
This structure will surely complicate permitting. Agencies are
now called upon to introduce a new mitigation analysis into
existing permitting procedures, but without recognizing the limits
of their jurisdiction and expertise and without a specific legal
underpinning that defines the scope of what the agency can
require through mitigation as a lever in the permitting process.
32
The net benefit goal carries with it its own set of questions.
These include how the benefit is measured and how its achieve-
ment is proven by the permittee. Separately, there is the question
of the legal rationale the agencies will rely on to require entities
to create environmental benefits, since few, if any, of their existing
authorizing statutes or regulations require the consideration of
let alone the achievement of net environmental gains.
The policy also establishes a special category of irreplaceable
natural resources those resources recognized through existing
legal authorities as requiring particular protection from impacts
and that because of their high value or function and unique
character, cannot be restored or replaced. For these resources,
the preferred means of achieving either of these goals is through
avoidance. This is because minimization and compensation
measures, while potentially practicable, may not be adequate or
appropriate. As a result, the agencies [will] design policies to
promote avoidance of impacts to these resources.
It is unclear how the agencies will identify these irreplaceable
resources, and it begs the question whether the unfettered dis-
cretion of the agency in designating and protecting these resources
can justify a refusal to grant an authorization that otherwise
meets the legal requirements.
Interestingly, the language is again similar to that found in the
Clean Water Acts wetland law, which allows the EPA to prohibit
the discharge of fill into certain sites upon a determination that
the discharge of such materials into such area will have an un-
acceptable adverse effect on municipal water supplies, shellfish
beds and fishery areas (including spawning and breeding areas),
wildlife, or recreational areas.
In addition to the obvious environmental protection rationale,
the Administrations policy is motivated in part by the fact that
Federal agencies can. . .face barriers that hinder their ability to
use Federal resources for restoration in advance of regulatory
approval of development and other activities.
As a result, the policy encourage[s] private investment in
restoration and public-private partnerships, and help[s] foster
opportunities for businesses or non-profit organizations with
relevant expertise to successfully achieve restoration and con-
servation objectives. Thus, implementation of the policy across
a range of agencies is intended to significantly increase the use
of conservation banking, encouraging the development and use
of banks across a much broader range of resources than currently
exists (conservation banks are currently focused primarily on
mitigating impacts to wetlands and endangered species). By
relying on third parties and the free market to provide mitigation,
mitigation costs could vary widely across the country and even
from project to project.
The potential for a rise in conservation banking is reinforced
by the Administrations concern with the temporal loss of the
covered resources (i.e., the time lag between resource impacts
and the mitigation of those impacts). As a result of this concern,
the agency policies [will] seek to encourage advance compen-
sation, including mitigation bank-based approaches, in order to
provide resource gains before harmful impacts occur. The com-
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016
bination of reliance on third parties and concern about temporal
loss means that the Administration will be looking to the private
sector to create conservation banking and other similar mitigation
efforts across the range of resources sought to be protected by
the policy.
The last notable aspect of the policy is that, as it has for the
past seven years, the Administration is placing a high value on
public involvement. Here, this takes the form of a requirement
that the agencies take action to increase public transparency in
the implementation of their mitigation policies and guidance.
This could take the form of additional public notice and comment
processes, which would further slow permitting timelines. At a
minimum, it will involve alerting the public to projects their
mitigation requirements, and their success in achieving those
requirements the policy states that agencies should identify,
and make public, locations on Federal land of authorized impacts
and their associated mitigation projects, including their type,
extent, efficacy of compliance, and success in achieving perfor-
mance measures.
As to the timing and method of adoption of these new miti-
gation requirements, the process is to be memorialized at each
agency through the creation of a specific manual and handbook
guidance. Most of these guidance documents are to be finalized
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within one year from issuance (which will be just before Election
Day, 2016), with the Forest Service to adopt its documents within
180 days. It does not appear that public comment will be taken
on most of these guidance documents before they are finalized,
although the Forest Service will be adopting a rule within two
years which will follow the typical rulemaking process, including
public notice and comment.
ABOUT THE AUTHORS
Lowell M. Rothschild is senior counsel in Bracewell
& Giuliani LLPs Austin office. His practice focuses
on natural resource issues such as wetlands, endan-
gered species, and environmental review. He can be
reached at lowell.rothschild@bgllp.com.
Kevin A. Ewing is a partner in Bracewells Washing-
ton, DC office. He advises chiefly energy and infra-
structure companies concerning natural resources
and environmental issues arising from new regula-
tions and agency policies, corporate risk manage-
ment, and major incidents. He can be reached at
kevin.ewing@bgllp.com.
33
 Alphaspirit | Dreamstime.com
M&A in the global petroleum industry
A PRIMER FOR ENERGY EXECUTIVES ON OIL AND GAS MERGERS AND ACQUISITIONS

EUGENE M. KHARTUKOV, MOSCOW STATE UNIVERSITY, MOSCOW

THE MAIN IDEA

EDITORS NOTE: This is the first in a series of articles by Profes-
sor Khartukov about the increasing importance and relevance
of mergers and acquisitions in the global petroleum industry.
Part 2 will run in the February issue of OGFJ.
MERGERS AND ACQUISITIONS in the petroleum industry
refers to the aspect of corporate strategy, corporate finance,
and management dealing with the buying, selling, dividing, and
combining of different petroleum companies and similar entities
that can aid, finance, or help an enterprise grow rapidly in its
sector or location of origin or a new field or new location without
creating a subsidiary, other entity, or using a joint venture. The
distinction between a merger and an acquisition has become
increasingly blurred in various respects (particularly in terms
of the ultimate economic outcome), although it has not com-
pletely disappeared in all situations.
One plus one makes three: this equation is the special alchemy
of a merger or an acquisition. The key principle behind buying
a company is to create shareholder value over and above that
of the sum of the two companies. Two companies together are
more valuable than two separate companies at least, thats
the reasoning behind M&A.
This rationale is particularly alluring to companies when
times are tough. Strong companies will act to buy other com-
panies to create a more competitive, cost-efficient company.
The companies will come together hoping to gain a greater
market share or to achieve greater efficiency. Because of these
potential benefits, target companies will often agree to be
purchased when they know they cannot survive alone.
Takeover is a corporate action whereby a company (bidder)
acquires a publicly traded company (target) by purchasing its
outstanding shares. Takeovers may be classified into friendly

34 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

and hostile takeovers. A friendly takeover involves direct nego-
tiation with the target management, which in turn recommends
its shareholder to approve the transactions. In hostile takeovers,
the bid (unsolicited offer) is directly made to the target share-
holders either without notice of the management or upon their
rejection of the bid. A hostile offer thereby seeks to completely
bypass management from direct negotiation. This peculiar
nature of such unsolicited offers raises multilateral practical
issues of conflicts between the target management and
shareholders.
Any attempt to devise a regulatory regime for takeovers
encounters an impulsive need of balancing these interacting
core issues; fair possibilities of entrenchment motivations of
directors in employing defensive strategies, interests of the
company and principle of shareholders freedom to decide upon
the merits of the offer. These efforts have led to divergent opin-
ions about the role of directors in hostile takeovers. One hy-
pothesis favors shareholders choice and proposes that directors
should not be allowed to take any defensive measures. Another
hypothesis argues that those directors should play a central
role in deciding companys response to a hostile offer with an
objective to maximize shareholders value.
In general, takeover regulations in the United Kingdom are
based on the former hypothesis and the United States follows
the latter. In the UK, management is specifically prohibited
from taking any action to undermine the shareholders discretion
and to frustrate any tender offer without shareholder approval.
On the flip side, the US has adopted a completely different
system, wherein the principal decision about the bid is taken
by the board of directors without any general requirement of
post bid shareholder approval. Although the rigors of business
judgment rule and directors fiduciary duties has helped to
regulate this wide discretion of directors, there is still substantial
scope for directors to determine the fate of a takeover bid.
A takeover is business jargon meaning the purchase of a
company (the takeover target) by another company (the bidder
or acquirer). Usually, as larger companies are usually public
companies listed on a trading stock exchange, takeover also
means the acquisition of these types of companies. You can
have hostile takeovers, friendly takeovers, and reverse takeovers,
i.e. when a private company takes over a public company. This
action is usually seen as a back-door strategy or technique for
a private company to be floated on the stock market, bypassing
the cost of time and money of an Initial Public Offering (IPO).
Companies will take over other companies for a variety of
reasons. Small companies may become a takeover target if they
fill a niche in the market that the bidder operates within. This
is especially true if the smaller company has proven its profit-
ability. The larger company may see synergistic needs or other
potential with the smaller such as sharing resources and cutting
costs. Taking over other companies may also be an avenue for
larger acquiring companies to grow their company.
There are many advantages and disadvantages in a takeover,
and perspective plays a role. For example, job cuts may be bad
JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
It is normal for M&A deal communications to take
place in a so-called confidentiality bubble where-
in the flow of information is restricted pursuant to
confidentiality agreements. In the case of a friend-
ly transaction, the companies cooperate in negoti-
ations. In the case of a hostile deal, the board and/
or management of the target company is unwilling
to be bought or the targets board has no prior
knowledge of the offer. Hostile acquisitions can,
and often do, ultimately become friendly, as the
acquirer secures endorsement of the transaction
from the board of the target company. This usually
requires an improvement in the terms of the offer
and/or through negotiation.
for employees but may benefit the companies involved finan-
cially by eliminating redundancies between the two
organizations.
Other advantages:
Increased sales and revenue,
Increased market share,
Economies of scale,
A decrease in competition (assuming the companies are in
the same industry),
And a reduction of overcapacity in the industry.
Disadvantages include:
Reduced competition and choice for consumers (dou-
ble-edged sword - good for the company, bad for
consumers),
Job cuts (as explained before),
Hidden liabilities,
And the cost of a takeover to the bidding company.
A merger occurs when one firm assumes all the assets and
all the liabilities of another. The acquiring firm retains its identity,
while the acquired firm ceases to exist. A majority vote of
shareholders is generally required to approve a merger. A merger
is just one type of acquisition. One company can acquire another
in several other ways, including purchasing some or all of the
companys assets or buying up its outstanding shares of stock.
An acquisition (often called a takeover) is the purchase of
one business or company by another company or other business
entity.
Consolidation occurs when two companies combine to form
a new enterprise, and neither of the previous companies survives
independently. Acquisitions are divided into private and pub-
lic acquisitions, depending on whether the acquiree or merging
company (also termed a target) is or is not listed on public stock
markets. An additional dimension or categorization consists
of whether an acquisition is friendly or hostile.
35
 Achieving acquisition success has proved to be very difficult.
Various studies have shown that 50% of acquisitions were un-
successful. The acquisition process is very complex, with many
dimensions influencing its outcome.
Whether a purchase is perceived as being a friendly one
or a hostile depends significantly on how the proposed ac-
quisition is communicated to and perceived by the target com-
panys board of directors, employees, and shareholders. It is
normal for M&A deal communications to take place in a so-
called confidentiality bubble wherein the flow of information
is restricted pursuant to confidentiality agreements. In the case
of a friendly transaction, the companies cooperate in negotia-
tions. In the case of a hostile deal, the board and/or management
of the target is unwilling to be bought or the targets board has
no prior knowledge of the offer. Hostile acquisitions can, and
often do, ultimately become friendly, as the acquirer secures
endorsement of the transaction from the board of the target
company. This usually requires an improvement in the terms
of the offer and/or through negotiation.
HOSTILE ACQUISITIONS
The replacement of poor management is a potential source of
gain from acquisition. Changing technological and competitive
factors may lead to a need for corporate restructuring. If in-
cumbent management is unable to adapt, then a hostile acqui-
sition is one method for accomplishing change.
Hostile acquisitions generally involve poorly performing
firms in mature industries and occur when the board of directors
of the target is opposed to the sale of the company. When this
occurs, the acquiring firm has two options to proceed with the
acquisition a tender offer or a proxy fight. A tender offer
represents an offer to buy the stock of the target firm either
directly from the firms shareholders or through the secondary
market. In a proxy fight, the acquirer solicits the shareholders
of the target firm in an attempt to obtain the right to vote their
shares. The acquiring firm hopes to secure enough proxies to
gain control of the board of directors and, in turn, replace the
incumbent management.
Management in target firms will typically resist takeover
attempts either to get a higher price for the firm or to protect
their own self-interests. This can be done a number of ways.
Target companies can decrease the likelihood of a takeover
though charter amendments. With the staggered board tech-
nique, the board of directors is classified into three groups, with
only one group elected each year. Thus, the suitor cannot obtain
control of the board immediately even though it may have
acquired a majority ownership of the target via a tender offer.
Under a supermajority amendment, a higher percentage than
50% generally two-thirds or 80% is required to approve a
merger.
Other defensive tactics include poison pills and dual class
recapitalizations. With poison pills, existing shareholders are
issued rights, which, if a bidder acquires a certain percentage
of the outstanding shares, can be used to purchase additional
36
shares at a bargain price, usually half the market price. Dual
class recapitalizations distribute a new class of equity with
superior voting rights. This enables the target firms managers
to obtain majority control even though they do not own a
majority of the shares.
Other preventative measures occur after an unsolicited offer
is made to the target firm. The target may file suit against the
bidder alleging violations of antitrust or securities laws. Alter-
natively, the target may engage in asset and liability restructuring
to make it an unattractive target. With asset restructuring, the
target purchases assets that the bidder does not want or that
will create antitrust problems, or sells off the assets that the
suitor desires to obtain. Liability restructuring maneuvers in-
clude issuing shares to a friendly third party to dilute the bidders
ownership position or leveraging up the firm through a leveraged
recapitalization making it difficult for the suitor to finance the
transaction.
Other post-offer tactics involve targeted share repurchases
(often termed greenmail) in which the target repurchases
the shares of an unfriendly suitor at a premium over the current
market price and golden parachutes which are lucrative
supplemental compensation packages for the target firms
management. These packages are activated in the case of a
takeover and the subsequent resignations of the senior execu-
tives. Finally, the target may employ an exclusionary self-tender.
With this tactic, the target firm offers to buy back its own stock
at a premium from everyone except the bidder.
A privately owned firm is not subject to unfriendly takeovers.
A publicly traded firm goes private when a group, usually in-
volving existing management, buys up all the publicly held
stock. Such transactions are typically structured as leveraged
buyouts. LBOs are financed primarily with debt secured by the
assets of the target firm.
A merger occurs when one company is legally absorbed into
another and the surviving company takes over all of the assets
and liabilities of the absorbed company. There cannot be any
separate transfer of assets or liabilities to other third parties
and a certificate of merger must be filed in the state where the
new business will incorporate. The absorbed company share-
holders are not bought out and therefore the merger is, in
essence, treated as a stock transaction for federal tax purposes.
The shareholders of both of the merged companies exchange
their original stock for new stock in the surviving company. The
companys board of directors and shareholders must approve
the merger.
Acquisitions can occur in two ways:
Buy the assets of the company,
Or, buy the companys shares from the stockholders.
Under the acquisition scenario, the shareholders of the com-
pany being bought can, in most instances, take their money
and ride off into the sunset. The terms of the payment can be
either incash or stock of the purchase (which is as good as cash
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016
for publicly traded companies). The acquisition is different from
a merger in that the selling shareholders do not own stock in
a new, combined enterprise. The buyer can select targeted
assets or liabilities to take and others to discard which the seller
must accommodate. For example, the buyer does not have to
assume the debt of the company being bought although in
most cases it does.
In mergers and acquisitions, tax and net income consider-
ations of both the buyer and seller are a major factor in deter-
mining how the deal is ultimately structured. The selling share-
holders participating in acquisition of asset deals may have to
pay significant taxes on gains unless the transaction is structured
in a way that allows the taxes to be deferred. Types of tax de-
ferrable transactions include statutory mergers, stock-for-stock
swaps, and stock-for-equity swaps.
If the purchase price paid for the assets exceeds its fair market
value, the excess payment is treated as goodwill under current
accounting rules. The goodwill is then amortized over a period
of generally five to seven years, and the annual amortization
amount is taken as a charge against the buyers net income.
Consequently, if a buyers shareholders are very focused on net
income growth, purchasing assets in excess of fair market value
presents an obstacle. In addition, the goodwill expense is not
deductible for federal tax purposes (unlike other items such as
depreciation).
One way to bypass the goodwill amortization issue is to
structure the transaction as a pooling of interest. The infor- lowed but the percentage of earnings is not.
mation below shows the difference between the purchase and
pooling structure.
MINORITY VS MAJORITY EQUITY POSITION
The percentage equity ownership that a buyer takes in a target
company can have material effect on its reported financial
statements. The nature of the impact varies according to the
following:
Less than 20% ownership
Greater than 20% ownership, but less than 50%
Greater than 50% ownership
At the less than 20% equity ownership level, the buying
company is not required to consolidate any portion of the
revenue or net income of the selling company to its financial
statements. This can be a very important consideration if the
selling company is expected to experience losses at once and
in the near future as it grows its business. The buying company
does not need to dilute its earnings because of its obligation to
consolidate its share of the losses since its investment is a
relatively small minority.
However, there is an exception to this rule. If the buying
company, as a condition of its investment, has significant veto
power over key business decisions made by the selling company,
then they are deemed to have operating control and would act
more like a majority investor.
If the acquirer has an equity interest between 20% and 50%,
they are required to consolidate their share of profits or losses
JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
In practice, actual mergers of equals dont hap-
pen very often. Usually, one company will buy
another and, as part of the deals terms, simply
allow the acquired firm to proclaim that the action
is a merger of equals, even if its technically an ac-
quisition. Being bought out often carries negative
connotations. Therefore, by describing the deal as
a merger, deal makers and top managers try to
make the takeover more palatable.
from the target company regardless of whether they have veto
rights over key operating plans. Most buyers who take this level
of equity ownership usually structure the deal to give them a
path to control at a later date. This can be the right of first refusal
to buy additional equity or a guaranteed future majority share
at an agreed upon price or method to calculate the price.
An equity position of greater than 50% most often means
the buyer has control of the day-to-day running of the business
and, therefore, will consolidate the total revenue of the target
company to its financial statements as well as its portion of
profits and losses. However, as discussed above, if the minority
shareholder(s) are given veto rights that clearly prevent the
majority shareholder from exercising full control over the op-
erations of the business, then revenue consolidation is disal-
Merger and acquisition transaction types are normally executed
in one of the following formats:
Statutory merger
Exchange of stock for stock
Purchase of assets for stock
Purchase of stock for cash
Purchase of assets for cash
A statutory merger involves two companies merging their
businesses and generally the shareholders receive payment in
stock. The deal is non-taxable and can be done as either a
purchase or a pooling of interest.
Exchange of stock for stock deals occur when the selling
shareholders sell their company to the buyer and receive shares
in the buyers company as the security for payment. The trans-
action is usually non-taxable and can be done as a purchase or
pooling of interest.
Purchase of assets for stock. In this type of transaction, an
asset or a group of assets (such as selected plants or reserves)
and not the entire company of the seller is purchased. In some
cases, only the corporate shell of the seller remains which can
be liquidated at a later date. The currency used to fund the
purchase is stock of the buyers company. This transaction is
also non-taxable and can be treated as a purchase or pooling
of interest.
Purchase of stock for cash. This type of transaction is fairly
37
common and occurs when the shareholders sell their stock for
cash to a buyer. The buyer will thenhave majority or full control
depending on the number of shareholders who sell. This type
of deal is taxable to the shareholders of the selling company if
they realize a gain from selling their shares. This type of trans-
action is treated as a purchase only and pooling of interest
benefits does not come into play.
Purchase of assets for cash. This transaction is similar to a
purchase of assets for stock, except that the assets are paid for
with cash and not stock. This transaction is also taxable to the
selling shareholders and can only be done as a purchase and
not a pooling of interest.
A freeze-out merger is a technique by which one or more
shareholders who collectively hold a majority of shares in a
corporation gain ownership of remaining shares in that
corporation.
The majority shareholders incorporate a second corporation,
which initiates a merger with the original corporation. The
shareholders using this technique are then in a position to
dictate the plan of merger. They force the minority stockholders
in the original corporation to accept a cash payment for their
shares, effectively freezing them out of the resulting
company.
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DISTINCTION BETWEEN MERGERS AND ACQUISITIONS
Although they are often uttered in the same breath and used
as though they were synonymous, the terms merger and acqui-
sition mean slightly different things.
When one company takes over another and clearly establishes
itself asthe new owner, the purchase is called an acquisition.
From a legal point of view, the target company ceases to exist,
the buyer swallows the business, and the buyers stock con-
tinues to be traded.
In the pure sense of the term, a merger happens when two
firms, often of about the same size, agree to go forward as a
singlenew company rather than remain separately owned and
operated. This kind of action is more precisely referred to as a
merger of equals. Both companies stocks are surrendered and
new company stock is issued in its place. For example, both
Daimler-Benz and Chrysler ceased to exist when the two firms
merged, and a new company, DaimlerChrysler, was created.
In practice, however, actual mergers of equals dont happen
very often. Usually, one company will buy another and, as part
of the deals terms, simply allow the acquired firm to proclaim
that the action is a merger of equals, even if its technically an
acquisition. Being bought out often carries negative connota-
tions. Therefore, by describing the deal as a merger, deal makers
and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs
agree that joining together is in the best interest of both of their
companies. But when the deal is unfriendly that is, when the
target company does not want to be purchased it is always
regarded as an acquisition.
Whether a purchase is considered a merger or an acquisition
really depends on whether the purchase is friendly or hostile
and how it is announced. In other words, the real difference
lies in how the purchase is communicated to and received by
the target companys board of directors, employees, and share-
holders.
ABOUT THE AUTHOR
Eugene M. Khartukov is Professor of Economics at
the Moscow State University for International Re-
lations, General Director of the Center for Petro-
leum Business Studies, Chief of the World Energy
Analysis & Forecasting Group, and Vice President
( for Eurasia) of Petro-Logistics SA. Prof. Khartukov
is an international expert on Russian and ex-Soviet oil and gas
issues. Since 1980, he has taught world oil and energy markets
research at Moscow State University for International Relations.
Since 1984, he has consulted on oil and gas economics and
policies, including energy pricing, to various Soviet/Russian

 



  
 ministries, international agencies, foreign governments, private
for Oil & Gas Financial Journal. oil and gas companies, consulting firms and financial institu-
tions, as well as to the Gorbachev, Yeltsin, and Putin adminis-
Call 866.879.9144 or trations. He can be reached at khartukov@gmail.com.
sales@fosterprinting.com

38 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

 Abdullatif Omar | Dreamstime.com
Meeting compliance challenges
AUTOMATING BUSINESS PROCESSES HELPS IMPROVE EFFICIENCY
AND REDUCES RISK AND IMPACT ON THE BOTTOM LINE

RICHARD SLACK, OILDEX, DENVER

REGULATORY COMPLIANCE continues to be one of the greatest
challenges for oil and gas producers. Not only is the oil and gas
industry highly regulated, but regulations are evolving and changing
on an ongoing basis. Staying compliant with the latest regulations
is doubly difficult because the standards you had to meet yesterday
may be even more stringent today. In addition, the cost of compli-
ance consistently has a huge impact on the bottom line, and failure
to meet compliance standards can incur even more expenses in
fines and reparations.
The best way to meet the requirements of regulators is through
comprehensive data tracking. If you can monitor and report on
every aspect of your operation, you can be sure you will be in
compliance at all times, and you will have an audit trail ready to
access when you need it.
According to BDOs annual Oil & Gas Riskfactor Report, regu-
latory compliance consistently ranks as number one among the
risk factors cited by the 100 top E&P producers. Federal, state, and
international regulations are the most frequently cited risks in
public oil and gas companies 10-K filings. And new compliance
concerns are emerging on an ongoing basis. Fracking, for example,
is still a relatively new practice with a unique set of environmental
and safety concerns that are still being established by government
agencies. While federal and, especially, state regulators continue
to scrutinize E&P environmental and business practices, the un-
certainty associated with how to comply with new regulations is
high. For example, one in four companies in the BDO Report cited
horizontal drilling as a regulatory concern.
Oil and gas producers not only have to ensure compliance with
multiple agencies in multiple jurisdictions, they also have to worry
about compliance across multiple disciplines. These companies
have to comply with regulations for facilities, financials, operations,
environmental practices, and more. In the area of health, safety,
and environment (HSE), spending among global E&P companies
is estimated to climb from $35 billion in 2011 to $56 billion in 2030
a 60% increase driven mostly by increased regulatory scrutiny.
The risk factors and associated costs vary depending on the

JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 39

company and its industry segment, but wherever you are in the
production value chain, the cost of non-compliance is increasing.
For example, recent changes to HR 2845: Pipeline Safety, Regulatory
Certainty and Job Creation Act of 2011, have extended pipeline
records to be included as part of the regulation, including geospatial
and oil flow lines, as well as other types of non-petroleum materials
such as hazardous liquids, chlorine, and biofuels. This means there
are more records to maintain and failure to comply with safety
regulations can result in a fine of $1.75 million.
As part of HR 2845, the National Safety Transportation Board
recommends using a central database to ensure timely access to
oil and gas records in the event of an emergency. Automating
business processes and centralizing them using an Enterprise
Resource Planning (ERP) system is your best strategy to consolidate
record-keeping, monitor operations for compliance, and prepare
for an audit to avoid additional fees and penalties.
THE VALUE OF ERP
No matter what type of operation you have in the E&P process,
ERP technology can consolidate operations monitoring and man-
agement into a single system that gives you end-to-end control of
business systems. ERP systems are used in manufacturing, pro-
duction, maintenance and transportation for both upstream and
downstream companies, providing control over processes, reducing
costs, and delivering an end-to-end view of operations.
ERP systems for oil and gas have a number of applications
including:
Cost control and tracking
Equipment tracking and management
Document management
Financial tracking and projections
Production planning and reporting
Financial management, cash management, and accounts re-
ceivable management.
An ERP system also allows companies to create an integrated
data repository containing everything from customer contacts to
inventory to invoicing. E&P companies that have implemented
ERP systems have shown an increase in profitability of at least 10%
due to improved operational efficiency.
ERP systems offer a number of advantages for compliance as
well, such as localization of accounting. Regulations are enforced
by state, national, and international agencies, and the ERP system
helps distinguish financial records by geography. Using ERP, you
can configure accounting for financial compliance in different
regulatory environments, including auditing.
For asset management, ERP systems can provide real-time
information about geographic location and machine use for equip-
ment anywhere in the system. If the company is performing regular
maintenance as part of compliance, the ERP dashboard can see
the exact status of all the equipment, complete with an audit trail
of maintenance and repair.
ERP systems come in various deployment models, including
on-premise software and software-as-a-service. Whatever approach
you choose, you want to be sure that your ERP technology can be
40
According to BDOs annual Oil & Gas Riskfactor
Report, regulatory compliance consistently ranks
as number one among the risk factors cited by
the 100 top E&P producers. Federal, state, and
international regulations are the most frequently
cited risks in public oil and gas companies 10-K
filings.
integrated across the value chain and that it provides real-time
visibility into operations. Using cloud-based ERP systems, for ex-
ample, enables easier access to data from anywhere, including
mobile devices. This helps to resolve issues quickly and efficiently
while still creating a centralized audit trail.
START WITH PAPERLESS PROCESSES
In order to use ERP systems to power compliance, you need to
eliminate all paper processes. Any data that is not automatically
captured by the ERP system has to be entered manually or main-
tained separately for auditing and compliance, which creates added
risk. Paper processes are prone to errors and harder to manage
and track, so your best strategy is to eliminate paper altogether
and consolidate business processes using a fully automated
system.
Undoubtedly, there are legacy systems and processes in your
value chain that still rely on paper. Invoices, bills of materials,
shipping manifests, delivery receipts, and other paperwork are still
being processed by hand. Manual data entry, for example, requires
time and resources and is fraught with errors and risk of lost pa-
perwork. Even processes where paper-based forms are scanned
and distributed electronically to make them part of the ERP systems
still have to be managed manually, as if they were paper.
Automating all business processes and eliminating paper saves
the cost of manual data entry and creates more efficient systems.
For example, paying an analyst to process paper invoices manually
incurs overhead costs in labor and processing time. You not only
have to pay for the data entry time, but also for additional man-
agement time to review the paperwork for accuracy and make
corrections. Then there can be the hidden cost in the delays incurred
in processing paper invoices, as well waiting for checks and pro-
cessing paper payments. In addition, this kind of paper process is
more difficult to audit. Since invoices have to be filed and payments
logged into the financial system, there is a lot of room for error
with this kind of manual process.
Automating the end-to-end system, even by using PDF invoices
for electronic transmission, is easier to track with less room for
error. Centralizing financial records, for example, makes it easier
to keep track of customized contracts, discounts, payments, pur-
chase orders, and other transactions. The ERP system logs every
step in the workflow for auditing. There is even customized ERP
software specific to the oil and gas industry to manage transactions,
such as three-way purchase order matching, royalty check stubs,
run tickets, joint interest billing (JIBs), and shared billing costs.
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016
Once you go paperless, you are ready to automate and track all
your business interactions.
AUTOMATION SIMPLIFIES AUDITING
By eliminating paper processes, you are migrating to a completely
automated workflow. All transactions between partners and cus-
tomers become digital and are managed and tracked by the same
ERP infrastructure. Every step in the end-to-end workflow is man-
aged and logged by the ERP system, which means every transaction
and relationship can be monitored for compliance and accessed
in the event of an audit.
One of the advantages of automating workflows is that it often
simplifies business processes by eliminating steps. With manual
data entry and business processes, there are more checks and
balances built into the workflow to eliminate errors. These addi-
tional steps not only slow business processes but also make them
inefficient. With automated business processes, workflows are
streamlined for greater operating efficiency and easier auditing.
For example, one of our customers went to paperless operations
and they were able to simplify their invoicing workflow from 60
steps to 12 steps. In addition to reducing invoice processing time
from 30 days to three days, they also were able to simplify auditing
since they only have to track 12 steps rather than 60.
The benefit of using ERP for managing operations is that the
ERP system tracks business relationships as well as transactions.
For example, the ERP system can maintain data about state safety
regulations, sales tax payments, drilling rights, contracts, licenses,
supply chain records, and more. The ERP system becomes the
central repository for authorization for expenditures (AFE), division
of Interest (DOI), allocation of costs per well or per owner, and
reporting of gross and net revenues.
By funneling all business processes and transactions through
the ERP database, you not only create the means to generate any
type of audit trail, but you gain a holistic view of operations. You
can use historical data to manage projections and budgeting or
make strategic decisions to improve operations. ERP also gives
you an overview of the end-to-end supply chain at a glance. You
can access inventory and assets, such as equipment, at any time.
You also have a data repository you can mine for analytics, including
big data, to help you plot the growth of the company.
Centralizing business data also helps you contain your compli-
ance costs by providing total transparency into operations. Using
the ERP system to map transactions, assets, and operations to local
regulatory requirements makes it easy to spot anomalies or issues
that could lead to non-compliance.
ERP AND RISK AVOIDANCE
A well-designed ERP system simplifies regulatory compliance
across the board. The ERP system becomes the companys insur-
ance policy and the centralized resource to promote risk
avoidance.
Using digital transactions and tracking to manage the entire
operation means that your staff and legal representatives have
immediate access to information they might need for an audit or
JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
litigation. Your ERP controls and manages documents in a way
that should be compliant with ISO, Sarbanes Oxley, and other
regulations that could require auditing. In fact, your ERP system
promotes regulatory compliance in a number of ways:
Data and asset security The system maintains control as
well as a log of data access showing who has access to what
records and assets. The ERP system can restrict information
access to only authorized employees and maintain a record of
all personnel who access specific records.
Compliance Most regulatory compliance initiatives are
typically related to privacy, control, and requests for information.
The ERP system makes it possible to redact personal information
in documents and transactions to protect privacy, and ensures
the ability to produce any required information quickly and
efficiently.
Document control Processes such as reviews and approval
of documents can be automated and standardized to maintain
total control in accordance with ISO and government
regulations.
Records management The automated system includes
retention plans and guidelines so as new documents and trans-
actions are added to the system, they are coded accordingly.
That way records are retained and not prematurely purged or
erased. The system also maintains an audit trail of records access
if there are any questions.
Legal hold Using a centralized document and transaction
repository also simplifies implementing a legal hold in the event
of litigation. Secure files can be securely stored to prevent them
from being altered during litigation while digital copies of those
documents are still available for review.
There was a time when a new government rule or regulation
would create chaos in systems management, requiring changes
in record keeping and workflows to ensure compliance. Automated
business systems have changed all that. By eliminating paper and
automating all transactions and workflows, oil and gas companies
gain total control over record keeping and can adapt easily to any
new regulatory requirements. Any type of data can be accessed
quickly and easily for auditing or analysis. And companies save a
fortune in the process because of the efficiencies inherent in pa-
perless processes.
Every business runs on information, and effectively managing
business processes and automation is the best way to harness that
information to power your company toward a successful future.
ABOUT THE AUTHOR
Richard Slack is president and CEO of Oildex. He has
more than 30 years of experience developing, mar-
keting, and selling software products and services to
the oil and gas industry. He holds a bachelors degree
in geology from the University of California and a
masters degree in geophysics from the University of
Houston.
41
 SEC comments
2014-2015 SEC STAFF COMMENTS ON OIL AND GAS DISCLOSURES

MARC FOLLADORI, HAYNES AND BOONE LLP, HOUSTON

When sorrows come, they come not single spies, but in battalions.
William Shakespeare, Hamlet (Act IV, Scene V)

There are moments when everything goes well, but dont be frightened, it wont last.
French author Jules Renard

THE STEEP DECLINE in crude oil and natural gas prices begin-
ning in October 2014 generated a depressed price environment
that continued throughout 2015. The weakened market condition
has seriously impacted many exploration and production (E&P)
companies and their employees, shareholders, lenders, customers
and suppliers. It has also impacted the work of the Division of
Corporation Finance of the Securities and Exchange Commission
(SEC), the group responsible for reviewing public E&P companies
filings and monitoring their compliance with the oil and gas
disclosure rules of the SEC.
This article is the latest in a series of articles summarizing
the Divisions staff reviews of E&P companies SEC filings. The

42 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

staff expresses its views on how reporting E&P companies are
complying with the SECs oil and gas disclosure rules in comment
letters it issues to the companies. These comment letters (and
the companies responses to those comments) are made publicly
available on the SECs EDGAR system, but not sooner than at
least 20 business days after the date that the staff has completed
its review of the filing.
Roughly speaking, this article covers comment letters and
company responses made publicly available during the period
beginning in the late summer of 2014 and continuing into Oc-
tober 2015.
HIGHLIGHTS OF 2014-15 REVIEW PERIOD
Staff comments during 2014-15 were, for the most part, typical
of comments issued in prior periods. However, there were two
notable developments during 2014-15:
First, the decline in commodity prices appeared to drive the
content of many staff comments in late 2014 and throughout
2015. Increasingly, the staff asked companies to provide ad-
ditional disclosures about potential impacts of the lower
commodity prices on their results of operations, financial
condition, proved reserves and the carrying values of their
oil and gas properties.
Secondly, the staff issued numerous comments to companies
that had disclosed recurring changes to their development
plans for their proved reserves. Whenever it appeared that a
company continued to modify development plans for its
proved undeveloped reserves (PUDs) from period to period
without explanation, the staff called into question whether
the estimated PUDs on the companys books at a fiscal year
end had truly been estimated to have reasonable certainty
that they would be economically producible and drilled within
the next five years.
These two developments are described separately in more
detail below.
Since 2010, companies development of their PUDs has been
the principal disclosure topic addressed by the staff, and 2014-15
proved to be no exception (see, e.g., Apache (6/29/15); Vanguard
Natural Resources LLC (6/29/15); Matador Resources Co.
(6/25/15); Warren Resources (9/24/14); TransAtlantic Petroleum
Ltd. (9/17/14)).
SEC rules permit undrilled locations to be classified as having
undeveloped reserves only if a development plan has been ad-
opted indicating they are scheduled to be drilled within five
years, unless specific circumstances justify a longer time. Un-
drilled reserves that have remained booked as PUDs for more
than five years, as well as newly added PUDs that will not be
drilled in five years, should not be included in the proved
category.
A related topic for many comments during 2014-15 was the
requirement under SEC rules and financial accounting standards
for companies to provide (i) a tabular presentation in sufficient
detail on the various causes for the changes in their proved re-
serves from year to year (see, e.g, Berry Petroleum Company LLC
JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
(6/21/15); Emerald Oil (5/22/15); Royal Dutch Shell (11/10/14);
Isramco (9/17/14)), and (ii) specific disclosures about material
changes in their PUDs over the prior year, addressing investments
and progress (including capital expenditures) made to convert
PUDs into proved developed reserves (see, e.g., Atlas Resource
Partners LP (5/22/15); Petrobras Argentina SA (1/6/15); Black
Ridge Oil & Gas (12/30/14); Eagle Rock Energy LP (12/29/14);
Warren Resources (9/24/14); Statoil ASA 9/19/14)).
Where a companys PUDs had increased 37% in a year, but
its projected future development costs had increased only 3%,
the staff requested clarification (Hydrocarb Energy (3/18/15);
see also, Marathon Oil (6/14/14), where the company had re-
ported a slight decrease in future development costs while its
estimated PUD quantities had increased). The staff also raised
questions where companies held a significant amount of unde-
veloped acreage under leases that would expire within a short
time. In those instances, the staff inquired as to the extent to
which PUDs had been assigned to locations on the undeveloped
acreage that were scheduled to be drilled after the subject leases
expired (see, e.g., Pioneer Natural Resources (7/15/15); Matador
Resources (6/20/15); Stone Energy (9/28/14); LRR Energy LP
(9/8/14); Laredo Petroleum (8/20/14); Resolute Energy (7/28/14)).
Surprisingly, there continued to be many comments identi-
fying, and asking companies to reconcile, discrepancies between
information disclosed in the text of companies filings and in-
formation contained in the accompanying third-party reserves
report (e.g., Evolution Petroleum (3/18/15); VOC Energy Trust
(9/24/14); Isramco (9/17/14); Resolute Energy (7/28/14)).
IMPACT OF REDUCED COMMODITY PRICES
Impact of lower prices on reserve estimates and impairment
testing
A key area of concern for the staff during 2015 was the extent
to which reduced prices for oil and gas production had weakened
the financial condition of E&P companies.
During the year, the staff asked companies to provide addi-
tional disclosure about potential impacts of the lower oil and
gas price regime on their (i) results of operations, financial
condition, cash flows, liquidity and capital resources; (ii) proved
reserve quantities and the value of those reserves; and (iii) pe-
riodic testing for impairment of carrying values of their oil and
gas properties for financial accounting purposes.
Importantly, many of these comments requested companies
to quantify the impact of the low commodity prices on their
estimated proved reserves and the standardized measure of
discounted future net cash flows relating to those reserves (the
standardized measure). Many companies initially resisted any
quantification, contending that estimating the impact of lower
prices on proved reserves and carrying values would be imprecise
and subjective, and based only upon abstract estimates of future
prices, production, costs and other factors.
In rebutting these arguments, the staff relied on an SEC 2003
interpretive release that provides guidance for companies pre-
paring the Managements Discussion and Analysis of Financial
43
Condition and Results of Operations (MD&A) section of their
periodic reports filed with the SEC. MD&A disclosures are in-
tended to provide a narrative explanation of companies financial
statements that enables investors to see the company through
the eyes of management.
In their comments, the staff highlighted particular portions
of the release that encouraged a company to (i) provide an in-
troductory section in its MD&A summarizing the most important
matters on which its management focuses in evaluating financial
condition and operating performance; (ii) identify known trends,
demands, commitments, events and uncertainties and assess
their impact on the companys liquidity, capital resources or
results of operations; and (iii) address uncertainties associated
with assumptions underlying the companys critical accounting
estimates.
A typical staff comment requesting quantification in accor-
dance with this release asked whether the subject company had
considered providing more extensive discussion (including
quantification) of the impact of current commodity prices on
its liquidity, capital resources and results of operations, partic-
ularly addressing its drilling plans and accounting estimates
related to its ceiling test and reported reserves volumes (Gulfport
Energy (3/30/15)).
In response to these comments, companies provided the staff
with estimates illustrating quantified effects of lower commodity
prices, principally by applying modified pricing assumptions.
For example, to illustrate the effect of continuing low prices,
some companies proposed using sensitivity-analysis type
disclosures in their MD&As that would substitute New York
Mercantile Exchange (NYMEX) commodity strip prices as of
a more recent date in lieu of the SEC-required average of the
first-day-of-the-month prices for the prior fiscal year.
One company stated that if the relevant NYMEX commodity
strip price as of December 31, 2014 had been used instead
of the average price for 2014, the estimated future net rev-
enues of the companys proved reserves and estimated
proved reserve volumes as of December 31, 2014 would
have decreased by approximately 43% and 6%, respectively
(Breitburn Energy Partners LP (response letter dated
7/30/15)).
Another company amended its 2014 annual report and
added disclosure in its MD&A to report that if the company
had used year-end 2014 NYMEX calendar year forward
contract strip prices instead of the average price for 2014,
the present value (applying a 10% discount) of estimated
future net revenues of its proved reserves would be approx-
imately 63% less, and its total proved reserve equivalent
volumes would be about 24% smaller ((Penn Virginia (re-
sponse letter dated 6/23/15)).
After much correspondence back and forth, a company agreed
that going forward, whenever ceiling test impairments were
expected and its proved reserves were to be revised downward,
it would provide disclosures in its periodic reports illustrating
the effects of the change in prices by applying updated pricing
44
assumptions. The company suggested using a simple average
price calculated over a 12-month period, based upon actual
commodity prices available for the nine months preceding
the particular reporting date, and prices reasonably available
after the end of that reporting period held constant for the
remainder of such 12-month period (EXCO Resources (re-
sponse letter 7/9/15)).
Another company disclosed in the MD&A in its 2015 second
quarter report that it anticipated a ceiling test writedown in
its 2015 third quarter. It stated that by changing the 12-month
average price to an estimated third quarter-ending average
price (holding July 2015 prices constant for the remaining
two months), it would recognize a 2015 third-quarter impair-
ment of approximately $300 million, partially caused by a
decrease in its PUDs of approximately 23% (Unit Corp. (re-
sponse letter 8/13/15)).
Chesapeake Energy Corp. reported in its 2015 second quarter
report that as of June 30, 2015, it had incurred a ceiling test
impairment charge of $5.015 billion. In response to ongoing
staff comments, the company also disclosed in its second
quarter report its expectations for the commodity prices to
be used in the calculation of discounted future net revenues
for 2015s third quarter (Chesapeake Energy (response letter
8/18/15)).
Based on first-of-the-month index prices for July and August
2015 and the then-current strip prices for September 2015,
the company estimated a decrease of approximately $12.31
per barrel of oil and $0.33 per Mcf of natural gas in the prices
it would use to calculate estimated future net revenue of
its proved reserves at September 30, 2015. These expected
price decreases were expected to reduce the present value
of estimated future net revenues of its proved reserves by
approximately $4.1 billion in the third quarter, and would
likely be a significant factor in the amount of impairment
to be recorded at September 30, 2015. It also said it expected
a further reduction of approximately 8% in its estimated
proved reserves in 2015s third quarter, solely related to
price declines.
See also, Cimarex Energy (7/13/15); Halcn Resources
(2/26/15).
Another company disclosed in its 2014 Form 10-K that con-
tinued low oil and gas prices could reduce the amount of
hydrocarbons it could produce economically. The staff asked
the company to provide quantitative disclosure addressing
the impact of low prices to its reserves that would reflect
potential scenarios it deemed reasonably likely to occur. The
company suggested proposed disclosures showing the impact
to proved reserves at year-end 2014 of a $1.00 per MMbtu
decline in natural gas prices and a $6.00 per barrel decline in
crude oil prices. The staff replied that in its view, the companys
proposed disclosure did not reflect potential scenarios that
its management deemed reasonably likely to occur (Vanguard
Natural Resources LLC (7/20/15)).
In response, the company added disclosures in its 2015
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016
 second quarter report ( filed in August 2015), which disclosed
a quantified decrease in its total proved reserves as of June
30, 2015 by applying the 5-year NYMEX forward strip prices
as of July 20, 2015 (Vanguard Natural Resource LLC (response
letter 8/6/15)).
The staff asked a company to explain whether it had taken
steps to address risks associated with the volatility in com-
modity prices, and to describe the types of its derivative
contracts intended to mitigate its exposure to the price chang-
es, the duration of those contracts, how current market con-
ditions could affect its ability to enter into similar instruments
and the potential impact those circumstances may have on
its future revenues (Black Stone Minerals LP (4/2/15)). In
response, the company disclosed in an amendment to its
registration statement the percentages of budgeted oil and
natural gas production for 2015 covered by costless collars
and fixed-rate swaps, and their weighted-average floor and
weighted-average fixed prices, but cautioned that revenues
from its production not currently hedged could decline sig-
nificantly if market prices for oil and natural gas did not recover
(Black Stone Minerals LP (response letter 4/10/15))
Other companies receiving comment letters in 2015 requesting
additional information (including quantitative disclosure) about
the expected impact of lower commodity prices include the
following: Energy XXI Ltd.; EQT; Continental Resources; Legacy
Reserves LP; BP plc; Cobalt International Energy; Cabot Oil &
Gas; Matador Resources; Apache; Gran Tierra Energy and Eclipse
Resources. In their comments, the staff did not differentiate
between companies using the successful efforts method of ac-
counting (see, e.g., Continental Resources; Penn Virginia; Cabot
Oil & Gas) or those using the full cost method (see, e.g., Cimarex
Energy; Apache; Chesapeake Energy; Halcn Resources).
Impact on capital expenditures and development plans
The staff also asked companies that had disclosed reduced
capital expenditure budgets for 2015 due to the lower-price
environment to provide disclosures about PUDs that would not
be developed as a result of the changes in economics.
A typical comment asked whether a companys reduced
capital spending plan had been based on the assumption that
commodity prices would stay at current levels, and requested
explanation of how a continuation of the low-price environ-
ment would impact the companys ability to convert its PUDs
in a timely manner. EQT (8/3/15); see also, Berry Petroleum
Company LLC (7/21/15); Cimarex Energy (7/13/15); Eclipse
Resources (5/20/15); Gulfport Energy (3/30/15).
The staff noted that one companys 2014 Form 10-K had
disclosed significant reductions in its drilling activities and
capital expenditures planned for 2015, but that despite those
reductions, it had apparently not removed any of its PUDs
during 2014. The staff asked whether any of the companys
PUDs reported at 2014 year-end included quantities that had
been delayed, deferred or re-scheduled to future periods as a
result of the planned reductions. It also requested pricing
JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
assumptions used in formulating the companys PUD devel-
opment schedule (Apache (6/29/15)).
The company replied that it had rescheduled 561 PUD lo-
cations to future periods as a result of its planning process,
and that due to the volatile oil price environment, its de-
velopment schedule had utilized several pricing assumptions
to assess availability of capital and drilling activity. It con-
firmed to the staff that in future filings, whenever future
development plans for undeveloped reserves assumed in-
creases in commodity prices, it would disclose that assump-
tion and present the volumes that would not be developed
if the price increases did not occur (Apache (response letter
9/25/15)).
Impact on credit facilities
The staff often requested expanded disclosures where a company
had disclosed potential impacts of continuing low commodity
prices on its credit facilities.
One company was asked to provide quantitative disclosure
about the expected impact of lower prices on its borrowing
base, and the steps the company intended to take to address
uncertainties with respect to its liquidity (Black Stone Minerals
LP (4/2/15)).
Where another company disclosed possibilities of a reduction
in the borrowing base under its revolving credit facility if the
decline in commodity prices continued, the staff asked the
company to provide additional disclosure addressing the
extent to which the borrowing base could decrease based on
expected oil and gas reserve values and other relevant factors
(Energy XXI Ltd. (4/3/15)).
A 2014 Form 10-K MD&A disclosed that a credit rating down-
grade could result in the companys counterparties requiring
it to post additional collateral under its existing contracts.
The staff asked whether the company had considered dis-
closing information about the nature of the contracts, the
collateral posted and the incremental collateral requirements
that would result from a downgrade. In reply, the company
stated that it had concluded its liquidity was sufficient to
cover the additional collateral that could be required, but
that it would, beginning with its 2015 third quarter report,
disclose information addressing this risk in its MD&A, and
provide additional detail about its collateral requirements,
including the types of information requested by the staff
(Black Hills (response letter 9/29/15)).
Recurring Modifications to Development Plans
Where companies changed their development plans for their
PUDs from period to period without adequately disclosing their
reasons for doing so in other words, PUDs attributable to
different drilling locations being moved into and out of the
companies estimated proved reserves from year to year with
no explanation the staff called into question whether the PUDs
when booked had truly been estimated as having reasonable
certainty that they would be economically producible and
45
drilled within five years. The definition of proved oil and gas
reserves contained in the SECs Regulation S-X requires that
reserves be estimated with reasonable certainty to be econom-
ically producible from that date forward, from known reservoirs
and under then-existing economic conditions, operating methods
and government regulations, and prior to lease or concession
expiration.
For an undrilled location to be classified as having undevel-
oped reserves that can be booked as PUDs, the SEC requires
that there be a development plan adopted by the company in-
dicating that the location will be drilled within five years, unless
specific circumstances justify a longer time. Staff guidance
provides that the mere intent to develop those PUDs by itself
does not constitute adoption of a development plan, and by
itself would not justify recognition of reserves. According to the
staff, adoption of a development plan requires a final investment
decision made by the producer.
In 2014-15, the staff issued a number of comment letters to
companies that apparently had made numerous changes to
their development plans, interpreting those changes as a lack
of commitment by those companies to their previously approved
plans and calling into question the reasonable certainty of their
reported reserves. In many of these letters, the staff also requested
whether the companies internal controls over their reserves
estimation process were effective.
For example, one company was asked about the processes
through which its historical PUD conversion rates and the
changes to its previously adopted PUD development plans
had been taken into account when determining whether its
current years PUD quantities had met the reasonable certainty
criteria. In response, the company modified the internal
controls it used in its reserve estimation process and described
those changes in its 2014 Form 10-K, which included imple-
mentation of a PUD Review Committee comprised of senior
executives and its reservoir engineering manager (Petroquest
Energy (response letter 3/2/15)).
According to the company, the PUD Review Committee
would review all PUD locations in terms of technical and
financial merit, but it also would apply a more robust eval-
uation of the timing and reasonable certainty of the com-
panys development plan in light of all known circumstances,
including its budget, the market outlook and the location
of ongoing drilling programs. The Committee would evaluate
the reasonable certainty of the companys development
plan by assessing near-term drilling plans for its PUDs, and
reviewing deviations to its previously adopted development
plans and its historical PUD conversion rates. See also,
Eclipse Resources (4/22/15).
In another companys 2014 Form 10-K, the staff noted down-
ward revisions to the companys PUDs for each of its 2014,
2013 and 2012 fiscal years. In the staff s view, these revisions
represented reversals of the companys prior investment
decisions for its PUDs for approximately 39%, 24% and 27%
of the total PUDs it had disclosed at the beginning of 2014,
46
2013 and 2012, respectively (Atlas Resource Partners LP
(5/22/15)).
The staff requested an explanation of the companys pro-
cesses in preparing its annual reserves estimates, including
processes intended to ensure that PUDs were claimed only
for locations where a final investment decision had been
made, and processes that took into consideration changes
to previously-adopted development plans and the reason-
able certainty criteria.
In its response, the company provided the staff with a
reconciliation of the reserve volumes that had been removed
each year to the amount of the affected volumes in the
respective fiscal years in which those volumes had been
initially disclosed. The company also replied that its removal
of PUDs from locations in one of its shale plays had been
the result of more favorable well economics related to new
PUD locations it had acquired during the most recent year,
compared to the now less-favorable well economics of the
older shale play locations (Atlas Resource Partners LP
(response letter 6/30/15)).
The Form 10-K for a companys fiscal year ended June 30,
2014 indicated low annual conversion rates for its PUDs for
each of the prior five fiscal years. The staff requested infor-
mation about the extent to which the company had historically
rescheduled the drilling of its PUD wells (Energy XXI Ltd.
12/12/14)). It also noted the companys reduced capital ex-
penditure budget and its potential liquidity constraints over
the term of the development schedule. In later comments,
the staff asked the company how the impact of the changes
to its development schedule that it had assumed for its June
30, 2014 reserve report, and the factors that caused these
changes (such as well economics and the five-year rule for
PUD development), had been considered in order to ensure
that its reported PUDs were limited to quantities that were
reasonably certain to be developed within five years of their
initial booking (Energy XXI Ltd. (5/29/15)).
In another companys 2014 annual report, the staff noted that
the drilling schedules for a significant majority of the com-
panys PUD locations included in its reserves totals for 2012
and 2013 had been changed at least once, and in some cases
up to four times, over the periods they had been included as
booked PUDs. The staff also observed that in each of fiscal
2011, 2012 and 2013, the companies development activity
with respect to its PUDs, expressed as a percentage of total
PUD volumes disclosed as of the beginning of that year, had
been very low (Penn Virginia (4/24/15)). Also noted were
inadequacies in the information the company had provided
its audit committee upon completion of its year-end reserve
report, because it addressed only high-level material changes
to its development plans. The company amended its 2014
annual report, providing additional disclosures about its PUDs
development plan and internal controls procedures.
The company described several factors that had impacted
its PUDs conversion rates. The drop in oil prices in the
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016
 second half of 2014 had significantly affected its Eagle Ford they resulted in material changes in its previously reported
development plan, which resulted in the companys deferring reserves or its standardized measure. The company so
the development of certain PUDs in order to concentrate complied in its 2014 Form 10-K filed with the SEC on Feb-
its capital on locations having potential for higher economic ruary 27, 2015 (Gulfport Energy (response letter 3/3/15)).
returns. The staff appeared to be more sympathetic where third party
It also disclosed that it had implemented internal controls operators had the power to make changes to a companys
procedures for its personnel to provide its audit committee development plan for its non-operated properties. There, the
and board of directors with detailed information about staff asked the company to add disclosure regarding the
expected material changes to its PUDs resulting from de- circumstances surrounding the third-party operators deci-
velopment plan changes, including an accounting of PUD sions and the extent to which the companys management
locations that were deferred or written off as a result of the expected that the same circumstances may occur again in
changes (Penn Virginia (response letter 6/23/15)). the future (Vanguard Natural Resources (10/6/14)).
Another company contended that its management was ca-
pable of making real-time adjustments to its development ABOUT THE AUTHOR
plans that modified both the identification of PUD locations Marc Folladori serves as Senior Counsel at Haynes
and the timing for their scheduled drilling. It asserted that it and Boone LLP in Houston. He has represented
needed to periodically re-optimize its development plans business clients in transactional matters for more
and make alterations based on factors such as new data from than 40 years, focusing on securities law, mergers
recently completed wells, changes in projected commodity and acquisitions and corporate governance.
prices and infrastructure availability. These arguments were
not persuasive to the staff (Gulfport Energy (1/29/15)). The author wishes to acknowledge the contributions made in
connection with the preparation of this article by Judithe Little,
The staff asked the company to expand its disclosures to Counsel, at Haynes and Boone LLP in Houston.
identify and discuss the effects of its adjustments whenever

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JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 47

DEAL MONITOR

Devon strikes again at years end

with $2.5 billion in buys
DAVID MICHAEL COHEN, PLS INC., HOUSTON

THE US UPSTREAM MARKET experienced an upswing in Rosetta ($12,500/acre), Diamondback/Cobra ($25,000/acre)

deal activity heading toward years end, led by $2.5 billion in
acquisitions from Devon Energy. Devon gave the deal markets
a similar boost toward the end of 2013 when it acquired Geo-
Southerns Eagle Ford assets for $6.0 billion, but this time it is
upgrading existing positions to become the industrys leading
leaseholder in Oklahomas emerging STACK play and Wyo-
mings Parkman/Turner play.
In the STACK deal, Devon is acquiring the best-in-class
assets of privately held Felix Energy for $1.9 billion, marking
the third-largest deal this year in the US upstream sector, after
Noble Energys $3.9 billion acquisition of Rosetta Resources
and WPX Energys $2.8 billion RKI E&P buy. Devon estimates
it is paying $20,000 per acre for Felixs 80,000-net-acre Wood-
ford and Meramec position after allocating $33,300 per boe/d
for 9,000 boe/d in existing production. In 2015s stilted deal
market, PLS Inc.s proprietary valuation analytics indicate that
only the core of the core of resource plays, heavily weighted
to the Permian, have commanded value for undrilled acreage.
Examples of Permian acreage values in 2015 include Noble/
and Yantai Xinchao/Tall City ($8,500/acre).
Felixs well results demonstrate why the STACK play may
be able to compete with the Permian. Almost all of Felixs
leasehold is concentrated in the oil window of both the Mera-
mec and the Woodford, de-risked and in full development
mode. In an August presentation, Felix touted its 2015 pro-
gram as consistently achieving IRRs above 40% with its last
three wells showing RORs from 35% to 70% based on $50 oil
and $3 gas. Its first 13 operated Meramec wells had IP rates
averaging 1,341 boe/d (83% liquids) from 1-mile and 2-mile
laterals, tracking a 1.36 MMboe EUR (75% liquids).
Nonetheless, Devon CEO Dave Hager said the deal would
not have been possible if Devons midstream MLP affiliate En-
Link Midstream wasnt simultaneously agreeing to acquire
Midcontinent gathering company Tall Oak Midstream for
$1.55 billion. Felixs entire acreage position is dedicated to Tall
Oaks gathering and processing assets. We leveraged the mid-
stream relationship to secure the Felix transaction, Hager
said on a conference call. And the EnLink relationship gave us

PLS INC. MONTHLY DEAL MONITOR 11/17/15 - 12/16/15

SELECT US UPSTREAM TRANSACTIONS

Date Value
Announced Buyer Seller ($MM) Asset Location Deal Type O/G
10-Dec-15 Otto Energy Byron Energy $17 Gulf of Mexico: Shelf Farm-In/Farm-Out Oil + Gas
9-Dec-15 Parsley Energy PetroCore $149 Texas: Permian Property Oil + Gas
7-Dec-15 Devon Energy RKI $600 Rockies: Wyoming Property Oil
7-Dec-15 Devon Energy Felix Energy $1,900 Mid-Con: STACK Play Property Oil + Gas
IOG Capital;
2-Dec-15 National Fuel Gas $380 Pennsylvania: Marcellus JV Gas
Fortress Investment Group
Total $3,046

SELECT GLOBAL OILFIELD SERVICE TRANSACTIONS

Date Value
Announced Buyer Seller ($MM) Asset Location Deal Type Asset Type
New Source Energy
16-Dec-15 Erick's Holdings $45 US: Multiple Asset Production Services
Partners
30-Nov-15 Quatrro E&P SRD Innovations $3 Canada Corporate Seismic Services
26-Nov-15 Shawcor Flint Field Services $27 Canada Asset Pipe inspection
Total $75
Prepared by PLS Inc. For more information, email memberservices@plsx.com
Validity of data is not guaranteed and is based on information available at time of publication.

48 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

 DEAL MONITOR

a strategic advantage in this transaction. We would not have
been able to place the value on Felix we did unless EnLink
controlled the midstream. Both Felix and Tall Oak are backed
by private equity firm EnCap Investments.
The acquisition by EnLink provides an unusually quick
turnaround for EnCaps Tall Oak investment. The gathering
firm launched in early 2014 with a $100 million initial equity
commitment from EnCap Flatrock Midstream, a JV formed in
2008 between EnCap and Flatrock Energy Advisors. That
commitment was later increased to $400 million. The com-
pany has two gathering and processing systems serving west-
central Oklahomas STACK play and the Central Northern
Oklahoma Woodford or CNOW play, both supported by long-
term, fixed-fee contracts with acreage dedications averaging
15 years. Felix is the largest of Tall Oaks 15 customers.
In Wyoming, Devon is acquiring 253,000 net acres in the
Parkman oil fairway with wells producing 7,000 boe/d (85%
oil) for $600 million. After attributing $100 million of the deal
value to acquired midstream assets and backing out produc-
tion at $30,000 per boe/d, Devon estimates it is paying $1,100
per acre for undeveloped leaseholdnotable in a 2015 deal
market where assets have often sold for the value of their ex-
isting production alone.
Devon will pay $300 million cash to sellers NewWoods Pe-
troleum, Renos Land & Minerals and REMI Midstream and
issue shares valued at $300 million to NewWoods, according
to an SEC filing. NewWoods is a portfolio company of First
Reserve and the successor of Permian driller RKI E&P. When
WPX announced it was acquiring RKI in July, it said the Pow-
der River assets would not be part of the deal but rather would
be divested or spun off prior to closing.
To fund the cash portion of these acquisitions and strength-
en its financial position, Devon is planning $2-3 billion in asset
sales next year including its Access pipeline system in Canada
(in which Devon has $1 billion invested) and non-core up-
stream properties producing 50,000-80,000 boe/d (~50% liq-
uids). Upstream assets being considered for divestment in-
clude Carthage field in East Texas, the Mississippi Lime, the
Granite Wash and portions of the Midland Basin. On the con-
ference call, Hager noted that Devon repaid all the debt taken
on for its GeoSouthern acquisition within one year using non-
core divestment proceeds.
Devon has already executed one of these non-core sales
less than two weeks after announcing the program. Coming
back into the buyside of the market, BP agreed to buy Devons
assets in the San Juan Basin. The bulk of the acquisition con-
sists of Devons operated stake in the Northeast Blanco Unit, a
33,000-acre coalbed methane project with 480 wells on federal
land in San Juan and Rio Arriba counties, New Mexico. The
deal adds to BPs existing 550,000-acre position in the area
where it has been active since the 1920s. Market watchers will
note that this marks the first acquisition in more than seven
years for BPs Lower 48 onshore unit, which began operating
as a separate business headquartered in Houston early this
year.

SELECT INTERNATIONAL UPSTREAM TRANSACTIONS

Date Value
Announced Buyer Seller ($MM) Asset Location Deal Type O/G
10-Dec-15 Raging River Exploration Anegada Energy $93 Canada: Viking Corporate Oil + Gas
4-Dec-15 Edge Natural Resources Canamax Energy $61 Canada: Multiple Corporate Oil + Gas
24-Nov-15 Rockhopper Exploration Falkland Oil & Gas $93 Falkland Islands Corporate Oil + Gas
23-Nov-15 BG Group Noble Energy $165 Cyprus Property Gas
19-Nov-15 Bowleven Aminex, Solo $28 Tanzania Property Oil + Gas
Total $440

SELECT GLOBAL MIDSTREAM TRANSACTIONS

Date Value
Announced Buyer Seller ($MM) Asset Location Deal Type Asset Type
16-Dec-15 Tallgrass Energy Partners LP Whiting Petroleum $75 US: Rockies Asset Water Handling
7-Dec-15 EnLink Midstream Tall Oak Midstream $1,550 US: Oklahoma Corporate Gathering/Processing
1-Dec-15 Snam Statoil $137 Europe Asset Pipeline
Kinder Morgan; Brookfield
30-Nov-15 Myria Holdings $242 US: Multiple Corporate Pipeline
Infrastructure
24-Nov-15 SemGroup Undisclosed $29 Canada: Alberta Asset Gathering/Processing
Total $2,033

JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 49

OGFJ100P
Private company update
MIKAILA ADAMS, EDITOR OGFJ

INDEPENDENT RESEARCH firm IHS has provided OGFJ with
updated production data for the OGFJ100P periodic ranking of
US-based private E&P companies. The rankings are based on oper-
ated production only within the US.
TOP 10
Since the October 2015 installment of the OGFJ100P, there has
been little movement in the Top 10 by BOE production. The same
holds true when you break out the Top 10 private gas producers.
J-W Operating Co. moved up one spot from its previous rank as
the No. 8 gas producer to No. 7. Coincidentally, the Texas-based
company moved up one spot in the overall BOE list from No. 20
to No. 19. Walter Oil & Gas Corp. dropped out of the Top 10 gas
producers list, where it previously held the No. 10 spot. More activ-
ity took place in the liquids arena. Mewbourne Oil Co. and Hilcorp
Energy Co. dropped in the list of Top 10 private liquids producers
from their previously held No. 2 and No. 3 positions, respectively.
Mewbourne now rests at No. 3 in the liquids space, and Hilcorp
holds the No. 4 spot. Petro-Hunt moved up from its previous No.
4 spot in the Top 10 liquids producer list to the current No. 2 seat.
The biggest liquids mover is Slawson Exploration Co., which moved
from No. 10 in October to No. 5 in this installment. Merit Energy
Co. rounds out the Top 10 in the liquids space, while Sheridan
Production Co. LLC fell below the list of Top 10 liquids
producers.
M&A
Private companies are beginning to feel the squeeze, said Wun-
derlich Securities analysts in a mid-November report following
news of RSP Permians $137 million acquisition of oil and gas
producing properties in the Midland Basin from Wolfberry Partners
Resources LLC. At the time, Wunderlich analysts noted, RSP Perm-
ians most recent deals involved private parties. Many of the sellers
were well aware of the value of their acreage. However, it is becoming
more difficult for smaller players to reinvest capital given lower
cash flows, longer payback periods, and costly borrowing options.
As a result, they are being forced to choose between taking on more
expensive debt or divesting their assets. As more choose the latter,
additional opportunities could present themselves in the Midland
Basin, the analysts said.
Effective September 15, Comancheria Energy Resources LLC
acquired Leor Resources LLC and its subsidiary companies. Terms
of the deal were confidential, but Comancherias president and
CEO, Kenton Holliday, offered that the acquisition affords the
company an excellent, balanced portfolio, continuing that the oil
and gas properties have value with respect to a balance of different
play types, a balance of product types, and balance regarding a
range of target depths. The East Texas location of the Leor proper-
ties fall into Comancherias primary focus on East Texas opportuni-
ties. Comancheria, whose founding members comprise the former
upper management team of Leor Resources, is based in Houston,
TX.
AGREEMENTS
In mid-October 2015, Repsol and privately-held Armstrong Oil &
Gas Inc. announced their agreement to realign interests in their
Alaska North Slope exploration and development venture. The
confidential agreement included a combination of cash, operational
control, drilling commitments, and contractual adjustments for
monetary considerations in excess of $800 million. Per the restruc-
tured agreement, Armstrong acquired a 15% working interest (to
add to its 30%) in the initial development area near the Colville
River Delta where the majority of exploratory and appraisal drilling
activities have been carried out.Armstrong has the option to acquire
an additional 6% and assume operatorship in the development
area. Armstrong also acquired a 45% working interest (to add to

TOP 10 PRIVATE GAS PRODUCERS TOP 10 PRIVATE LIQUIDS PRODUCERS

100P 100P
Rank Rank Company Gas (Mcf) Rank Rank Company Liquid (bbl)
1 2 Chief Oil & Gas LLC 205,079,198 1 4 LLOG Exploration Co. 13,385,371
2 1 Hilcorp Energy Co. 156,854,926 2 8 Petro-Hunt Group 8,644,392
3 3 Samson Investment Co. 134,339,766 3 6 Mewbourne Oil Co. 8,467,027
4 5 Merit Energy Co. 80,532,751 4 1 Hilcorp Energy Co. 8,443,246
5 6 Mewbourne Oil Co. 61,423,701 5 11 Slawson Exploration Co. 7,556,986
6 4 LLOG Exploration Co. LLC 47,683,210 6 14 Citation Oil & Gas Corp. 7,174,352
7 19 J-W Operating Co. 45,505,072 7 17 Hunt Oil Co. 6,316,638
8 7 Yates Petroleum Corp. 44,449,604 8 7 Yates Petroleum Corp. 6,286,200
9 16 Templar Energy LLC 37,312,898 9 9 Endeavor Energy Resources LP 6,273,352
10 21 Indigo Minerals LLC 31,097,607 10 5 Merit Energy Co. 5,878,297
Source: IHS Source: IHS

50 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

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OGFJ100P
its 30%) and operatorship in the jointly owned exploratory lands
(750,000+ acres). It is anticipated that Armstrong, after exercising
its 6% option, will own 51% and Repsol 49% in the development
area, and Armstrong 75% and Repsol 25% in the exploration area.
As part of the agreement, the planned 20152016 winter appraisal
drilling campaign has been deferred. Over the last four years, the
venture has drilled 16 wildcat and appraisal wells on the North
Slope.
Armstrong and Repsol are in the early stages of developing their
new discoveries in the Colville River Delta area located between
the 3.5-billion-barrel Kuparuk River Field and the 700+-million-
barrel Alpine Field. Permitting work is ongoing for a three-pad
development. Field production rates are estimated to be on the
order of 120,000 barrels of oil per day.
In late November 2015, Midland, TX-based BC Operating Inc.
announced a joint venture with Tulsa, OK-based Nadel and Guss-
man LLC, combining the two companies acreage and reserves in
southern Eddy and Lea counties in New Mexico. The combined
position consists of an acreage footprint of 50,000 net acres, and
5,500 boe/d of operated production.
BC will assume operatorship of the combined acreage including
all existing wells. The position has multiple targets in the Permian
Basin including Wolfcamp, Avalon, Delaware, and Bone Spring
production. BC expects to run at least one drilling rig in 2016 and
expects to add more acreage.
BC and Nadel and Gussman are both privately held. BC is the
operating company for and owned equally by Crump Energy
Partners II LLC and Crown Oil Partners V LP. Crump is supported
by Quantum Energy Partners; Crown is financially partnered with
Post Oak Energy Capital and Wells Fargo Energy Capital.

2015 YEAR-TO-DATE PRODUCTION RANKED BY BOE

Rank Company BOE Total wells Largest field

1 Hilcorp Energy Co. 34,585,734 3,432 Caillou Island

2 Chief Oil & Gas LLC 34,181,090 251 unknown

3 Samson Investment Co. 27,069,191 3,266 Ignacio-Blanco

4 LLOG Exploration Co. LLC 21,332,573 38 Mississippi Canyon Block 0546

5 Merit Energy Co. 19,300,422 5,267 Painter Reservoir East

6 Mewbourne Oil Co. 18,704,311 1,903 Pan Petro

7 Yates Petroleum Corp. 13,694,467 3,079 unnamed

8 Petro-Hunt Group 11,220,512 448 Clear Creek

9 Endeavor Energy Resources LP 9,812,108 5,154 Spraberry

10 Sheridan Production Co. LLC 8,918,892 4,060 Fuhrman-Mascho

11 Slawson Exploration Co. Inc. 8,783,520 415 Big Bend

12 Bass Companies 8,764,175 1,014 Wildcat

13 Texas Petroleum Investment Co. 8,480,452 1,616 Atchafalaya Bay

14 Citation Oil & Gas Corp. 8,340,389 2,660 Sho-Vel-Tum

15 Fasken Oil and Ranch Ltd. 8,290,059 1,182 Spraberry

16 Templar Energy LLC 8,192,385 895 Stiles Ranch

17 Hunt Oil Co. 8,116,231 840 Eagleville

18 Walter Oil & Gas Corp. 7,899,663 705 Ship Shoal Block 0189

19 J-W Operating Co. 7,662,511 1,202 Caspiana

20 CrownQuest Operating LLC 6,855,684 682 Spraberry

21 Indigo Minerals LLC 5,481,383 707 Bethany Longstreet

22 Valence Operating Co. 4,967,131 633 Carthage

23 Reliance Energy Inc. 4,551,446 417 Spraberry

24 Kaiser-Francis Oil Co. 4,479,644 1,237 Silo

25 Castex Energy Inc. 4,440,092 47 Atchafalaya Bay

26 Vantage Energy LLC 4,228,629 230 Newark East

27 Zavanna LLC 4,214,750 102 Williston

28 Ballard Exploration Co. Inc. 3,890,809 67 Yellow Rose

52 WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

 OGFJ100P
Rank Company BOE Total wells Largest field

29 Red Willow Production Co. 3,433,451 364 Ignacio-Blanco

30 Border To Border Exploration LLC 3,422,138 92 Beech Grove

31 Square Mile Energy 3,191,842 42 Glasscock

32 Pruet Production Co. 3,044,957 220 Brooklyn

33 Jetta Operating Co. Inc. 2,992,462 399 Two Georges

34 Alta Mesa Holdings LP 2,945,132 186 Weeks Island

35 Ankor Energy LLC 2,935,696 117 Ship Shoal Block 0230

36 BASA Resources Inc. 2,836,503 3,039 East Texas

37 Tidelands Oil Production Co. 2,779,920 515 Wilmington

38 MacPherson Oil Co. 2,768,952 481 Round Mountain

39 Stonegate Production Co. LLC 2,746,270 109 Eagleville

40 White Oak Energy LP 2,731,693 910 Beccero Creek

41 Tana Exploration Co. 2,731,440 135 Pine Prairie

42 J. Cleo Thompson & James Cleo Thompson, Jr. 2,690,525 1,108 Wolfbone

43 Summit Petroleum LLC 2,566,413 449 Spraberry

44 Burnett Oil Co. Inc. 2,558,195 347 Loco Hills

45 GeoSouthern Energy Corp. 2,551,895 142 Eagleville

46 Stephens Production Co. 2,542,717 817 Gragg

47 Tellus Operating Group LLC 2,454,437 396 Baxterville

48 Renaissance Offshore LLC 2,431,942 99 Ship Shoal Block 0230

49 Laredo Energy IV 2,363,874 53 Owen

50 Pantera Energy Co. 2,332,750 1,062 Texas Hugoton

51 DCOR LLC 2,328,465 246 Dos Cuadras

52 Berexco Inc. 2,254,492 1,583 Cushing

53 Murex Petroleum Corp. 2,210,311 208 Stanley

54 CML Exploration LLC 2,150,022 280 Pearsall

55 E&B Natural Resources Management Corp. 2,039,733 1,801 Poso Creek

56 Wagner Oil Co. 1,996,973 567 La Sal Vieja Dist 4

57 Texland Petroleum LP 1,931,305 693 Fullerton

58 Courson Oil & Gas Inc. 1,892,226 368 Pan Petro

59 Petro Harvester Oil & Gas LLC 1,876,275 396 Pine Prairie

60 New Dominion LLC 1,859,584 340 Sylvian Northeast

61 Venture Oil & Gas Inc. (Laurel, Mississippi) 1,749,378 100 Winchester South

62 Sklar Exploration Co. LLC 1,749,112 88 Brooklyn

63 Vernon E. Faulconer Inc. 1,711,654 520 Samano

64 Sanguine Gas Exploration LLC 1,706,058 152 Mills Ranch

65 Killam Oil Co. Ltd. 1,697,994 427 Umbrella North

66 Aruba Petroleum Inc. 1,665,575 227 Newark East

67 Great Western Oil & Gas Co. 1,603,687 357 Wattenberg

68 Foundation Energy Co. LLC 1,558,013 1,571 Republican

69 Murchison Oil & Gas Inc. 1,529,361 195 Triple X West

70 Murfin Drilling Co. 1,508,052 1,049 Daisy

71 True Oil LLC 1,454,559 220 Spraberry

72 Enduro Resource Partners LLC 1,440,952 577 Newburg

JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 53

OGFJ100P
Rank Company BOE Total wells Largest field

73 Cheyenne Petroleum Co. 1,435,402 78 Eagleville

74 Bayswater Exploration & Production LLC 1,419,975 363 Wattenberg

75 Vess Oil Corp. 1,375,174 1,293 Kurten

76 Patriot Resources Inc. 1,368,728 57 Wolfbone

77 Texas American Resources Co. 1,359,613 232 Pearsall

78 Finley Resources Inc. 1,268,297 445 Windy Ridge

79 Forge Energy LLC 1,229,781 73 Shafter Lake North

80 Stephens & Johnson Operating Co. 1,197,153 689 K-M-A

81 R. Lacy Inc. 1,177,492 252 Carthage

82 Strat Land Exploration Co. 1,151,375 290 Pan Petro

83 West Bay Exploration Co. 1,131,670 91 Napoleon

84 Henry Resources LLC 1,126,830 149 University 31 West

85 Burk Royalty Co. Ltd. 1,123,180 257 Fort Trinidad

86 Ward Petroleum Corp. 1,115,771 206 unnamed

87 Signal Hill Petroleum Inc. 1,096,774 205 Long Beach

88 Wolverine Gas and Oil Corp. 1,096,099 24 Covenant

89 Camterra Resources Inc. 1,073,215 511 Booneville

90 Cook Inlet Energy LLC 1,073,145 18 Fork North

91 Husky Ventures Inc. 1,072,506 63 Sooner Trend

92 Dugan Production Corp. 1,066,819 909 Basin

93 EnergyQuest II LLC 1,057,176 437 Bayou Sale

94 Choice Exploration Inc. 1,050,953 27 Cottonwood North

95 Cobra Oil & Gas Corp. 1,020,657 162 Flat Rock

96 Buffco Production Inc. 998,813 205 Briscoe Ranch Dist 1

97 McGowan Working Partners 988,471 300 Shuler

98 Nadel & Gussman LLC 972,640 341 Clyde Reynolds

99 Rosewood Resources Inc. 933,392 1,097 Waverly

100 JM Cox Resources LP 924,211 701 Spraberry

Source: IHS; For more information on the Private Company Database visit www.IHS.com
Production totals based on latest year-to-date figures as reported to and recorded by individual state agencies and tabulated by IHS at the time of publication. Some agencies are delayed
by as many as several months in releasing data which may impact company rankings.

2015 YEAR-TO-DATE PRODUCTION ALPHABETICAL LISTING

Rank Company BOE City State Top executive officials

Michael McCabe, VP, CFO; Mike Ellis, chair, COO; Hal Chappelle,
34 Alta Mesa Holdings LP 2,945,132 Houston TX
pres, CEO
New
35 Ankor Energy LLC 2,935,696 LA Denton Copeland, pres, CEO
Orleans

66 Aruba Petroleum Inc. 1,665,575 Plano TX James Poston, CEO; Jim Lovett, CFO; Ole Sandal, COO

28 Ballard Exploration Co. Inc. 3,890,809 Houston TX A. Ballard, pres, CEO, owner

Robert Marshall, VP ops; Sandra Wallace, CFO; Lary Knowlton, co-

36 BASA Resources Inc. 2,836,503 Dallas TX
founder, EVP; Michael Foster, pres, co-founder
Mitchell Roper, pres; W. McCreight, VP Land; H. Muncy, VP exp;
12 Bass Companies 8,764,175 Fort Worth TX
John Smitherman, VP prod
Lynn Belcher, COO; Steve Struna, pres, CEO; Don Barbula, VP ops;
74 Bayswater Exploration & Production LLC 1,419,975 Denver CO
David Brewster, VP exp

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 OGFJ100P
Rank Company BOE City State Top executive officials

52 Berexco Inc. 2,254,492 Wichita KS Adam Beren, pres, chair

30 Border To Border Exploration LLC 3,422,138 Austin TX John Gaines, CFO; Matthew Telfer, CEO

96 Buffco Production Inc. 998,813 Longview TX Frank Bufkin, pres

Steven Stults, VP prod; David Kimbell, chair, pres; Michael Elyea, VP

85 Burk Royalty Co. Ltd. 1,123,180 Wichita Falls TX
finance, treas
Philip Boschetti, VP, CFO; Andrew Grubb, Drilling, prod; Anne
44 Burnett Oil Co. Inc. 2,558,195 Fort Worth TX
Marion, chair, owner; William Pollaru, pres

89 Camterra Resources Inc. 1,073,215 Marshall TX Paul Marchand, pres; Zach Carlile, CEO

25 Castex Energy Inc. 4,440,092 Houston TX John Stoika, pres

Oklahoma
73 Cheyenne Petroleum Co. 1,435,402 OK Stephen Ives, pres; Tom Henthorn, VP finance
City
John Hinton, SVP, CFO; Russell Parker, president; Trevor Rees-
2 Chief Oil & Gas LLC 34,181,090 Dallas TX
Jones, founder, CEO; Steven Haworth, SVP, gen counsel

94 Choice Exploration Inc. 1,050,953 Arlington TX Jon Martin, pres; David Brooks, founder, COO, VP ops

Curtis Harrell, pres, CEO; Robert Kennedy, SVP bus dev, land;
14 Citation Oil & Gas Corp. 8,340,389 Houston TX
Christopher Phelps, SVP, CFO; Steven Pearson, SVP ops
William Temple, prod mgr; Lee Staiger, ops mgr; Kenneth Nelson,
54 CML Exploration LLC 2,150,022 Kingwood TX
mgr
Jeff Dillard, pres; Robert Osborne, VP, co-owner; Richard Haskin,
95 Cobra Oil & Gas Corp. 1,020,657 Wichita Falls TX
CFO

90 Cook Inlet Energy LLC 1,073,145 Anchorage AK David Hall, CEO; J. Wilcox, pres; Troy Stafford, CFO

58 Courson Oil & Gas Inc. 1,892,226 Perryton TX Kirk Courson, VP; Harold Courson, pres, chair, founder, owner

Robert Floyd, pres; Timothy Dunn, Principal, CEO; Ken Beattie,

20 CrownQuest Operating LLC 6,855,684 Midland TX
COO, SVP; Charles Wetzel, CFO
Jeffrey Warren, VP; William Templeton, pres, managing member,
51 DCOR LLC 2,328,465 Ventura CA
principal

92 Dugan Production Corp. 1,066,819 Farmington NM Thomas Dugan, pres; John Alexander, VP ops

Jeff Blesener, SVP, LA Basin div, Midwest div; Jeff Jones, VP, Eastern
E&B Natural Resources Management San Joaquin div; Bill Moody, SVP, Gulf Coast; James Tague, SVP,
55 2,039,733 Bakersfield CA
Corp. finance, corp planning; Stephen Layton, pres; Joyce Holtzclaw, VP,
Western San Joaquin div

9 Endeavor Energy Resources LP 9,812,108 Midland TX Autry Stephens, CEO, founder, partner;

Jonny Brumley, pres, CEO, mgr; John Arms, co-founder, mgr;

72 Enduro Resource Partners LLC 1,440,952 Fort Worth TX
Kimberly Weimer, CFO

93 EnergyQuest II LLC 1,057,176 Houston TX Wayne Greenwalt, founder; Jerry Crews, founder

15 Fasken Oil and Ranch Ltd. 8,290,059 Midland TX Norbert Dickman, VP, GM

Clinton Koerth, VP acq, land; James Finley, CEO, owner; Stephen

78 Finley Resources Inc. 1,268,297 Fort Worth TX
Clark, CFO; Brent Talbot, pres
Barry Winstead, co-founder, pres, CEO; Arnold Nall, co-founder,
79 Forge Energy LLC 1,229,781 San Antonio TX
EVP ops; Daniel Boone, co-founder, VP bus dev

68 Foundation Energy Co. LLC 1,558,013 Dallas TX John Wetzel, CFO; Eddie Rhea, CEO; Richard Payne, VP ops, eng

The
45 GeoSouthern Energy Corp. 2,551,895 TX George Bishop, pres, owner
Woodlands
Rich Frommer, pres, CEO; Jeremy Conger, SVP ops; Thomas
67 Great Western Oil & Gas Co. 1,603,687 Windsor CO
Mandula, CFO

84 Henry Resources LLC 1,126,830 Midland TX Jim Henry, CEO

Shelbie DeZell, SVP, CFO; John Barnes, SVP, E&P Alaska; Jeffery
1 Hilcorp Energy Co. 34,585,734 Houston TX Hildebrand, founder, chair, CEO; Greg Lalicker, pres; Jason Rebrook,
EVP A&D
Steve Suellentrop, pres; Paul Habenicht, EVP ops, dev; Travis
17 Hunt Oil Co. 8,116,231 Dallas TX Armayor, VP corp dev; Dennis Grindinger, CFO; Jess Nunnelee, VP
prod; Adam Bishop, SVP exp
Oklahoma
91 Husky Ventures Inc. 1,072,506 OK Charles Long, pres
City

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OGFJ100P
Rank Company BOE City State Top executive officials

Becky Bayless, CFO, EVP; Keith Jordan, pres; William Pritchard,

21 Indigo Minerals LLC 5,481,383 Houston TX
chair, CEO
J. Cleo Thompson & James Cleo
42 2,690,525 Dallas TX James Thompson; Christy Thompson, dir; Linda Gordon, dir
Thompson, Jr.

33 Jetta Operating Co. Inc. 2,992,462 Fort Worth TX Gregory Bird, pres, CEO, owner; John Jarrett, VP, CFO

100 JM Cox Resources LP 924,211 Midland TX John Cox, pres, CEO

19 J-W Operating Co. 7,662,511 Addison TX Tony Meyer, pres

Henry Kleemeier, EVP, COO; Don Millican, CFO, VP; George Kaiser,
24 Kaiser-Francis Oil Co. 4,479,644 Tulsa OK
pres, CEO
David Killam, managing partner; Radcliffe Killam, partner, corp
65 Killam Oil Co. Ltd. 1,697,994 Laredo TX
planning

49 Laredo Energy IV 2,363,874 Houston TX P. Richard Gessinger, VP, CFO; Glenn Hart, pres, CEO

Scott Gutterman, pres, CEO; Tim Lindsey, SVP, prod/ops; Philip

4 LLOG Exploration Co. LLC 21,332,573 Houston TX
LeJeune, CFO, treas; Randy Pick, managing dir, A&D
Santa Donald MacPherson, pres, CEO; Scott MacPherson, SVP, COO;
38 MacPherson Oil Co. 2,768,952 CA
Monica Steve Wilson, CFO
Joseph McGowan, VP; James Phyler, VP; David McGowan, partner;
97 McGowan Working Partners 988,471 Jackson MS
John McGowan, managing GP; David Russell, pres, CEO
Meghan Cuddihy, VP, IR; Kevin Ryan, VP, CFO, CCO; William
5 Merit Energy Co. 19,300,422 Dallas TX
Gayden, pres, CEO, chair, founder
Kenneth Waits, COO, EVP; J. Roe Buckley, CFO, EVP; Curtis
6 Mewbourne Oil Co. 18,704,311 Tyler TX
Mewbourne, pres, CEO, owner
John Murchison, chair; Shannon Hall, EVP, CFO; JD Murchison, pres;
69 Murchison Oil & Gas Inc. 1,529,361 Plano TX
Andrew Nguyen, dir of ops; Michael Daugherty, COO

53 Murex Petroleum Corp. 2,210,311 Houston TX Waldo Ackerman, founder, pres, CEO; Robert Foss, VP, CFO

Robert Young, CFO, sec, treas; William Murfin, chair; David Murfin,
70 Murfin Drilling Co. 1,508,052 Wichita KS
chair, CEO; Leon Rodak, VP prod
Stephen Heyman, partner, LLC mgr; Wayne Hamilton, CFO; James
98 Nadel & Gussman LLC 972,640 Tulsa OK
Adelson, pres, partner, LLC mgr

60 New Dominion LLC 1,859,584 Tulsa OK Jean Antonides, VP, exp; Susan Keary, CFO; Kevin Easley, pres, CEO

50 Pantera Energy Co. 2,332,750 Amarillo TX Scott Herrick, VP; Jason Herrick, pres;

76 Patriot Resources Inc. 1,368,728 Midland TX Ben Strickling, pres; Ted Collins, CEO, chair

Joe Schimelpfening, COO; Dennis Justus, CFO; Gareth Roberts,

59 Petro Harvester Oil & Gas LLC 1,876,275 Plano TX
chair; Scott King, VP exp, dev; William Griffin, pres, CEO
Thomas Nelson, VP finance; Douglas Hunt, acq dir; Charles Rigdon,
8 Petro-Hunt Group 11,220,512 Dallas TX
VP ops; Bruce Hunt, pres

32 Pruet Production Co. 3,044,957 Jackson MS J. Hilton, VP prod; Randy James, pres

81 R. Lacy Inc. 1,177,492 Longview TX Jamey Walker, VP exp; Walt Tehan, VP ops; Mike Chery, pres

29 Red Willow Production Co. 3,433,451 Ignacio CO Robert Voorhees, pres, COO; Bill McFie, VP ops; Stephen Goff, CFO

B. Jack Reed, CFO; Gary McKinney, pres, CEO, owner; J. Party, VP,
23 Reliance Energy Inc. 4,551,446 Midland TX
exp
Jeff Durrant, VP, exp, dev; Skip Ward, VP ops; Mike Koenig, VP land,
48 Renaissance Offshore LLC 2,431,942 Houston TX
bus dev; Jeffrey Soine, CEO; Brian Romere, CFO
Linda Tucker, VP admin, finance; Mark Montie, VP exp; Nathan
99 Rosewood Resources Inc. 933,392 Dallas TX
Mayer, pres, CEO; Billy Washington, VP, bus dev

3 Samson Investment Co. 27,069,191 Tulsa OK Philip Cook, EVP, CFO; Randy Limbacher, CEO; Richard Fraley, COO

64 Sanguine Gas Exploration LLC 1,706,058 Tulsa OK Randolph Nelson, pres; Thomas Fuller, VP, finance, treas;

Matthew Assiff, EVP, CFO; James Bass, pres, CEO; Lisa Stewart,
10 Sheridan Production Co. LLC 8,918,892 Houston TX exec chair, CIO; Mark Miertschin, VP, bus dev; Mark McCool, VP,
ops;
Craig Barto, pres, CEO; David Slater, EVP, COO; Sean McDaniel, VP,
87 Signal Hill Petroleum Inc. 1,096,774 Signal Hill CA
prod, ops; Jeffrey Ocheltree, SVP, CFO
Howard Sklar, owner, CEO; David Barlow, VP, COO; Chris Farrell, VP,
62 Sklar Exploration Co. LLC 1,749,112 Shreveport LA
CFO; Cory Ezelle, VP exp

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Rank Company BOE City State Top executive officials

11 Slawson Exploration Co. Inc. 8,783,520 Wichita KS Todd Slawson, pres; Kathy Atkins, VP, CFO; Steve Slawson, VP, ops

31 Square Mile Energy 3,191,842 Houston TX Gary Loveless, chair, CEO

80 Stephens & Johnson Operating Co. 1,197,153 Wichita Falls TX Fred Stephens, pres

46 Stephens Production Co. 2,542,717 Fort Smith AR WR Stephens, pres, CEO

39 Stonegate Production Co. LLC 2,746,270 Houston TX Michael Harvey, chair, CEO; Michael Wieland, SVP, corp dev, CFO

82 Strat Land Exploration Co. 1,151,375 Tulsa OK Larry Darden, pres, CEO, owner

Ryan Hamilton, VP ops, eng; Matt Johnson, pres, COO; Mark

43 Summit Petroleum LLC 2,566,413 Midland TX Bruehl, VP finance; Dennis Johnson, chair, CEO; Tom Fago, VP exp;
James Behrmann, VP, gen counsel

41 Tana Exploration Co. 2,731,440 Dallas TX Scott Gladden, pres

47 Tellus Operating Group LLC 2,454,437 Ridgeland MS Richard Mills, pres, mgr; Charles May, COO; Thomas Wofford, CFO

Oklahoma
16 Templar Energy LLC 8,192,385 OK David Le Norman, pres, owner
City

77 Texas American Resources Co. 1,359,613 Austin TX Mark Klingseisen, VP bus dev; David Honeycutt, pres, CEO

13 Texas Petroleum Investment Co. 8,480,452 Houston TX H Sallee, pres, co-founder; Wiliam Crawford, co-owner, principal

Frank Kyle, CFO; Gregory Mendenhall, VP ops; Jerry Namy, co-

57 Texland Petroleum LP 1,931,305 Fort Worth TX
owner; James Wilkes, pres, co-owner; Bryan Lee, VP exp
Don Foster, controller; Michael Domanski, pres, CEO, GM; Mark
37 Tidelands Oil Production Co. 2,779,920 Long Beach CA
Kapelke, VP ops, eng
David True, partner; Diemer True, partner; Ron Severson, treas; H.
71 True Oil LLC 1,454,559 Casper WY
True, partner

22 Valence Operating Co. 4,967,131 Kingwood TX Steve Manning, pres; Douglas Scherr, CFO,sec; Walter Scherr, CEO

Roger Biemans, co-founder, chair, CEO; Thomas Tyree, co-founder,

26 Vantage Energy LLC 4,228,629 Englewood CO
pres, CFO; Mike Kennedy, EVP, COO

61 Venture Oil & Gas Inc. 1,749,378 Laurel MS Jay Fenton, pres; Jarvis Hensley, VP ops

Tom Markel, VP, acct, CFO; Vernon Faulconer, CEO; Jean Crawley,
63 Vernon E. Faulconer Inc. 1,711,654 Tyler TX
VP, land, admin; David Enright, pres
Barry Hill, CEO; Ronnie Nutt, COO; J. Michael Vess, chair; Brian
75 Vess Oil Corp. 1,375,174 Wichita KS
Gaudreau, VP, land, acq
Bryan Wagner, pres, owner; William Lesikar, VP, CFO; HE Patterson,
56 Wagner Oil Co. 1,996,973 Fort Worth TX
COO, SVP

18 Walter Oil & Gas Corp. 7,899,663 Houston TX Joseph Walter, pres, chair, CEO; Ron Wilson, VP; CJ Looke, VP eng

David Stone, VP, exp; Michael Hodges, CFO; Lew Ward, chair;
86 Ward Petroleum Corp. 1,115,771 Enid OK
Gilbert Tompson, VP land; William Ward, pres, CEO
Traverse Harry Graham, VP exp; Robert Tucker, pres, owner; David Rataj, VP
83 West Bay Exploration Co. 1,131,670 MI
City finance, treas
Scott Nonhof, VP bus dev; Mark Etheredge, VP exploitation; Mike
40 White Oak Energy LP 2,731,693 Houston TX
Rayburn, EVP; Thomas Isler, pres
Grand
88 Wolverine Gas and Oil Corp. 1,096,099 MI Gary Bleeker, VP; Sidney Jansma, pres, CEO
Rapids
John Yates Sr., chairman emeritus; John Yates Jr., pres; Douglas
7 Yates Petroleum Corp. 13,694,467 Artesia NM
Brooks, pres, CEO, dir; John Perini, EVP, CFO; James Brown, COO
Nugent Brasher, chair; William Coleman, pres; Carole Slinkard, CFO;
27 Zavanna LLC 4,214,750 Denver CO
Robert Eller, VP ops
Source: IHS; For more information about the Private Company Database, visit www.IHS.com
Production totals based on latest year-to-date figures as reported to and recorded by individual state agencies and tabulated by IHS at the time of publication. Some agencies are delayed
by as many as several months in releasing data which may impact company rankings.

JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 57

INDUSTRY BRIEFS
PARSLEY ENERGY ACQUIRES MIDLAND BASIN ASSETS
Parsley Energy Inc. has agreed to acquire certain undeveloped
acreage and producing oil and gas properties located adjacent
to the companys existing operating areas in Upton, Reagan,
and Glasscock Counties, TX in the Permian basin for $148.5
million in cash from private equity-backed PCORE Exploration
& Production LLC. The assets include 238 net horizontal drilling
locations across 5,274 net surface acres with net production
during the month of November 2015 from three producing
horizontal wells estimated at near 1,000 barrels of oil equivalent
per day. The acquisition also includes one drilled horizontal
well that is anticipated to be completed by the seller prior to
the closing of the transaction, scheduled for early January 2016.
The deal was done at a favorable $19.6K/acre, said Seaport
Global Securities following the announcement, adding we
like managements use of equity to fund the acquisition while
preserving its strong liquidity position (~$698MM pro forma
for its borrowing base redetermination). Canaccord Genuity
analyst Sam Burwell said We maintain our belief that PE is
very well positioned to ramp production and increase cash
margins in 2016 and beyond. The newly-acquired acreage
overlaps nicely with the companys current position in Reagan
County, where it has achieved very strong results in the Wolf-
camp A/B. PE also paid what we consider a reasonable valuation
(by Permian standards). Concurrent with the acquisition, PE
announced a public offering of 8.5 million common shares, with
an over-allotment option of 1.275 million shares. The offering,
noted Stifel analyst, should fully cover the acquisition purchase
price, allowing PE to keep its top-tier balance sheet intact.
TALLGRASS ENERGY PARTNERS BUYS REDTAIL WATER
BUSINESS FROM WHITING
Tallgrass Energy Partners LP, through its subsidiary BNN Water
Solutions, has closed on the $75 million acquisition of Whiting
Oil & Gas Corp.s Redtail Saltwater Disposal and Fresh Water
Transportation and Storage System in Weld County, Colorado.
The acquisition includes a freshwater delivery and storage
system and a produced water gathering and disposal system
that together comprise 62 miles of pipeline, along with asso-
ciated freshwater ponds and disposal wells. The purchase
agreement with Whiting includes a five-year freshwater service
contract and a nine-year gathering and disposal contract, each
of which includes annual minimum volume commitments in
line with Whitings currently expected volumes. Whiting also
dedicated approximately 148,000 acres to the Redtail Water
System. Following the announcement, Stifel analysts called the
sale modestly positive for Whiting given that it was done for
a reasonable price amid the challenging price environment.
We now forecast YE15 debt/TTM EBITDA of 4.2x versus 4.3x,
previously. A much more meaningful potential sale of the
companys gas plants, however, has likely been complicated
by declining oil and natural gas prices, the analysts
continued.
58
DOUGLAS-WESTWOOD, HANNON WESTWOOD UNITE
Douglas-Westwood and Hannon Westwood have united as
part of the ESIA group of companies. The addition of Doug-
las-Westwoods consulting, research and analytical services will
extend ESIAs reach into the oilfield services market and add
DWs capabilities in renewable and conventional energy. Hannon
Westwood delivers strategic business development projects
to the upstream oil and gas industry, spanning E&A, field pro-
duction, export options, fiscal studies and corporate
acquisitions.
ACCENTURE ACQUIRES CIMATION
Professional services company Accenture has agreed to acquire
Cimation, an operations consulting company and provider of
technology solutions to the global energy and chemicals in-
dustries. The transaction supports the integration of enterprise
IT systems and operational technology (OT) used by resources
industries for automation solutions, production optimization,
asset analytics and ICS cyber security. Cimations approximately
200 people, most of whom are located in the US and Canada,
will join the Accenture Asset and Operations Services group.
Terms of the transaction were not disclosed.
PAR PACIFIC LEADS INVESTMENT FOR LARAMIE
TO ACQUIRE PICEANCE BASIN ASSETS
Par Pacific Holdings Inc. is leading an investment by which
Piceance Energy LLC, d/b/a Laramie Energy Co., has entered
into an agreement to acquire certain properties in the Piceance
Basin for $157.5 million. Laramie Energy has commitments to
fund the transaction with $57.5 million of borrowings under its
amended reserve based revolver, $30 million of preferred equity
issued to a major financial institution, and $70 million of common
equity investment including $55 million from Par Pacific. The
assets consist of 89 MMcfe/d of existing production during
November, 283 bcfe of proved developed producing reserves
as of November, and more than 53,000 net operated acres and
more than 18,000 net non-operated acres. A portion of the
operations acquired are adjacent to existing Laramie operations.
The transaction is expected to close on or before March 1,
2016, and once complete, Laramie will assume ownership and
operatorship of the purchased properties. As part of the ac-
quisition financing, the companys ownership interest in Laramie
is expected to increase from 32.4% to 42.3% as a result of its
$55 million common equity investment.
NEW SOURCE SELLS ERICK FLOWBACK SERVICES,
RODS PRODUCTION SERVICES
New Source Energy Partners LPs subsidiary, MidCentral Energy
Partners LP (MCLP), has sold all of the outstanding membership
interests in Erick Flowback Services LLC (EFS) and all of the
outstanding membership interests in Rods Production Services
LLC (RPS) to Ericks Holdings LLC. The transaction closed on
Dec. 16. EFS and RPS specialize in providing services to oil and
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

natural gas exploration and production companies that increase
the safety and efficiencies in pressure-related processes during
the completion phase of a well, with a specific focus on well
testing and flowback services. EFS and RPS operate primarily
in Oklahoma, Texas, Pennsylvania, and Ohio. The total purchase
price for the transaction was $44.9 million, consisting of cash
consideration of $5 million, a promissory note from Ericks
Holdings in favor of MCLP in the amount of $8 million, and the
assumption and elimination of $31.9 million of certain liabilities
of MCLP and its subsidiaries and affiliates. New Source Energy
Partners is engaged in the production of its onshore oil and
natural gas properties that extends across conventional resource
reservoirs in east-central Oklahoma and in oilfield services
related to drilling and completion processes.
WELLDOG LAUNCHES CARBON SERVICES DIVISION
WellDog has established a new carbon services division ded-
icated to applying the companys downhole products and
services to ensuring carbon dioxide can be sequestered safely
and efficiently in geological formations. The companys product
portfolio includes the worlds only technical service capable of
practical, direct measurement of carbon dioxide or methane
injected in underground depleted oil and gas and saline for-
mations. The company simultaneously announced a partnership
with the University of Queensland, funded by a grant from the
Australian National Low Emissions Coal Research & Develop-
ment, to expand application of WellDogs technology to track
trace gases that may be sequestered alongside carbon dioxide.
The one-year ANLEC grant, which started in October, supports
using WellDogs Raman technology to establish the key sensor
signatures that result from trace gas reactions with formation
geology. Since 1999, WellDog has provided a range of downhole
reservoir characterization and monitoring products and services
to oil, gas, and mining operators.
WARBURG PINCUS INVESTS UP TO $300M IN RUBICON
OILFIELD INTERNATIONAL
WarburgPincus, a global private equity firm, has agreed to a
line-of-equity investment of up to $300 million in RubiconOil-
field International, a startup oilfield services company. Rubicon
intends to acquire, integrate, and enhance small and medi-
um-sized businesses in the upstream oilfield technology sec-
torwith a focus on proprietary downhole tools, products, and
technologies. Rubicon comprises five founding members led
by CEO Michael Reeves, who most recently served aspresident
ofSandvik drilling and completions.John Griggs, formerly a
managing director at CSL Capital Management, serves as
CFOof Rubicon.
WOODSIDE WITHDRAWS MERGER PROPOSAL
Woodside has informed Oil Search Ltd.s board of directors
that Woodside has withdrawn its proposal to merge the two
businesses. On Sept. 3, Woodside provided Oil Search with a
JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
INDUSTRY BRIEFS
proposal to merge Woodside and Oil Search through a scheme
of arrangement. Oil Search rejected Woodsides proposal to
acquire all the shares in Oil Search for a consideration of one
Woodside share for every four Oil Search shares held, saying
that the proposal was opportunistic and that it undervalued
Oil Search. Woodside says that it is not pursuing any alternative
transactions to combine the businesses.
ENXP FILES FOR CHAPTER 11; OPERATIONS TO CON-
TINUE DURING RESTRUCTURING
Fort Worth, TX-based Energy and Exploration Partners Inc.
(ENXP) has filed a voluntary petition under Chapter 11 of the
US Bankruptcy Code. To fund its operations during the restruc-
turing process, ENXP secured commitments for up to $135
million of new debtor-in-possession financing from a group of
its existing senior lenders, subject to court approval. The filing
converts the previously announced involuntary petition for
ENXP Operating LP filed by certain vendors into a voluntary
petition. In conjunction with the Nov. 7 filings, the company
requested customary relief to support its royalty owners, part-
ners, and employees during the process.As part of this relief,
the company asked the Court for permission to continue em-
ployee programs and mineral interest owner payments without
interruption.Prior to this voluntary filing, ENXP initiated a re-
duction in staffing and several senior executives resigned to
pursue other interests. Those include executive vice president,
business operations and development, Robert Karpman; ex-
ecutive vice president of A&D, David Patty; COO, John Richards;
CAO, Jim Howel; and CFO, Brian Nelson. John Castellano of
AlixPartners LLP was named interim CFO. ENXPs legal advisor
is Bracewell & Giuliani LLP, and the company has engaged
AlixPartners LLP as its restructuring advisor. Evercore has been
retained as ENXPs investment banker.
NOV TO ELIMINATE ANOTHER 900 NORWEGIAN JOBS
National Oilwell Varco (NOV) plans to eliminate another 900
jobs from its Norwegian workforce, Reuters reported in early
December 2015. The layoffs will involve permanent jobs. The
latest cut follows NOVs layoff announcement in June, when
it said it would cut 900 permanent jobs and 600 contractor
positions from its Norwegian workforce. Following this latest
round of job cuts, NOV will have reduced its staff in Norway by
approximately half, Reuters reported.
HARVEST RECEIVES CONTINUED NOTICE LISTING
On Dec. 2, Harvest Natural Resources Inc. received notification
from the New York Stock Exchange (NYSE) that the company
had fallen below the NYSEs continued listing standard, which
requires a minimum average closing price of $1 per share over
30 consecutive trading days. Houston, TX-based Harvest is an
independent energy company with principal operations inVen-
ezuelaand Gabon.
59
ENERGY PLAYERS
HOLLUB NAMED COO OF OCCIDENTAL
ON THE PATH TO CEO
Occidental Petroleum Corp. has promoted Vicki A.
Hollub to president and COO and appointed her to
the Board. As part of the previously disclosed succes-
sion plan, the board of directors noted that Hollub
Hollub will succeed Stephen I. Chazen as Occidentals CEO
effective at the companys 2016 annual shareholder
meeting. Hollub was appointed senior executive vice
president of Occidental and president Oxy Oil and
Gas, earlier this year. She has 35 years of experience
in the oil and gas industry, holding technical and
leadership roles, both domestic and international. In
2013, she was appointed vice president of Occidental
Petroleum Corp. and executive vice president, US
Thornock Operations, Oxy Oil and Gas. She previously served
as executive vice president, California Operations;
and as president and general manager, Permian Basin
operations. Chazen will be nominated to the board
for an additional term following his service as the
companys CEO.
WELLDOG NAMES THORNOCK GROUP CFO
Trenton Thornock has joined WellDog, an energy-fo-
Phillips
cused technical services company, as group CFO.
Based in Houston, Thornock will oversee WellDogs
finance operations globally. Prior to joining WellDog,
he was senior vice president and CFO of Scientific
Drilling International. Thornock currently serves as a
board member at Breitling Energy Corp. He holds a
Bachelors of Accounting and Masters of Professional
Accountancy from University of Utah and is a Certified
Public Accountant, not in public practice.
Hackley
SPE ABERDEEN SECTION APPOINTS
PHILLIPS AS NEW CHAIRMAN
The Society of Petroleum Engineers (SPE) Aberdeen
Section board has elected Ian Phillips, chief executive
of the Oil and Gas Innovation Centre (OGIC), as its
new chairman. Phillips assumes the role from Shankar
Bhukya, who has stepped down ahead of a move to
Singapore. Phillips, an MBA-qualified chartered pe-
troleum engineer with more than 30 years of experi-
ence in the oil and gas industry, has participated in
the growth of the SPE Aberdeen Section over the last
30 years. With the SPE Aberdeen Section, he has held
positions including chairman, treasurer, and Continu-
ing Education Committee chair. In addition, he has
served as the North Sea regional director on the SPE
International Board. Most recently, he has been the
director on the SPE Aberdeen board and has held
responsibility for the Sections Offshore Achievement
Awards. Prior to his current full-time role as chief ex-
60
ecutive of the Oil and Gas Innovation Centre, Phillips
held a number of positions in the UK oil and gas in-
dustry, including vice president of project development
at Ramco Energy and project director at BP. Latterly,
his career has focused on innovation in carbon capture
and storage, with roles including founding director of
CO2DeepStore and business development director
at Pale Blue Dot Energy.
HACKLEY JOINS BABST CALLAND
Grant Hackley joined Babst Calland as an associate
in the Energy & Natural Resources Group. Hackleys
practice focuses on energy law, counseling clients on
a wide array of issues related to ownership of and title
to oil and gas, including the preparation of oil and
gas title opinions, title examination, litigation and
contractual issues. He is a graduate of the University
of Pittsburgh School of Law.
CHALABALA TO COVER E&P FOR STRH
Karl Chalabala has joined SunTrust Robinson Hum-
phrey as a director, working with senior energy analyst
Neal Dingmann, to cover the Exploration & Production
space out of Houston. Chalabala has more than eight
years of experience as an energy desk specialist and
as a senior publishing research analyst. He earned a
bachelors degree from the University of Delaware.
EQT NAMES SCHLOTTERBECK AS PRESIDENT
EQT Corp. has appointed Steven T. Schlotterbeck as
president, succeeding David Porges in the role. Porges
will remain chairman and CEO of EQT and Schlotter-
beck will retain his title of president of exploration
and production. Schlotterbeck joined EQT in 2000. In
2008, he was promoted to vice president of EQT and
and president of production. He became senior vice
president of EQT and president of exploration and
production in 2010, and was then appointed executive
vice president of EQT in 2013. Schlotterbeck is also a
director of EQT GP Services LLC, the general partner
of EQT GP Holdings LP.
SANTOS CEO TO ASSUME POST IN FEBRUARY
Australias Santos Ltd. has appointed Kevin Gallagher
as the companys new managing director and CEO.
Gallagher will commence his duties on February 1,
2016. He previously served as CEO of Clough Ltd. His
appointment was announced in November.
TPH MAKES MANAGEMENT CHANGES
Tudor, Pickering, Holt & Co. (TPH) has made manage-
ment changes to further enhance both its capital
markets and securities research service offerings and
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016

execution capabilities. Jeff Tillery, previously manag-
ing director and co-head of research, transitioned to
become co-head of capital markets. He brings nearly
15 years of senior energy equity research experience
to his new role, the last five of which also included
serving as head of research for TPH. He will co-head
the expanded capital markets team with John Ken-
nedy. In conjunction with this transition, W. Mark
Meyer, managing director and current co-head of
research, assumed the role of head of research. He
joined TPH in February to help lead the firms research
effort and brings almost 30 years of combined energy
experience to the table, including the last 16 as a lead
sell-side E&P analyst and buy-side portfolio manager.
In addition, Byron K. Pope, managing director and
previous co-head of oil sservice research, now serves
as head of oil service research. Pope, who joined TPH
predecessor firm Pickering Energy Partners as a found-
ing member in 2004, brings both sell-side and buy-side
experience to his lead analyst role.
OPENLINK NAMES NEW CEO
OpenLink, a provider of trading and risk management
solutions to the energy, commodities, corporate, and
financial services industries, has named John OMalley
to succeed Mark Greene as CEO as Greene announced
his intention to retire. Greene will continue to serve
on the OpenLink Board as an independent director.
Most recently, OMalley was an operating partner for
Thoma Bravo after being hired as CEO of Digital In-
sight. Previously, he held the role of CEO at Panini, a
global provider of payment technology. A programmer
by training, OMalley has experience in technology,
software product management, and professional ser-
vices. He has previously led global financial services
and technology companies in treasury, capital markets,
retail banking, payment processing, global finance
and guidance systems in companies such as Fiserv,
Hogan Systems, Lockheed Martin and J.H. Harland
and Company.
ENSCO NAMES NEW COO
Carey Lowe has been named COO of offshore drilling
services provider Ensco plc. Based in London, Lower
succeeds Mark Burns, who is retiring from the com-
pany. Lowe has held various executive management
positions at Ensco since joining the company in 2008.
OCEANEERING APPOINTS TWO TO SVP
Oceaneering International Inc. has appointed Martin
J. McDonald as senior vice president, Remotely Op-
erated Vehicles (ROVs), effective Jan. 1, 2016. He re-
places Kevin F. Kerins, who will become Oceaneerings
JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM
ENERGY PLAYERS
senior vice president, Underwater Vehicle Technolo-
gies. McDonalds career spans 26 years with Oceaneer-
ing. He most recently served as vice president and
general manager of Oceaneerings ROV operations
in the Eastern Hemisphere from 2006.
SANCHEZ APPOINTS KOPEL SVP, GENERAL Tillery
COUNSEL
Sanchez Energy Corp. has appointed Greg Kopel as
senior vice president and general counsel, effective
Dec. 14. Prior to this appointment, Kopel served as
vice president and associate general counsel at Bre-
itburn Energy Partners LP. He has also served in cor-
porate legal positions at Occidental Petroleum Corp.
and LINN Energy LLC. Kopel earned a bachelors
Meyer
degree in government at the University of Texas at
Austin, and a juris doctor degree at the University of
Houston.
RANDHAWA JOINS D.A. DAVIDSON
Sonny Randhawa has joined investment firm D.A.
Davidson & Co.s institutional research team to
provide coverage of the oilfield service and
equipment sector. He will work from the firms
Pope
offices in Lake Oswego, Oregon. Previously,
Randhawa was a senior oilfield service analyst with
Banc of America Securities after beginning his
energy research career at Friedman Billings Ramsey.
Prior to that, he was a senior consultant in the
financial and M&A advisory segments at both
Arthur Andersen and KPMG. Randhawa earned an
MBA from the Jesse H. Jones Graduate School of
Management at Rice University and a BBA from the
University of Texas.
FROST BROWN TODD OPENS IN PITTSBURGH
Frost Brown Todd is opening its an office in the down-
town area of Pittsburgh, Pennsylvania, with the addition
of 10 attorneys formerly with the law firm Burleson
LLP. With the opening, Frost Brown Todd enhances
its energy industry practice. Kevin Colosimo, formerly
with Burleson LLP, is the member-in-charge of the
Pittsburgh office. Andrew Jenkins joins Frost Brown
Todd as a member after having led the litigation
practice at Burlesons Pittsburgh office. Along with
litigation, the move brings the mergers, acquisitions,
and due diligence team from Burleson to Frost Brown
Todd.
HOULIHAN LOKEY EXPANDS, HIRES A&D TEAM
Houlihan Lokey has expanded its Oil & Gas Exploration
and Production Group to include an Acquisitions and
Divestitures (A&D) team with experience in the oil and
61
ENERGY PLAYERS
gas sector. As part of the expansion, the firm has appointed
Kirk Tholen as managing director and head of the A&D practice
in Houston. Tholen joins from Credit Agricoles Corporate and
Investment Bank, where he was a managing director and group
head of A&D, Americas, for the past three years. With close to
25 years of experience in the sector, Tholens experience spans
nearly every aspect of the oil and gas industry. Tholen holds a
Bachelor of Science degree in chemical engineering from the
University of Louisiana at Lafayette and an MBA from the
University of Houston.
CABOT OIL & GAS ELECTS NEW DIRECTORS
Cabot Oil & Gas Corp. has elected Dorothy M. Ables and
Robert S. Boswell to its board of directors.The addition brings
the board total to seven directors, with six qualifying as inde-
pendent directors. Ables is chief administrative officer of Spectra
Energy Corp., a position she has held since 2008.She has held
positions of increasing responsibility during her 30 years at
Spectra Energy and predecessor companies. She also serves
on the board of directors for Spectra Energys publicly traded
MLP, Spectra Energy Partners.Ables has a BBA in accounting
from the University of Texas at Austin. Boswell is chairman and
CEO of Laramie Energy II LLC, a privately held oil and gas
exploration and production company headquartered in Denver,
Colorado. Laramie Energy II LLC was formed in June 2007, after
the sale of its predecessor company, Laramie Energy I. Before
starting Laramie I in 2004, Boswell was chairman and CEO of
Forest Oil Corp. Prior to his 14 years with Forest Oil, Boswell
spent most of his career with Adams Affiliates as CFO and
ultimately as its COO and president. He has a Bachelor of
Engineering degree in chemical engineering from Vanderbilt
University and a Master of Business Administration degree from
the University of Texas.He is currently a director of Enerflex
Ltd.
FIRST RESERVE PROMOTES SEVEN
First Reserve, a private equity and infrastructure investment
firm focused on energy, has promoted seven investment
professionals across its global private equity and energy
infrastructure teams.
James Berner, Adi Blum, Ryan Shockley and Ed Fidler have
been promoted to managing directors in the energy infrastruc-
ture funds team.
Since joining the firm in 2011, Berner has held leadership
roles in First Reserves investments in North American Power I
(and its various follow-on investments), Fort Detrick Energy,
and most recently Kingfisher Wind. He holds a bachelors degree
from Cornell University, an MBA from the Wharton School of
Business, and a masters degree from the School of Advanced
International Studies, Johns Hopkins University. He is based in
the firms Greenwich, Connecticut, office.
Blum joined the office in 2011 and most recently led the
firms investments with industry partners in Mexico, such as Los
62
Ramones II and La Bufa Wind, and has led teams for the firms
First Caribbean Power & Midstream and SunEdison Reserve
investments. He holds a bachelors degree from Georgetown
University, School of Foreign Service, and an MBA degree from
New York University. He is based in Greenwich.
Shockley originally joined First Reserves Private Equity Funds
as an associate in 2004, returning as a vice president in 2008
after earning an MBA. For the Private Equity Funds, he focused
primarily in the power and equipment, manufacturing, and
services sectors, and was a member of the team that executed
the PrimeLine Utility Services investment for First Reserve Fund
XII. In 2014, he moved to the energy infrastructure funds where
he led the firms efforts with FR Warehouse and other investment
opportunities. He holds a bachelors degree from Kalamazoo
College and an MBA degree from Kellogg School of Manage-
ment at Northwestern University. He is based in Greenwich.
Since joining the firm in in 2011, Fidler has been a member
of the energy infrastructure teams for Renovalia Reserve, Pet-
roFirst Infrastructure Ltd., and La Bufa Wind. Fidler has also led
the firms process for managing currency and other hedging
programs across its energy infrastructure funds. He holds a
bachelors degree from the University of British Colombia, and
is a CFA Charterholder. He is based in London.
The firm has promoted three in the private equity funds
team.
Peter Petrov has been promoted to director. He joined First
Reserve in 2007 as an associate and returned as a vice president
in 2012 after earning his MBA degree. He has contributed to
First Reserves efforts in the Equipment and Services sector, as
well as in the resources sector, and worked on portfolio invest-
ments Ansaldo, Abengoa, and Glencore. He holds a BBA from
Texas Christian University and an MBA degree from London
Business School. He is based in London.
Michael Scardigli has been promoted to director. He joined
First Reserve in 2008 as an associate and returned as a vice
president in 2012 after earning his MBA degree. Scardigli has
contributed to First Reserves efforts in the equipment and
services sector, and worked on portfolio investments Dresser,
Acteon, Dixie Electric, and Diamond S Shipping. He holds a
BA degree from Georgetown University and an MBA degree
from the Wharton School of Business. He is based in
Greenwich.
Juan Diego Vargas has been promoted to director. He joined
First Reserve in 2007 as an associate and returned as a vice
president in 2012 after earning his MBA degree. Vargas has
contributed to First Reserves efforts in the equipment and
services sector, as well as the resources sector, and has worked
on portfolio investments CHC Helicopter, PrimeLine Utility
Services, and Barra Energia. Vargas holds a BBA degree from
the University of Notre Dame and an MBA degree from London
Business School. He is based in Houston.
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016
 Companies mentioned in this issue of Oil & Gas Financial Journal are listed in
alphabetical order with advertisers in boldface type. The index is provided as
a service. The publisher does not assume any liability for errors or omission. COMPANY/ADVERTISER INDEX
COMPANY PAGE COMPANY PAGE COMPANY PAGE COMPANY PAGE

Accenture 58 ENERGY NAVIGATOR INC. 19 Lockheed Martin 61 Rice Energy Inc. 17

Adams Affiliates 62 Energy XXI 45 LRR Energy 43 RKI E&P 49
AlixPartners LLP 59 ENERGYNET IFC MACQUARIE GROUP LTD. 13 Rods Production Services LLC 58
American Petroleum Institute 6 ENERTIA SOFTWARE 7 Marathon Oil 43 Rosetta Resources 48
Anadarko Petroleum 15 EnLink Midstream 16,48 Matador Resources 43 Royal Dutch Shell 43
ANLEC 59 Enron 64 Merit Energy Co. 50 Rubicon Oilfield International 59
Apache Corp. 17,43 Ensco plc 61 Mewbourne Oil Co. 50 Rystad Energy 20
Armstrong Oil & Gas Inc. 50 ENXP 59 Moodys Investors Service 6,12 Sanchez Energy Corp. 61
Arthur Andersen 61 EPA 30 Morgan Stanley 10 Santos Ltd. 60
Atlas Resource Partners 43,46 EQT Corp. 45,60 Moscow State University 34 Saxo Bank 6
Babst Calland 60 Erick Flowback Services LLC 58 Myria Holdings Inc. 17 Schlumberger 28
Baker Hughes 28 ESIA 58 Nadel and Gussman 52 Scientific Drilling International 60
BC Operating Inc. 52 Evercore 59 NAPE EXPO LP 33 Seaport Global Securities 14,58
BDO USA LLP 14,28,39 EXCO Resources 44 National Ocean Industries Association 6 SEC 42,49
Berry Petroleum 43 EY 12 National Oilwell Varco 59 Sheridan Production Co. LLC 50
Black Ridge Oil & Gas 43 Felix Energy 22,48 National Park Service 30 Slawson Exploration Co. 50
Black Stone Minerals 45 First Reserve 49,62 Natural Gas Pipeline Co. of America LLC 17 Societe Nationale des Petroles du Congo 15
BLM 30 Fiserv 61 Navitas Midstream Partners 17 SPE 60
Blue Whale 48 Fitch Ratings 16 New Source Energy Partners LP 58 Spectra Energy Corp. 62
BLUEROCK ENERGY CAPITAL 5 Flatrock Energy Advisors 49 Newfield Exploration 22 Statoil 43
BOK FINANCIAL 1 FlexGen 29 NewWoods Petroleum 48 Stifel 58
BP 15,45,49 FLOTEK INDUSTRIES INC. IBC NGP ENERGY CAPITAL MANAGEMENT 3 Stone Energy 43
Bracewell & Giuliani LLP 30,59 Forest Oil Corp. 62 NOAA 30 SunTrust Robinson Humphrey 60
Breitburn Energy Partners 44,61 Fraser Institute 6 Noble Energy 48 TAILWATER CAPITAL LLC BC
Breitling Energy Corp. 60 Friedman Billings Ramsey 61 NYMEX 14,44 Tall City Exploration 48
Brookfield Infrastructure Partners LP 17 Frost Brown Todd 61 NYSE 59 Tall Oak Midstream 16,48
Burleson LLP 61 GeoSouthern 48 Occidental Petroleum Corp. 60 Tallgrass Energy Partners LP 58
Cabot Oil & Gas Corp. 45,62 Gran Tierra Energy 45 Oceaneering International Inc. 61 Tesoro Logistics LP 16
Canaccord Genuity 58 Great Northern Midstream LLC 16 Oil Search Ltd. 59 Texas Petro Index 6
Chesapeake Energy Corp. 44 Gulfport Energy 45 Oildex 39 Thompson & Knight LLP 16
Chevron Corp. 15 GulfStar Group 8 OPEC 6,14 Total 15
Cimarex Energy 22,44 Halcn Resources 44 OpenLink 61 TransAtlantic Petroleum 43
Cimation 58 Halliburton 28 Opportune LLP 12 TUDOR, PICKERING, HOLT & CO. 31
CNOOC Ltd. 15 Hannon Westwood 58 Pale Blue Dot Energy 60 Tudor, Pickering, Holt & Co. 60
CO2DeepStore 60 Harvest Natural Resources 59 Par Pacific Holdings Inc. 58 Tyco 64
Cobalt International 45 Haynes and Boone LLP 42 Parsley Energy Inc. 58 Unit Corp. 44
Cobra 48 Hilcorp Energy Co. 50 Paul Hastings LLP 16 US Army Corps of Engineers 30
Comancheria Energy Resources LLC 50 Hogan Systems 61 PCORE Exploration & Production LLC 58 US Fish and Wildlife Service 32
Continental Resources 22,45 Houlihan Lokey 61 Penn Virginia 44 US Forest Service 30
Credit Agricole 62 Husky Oil 15 Petrobras Argentina 43 USDS 30
Crown Oil Partners 52 Hydrocarb Energy 43 Petro-Hunt 50 Vanguard Natural Resources 43
Crump Energy Partners 52 IEA 6,14 Petroquest Energy 46 W&T Offshore 14
CSL Capital Management 59 Intervale Capital 29 Pickering Energy Partners 61 Walter Oil & Gas Corp. 50
DA Davidson & Co. 61 IPAA 6 Pioneer Natural Resources 43 Warburg Pincus 17,59
Devon Energy Corp. 15,20,22,48 JH Harland and Company 61 PLS Inc. 48 Warren Resources 43
Diamondback Energy 48 JW Operating Co. 50 Preng & Associates 64 WellDog 59
Digital Insight 61 Kinder Morgan Inc. 17 PWC 11 Wells Fargo Energy Capital 52
DOI 30 KPMG 61 Quantum Energy Partners 52 Whiting Oil & Gas Corp. 58
Douglas-Westwood 58 Laramie Energy 58,62 Ramco Energy 60 Wood Mackenzie 18
Eagle Rock Energy 43 Laredo Petroleum 43 Raymond James 16 Woodside 59
Eclipse Resources 46 Legacy Reserves 45 REMI Midstream 49 WorldCom 64
EIA 9 Leor Resources LLC 50 Renos Land & Minerals 49 WPX Energy 48
Emerald Oil 43 Liberty Oilfield Services 29 Repsol 50 Wunderlich Securities 12,50
EnCap Flatrock Midstream 16,49 LINN Energy LLC 61 Resolute Energy 43

JANUARY 2016 OIL & GAS FINANCIAL JOURNAL | WWW.OGFJ.COM 63

THE FINAL WORD
BOD: Who has a seat at the table?
AS MY PARTNERS AND I at Preng & Associates
complete our 35th year, we are reminded again
of the extreme cyclicality of the oil and gas in-
dustry. My view is biased. I have spent my entire
career in the oil and gas industry. My sons and
daughter work in the oil and gas business. We
know the challenges that executives and boards
DAVID PRENG face every day to generate cash flow and net
income to build their businesses.
Our clients are energy executives and boards. They repeatedly
tell us their most important asset is people: employees, colleagues,
peers, and partners. Their biggest challenge is not finding the next
Marcellus or Wolfcamp or creating the newest completion technol-
ogy that unlocks millions of barrels. Its finding and retaining the
right people who are motivated and talented enough to make the
organization better.
In the boardroom, our clients seek diverse views to get deeper
consensus on critical issues facing executives as the complexity of
the energy business increases. Executives running 21st century oil
and gas companies instinctively know they need, and quite frankly
want, more experience in the C-suite and the board room to make
better decisions. They have embraced the idea that the long-term
success and ultimately the highest value of the company will only
be achieved through diversity of skills and thought and incorporating
ideas of inclusion to arrive at the right decision. A balanced board
brings different perspectives, backgrounds, skill sets and experiences
all of which should help the company make better decisions.
Assembling a well-balanced, high-performing board or manage-
ment team with the desired skill sets is no easy task. Thats one of
the reasons I founded Preng & Associates in 1980. I wanted to help
management and boards in the energy industry attract exceptional
talent that would deliver long-term value to stakeholders.
Today its not uncommon to see an energy board made up of
diverse skills and experiences. Many have experienced petroleum
scientists, skillful financial experts, and knowledgeable executives,
most of whom have spent their entire careers in oil and gas. Pro-
posals and actions made by the executive team can be checked-
and-balanced by the board and vice versa. Its a symbiotic relation-
ship, vital for an organization to be successful. But it hasnt always
been this way.
Up until 2002, regardless of the industry, many companies took
the friends-and-family approach when selecting directors. An ef-
fective director in the 1980s, 1990s, and early 2000s was a friend
from college, a fellow member of the country club, a former industry
colleague, or a member of church. Even athletes and celebrities
made their way into the boardroom. Im not saying these were
incompetent people many of these directors had successful
businesses of their own and could provide guidance to the man-
agement team. As long as the CEO and the executive team had
decent heads on their shoulders, corporations stayed afloat and
often prospered.
64
The shortfall with the friends-and-family approach was that
corporate governance procedures, day-to-day decisions, and even
accounting practices did not always meet the highest standards.
More importantly, the checks-and-balances process could break
down. Some organizations made mistakes, missed strategic op-
portunities, and in some cases, intentionally or unintentionally
broke the law.
Cue the corporate and accounting scandals WorldCom, Enron,
Tyco and others. These events cost investors on Wall Street and
employee 401(k) retirement plans billions of dollars. This lack of
confidence in corporate governance and accounting practices sent
shock waves through the stock market. The US government believed
stronger laws were needed, so in 2002 Sarbanes-Oxley (SOX) was
passed, placing greater responsibility and legal liability on corporate
boards.
SOX led the next evolution of the board. Companies now look
for what we call the professional director. Corporations need
directors who know the rules and can assure they meet or exceed
SOX requirements. Organizations have greatly improved director
evaluations and have hired former public accounting partners,
academicians, and retired law partners. In my opinion, the pen-
dulum swung a little too far after SOX passed. Companies wanted
experts that knew accounting standards and corporate governance
criteria, but many lacked an in-depth understanding of the par-
ticular industry.
Enter the shale revolution. The use of horizontal drilling and
hydraulic fracturing to produce quantities of hydrocarbons once
thought impossible, pushed companies to make better, smarter
and faster decisions to stay ahead of peers. Companies were forced
to think differently about strategy and value creation and needed
a board that could support this new way of thinking. Today, I believe
the energy industry has found a happy medium. Boards now have
experienced technical talent, skillful financial experts, knowledge-
able industry executives and even a few relevant outside the
industry experts that provide unique perspectives to help the
organization thrive.
Just as the demographics of the boards have changed over time,
so has the role they are asked to play. Board members ensure
transparency and bring sound financial discipline, but they are
also being asked to identify opportunities in a rapidly changing
energy environment.
In the past 10 years, the industry has moved from developing
conventional resources to focusing more on unconventional targets.
With management teams focused on day-to-day operations, boards
are now providing higher-level insight. Going forward, companies
that can develop and leverage the combined and diverse experi-
ences of the board will more effectively and efficiently develop
assets and outperform peers.
David Preng is founder and president of Preng & Associates.
WWW.OGFJ.COM | OIL & GAS FINANCIAL JOURNAL JANUARY 2016
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