American Oil and Gas Reporter - January 2019 - 36

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Private Equity Finds Success In Gulf
HOUSTON-With many companies
chasing onshore shale plays, or drilling
in Brazil or Mexico, Wood Mackenzie
says a changing dynamic in the Gulf of
Mexico is emerging, as private equitybacked operators hunt for oil and gas.
An analysis from Wood Mackenzie,
"Does Private Equity Have a Future in
the Deepwater U.S. Gulf of Mexico?"
explores what the future holds for these
smaller, nimbler offshore players, from
operational strategies and risks to potential
exit strategies, the company says.
"With the region shifting from a period
of expansion to a period of capital restraint,
private equity-sponsored companies, focusing on investment discipline and efficiently commercializing prospects, have
shown what it takes to compete," assesses
Michael Murphy, research analyst with
Wood Mackenzie's Gulf of Mexico team
and lead author of the analysis.
According to Wood Mackenzie, private
equity-backed companies are showing a
willingness to take a countercyclical investment approach in the Gulf of Mexico.
Forecast development capital spend in
the Gulf is set to rise from a projected
$1.0 billion in 2018 to $1.2 billion in
2020. It points out that this predicted increase will come at a time in which independents' development capital expenditures
are projected to decline, from $1.4 billion
in 2017 to $1.0 billion in 2020.
Although major companies represent
the bulk of projected capital spending in
the Gulf for the foreseeable future, the
analysis says private equity-backed companies will play a larger role in the region
long term. It observes that LLOG Exploration Co. represents the largest proportion
of projected private equity-backed activity,
with higher complexity Lower Tertiary
Buckskin expected to come on line in
2019, followed by the Khaleesi and Mormont fields in 2021.
"Just as private equity's entrance into
the lower 48 brought fresh impetus and
renewed direction to exploration and production, private equity is bringing a different operational approach to the Gulf
of Mexico," Murphy says. "Capitalizing
on lower cost structures and focusing on
quicker paybacks, these smaller, nimbler
private equity-backed outfits have shown

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Official Convention Section for
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36 THE AMERICAN OIL & GAS REPORTER

an ability to turn discoveries into dollars
at a faster clip than their competition."
The average time from discovery to
first oil for private equity-backed companies has been three years for fields
sanctioned since 2010, compared with a
six-year average for most majors and
independents, Wood Mackenzie describes.
Moreover, it says many smaller companies in the Gulf have been able to add
production at lower costs than their
larger counterparts. The average fullcycle capex for deepwater Gulf fields
now stands at around $12 a barrel of oil
equivalent for private equity-backed companies, about 40 percent lower than independents as a whole.
Private capital also is playing a critical
role in rejuvenating brownfield assets in
the Gulf, the analysis notes. The scale of
opportunity for private capital is exemplified by EnVen Energy Venture LLC's
redevelopment of its Brutus and Glider
deepwater assets, which it acquired from
Shell late in 2016. By targeting previously
bypassed pay, Wood Mackenzie says,
EnVen was able to increase production
from those assets by nearly 30 percent
from 2016 to 2018, an increase of more
than 18,000 boe/d.
Ultrahigh-Pressure Prize
The analysis points to developing ultrahigh-pressure fields as the biggest prize
in the Gulf. LLOG increased its working
interest in the Shenandoah field following
the Cobalt bankruptcy, Wood Mackenzie
notes, demonstrating the company's willingness to take on larger risks as the
value of its assets rival those of midsized independents. While developing the
technology to unlock ultrahigh-pressure

reservoirs is ongoing, Wood Mackenzie
says it provides potential growth options,
with the nearby Yucutan and Coronado
fields as examples.
"Ultimately, the ability to exploit untapped reservoirs will separate the players
from the pretenders," Murphy holds. "Ultrahigh-pressure reservoir development
offers the potential for higher growth,
but the proof of the concept remains to
be seen. However, infrastructure-led exploration has provided companies with
economic development opportunities.
Companies such as LLOG, Talos Energy
Inc. and Deep Gulf Energy LP have
shown that value is there for those with
the ability to execute and the willingness
to take risks."
The analysis also explores some of
the exit process challenges facing private
equity-backed operators in the Gulf
process, Wood Mackenzie says, with the
Talos-Stone reverse initial public offering
and Kosmos Energy's August acquisition
of Deep Gulf Energy demonstrating potential exit paths. But, it notes there are
barriers to exit; Talos had to get creative
to go public and Deep Gulf Energy's
major investment started 13 years ago.
"Deepwater could pose the 'Hotel
California' problem for private equity
funds-you can check in anytime you
want, but you can never leave," Murphy
says. "With a smaller buyer pool in deepwater and Wall Street focused on tight
oil and favoring companies with large
share buy-back programs, private equity-backed companies will need to consolidate and grow their reserve bases to
become more attractive. This will provide
stronger exit opportunities for funds looking to monetize assets."
r

Texas Discovery Well Tops 2,000 Barrels A Day
HOUSTON-The Five Star 1H, a discovery well drilled by Boomtown Oil
and Rocky Creek Resources in the Lavaca
Trough, produced with an initial rate of
more than 2,000 barrels of oil equivalent
(63 percent liquids), in line with some of
the best wells in the Karnes Trough of
Karnes County, Tx., the companies say.
Rocky Creek Resources is a joint investment between Boomtown, Juniper
Capital Advisors and Delago Resources
that is focused on the Eagle Ford and
Austin Chalk formations in Texas' Lavaca
and DeWitt counties.
"As the second-largest Eagle Ford
acreage holder in Lavaca County after
Penn Virginia, this well solidifies the out-

standing value proposition in our 26,000
net-acre position within the highly overpressurized oil window in both Lavaca
and northern DeWitt counties," says Michael
Rozenfeld, geology partner at Boomtown.
Boomtown says its second Eagle Ford
well, the Klosel 1H, is producing 1,500
boe/d on an 18/64-inch choke, while its
Shiner 1H, an offset to Penn Virginia's
Lager 3H well, has been completed and
has begun flowback.
The company, with assets and operations in Lavaca, DeWitt and La Salle
counties, notes its acreage position is adjacent to some of the largest and most
active operators in the Eagle Ford play.
r



American Oil and Gas Reporter - January 2019

Table of Contents for the Digital Edition of American Oil and Gas Reporter - January 2019

Contents
American Oil and Gas Reporter - January 2019 - Intro
American Oil and Gas Reporter - January 2019 - 1
American Oil and Gas Reporter - January 2019 - 2
American Oil and Gas Reporter - January 2019 - 3
American Oil and Gas Reporter - January 2019 - 4
American Oil and Gas Reporter - January 2019 - Contents
American Oil and Gas Reporter - January 2019 - 6
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