The Next Phase of Foreign Investment in the Permian Basin Houston Producer s Forum June 21, 2016

Transcription

1 The Next Phase of Foreign Investment in the Permian Basin Houston Producer s Forum June 21, 2016 Curtis A. Newstrom President & CEO Blue Whale Energy North America Corp. ( BWENA ) 1

2 Evolution of Foreign Investment in the U.S. Oil & Gas Industry Over the last 10 years, large amounts of outside capital have flowed into the U.S. energy economy Deal terms continue to evolve to best suit the needs of buyers and sellers Joint ventures and non-operated working interest positions dominated early investment during this time horizon Volatility in commodity prices and differences in capital allocation plans between partners have made several of these JV partnerships challenging Recent transactions demonstrate controlling stakes with operatorship are now the preferred trade Outright ownership and operatorship guarantee direct investment related decisions will be controlled by the buyer over the long term 2

3 Benefits of Foreign Investment in the U.S. Oil & Gas Industry Direct investment in the U.S. stimulates growth and employment American workers are employed by either foreign owned companies or U.S. subsidiaries Current production and future development add royalty and tax revenue Longer term investment horizon with significant development capital accelerates realization of resource potential Access to foreign capital markets represents an additional source of funds to develop assets 3

4 Chinese Investment in U.S. Oil & Gas From CNOOC spends $15 Bn to acquire Nexen Inc. CNOOC acquires 33% stake in CHK s DJ and PRB for $1.3 Bn BWENA acquires Juno Energy II assets for $315MM Sinopec spends $2.2 Bn with DVN on 33% of five new ventures across U.S. oil and gas basins Sinochem acquires 40% stake in PXD s Wolfcamp play for $1.8 Bn Sinopec acquires 50% WI with CHK s MS Lime for $1.02Bn BWENA acquires Tall City/Element for $1.1 Bn CNOOC acquires 33% WI in CHK Eagle Ford for $2.2 Bn Meidu Holdings acquires Woodbine Acq Co for $535MM Operational Control Non Op / JVs 4

5 Other Foreign Investment in U.S. Oil & Gas From Itochu spends $1.04 Bn to acquire diversified properties from Samson Investment Co. Statoil acquires Brigham for $4.8 Bn Reliance forms JV with Atlas Energy for $1.7 Bn Total forms JV with Chesapeake and Enervest in Utica for $2.3 Bn Marubeni acquires Marathon acreage for $270 MM Atinum forms JV with Sandridge for $500 MM Repsol forms JV with Sandridge for $1.0 Bn Statoil forms JV with Chesapeake for $3.4 Bn Mitsui forms with Anadarko for $JV1.4 Bn KNOC/Samsung acquire Parallel Petroleum for $772 MM Sumitomo forms JV with DVN for $1.4 Bn Mitsui acquires 12.5% WI in SM Eagle Ford properties for $735 MM Reliance Industries forms JV with Pioneer for $1.1 Bn Tokyo Gas Company acquires Quicksilver s Barnett for $485MM Total forms JV with CHK for $2.25 Bn Marubeni forms JV with Hunt Oil for $1.3 Bn KNOC forms JV with Anadarko for $1.55 Bn Operational Control Non Op / JVs 5

6 Foreign Investment in the Permian Basin 6

7 Who is Blue Whale Energy North America? Corporate Development team based in Houston, Texas focused on North American E&P assets Primary tasks include origination, evaluation, negotiation, due diligence and closing U.S. subsidiary of a private fund based in Beijing, China Fund investors have economic interest in several publicly listed companies in China Public companies are looking to diversify by investing in US and Canadian upstream oil & gas companies SOURCE EVALUATE CLOSE 7

8 Curtis Newstrom President & CEO 28 years experience Blue Whale Energy North America Team Executive roles at Midstates Petroleum, LINN Energy and Burlington Resources Chris Chaffin Vice President / Geoscience 15 years experience Technical an d corporate roles at Midstates Petroleum, Samson, Penn Virginia, Hilcorp and El Paso Doug Rook Vice President / Land & Business Development 18 years experience Land and BD roles at Kraken, Rosetta, LINN Energy, ConocoPhillips and Burlington Resources Matt Lake Vice President / Engineering 15 years experience Technical and corporate roles at TPH Partners, LINN Energy and Merrill Lynch Nick Ludtke Vice President Finance 12 years experience Corporate and Accounting roles at Midstates Petroleum and LINN Energy 8

9 Returns Focused Acquisition Strategy Oil focused strategy in U.S. and Canada Returns based model Agnostic to geographic location Targeting both unconventional and conventional opportunities Transaction size: $300 million $1 billion Combination of base cash flow with development upside Pursuing both marketed packages and unsolicited deals Preference for operated positions with high working interest 9

10 Ultimate Ownership of Assets Generic Example Private Investment Fund Chinese Public Company Assets are purchased by Private Investment Fund, then assets will be transferred to Chinese Public Company Investment Transfer of Ownership Acquisition Target Company 10

11 Existing Structure Representative of 2015 Transactions Yantai Xinchao Blue Whale NA Surge Energy Capital Markets, etc. 1. Acquisition of US and Canadian E&P Companies 1. Source 2. Evaluate 3. Negotiate 4. Due Diligence 5. Close 2. Crisis Management of existing companies Strategy /Oversight 1. Integration 2. Planning 3. Operations 4. Budgets E&P 1. Project Review 2. Economics 3. Development Plans G&A 1. HR 2. Admin 1. Bank Relationships 2. Gov t Lobbying for low cost capital 3. Association with Public Companies Blue Whale NA maintains the ability to both represent multiple Chinese public companies and assemble high quality U.S. based management teams

12 Committee on Foreign Investment in the United States ( CFIUS ) CFIUS is chaired by the U.S. Secretary of the Treasury and includes representatives from 16 U.S. Depts. and agencies, including Defense, State, Homeland Security and Commerce Depts. Considerations for voluntary filing of notice to CFIUS Is the buyer considered a foreign investor? Is the acquisition a controlling stake in the asset? Does the transaction raise potential national security interests or critical infrastructure implications? If the answer is YES to these questions, then it is considered a covered transaction by CFIUS BWENA uses outside counsel and a Washington based consulting group to assist with navigating the process File notice and begin application process Mandatory CFIUS Decision 15 days 30 days 45 days Close Sign PSA & Prepare filing to begin pre-application process Potential Close or CFIUS option to extend 45 days

13 Composition of CFIUS

14 2015 BWENA Transactions Permian Focus on Cash Flow with Upside Northeastern Midland Shelf April 2015 BWENA announced the closing of a transaction with Juno Energy II for $315MM; Clearfork Waterflood in Crosby County with 7,100 acres, 2,500 bopd of gross production and 19.0 MMbo of proved reserves Northern Midland Basin November 2015 BWENA announced the closing of a transaction with Tall City Exploration, LLC and Plymouth Petroleum, LLC for $1.084 Bn; Lower Spraberry and Wolfcamp A/B horizontal development program in Howard and Borden counties consisting of 78,000 net acres and 6,000 boepd of net production

15 Juno Energy II Clearfork Waterflood in Crosby County Yantai Xinchao s entrance into the Permian with an active waterflood development program Transaction between Surge Energy America, LLC and Juno Energy II Closed April 2015 for $315MM 2,500 bopd of gross production (100% oil) 19.0 MMbo of proved reserves 7,100 net acres Part of the Clearfork trend development in the Northeastern Midland Shelf Main development areas include Clark Wood Ranch, NERCU and Caddell Modern infrastructure including three centralized water facilities for injection support Waterflood operations initially began in 2011 on a 10- acre inverted nine-spot pattern 5-acre downspacing began in 2014 Future upside potential in the Glorieta

16 Tall City Exploration / Plymouth Petroleum Howard & Borden Counties Active horizontal program in the most economic play in the Lower 48 Transaction between Moss Creek Resources, LLC, Tall City Exploration LLC and Plymouth Petroleum, LLC Closed November 2015 for $1.084 billion 6,000 boepd of net production 78,000 net acres spread over Howard and Borden Counties Active horizontal development in the Wolfcamp A, Wolfcamp B and Lower Spraberry Shale First horizontal drilled in Howard County in 2013 by Plymouth Petroleum with favorable results that kicked off development in the area 2015 development consisted of running 1 3 rigs drilling Wolfcamp A and Spraberry Shale Five test wells drilled in Borden County showing promising results in the Wolfcamp A and encouraging log analysis in the Spraberry Shale 2016 developments include ramping up from a single rig currently and testing the Lower Spraberry in Borden County

17 Surge Operating, LLC: Company Overview Crosby County Hoople Borden County Moss Creek Howard County Houston, Texas HQ Upstream operating company, Surge Operating, LLC, formed by Blue Whale in 2015 Led by CEO - Dexter Burleigh, COO - Phil Webb and CFO - James Welch Operator of Moss Creek Resources, LLC and Surge Energy America, LLC 80,000+ net acreage position across Crosby, Howard and Borden counties with ~8,000 boepd net production through combination of Tall City/Element and Juno acquisitions

18 What s Next for BWENA? Continue to high-grade opportunities that come to market Advance our technical and commercial understanding of key basins Monitor commodity prices and drilling economics Pursue strategic opportunities in both the Midland and Delaware Basin Work with Surge Energy to execute the development plan

19 Specific Topics / Questions to Address Explain how and why we came to receive capital from our Chinese investors. Why did we make our first investment in the Permian Basin? Did we look elsewhere? How competitive is the Permian getting, in terms of dollars per acre? Would we buy any more there, or just drill what we have? Are the Chinese investors wanting to do more in the US oil patch? How did the trade with Tall City go down and what is our outlook for the rest of 2016, 2017 and 2018? 19

20 Blue Whale Energy North America Corporation 842 West Sam Houston Parkway North Suite 310 Houston, Texas (832) Nick Ludtke Vice President Finance (832) Curtis Newstrom President & CEO (832) Chris Chaffin Vice President - Geoscience cchaffin@bluewhalena.com (832) Doug Rook Vice President - Land & Business Development drook@bluewhalena.com (832) Matthew Lake Vice President - Engineering mlake@bluewhalena.com (832)