In this month’s roundup of news and views, the question of where things are going, and what’s to be done about it, takes precedence. These are the full versions of the “Drilling Deeper” news items that appeared as abbreviated versions in the print edition of PB Oil and Gas Magazine’s May 2019 issue.
Danos and Phoenix Team
For Groundbreaking Effort
Danos, an oilfield service company, and Phoenix Construction broke ground recently for Danos’ new Permian office. Set on a 12-acre lot south of Interstate 20 between Midland and Odessa, the 20,200 square-foot building will house office and meeting space, training facilities, and computer-based training stations. Additionally, the building will have a 12,500 square-foot shop, featuring drive-through and crane bays, with space for fabrication, automation, coatings, hydro-testing, and instrumentation and electrical work.
Danos owner Mark Danos cited strong Permian-area growth as their reason for making the commitment.
“In the seven years we’ve been working in the Permian, our customer base has increased, and our employee number has grown to over 500. We are committed to expanding our presence in the area, and with Phoenix’s help, our new office will position us for continued growth and success,” Danos said.
For their own part, Phoenix Construction expressed enthusiasm for the venture.
“We are excited to get this project underway, and our team is set to build a quality facility for Danos here in Midland,” said Jeff Hudson, project manager for Phoenix Construction.
The new office will consolidate multiple, existing offices for Danos in the Midland/Odessa area. Construction is expected to be completed summer 2019.
“Partnering with Phoenix Construction has been a great decision for Danos thus far,” said Danos. “We look forward to the new opportunities building will bring to Danos, our employees, and our customers.”
Danos and Phoenix personnel bend to the task.
Fox Thermal Releases Findings
Fox Thermal announced March 20 the publication of a report titled “A Dirty Little Secret: Case Study on Thermal Flow Meter Calibration for Natural Gas Service.” This study describes the challenges users face when the natural gas composition varies from place to place. A flow meter calibrated for a “standard” natural gas mix may result in compromised flow measurement accuracy if the natural gas composition in the pipe doesn’t match the standard mix the flow meter has been calibrated to measure. This problem can be faced by users across industries in a variety of applications. Any process that involves the use of natural gas can be affected. This case study can be used as a reference for industry professionals looking to specify flow measurement technology used in the measurement of natural gas and:
*Changing gas compositions without compromising accuracy
*Mandated monitoring devices with an accuracy of ±2%, ±5%, or ±7.5% or better
*Harsh and remote environments
Fox thermal flow meters are commonly used to provide gas flow measurement for industrial applications.
*Benefits of Fox meters in these applications include: *Gas-SelectX gas selection tool for field-selectable gases/gas mixes without re-calibration at the factory *Direct mass flow measurement at very low flow rates *Superb turndown for upset conditions – up to 1000:1 *Accuracy specification that exceeds regulation requirements for monitoring devices
*In-situ Calibration Validation for mandated verification of device calibration
*Easy to install – insertion and inline styles available *Rugged, low-maintenance design – available with remote sensors
Fox thermal mass flow meters provide the real-time measurement required for sophisticated combustion control systems, as well as other critical flow measurement applications. These include compressed air metering, wastewater aeration, hydrogen monitoring, landfill gas monitoring, purge monitoring, and the measurement of flare, combustor, vent and natural gases.
This case study has been published electronically and is available for download or in print version by request at https://www.foxthermal.com/literature/natural-gas-calibration-case-study.php
More information on Fox Thermal can be found at http://www.foxthermal.com/
Chevron Corp. Moves to Acquire Anadarko
Chevron Corporation announced April 12 that it has entered into a definitive agreement with Anadarko Petroleum Corporation to acquire all of the outstanding shares of Anadarko in a stock-and-cash transaction valued at $33 billion, or $65 per share. Based on Chevron’s closing price on April 11th, 2019, and under the terms of the agreement, Anadarko shareholders will receive 0.3869 shares of Chevron and $16.25 in cash for each Anadarko share. The total enterprise value of the transaction is $50 billion.
The acquisition of Anadarko will significantly enhance Chevron’s already advantaged upstream portfolio and further strengthen its leading positions in large, attractive shale, deepwater, and natural gas resource basins. Furthermore, Western Midstream Partners LP is a successful midstream company whose assets are well aligned with the combined companies’ upstream positions, which should further enhance their economics and execution capabilities.
“This transaction builds strength on strength for Chevron,” said Chevron’s Chairman and CEO Michael Wirth. “The combination of Anadarko’s premier, high-quality assets with our advantaged portfolio strengthens our leading position in the Permian, builds on our deepwater Gulf of Mexico capabilities, and will grow our LNG business. It creates attractive growth opportunities in areas that play to Chevron’s operational strengths and underscores our commitment to short-cycle, higher-return investments.
“This transaction will unlock significant value for shareholders, generating anticipated annual run-rate synergies of approximately $2 billion and will be accretive to free cash flow and earnings one year after close,” Wirth concluded.
“The strategic combination of Chevron and Anadarko will form a stronger and better company with world-class assets, people, and opportunities,” said Anadarko Chairman and CEO Al Walker. “I have tremendous respect for Mike and his leadership team and believe Chevron’s strategy, scale, and operational capabilities will further accelerate the value of Anadarko’s assets.”
Transaction Benefits
• Strong Strategic Fit: Anadarko’s assets will enhance Chevron’s portfolio across a diverse set of asset classes, including:
• Shale and Tight – The combination of the two companies will create a 75-mile-wide corridor across the most attractive acreage in the Delaware basin, extending Chevron’s leading position as a producer in the Permian.
• Deepwater – The combination will enhance Chevron’s existing high-margin position in the deepwater Gulf of Mexico (GOM), where it is already a leading producer, and extend its deepwater infrastructure network.
• LNG – Chevron will gain another world-class resource base in Mozambique to support growing LNG demand. Area 1 is a very cost-competitive and well-prepared greenfield project close to major markets.
• Significant Operating and Capital Synergies: The transaction is expected to achieve run-rate cost synergies of $1 billion before tax and capital spending reductions of $1 billion within a year of closing.
• Accretive to Free Cash Flow and EPS: Chevron expects the transaction to be accretive to free cash flow and earnings per share one year after closing, at $60 Brent.
• Opportunity to High-Grade Portfolio: Chevron plans to divest $15 to $20 billion of assets between 2020 and 2022. The proceeds will be used to further reduce debt and return additional cash to shareholders.
• Increased Shareholder Returns: As a result of higher expected free cash flow, Chevron plans to increase its share repurchase rate from $4 billion to $5 billion per year upon closing the transaction.
Transaction Details
The acquisition consideration is structured as 75 percent stock and 25 percent cash, providing an overall value of $65 per share based on the closing price of Chevron stock on April 11th, 2019. In aggregate, upon closing of the transaction, Chevron will issue approximately 200 million shares of stock and pay approximately $8 billion in cash. Chevron will also assume estimated net debt of $15 billion. Total enterprise value of $50 billion includes the assumption of net debt and book value of non-controlling interest.
The transaction has been approved by the Boards of Directors of both companies and is expected to close in the second half of the year. The acquisition is subject to Anadarko shareholder approval. It is also subject to regulatory approvals and other customary closing conditions.
Upon closing, the company will continue be led by Michael Wirth as Chairman and CEO. Chevron will remain headquartered in San Ramon, Calif.
New Oilfield Waste Landfill
Permitted for Upton County
Milestone Environmental Services (Milestone), an industry leader in oilfield waste disposal services, announced April 9 that the Railroad Commission of Texas (RRC) has approved the company’s second RCRA-exempt oilfield waste landfill permit in the Permian Basin. Development plans for the 7.8 million cubic yard landfill south of Midland, Texas, are in progress.
Located 34 miles south of Midland off State Highway 349 (8.5 miles south of Milestone’s existing South Midland slurry injection facility), the 93-acre landfill will serve customers in the heart of the southern Midland Basin. The landfill will accept cuttings, contaminated soils, and other RCRA-exempt waste solids.
“The Midland Basin continues to have some of the highest density of drilling, completion, and production activity in the world, and responsible development of this important play requires a world-class oilfield waste management solution,” said Milestone president and CEO Gabriel Rio. “Located near our South Midland slurry injection facility, the addition of the Upton landfill will allow us to accept the entire spectrum of oilfield wastes from customers in the Midland Basin.”
Approval of the Upton landfill permit is the culmination of years of engineering design and planning efforts by the Milestone team and its outside engineers. This permit award comes just one month after the company announced it received its first landfill permit in Orla, Reeves County, Texas, on March 6, 2019. Co-located with Milestone’s existing Orla slurry injection facility in the Delaware Basin, the 80-acre landfill also will accept all RCRA-exempt oilfield waste streams, including cuttings and contaminated soils, with room to expand capacity.
The Orla and Upton landfill permits are a continuation of Milestone’s assertive expansion plans to develop an unrivaled network of landfill and slurry disposal facilities in the Permian Basin.
Milestone Environmental Services is an oilfield waste disposal services provider with an environmentally focused, cost-effective and efficient approach to managing oilfield waste. Milestone operates strategically located, state-of-the-art disposal facilities that provide dependable, local services for leading U.S. oil and gas operators. Milestone is a premium provider of oilfield waste disposal, operating for more than 25 years. The company is headquartered in Houston, Texas, and currently operates seven oilfield waste management locations in the Permian Basin, Eagle Ford Shale, and Haynesville Shale. For more information, please visit www.Milestone-ES.com.
Callon Divests Non-Core Assets
Callon Petroleum Company announced April 8 it has entered into a definitive agreement regarding the sale of certain non-core assets in the Midland Basin for initial cash proceeds of $260 million, subject to customary purchase price adjustments. The agreement also provides for potential incremental cash payments of up to $60 million based upon future commodity prices with upside participation starting at the $60/Bbl West Texas Intermediate level.
Joe Gatto, President and Chief Executive Officer commented, “We are delivering on our commitment to drive enhanced capital efficiency by monetizing lower margin, non-core properties that have not competed for capital on a sustained basis. The proceeds from this divestiture will accelerate our debt reduction initiatives and also provide the opportunity to retire our preferred stock, reducing our cash financing costs. In addition, the transaction streamlines our business with a resulting focus on three core operating areas. We are actively optimizing our operations, which we believe will reduce capital intensity and increase returns on capital for our shareholders.”
The divestiture encompasses our Ranger operating area in the southern Midland Basin which includes approximately 9,850 net Wolfcamp acres (66% working interest), over 80 currently producing horizontal wells that have been drilled since 2012 and 70 net, delineated locations that exceed our internal threshold of an IRR of greater than 25% at strip pricing. Daily production from these assets averaged approximately 4,000 Boe/d (52% oil) in February 2019. Our capital plans for the year are unchanged as there was no planned activity in the Ranger area for 2019. Updated full year guidance will be provided upon closing of the sale.
In addition to the pending divestiture, we completed a strategic trade during the first quarter of 2019 that expanded our contiguous position in northwest Howard County through the addition of two incremental long-lateral DSUs in exchange for low working interest properties in Midland County. The trade resulted in a net increase of approximately 167 net acres to Callon’s Midland Basin leasehold position and generated $14 million in cash proceeds to Callon. Our resulting asset base is now well-positioned for the efficient, large pad development model that we are increasingly deploying across our portfolio.
Jefferies LLC acted as exclusive financial advisor to Callon in connection with the Ranger divestiture transaction.
Downhole Tools Market to Reach $5.16 Billion by ’26
The global downhole tools market size is expected to reach $5.16 billion by 2026, according to a new report by Grand View Research, Inc., progressing at a CAGR of 4.2 percent during the forecast period. The growth of the market is primarily driven by ongoing increases in drilling activities worldwide. The operational cost incurred in E&P activities has dropped with advent of operational efficiencies and technological innovations. This has resulted in a rise in exploration of unconventional resources, thereby spurring the global demand for the product.
Enhanced efficiency of downhole tools will facilitate in improved extraction of hydrocarbons without raising the cost involved in production, which will provide an edge over conventional equipment. The implementation of digital technology has also enhanced E&P activities, which, in turn, has boosted the downhole tools market over the last few years. Various digital well construction planning and operation software have improved drilling operations. Several wellbore technologies have been manufactured for premium connections that are designed to reduce bottomhole failure and improve the rate of connection on rig floor.
Regulatory trends and various industry standardizations have a major impact on the growth of the market. There is an increased stringency in rules and regulations by various governments for protecting the environment and minimizing damage during well operations. Specifications given by governments to meet standard tools are anticipated to stimulate the growth of the downhole tools market.
Drilling tools were the leading product segment and accounted for more than one fourth of the overall revenue in 2017. Some of the major drilling equipment include reamers & stabilizers, jars & impact tools, and tubulars. Evolution of various sensor technologies and increasing investments from cross-industry players has enhanced drilling equipment efficiencies.
Grand View Research, a U.S.-based market research and consulting company, provides syndicated as well as customized research reports and consulting services. Registered in California and headquartered in San Francisco, the company comprises over 425 analysts and consultants, adding more than 1,200 market research reports to its vast database each year. These reports offer in-depth analysis on 46 industries across 25 major countries worldwide. With the help of an interactive market intelligence platform, Grand View Research helps Fortune 500 companies and renowned academic institutes understand the global and regional business environment and gauge the opportunities that lie ahead.
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