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Oklahoma Energy Scene – Times are Changing

Oklahoma, Supreme Court Ruling, Oklahoma

By: Jack Money – The Oklahoman – Oil and gas operators headquartered in Oklahoma continue adjusting their footprints as market and geopolitical issues evolve.

Of course, companies are always updating where they plan on spending their money and buying and selling assets based upon market conditions here at home and abroad. But over the past six months, those types of activities have been on the upswing.

Both large and small companies are making adjustments.

Continental Resources, for example, acquired assets Samson Resources II held in the Powder River Basin of Wyoming for $215 million. Samson is in the process of shutting its doors.

Devon Energy and WPX Energy entered into a merger of equals with an enterprise value of about $12 billion earlier this year that gave Devon flexibility to move some of its production activities to privately held acreage in the Permian Basin while taking mounting debt issues for WPX off its plate.

Chesapeake Energy unloaded its Mid-Continent operations as part of its bankruptcy process that ended earlier this month. Oklahoma City-based Tapstone Energy acquired those assets through an auction for $135 million.

Various other companies announced deals to become part of larger operations like Tall Oak Midstream II and III, which were acquired by Tailwater Capital for undisclosed amounts.

Others like PHX Minerals recently acquired additional assets to boost their production diversity outside of Oklahoma. PHX spent $7.25 million and disbursed 153,375 shares of PHX stock to acquire additional royalty and mineral acres in Grady County and several Texas counties that are part of the Haynesville Shale field.

Continental’s acquisition

Jack Stark, Continental Resources’ chief operating officer, said the company entered into an agreement to acquire Samson Resources’ Powder River Basin assets early this year.

Stark recently told analysts on an earnings call that wells from the 130,000 acres are producing about 9,000 barrels of oil (equivalent) daily, with 80% of that being crude.

“These assets provide Continental as shareholders another great platform for growth, adding over 400 million BOE of net un-risked resource potential to the company’s portfolio,” Stark said. “The basin is in its early stage of development with solid results that compete economically with our portfolio, even before adding the benefits of our operating efficiencies and technology.”

Bill Berry, Continental Resources’ CEO, said moving into the basin is like returning to “home base” for the company.

“We’re not a novice to Wyoming … I think we all grew up there. So, operations fit us very well, in both drilling and development and from a technical standpoint.”

Continental Resources posted a net loss of about $596.9 million, or $1.65 per share, on total revenues of about $2.59 billion for 2020.

But Berry highlighted to analysts the company completed a fifth-consecutive year where it had free cash flow it could use to pay down debt and issue returns to investors through dividends.

Going into 2020, the company projected a free cash flow of $200 million but actually generated $275 million, in part because of better natural gas prices that prompted the company to boost its production of that fuel the latter part of the year.

At the same time, it drove well costs down in the Bakken Shale field and in Oklahoma, held its capital expenditures in check, beat its predicted production totals for the year, plus captured 98.3% of its gas production and delivered its best year of safety performance ever as part of its focus on environmental and social governance issues, he noted.

The company aims to pay down its debt by another $1 billion during the coming year.

Devon, WPX deal ‘timed well’

Clay Gaspar, Devon Energy’s chief operating officer, told analysts taking part in a call on its fourth-quarter 2020 results the combined company creates an asset portfolio that strikes a nice balance between sustainable opportunities for growth and free cash flow.

The company holds 400,000 acres of prime acreage in the Delaware Basin that accounts for about 60% of its proforma production, he observed. Just as importantly, it also comprises a nice mix of opportunities in both New Mexico and Texas.

“By having a blend of federal, state and free positions in both Texas and New Mexico, we’re able to leverage the significant economies of scale and, at the same time, benefit from market diversity and (will allow us to) navigate the evolving regulatory climate,” Gaspar said.

Within federal lands, Devon holds 500 approved drilling permits and easements for rights-of-way that should keep it busy there for years, he said.

Meanwhile, upwards pressure on natural gas and oil prices \improved the company’s cash flow, enabling it to bank $500 million in cash in the fourth quarter and to exit the year with $5.6 billion of liquidity ($2.6 billion of cash on hand and $3 billion of undrawn capacity on its unsecured credit facility).

It took some of that surplus this month to retire $43 million in senior notes that were scheduled to be mature in 2022, and Jeff Ritenour, the company’s chief financial officer, said it plans to make additional debt reductions in the near future.

For the fourth-quarter of 2020, the company posted a net loss of $102 million, or 27 cents per share.

Richard Muncrief, Devon’s CEO, told analysts Devon’s future is bright.

“We have definitely timed this merger well, catching the very bottom of the cycle and positioning ourselves to capture the full upside presented by the recent strengthening of macro fundamentals,” he said. “By bringing together our respective companies, shareholders will benefit from enhanced scale, immediate cost synergies, higher free cash flow, and a financial strength to accelerate the return of cash to shareholders through our innovative fixed plus variable dividend strategy.”

Chesapeake’s emergence

Chesapeake Energy still has plenty to keep it busy, even after giving up about 736,000 acres within its Mid-Continent operational area (the Anadarko Basin in Oklahoma).

A filing Chesapeake made with the Securities and Exchange Commission earlier this year stated the company held about 540,000 acres in the Appalachian Basin, about 225,000 acres in the Haynesville Shale field on the Gulf Coast, about 220,000 acres in the Eagle Ford Shale field of south Texas, about 420,000 acres in the Brazos Valley of the Eagle Ford and about 190,000 acres in Wyoming’s Powder River Basin.

CEO Doug Lawler said earlier this year Chesapeake had worked hard to maintain its current portfolio.

“The opportunity to unleash the company from the legacy challenges it faced is something we really are looking forward to,” Lawler said, after the company had emerged from bankruptcy. “We have made great progress with respect to operations, capital efficiencies and our competitiveness the past several years on things we could control.”

Business writer Jack Money covers Oklahoma’s energy and agricultural beats for the newspaper and Oklahoman.com. Contact him at jmoney@oklahoman.com. Please support his work and that of other Oklahoman journalists by purchasing a subscription today at oklahoman.com/subscribe.

 

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