KNOC joins Anadarko in Eagle Ford for $1.55B

In a joint-venture with Houston-based Anadarko Petroleum Corp. (NYSE: APC), Korea National Oil Corp. (KNOC) plans to earn approximately one-third of Anadarko's interest in its Maverick Basin assets in the South Texas Eagle Ford shale play for some $1.55 billion.

Under terms of the agreement, KNOC's $1.55-billion investment will be made entirely in the form of a drilling carry, funding 100% of Anadarko's 2011 post-closing capital costs in the basin, and up to 90% thereafter, until the carry is exhausted, which is expected by year-end 2013. KNOC will also reimburse Anadarko for net cash outflows, relative to its acquired interest, subsequent to the effective date. These are expected to be approximately $50 million.

KNOC will receive about 80,000 net acres in the condensate window of the Eagle Ford shale play, and about16,000 additional prospective net acres for the deeper dry-gas Pearsall shale.

KNOC may also elect, within 30 days post-closing, to participate as a partner with an approximate 25% working interest in the associated gathering systems and facilities.

"This transaction demonstrates the substantial embedded value of our Eagle Ford acreage position assembled primarily in the higher-margin condensate window of the play, while further enhancing our capital efficiency in a tax-effective manner," says Anadarko president and chief operating officer Al Walker.

"We have expanded our midstream infrastructure and established various service agreements concurrent with our drilling pace in the Eagle Ford shale, leading Anadarko to become the largest producer in the play during the fourth quarter of 2010. As a result, almost all of our completed wells are on line, with approximately 75% of our sales volumes comprised of liquids."

In February, Anadarko announced it would further accelerate the value of the Eagle Ford by increasing its operated rig count from nine to 10 during the second quarter.

The deal is expected to close during second-quarter 2011. The effective date is Jan. 1.Jefferies & Co. Inc. and Deutsche Bank Securities Inc. are advisors to Anadarko.

—Nancy Miller

Vanguard to buy out Encore Energy for $1.05B

Encore Energy Partners LP, Houston, (NYSE: ENP) has received a proposal from Vanguard Natural Resources LLC (NYSE: VNR) to acquire 54% of the partnership, or all of the outstanding Encore Energy Partners common units it does not currently own, through a unit-for-unit exchange. The deal is valued at some $1.05 billion.

Vanguard is offering 0.72 Vanguard common units for each outstanding publicly held Encore Energy Partners common unit, representing 23.20 per unit or a $0.05 premium, based on the companies' March 24 closing prices. The proposed transaction would be structured as a merger of Encore Energy Partners with a wholly owned subsidiary of Vanguard.

Vanguard owns 100% of the general partner of Encore Energy Partners and approximately 46% of the outstanding common units of Encore Energy Partners. Vanguard also owns oil and gas reserves in the southern Appalachian basin, the Permian Basin, South Texas and Mississippi.

Encore Energy Partners' assets consist primarily of producing and non-producing oil and natural gas properties in the Big Horn Basin in Wyoming and Montana, the Williston Basin in North Dakota and Montana, the Permian Basin in West Texas and New Mexico, and the Arkoma Basin in Arkansas and Oklahoma.

—Nancy Miller

Newfield Exploration Co., Houston, (NYSE: NFX) plans to acquire all of Houston-based Harvest Natural Resources Inc.'s (NYSE: HNR) oil and gas assets in Utah's Uinta Basin, along with additional assets in the basin from an undisclosed seller, for a total deal value of $308 million.

The $205-million divestiture by Harvest is part of the company's ongoing process to explore strategic alternatives, which it announced in September 2010.

The combined deals will add approximately 70,000 net acres to the company's acreage position in the basin for a cost of $4,400 per acre, based on metrics by David Tameron, senior analyst at Wells Fargo Securities LLC.

Harvest's oil and gas assets are in its Antelope project area in the Uinta Basin and consist of approximately 69,000 gross acres (47,600 net acres), with a working interest of approximately 70%. Wells involved in this deal are operated by both Harvest and Newfield, and acreage is prospective for Green River/Wasatch oil and also has Mesaverde deep-gas potential, according to Wells Fargo's Tameron. Additionally, Harvest's Bar F discovery well on the acreage tested roughly 800 barrels of oil equivalent (BOE) per day during a five-day period in March 2010.

Taking the separate $93-million deal into consideration, the combined acreage is largely undeveloped and is strategically located near the buyer's largest oil asset, Monument Butte Field, according to a March 21 SEC filing by Newfield.

Harvest president and chief executive James Edmiston says, "This transaction provides Harvest with an opportunity to quickly capture the value created by two years of highly successful land acquisition, exploration, appraisal and development work…The sale refocuses the company on its international portfolio and the net proceeds from this transaction will yield a strong balance sheet to reduce its outstanding debt, continue the execution of our highly prospective international exploration programs in Indonesia, Gabon and Oman, while at the same time continuing our strategic alternatives process."

The Harvest deal is expected to close in May, and the second deal in second-quarter 2011. The effective date is March 1.

Bank of America Merrill Lynch is financial advisor to Harvest.

Harvest's total proved reserves as of year-end 2009 from its U.S. and Venezuelan assets were 46.7 million BOE; and proved, probable and possible reserves were 224.7 million BOE.

—Nancy Miller

Japanese oil company Marubeni Corp., Tokyo, (Tokyo: 8002), via subsidiary Marubeni Denver Julesburg LLC, plans to acquire a 30% undivided working interest in a position in the Niobrara shale play within the D-J Basin of southeastern Wyoming and northern Colorado from Marathon Oil Corp., Houston, (NYSE: MRO) for some $270 million.

The deal values the assets at $5,000 per acre.

The acquisition consists of a 30% interest in 180,000 net acres in the D-J Basin. Marathon began leasing acreage in the D-J Basin in 2010 and is acquiring 2-D and 3-D seismic data. It expects to participate in eight to 12 gross exploration wells by the end of the year. Marathon will be operator of the jointly owned leasehold.

Marathon executive vice president, upstream, Dave Roberts, says, "Marathon is pleased to partner with Marubeni as we prepare to explore and evaluate the full potential of this emerging, liquids-rich resource play. Our significant acreage position in the D-J Basin reinforces our strategy of targeting unconventional, oil-focused resource plays in the U.S. that provide low-risk, scalable growth opportunities. It also allows us to apply expertise developed over the past several years in other unconventional shale plays such as the Bakken formation in North Dakota."

Marubeni has been seeking an opportunity to participate in the U.S. shale business since 2009 and selected this project due to its belief that it will support new U.S. energy policies aimed at increasing domestic crude oil production.

Marathon and Marubeni are also partners in a liquefied natural gas project in Equatorial Guinea.

The deal was expected to close by April 28.

—Stephen Payne

Oilfield services company Tetra Technologies Inc., The Woodlands, Texas, (NYSE: TTI) plans to exit the E&P business with the sale of Gulf of Mexico-focused subsidiary Maritech Resources Inc. to privately held Tana Exploration Co. LLC, Houston, for some $222.25 million in cash.

The purchase price includes $72 million of associated asset retirement obligations as of year-end 2010.

The assets include Maritech's interest in 21 federal offshore oil and gas leases in the Gulf of Mexico, one Louisiana offshore oil and gas lease and six leases in Louisiana state waters, representing approximately 79% of Maritech's total proved reserves as of year-end 2010. Most development efforts are in East Cameron 328 block and Timbalier Bay in Louisiana.

Year-end reserves were 11.5 million BOE (69 billion cu. ft. equivalent consisting of 7.3 million bbl. of oil and natural gas liquids, and 25.6 billion cu. ft. gas), of which 11% was sold in February. Average production in 2010 was 4.1 million bbl. of oil and gas liquids and 19.4 million cu. ft. of gas (7.3 million BOE, 43.9 million cu. ft. equivalent per day).

Stuart M. Brightman, Tetra president and chief executive, says, "Today's announcement confirms our implementation of a broader strategy to reinvest in our growth-oriented service businesses. Although our past 11 years with Maritech have seen many successes, I believe that this is the appropriate, strategic time to divest these assets and associated liabilities…We believe that this sale, in combination with the strength of our balance sheet, will allow us to aggressively pursue opportunities to grow our service businesses going forward."

Tetra announced its intent to seek strategic alternatives for Maritech's assets in late February. The assets to be sold include producing and nonproducing wells and related reserves, production, contracts, platforms, equipment, gathering systems and related production facilities.

"This agreement to sell the vast majority of Maritech's assets along with a significant amount of its associated asset retirement obligations is the culmination of a strategy we have pursued during the past two years," adds Brightman. "Over this time period, we have been focused on reducing Maritech's decommissioning liabilities through aggressive plug and abandonment and decommissioning efforts."

The effective date is Jan. 1, 2011. Closing is expected by May 31.

Tana is a subsidiary of TRT Holdings Inc., a diversified holding company formed by Texas billionaire Robert Rowling. Rowling's father, Reese Rowling, made his fortune with the sale of Tana Oil & Gas to Texaco Corp. in 1989. Tana holds almost 166,000 gross acres (136,000 net) in 37 Gulf of Mexico leases, most on the shelf with an average working interest of 79%. It also holds a 25% nonoperated interest in an onshore Texas exploration program. Tana is led by Kevin Talley, formerly of Basin Exploration Inc.

Global Hunter Securities analyst Michael Bodino estimates the valuation per proved BOE at $16.50, based on $150.25 million excluding the $72 million of asset retirement obligations, and for 9.1 million BOE, the estimated reserves following the February divestments.

Tetra is a geographically diversified oil and gas services company focused on completion fluids, production testing, wellhead compression and other offshore services including well plugging and abandonment, decommissioning and diving.

—Steve Toon

Dawson Geophysical Co., Midland, Texas, (Nasdaq: DWSN) plans to acquire TGC Industries Inc., Plano, Texas, (Nasdaq: TGE) in a tax-free stock-for-stock transaction for a total deal value of $157 million. The combined company will retain the Dawson name and trading symbol.

Based on closing prices of Dawson and TGC shares on March 18, the transaction is valued at approximately $157 million, representing approximately $8 per TGC share.

TGC shareholders will receive 0.188 Dawson share per TGC share.

At closing, Dawson will issue approximately 3.7 million shares in exchange for the approximately 19.6 million shares of TGC stock outstanding. Dawson shareholders will own approximately 68% of the combined company.

The boards of both companies have approved the transaction, and directors and officers representing approximately 29% of TGC outstanding shares and approximately 4% of Dawson outstanding shares have agreed to vote in favor of the merger.

TGC Industries is comprised of three companies, Tidelands Geophysical, Eagle Canada Inc., and Exploration Surveys.

Tidelands Geophysical is a seismic acquisition company that has provided clients with seismic data since 1967. Eagle Canada is a provider of seismic data acquisition services to the Canadian energy industry. Exploration Surveys is a digital database company providing high-resolution gravity data since 1945.

The merger is expected to close by late second-quarter or early third-quarter 2011.

Raymond James & Associates Inc. is financial advisor to Dawson. Southwest Securities Inc. is financial advisor to TGC.

Upon closing of the transaction, Wayne Whitener, president, chief executive and director of TGC, will join the board of Dawson, along with Allen T. McInnes, current TGC director and dean of the Texas Tech Jerry S. Rawls College of Business Administration. Whitener will continue as president and chief operating officer of TGC, which after the transaction will be a wholly owned subsidiary of Dawson. Rob Wood, president of Eagle Canada, will remain in his current role.

—Nancy Miller

M&A news

• Lucas Energy Inc., Houston, (NYSE Amex: LEI) has entered a joint-venture agreement with Marathon Oil (East Texas) LP, a subsidiary of Marathon Oil Corp., Houston, (NYSE: MRO) for the development of the Eagle Ford and Buda formations in Wilson County, Texas.

The Marathon affiliate has acquired a 50% working interest in approximately 1,000 net acres (below the base of the Austin chalk formation). Marathon will be operator of the joint venture, but Lucas will still own and operate rights above the Eagle Ford, primarily the Austin chalk formation.

The Austin chalk formation (and above), current well bores and equipment, and the current production from the Austin chalk and above are not included in the deal.

• Legacy Reserves LP, Midland, Texas, (Nasdaq: LGCY) plans to purchase Permian Basin gas properties from an undisclosed seller for $67 million in cash.

The properties include 126 wells (100 operated) in Eddy and Chaves counties, New Mexico. The acquisition also encompasses a gas-gathering system and related compression facilities gathering gas from the acquired wells and some third-party wells.

Net daily sales are 7.6 million cu. ft. of gas, 397 bbl. of gas liquids and four bbl. of oil per day. Proved reserves are 40.7 billion cu. ft. equivalent.

Legacy chairman and chief executive Cary Brown says, "With many companies paying strong prices for blocky Permian Basin oil reserves and leasehold, we are excited to enhance our position in high-quality natural gas assets in the Permian Basin while natural gas prices remain depressed. In addition, we took advantage of the recent uptick in natural gas prices and hedged a significant portion of the forecasted volumes from this acquisition."

The transaction was expected to close on May 5.

• Energen Corp., Birmingham, Ala., (NYSE: EGN) has reported that its oil and gas exploration and production company, Energen Resources Corp., has purchased five-year leases for more than 11,000 net acres in the Bone Spring and Avalon shale trends in the Permian Basin in the Texas General Land Office sealed bid sale. The total purchase price was $37 million.

Based on 320-acre spacing, the company estimates that the acreage, primarily in Reeves County, offers the potential for some 30 Bone Spring locations and 30 Avalon shale locations.

A horizontal drilling play targeting the Third Bone Spring sands at a vertical depth of 11,000 to 11,300 feet, the typical Third Bone Spring well has an estimated ultimate recovery of 400,000 to 500,000 bbl. of oil equivalent; Energen Resources' drilling and completion costs are approximately $7.5 million per well. As operator, Energen has drilled and completed 11 Bone Spring wells and currently is drilling four more.

The company plans to drill another 11 wells in the Third Bone Spring sands by year-end 2011.

The Avalon shale offers a horizontal oil play at a vertical depth of 8,500-9,000 feet. Energen Resources believes that the estimated ultimate recoveries (EURs) could be approximately 300,000 to 350,000 BOE, with well costs of some $5.5 million. The company currently is completing its first Avalon shale well.

Together with existing acreage, the new leases bring Energen Resources' total Third Bone Spring position to more than 61,000 net undeveloped acres with 180 potential drilling locations (based on 320-acre spacing).

The company's total Avalon shale position is estimated to be more than 91,000 net undeveloped acres with 280 potential drilling locations (based on 320-acre spacing).

• Houston-based, privately held Dynamic Offshore Resources LLC has acquired the U.S. Gulf of Mexico oil and gas portfolio of Providence Resources Plc, (London Aim: PVR) for $22 million.

The assets include a nonoperated 5% working interest in the High Island Block A-268, offshore Texas. Production is approximately 700 BOE per day. A discovery well was drilled in early 2007, a second well was successfully drilled during August 2007 and the field was brought into production during second-quarter 2007. Recompletions are planned for 2011 in both the A1 and A2 wells.

Dynamic will pay $15 million cash up front with an additional $7 million to be paid dependent on Dynamic reaching certain production levels from any new wells drilled on Ship Shoal 252, 253 and 267 prior to January 2013.

Providence plans to use proceeds to pay its reserve-backed lending facility with BNP Paribas.

CIBC World Markets Plc was financial adviser to Providence.

•Triad Hunter LLC, a subsidiary of Magnum Hunter Resources Corp., Houston, (NYSE: MHR) has bought oil and gas properties and leasehold mineral interests in Wetzel County, W.Va., from a privately-held E&P for $20 million in cash.

The oil and gas properties include a nonoperated 50% interest in a joint venture focused exclusively in Wetzel County. Triad Hunter had previously announced on Dec. 27 the purchase of the operated 50% interest in the joint venture from PostRock Energy Corp. (Nasdaq: PSTR). Triad Hunter has recently participated with Stone Energy in the drilling of two new horizontal Marcellus wells on this mineral acreage. The Lantz Mills Unit 2-#2H, a 4,800-foot lateral, and the Lantz Mills Unit 3-#5H, a 5,300-foot lateral, are owned 50% by Triad Hunter. Both wells are scheduled for fracture stimulation in early May.

Magnum Hunter funded the purchase price consideration with existing working capital.

In Memoriam

William Jackson (Jack) Bowen, the former chairman of Transco Energy Co., at one time one of the nation's largest gas pipeline companies, passed away in March after a period of declining health.

Born in Sweetwater, Texas, he graduated from Waco High School in 1938. He learned to fly when he was 17 and attended West Point, graduating in June 1945 with his pilot's wings. After World War II, he served in the Pacific Theatre flying transport planes, and was stationed in Manila and Okinawa for four years.

His first oil industry job was with Delphi Oil Co., an E&P in Dallas formed by his mentor and legendary Texas wildcatter Clint Murchison. There, he was in charge of building a natural gas pipeline from Texas to Florida, which resulted in his becoming CEO of Florida Gas Co. in 1962. He returned to Houston in 1974 as CEO of Transco, which had acquired Florida Gas.

Transco was acquired by The Williams Cos. in 1995 for $3 billion.

During his career, Bowen served on the boards of many industry groups, including the Interstate Natural Gas Association, the World Energy Council, the American Gas Association and the American Petroleum Institute, among others. He also served on the boards of the Smithsonian Institution, Baylor College of Medicine and The James River Corp., among other business interests.

He was an accomplished watercolorist who exhibited in New York, Mexico City and London. His interest in architecture led to the construction of the 64-story Transco Tower in Houston's Galleria area. It is now known as the Williams Tower.

He is survived by his wife and their four children, and 10 grandchildren.

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