Latest Stack Deal Hints At Greater Asian Interest In US Shale

A South Korean conglomerate’s U.S. subsidiary agreed to purchase Oklahoma Stack E&P assets from Longfellow Nemaha LLC, which is owned by veteran oil and gas explorer N. Malone Mitchell III and his family.

SK E&P America Inc., based in Houston, said March 20 it plans to close the deal for Longfellow Nemaha—the second most active driller in the Stack—by first-half 2018. Terms of the deal weren’t disclosed. As of September, Longfellow’s Nemaha Project assets included about 60,500 net acres in Kingfisher and Garfield counties, Okla.

SK’s parent, SK Innovation, said it plans to invest about $450 million (W485.3 billion) in its Lower 48 E&P efforts. The company owns assets in the Midcontinent (through SK Plymouth LLC) and Permian Basin (SK Permian LLC). SK’s Midcontinent business, SK Plymouth, has assets and field operations in Garfield as well as Grant County, Okla., in the Mississippi Lime play. SK Plymouth’s existing assets are about 25 miles north-northeast of the Nemaha Project.

The transaction and investment come as Pacific Rim investors are perceptibly ratcheting up a return to shale ventures. From 2016 through 2017, Kalnin Ventures LLC, backed by Thailand’s Banpu Pcl, invested more than $520 million in Marcellus acquisitions. Most ostentatiously, in November West Virginia signed a memorandum of understanding with China Energy Investment Corp. Ltd. to invest $83.7 billion in shale gas development and chemical manufacturing over a 20-year period.

“SK is acquiring the membership interests of Longfellow Nemaha LLC. Longfellow Nemaha LLC’s assets are located in Kingfisher and Garfield counties, Okla., in the Northeast portion [updip oil leg] of the Stack play,” Longfellow Energy LP President Todd Dutton told Hart Energy in a March 22 email. Longfellow Nemaha LLC refers to those properties as the “Nemaha Project”.

Only Longfellow Nemaha assets were involved in the SK transaction, he said.

In September, Dutton told an audience at Hart Energy’s DUG Midcontinent conference that the company pieced together its 60,500-net-acre position beginning in 2012. The Nemaha position neighbors Alta Mesa Resources Inc. (NASDAQ: AMR).

SK Innovation has made its own inroads into the U.S., including setting up its E&P headquarters in Houston and gaining goodwill through its altruism, including a $50 million donation to Rice University’s Center for Languages and Intercultural Communication.

Taewon Kim, president of SK E&P America, said the company initially invested in the growing U.S. oil and gas upstream market four years ago. The Longfellow Nemaha acquisition will significantly expand SK’s core focus area in the Midcontinent region as the company continues “to build a balanced portfolio of conventional and unconventional assets.”

“This transaction leverages our operational expertise in the region and represents a significant step towards realizing SK’s vision of being a top-tier operator in the U.S. Lower 48 and beyond,” he said in a press release.

As of January, the company’s Midcontinent production included 20 wells in and around Garfield, according to the most recent Oklahoma Corporation Commission data available.

Established in 1962, SK Innovation was South Korea’s first oil refining company. The company owns refining, chemical and petrochemical assets and holds investments in electric vehicle batteries.

Longfellow Nemaha is itself part of a number of companies owned or operated by Mitchell and his family, including Longfellow Energy LP, international oil producer Transatlantic Petroleum Ltd., Viking Drilling, Viking Coil Tubing and others.

In 1985, Mitchell founded E&P Riata Energy with $500 in capital. In 2006, Mitchell sold the company for $500 million to Tom L. Ward, who took the company public as SandRidge Energy Inc. (NYSE: SD).

Longfellow’s other upstream interests include:

• Double Eagle, which includes about 4,000 net acres in Grayson County, Texas;
• Jameson Field, where it operates 27 producing oil wells on nearly 7,000 contiguous acres in Mitchell County, Texas;
• The Loco Hills project in Eddy County, N.M.; and
• McGee Valley, a project area consisting of 6,878 net acres.

The company also owns nonoperated interest in three oil fields in Los Angeles and Kern counties, Calif.
Moelis & Co. was exclusive financial adviser and Gibson, Dunn & Crutcher LLP and Hall Estill were legal advisers to SK for the transaction.

Darren Barbee can be reached at dbarbee@hartenergy.com.