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TG World shies from winter drilling Partner in a four-company joint venture postpones its share of drilling activities this winter, second partner starts review Eric Lidji Petroleum News
Frightened by global financial uncertainties and low oil prices, a partner in a joint venture exploring north of Prudhoe Bay is pulling back its involvement in the program this winter.
Calgary-based TG World Energy Corp. is postponing its participation in “drilling and development programs” planned for this winter. However, TG World still intends to fund its share of two seismic efforts, the company said in a press release on Nov. 26.
The company did not return a call for comment.
Through its share of a four-company joint venture, the Calgary-based independent holds a 35 percent interest in drilling efforts, and a 25 percent interest in two seismic projects.
Brooks Range Petroleum Corp. is the operator of the joint venture, which has been among the most active on the North Slope in recent winters.
The joint venture is planning to drill up to three wells in Gwydyr Bay this coming winter to follow up on several previous exploration wells drilled in the area north of Prudhoe Bay. It also plans to shoot seismic over the Slugger prospect south of Point Thomson.
TG World still plans to fund its share of a seismic acquisition program in the “South Thomson area,” also known as Slugger, and the processing of seismic collected this past winter around the Tofkat prospect east of the village of Nuiqsut.
The company said it hopes to use the information gathered through those seismic projects for “identifying possible drilling prospects” for the winter 2009-10 exploration season.
Another partner in the joint venture, Calgary-independent Bow Valley Energy Ltd, announced Nov. 28 that it hired an advisor “to examine and consider a range of strategic alternatives” available to the company in the “current global economic environment.”
Nabors subsidiary Ramshorn Investments Inc. is the fourth partner in the joint venture.
Reversal from summer fortune The announcement from TG World is a sharp reversal from the outlook this summer when record oil prices made most Alaska prospects seem economic and profitable.
Over the latter half of the year, though, oil prices have fallen from their peak at nearly $145 a barrel to their current prices hovering around $45 a barrel. On top of that, a general reluctance to lend has put pressure on smaller companies looking for credit.
But TG World seemed to have money available. At the company’s annual meeting on June 18, TG World President and CEO Clifford James said the company had raised $25 million through the end of November 2007. James said the funds were mainly dedicated to the company’s Alaska exploration program, and enough to cover two drilling seasons.
“We bit the bullet last year and we raised more money than we knew we needed,” James said.
In addition to those funds, TG World also collected a significant amount of revenue by cashing in or selling tax credits issued by the state to exploration companies. Including outstanding claims, TG World said it applied for C$10.2 million in these reimbursements.
Despite its recent decision not to participate in drilling activities this winter TG World insists it is “well positioned, over the foreseeable future, to weather the current economic turmoil,” citing an additional C$15.7 million “in its treasury.” However, the company said it started a “strategic review of other opportunities that may be available to the Company, including oil and gas opportunities in Western Canada, and elsewhere.”
In addition to its interests in Alaska, TG World also holds an interest in an exploration program in Niger, which is currently on hold pending “local security concerns.”
Partner considering options Bow Valley is also looking at its options in the face of an uncertain future.
Citing the “current global economic environment” and its “bank indebtedness maturities” at the end of the year, Bow Valley said in its Nov. 28 press release it has hired the global acquisition and divestment firm Scotia Waterous to explore a range of alternatives that include “exploring potential asset divestments, equity alternatives, strategic alliances, joint venture opportunities, mergers or a corporate sale transaction.”
The company added that there is “no assurance that the strategic review process or the property sale process will result in any change in the company’s current operations or that the company will pursue any particular transaction.”
According to its Web site, Scotia Waterous “acted as exclusive financial advisor to Forest Oil Corp. on the sale of its Alaska assets to Pacific Energy Resources Ltd.”
Alaska threatened, not dead Although the new economic environment has yet to impact Alaska to the degree felt by other high-cost provinces, the TG World announcement is the second example of a company publicly reconsidering short-term plans in the face of uncertain economics.
Pioneer Natural Resources is planning to cut around 60 percent of its drilling activities companywide until costs approach 2006 levels, Ken Sheffield, president of the company’s Alaska subsidiary, told the Resource Development Council on Nov. 19.
The Texas-based independent has not made a final decision about whether that reduction in drilling will include a well planned at the Cosmopolitan prospect in the Cook Inlet.
Speaking at an earnings call on Nov. 5, Tim Dove, president and chief operating officer of Pioneer Natural Resources, said the company would “most likely” defer the well, but on Nov. 11, Tadd Owens with the company’s Alaska subsidiary said, “We may have some additional flexibility before the year ends” if commodity prices start to recover.
Over the short term, analysts expect the global economic downturn to hit independents and smaller oil companies harder than the major integrated companies, which tend to have larger reserves of cash on hand and don’t have to rely as heavily on credit.
Although larger than TG World and Bow Valley, Pioneer is also an independent. So far, the major companies operating in Alaska, like BP, ConocoPhillips and Chevron, have not announced any major changes in the exploration programs presented earlier in the fall.
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