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Newfield enters Rockies with $575M Inland acquisition Independent acquires 110,000 acres at Monument Butte field in Utah, where no major or well-financed independent has worked and where Newfield plans to invest $80M per year Ray Tyson Petroleum News Houston Correspondent
Houston-based Newfield Exploration, rounding out its years-long effort to become a more diversified exploration and production company, is entering the Rocky Mountains with a bang.
Newfield is stepping into the region with a negotiated deal to acquire private Inland Resources and its vast 110,000-acre position in the coveted Monument Butte field of Northeast Utah for $575 million. The transaction is expected to close Sept. 1.
The Inland transaction comes just weeks after acquisition-minded Newfield scooped up Denbury Resources’ offshore Gulf of Mexico assets for $186 million,
“It’s a low risk, repeatable exploitation play that offers us the chance to develop thousands of drilling locations over the next decade,” David Trice, Newfield’s chief executive officer, said of onshore Monument Butte in an Aug. 6 conference call with industry analysts.
Newfield would operate the Monument Butte field with an average 78 percent working interest.
A huge, relatively untapped resource situated in the middle of the prolific Uinta basin, Monument Butte is surrounded by large producing fields and is said to hold estimated overall reserves exceeding 2 billion barrels of oil equivalent. Only 1.5 percent recovered The field has never been touched by a major oil company or a large, well-financed independent. To date, only 30 million barrels, or 1.5 percent of in-place oil reserves, have been recovered since Monument Butte was discovered in 1964.
In addition to providing Newfield with a more diversified geographic base of operations, Monument Butte also would put more oil in Newfield’s gas-heavy portfolio. When the deal closes, Newfield said it would be 70 percent weighted to gas.
In its effort to diversify, Newfield over the past five years has expanded from its roots on the Gulf of Mexico’s continental shelf in the 1980s to South Texas, Louisiana, deepwater Gulf of Mexico, the Midcontinent, East and West Texas, and now the Rockies. The company also has moved into Malaysia, China’s Bohai Bay and the North Sea. Company believes higher oil prices here to stay Oil prices also have rocketed nearly 40 percent over the past year, another Newfield motive to buy Inland Resources. With continuing unrest in the Middle East, Nigeria and Venezuela, coupled with growing economies in China, India and the United States, Newfield believes higher oil prices are here to stay. The company already has added “some very attractive oil hedges” for 2005 through 2007 based on the bright outlook for prices.
“The market is clearly indicating things have changed,” Trice said. “Instability, unrest and higher demand dictate strong prices. There just isn’t a great deal of excess capacity in today’s oil markets.”
In exchange for the negotiated $575-million price for Inland Resources, Newfield would receive proved reserves amounting to about 326 billion cubic feet of gas and probable reserves of about 439 billion cubic feet of gas equivalent. The reserves are 85 percent oil and 70 percent proved undeveloped, the company said.
However, the field contains far more potential than is being reported to satisfy strict U.S. Security and Exchange rules governing reserve estimates, including the potential for lucrative deep natural gas discoveries, Newfield said. Also, Monument Butte is said to be 20 to 30 years behind industry in terms of secondary oil recovery, including water flooding.
“In addition to a greater sweep of oil in the identified sections, there’s also the potential to explore for deeper gas intervals,” said Dick Schaible, Newfield’s vice president in charge of acquisitions. This would all be upside above and beyond reserve potential quantified.”
Under terms of the deal, Newfield said it would own 40 percent of any natural gas discovered in the lower horizons. Newfield will invest $80 million a year Newfield said it intends to invest $80 million a year in Monument Butte to drill upward of 3,000 wells, or about 150 wells a year, during the next 10 years, adding that it also plans to double current daily oil production of 7,000 barrels to 14,000 barrels by the end of 2006. Three rigs are currently drilling in the field, a level of drilling activity Newfield plans to maintain for now.
“We are in a very good neighborhood surrounded by giant fields with access to market,” Schaible said, adding that there are four refineries in the region capable of handling Newfield’s increasing production at Monument Butte.
Monument Butte wells, given their relatively low daily rates, aren’t big producers but remain steady once they reach their plateau. While the average well comes on line at about 65 barrels per day and declines to about 20 barrels before stabilizing, it produces about 75,000 barrels during its lifetime. Moreover, it only takes seven days to drill a well to the shallow producing zone at around 5,500 feet. And drilling expenses average only $500,000 per well.
“This is not an asset we can grow quickly, but we can grow it for a long time,” Schaible said.
“I am confident you will see comparable growth from our Rocky Mountains region as we develop this play in the future,” Trice added. Big Gulf gas wells decline quickly The long-lived oil reserves of Monument Butte are in stark contrast to gas reserves Newfield holds on Gulf of Mexico’s continental shelf, where wells come on line producing at high rates but decline quickly.
“From the high-rate return, shorter-lived fields in the Gulf of Mexico to the long-lived oil and gas plays of the Rockies and the Midcontinent, we have achieved balance,” Trice said.
The Inland transaction would lengthen Newfield’s reserve life by nearly 20 percent to about seven years, the company said.
The acquisition of steady, low-risk production from the Rockies also would help offset the cost of more risky exploration drilling in the Gulf of Mexico and abroad, the company said.Newfield said it plans to pay for Inland Resources using a combination of stock and borrowing. On Aug. 9, the company said it would publicly offer 4.7 million shares of its common stock to help pay for the acquisition. Inland couldn’t come up with capital Denver-based Inland Resources, the product of a merger between Lomax Exploration and Inland Mining Co. in 1994, simply could not come up with the capital to further develop the Monument Butte field, Schaible said.
“They contemplated raising additional money to fund drilling activity earlier this year and then later decided to sell the company,” he added. “Newfield worked with Inland on a negotiated basis and reached an agreement to acquire this legacy asset.”
However, he said, Newfield intends to keep the Inland staff because of their experience with developing the field and working with the U.S. Bureau of Land Management. Monument Butte is located on federal land.
“With Newfield’s financial strength and an infusion of a few key Newfield employees, we think we have the winning combination to better exploit this unique asset,” Schaible said. He said Newfield would use the Inland acquisition to establish a foothold in the Rocky Mountains.
“This acquisition places us squarely in the Rockies, an area where we intend to grow in the future,” Schaible said.
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