Chesapeake to monetize certain Midcontinent assets

Chesapeake Energy Corp., Oklahoma City, (NYSE: CHK) has agreed to monetize certain of its producing assets in the Midcontinent region through a 10-year volumetric production payment (VPP) made to an affiliate of Barclays Plc for proceeds of approximately $850 million.

The deal involves some 180 billion cu. ft. equivalent of proved reserves and approximately 80 million cu. ft. equivalent per day of current net production. Chesapeake has retained drilling rights on the properties below currently producing intervals and outside of existing producing wellbores and the production "tail" beyond 10 years.

The transaction will be Chesapeake's ninth VPP and is expected to close in second-quarter 2011. Inclusive of the pending VPP sale and the company's eight previously closed VPPs, the company will have sold 1.215 trillion cu. ft. equivalent of proved reserves for total proceeds of $5.619 billion, for an average sales price of $4.62 per thousand cu. ft. equivalent.

—Nancy Miller

Eagle Rock to buy Crow Creek Energy for $525MM

The MLP Eagle Rock Energy Partners LP, Houston, (Nasdaq: EROC) plans to acquire all of the equity interests in the Maurice Storm-led Tulsa, Okla.-based CC Energy II LLC (dba Crow Creek Energy), a portfolio company of Irving, Texas-based Natural Gas Partners VIII LP, for $525 million. The deal includes approximately $303 million of Eagle Rock equity, $15 million in cash and $207 million in assumed debt.

Crow Creek has assets in multiple basins in Oklahoma, Texas and Arkansas. Core operating areas include 327 operated wells and 1,040 nonoperated wells on 115,500 net acres across Golden Trend Field, Verden Field and the Cana shale play, all in the Anadarko Basin, Mansfield Field and other various fields in the Arkoma Basin and the Barnett shale in Texas. The assets are 75% operated, based on 2011 expected production.

Net production is approximately 47 million cu. ft. of gas equivalent per day. Proved reserves are 268 billion cu. ft. equivalent (80% gas, 66% proved developed) and proved, probable and possible reserves are 740.5 billion cu. ft. equivalent. Upside includes 182 proved drilling locations and more than 450 probable drilling locations.

Eagle Rock chairman and chief executive Joe Mills says, "Crow Creek brings an extensive inventory of low-risk development prospects in established plays such as the Golden Trend Field and developing plays such as the Cana shale. This, combined with the organic growth projects we have identified in our midstream business, positions us for long-term distribution growth generated from internal opportunities."

He adds the acquired assets more than double Eagle Rock's current production and reserves.

Pro forma, Eagle Rock will have total proved reserves of 396 billion cu. ft. equivalent (73% proved developed, 64% gas) as of Dec. 31, an increase of more than 200% from the partnership's year-end 2010 proved reserves, and total probable reserves of more than 400 billion cu. ft. equivalent.

Production is expected to be approximately 80 million cu. ft. equivalent per day.

Eagle Rock lenders have pre-approved an increase of $245 million to Eagle Rock's current $160 million borrowing base related to Crow Creek Energy's reserves, resulting in a total borrowing base of $405 million effective upon closing.

The deal was expected to close by May 3.

Natural Gas Partners holds a 47% interest in Eagle Rock and made a $174-million investment in the MLP in December 2009 following a year that brought Eagle Rock a reduced borrowing base and a forbearance on a loan. Following the NGP, Eagle Rock subsequently sold its mineral business to Black Stone Minerals Co. LP.

Eagle Rock is a hybrid MLP with upstream and midstream operations in the Texas Panhandle, East Texas/Louisiana, South Texas, West Texas and the Gulf of Mexico.

—Nancy Miller

W&T Offshore to buy onshore Permian oil assets

W&T Offshore Inc., Houston, (NYSE: WTI), a long-time operator on the Gulf of Mexico shelf, is expanding onshore with plans to acquire certain producing oil assets in the West Texas Permian Basin from undisclosed private sellers for approximately $366 million.

The deal involves a total of 21,900 gross acres (21,500 net), with reserves weighted at more than 91% oil and natural gas liquids. Upside includes proved undeveloped and probable well locations in the Permian.

Proved reserves are estimated to be 27 million barrels of oil equivalent (164 billion cu. ft. equivalent) and proved and probable reserves are estimated to be 53 million BOE (318 billion cu. ft. equivalent), using a 6-to-1 Mcf-to-BOE for both.

Current production from existing wells averages around 2,800 BOE per day. Since Jan. 1, production has increased from about 1,900 BOE.

The sellers have three active rigs drilling in the field and ongoing completions are being made on the new wells. The company expects to keep at least three rigs working in the field through 2011. Capital expenditures associated with the company's planned development activities for these properties for the remainder of 2011 are currently estimated at $35- to $40 million.

W&T Offshore will fund the acquisition with cash on hand and borrowings from its revolving bank credit facility.

Tracy W. Krohn, chairman and chief executive, says, "The acquisition of the Permian Basin oil properties will allow us to continue with our goals of a steadier growth pattern coupled with good cash flow and positive full-cycle economics. We believe that there are many more attractive acquisition opportunities for us both onshore and offshore."

The deal is expected to close during second-quarter 2011. The effective date is Jan. 1.

—Nancy Miller

Chesapeake to take reins of Bronco Drilling Co.

Chesapeake Energy Corp., Oklahoma City, (NYSE: CHK) plans to acquire drilling services company Bronco Drilling Co. Inc. (Nasdaq/GS: BRNC) for approximately $315 million, including debt, net working capital and outstanding warrants.

Chesapeake will make a cash tender offer to acquire all outstanding shares of Bronco's common stock at a price of $11 per share. The $11 per share purchase price represents premiums of 6% and 24% over the closing price of Bronco's common stock on the Nasdaq on April 14, and the average closing price for the 90-day calendar period ending on April 14, respectively.

The acquisition will enable Chesapeake to further its goal of owning approximately two-thirds of the rigs that it operates in its drilling program—a key aspect of its vertical integration strategy—at an attractive price per rig. Bronco currently owns 22 high-quality drilling rigs primarily operating in the Williston and Anadarko basins, including three that are under contract with Chesapeake. Chesapeake is currently Bronco's second-largest customer.

Chesapeake will integrate Bronco's 22 rigs into Chesapeake's wholly owned subsidiary, Nomac Drilling LLC, which currently owns 95 drilling rigs available for service, of which 90 are currently drilling under contract for Chesapeake. The company is currently operating a total of 160 drilling rigs and plans to end 2012 utilizing approximately 200 drilling rigs. The company says the acquisition of Bronco Drilling should satisfy the vast majority of its anticipated rig investment needs through 2012.

Aubrey K. McClendon, Chesapeake chief executive, says, "The acquisition of Bronco is a great additional step in our vertical integration strategy and increases confidence in our plan to ramp up drilling activities in highly lucrative, liquids-rich unconventional resource plays.

"We look forward to working with Bronco's management team to quickly complete this transaction and integrate operations."

The definitive agreement entered into by Chesapeake and Bronco provides for Chesapeake to acquire Bronco in a two-step transaction. The first step will consist of a cash tender offer to be made by a wholly owned subsidiary of Chesapeake for all outstanding shares of Bronco common stock at a price of $11 per share in cash. In the second step, the tender offer will be followed by a merger in which the holders of the outstanding shares of Bronco common stock not purchased in the tender offer will receive the same per share price paid in the tender offer, in cash, without interest.

Bronco will then become an indirect wholly owned subsidiary of Chesapeake. The tender offer will be conditioned upon a majority of the outstanding shares of Bronco common stock being tendered into the offer. Chesapeake is expected to launch the tender offer shortly.

Meanwhile, the transaction has been unanimously approved by the boards of both companies. Third Avenue Management LLC, on behalf of its investment advisory clients, and Inmobiliaria Carso SA de CV, which are Bronco's largest shareholders and collectively own or have dispositive authority over approximately 32% of Bronco's outstanding common stock, have committed to tender all their shares into the Chesapeake offer.

The deal is expected to close in second-quarter 2011.

Johnson Rice & Company LLC is financial advisor to Bronco and has delivered a fairness opinion to its board. Thompson & Knight is legal counsel to Bronco.

Jefferies & Co. Inc. is financial advisor to Chesapeake. Commercial Law Group PC and Wachtell, Lipton, Rosen & Katz are legal advisors to Chesapeake.

—Nancy Miller

Tetra to exit E&P with sale to Maritech

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 approximately $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, which represent 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. of 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 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 was 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.

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.

—Stephen Payne

Northwest, Encana enter Wyoming JV

Natural gas distributor Northwest Natural Gas Co., Portland, Ore., (NYSE: NWN), has entered a joint-venture agreement with Encana Oil & Gas (USA) Inc., a subsidiary of Encana Corp., Calgary, (Toronto: ECA; NYSE: ECA) to develop assets in Wyoming for $250 million.

Northwest Natural will invest approximately $45- to $55 million per year for the next five years to earn a working interest in certain sections of Encana's Jonah Field north of Rock Springs, Wyo. The arrangement provides Northwest Natural with gas supplies for a portion of its customers.

During the first 10 years of the investment, Northwest Natural expects to receive approximately 58 billion cu. ft. of natural gas, or 8% to 10% of its average annual requirements for utility operations. For the life of the investment, the company expects to receive approximately 93 billion cu. ft.

Encana executive vice president, midstream, marketing and fundamentals Renee Zemljak says, "This is a landmark agreement and regulatory step that we believe will open the door for future upstream investment by utilities seeking price stability for their customers—transactions that are backed by utility ratepayers and supported by regulators as prudent investments."

Encana has previously established numerous joint ventures in Canada and the U.S., many that involve other natural gas producers, and industrial firms and national oil companies.

This new joint venture initiative builds on previous announcements of a farm-out agreement with Kogas Canada Ltd., a subsidiary of Korea Gas Corp., in the Horn River and Montney formations and a planned joint venture and acquisition by PetroChina International Investment Co. Ltd. of a 50% interest in Encana's Cutbank Ridge business assets in northeastern British Columbia and northwestern Alberta.

—Stephen Payne

Additional M&A

Houston-based Carrizo Oil & Gas Inc. (Nasdaq: CRZO) plans to sell substantially all of its noncore Barnett shale Tier 1 gas properties to KKR Natural Resources, the partnership formed between an affiliate of private-equity provider Kohlberg Kravis Roberts & Co. LP and Premier Natural Resources, for $104 million.

The transaction is the third investment made by KKR Natural Resources since the partnership was formed in February 2010, and, following the acquisition of certain properties from ConocoPhillips in January, the second investment made by the joint-venture company in the Barnett shale.

The assets include 13,000 acres with 75 gross wells (58.5 net) currently producing at approximately 15.7 million cu. ft. equivalent per day (8.3 million cu. ft. equivalent per day net). Estimated proved reserves associated with the divested properties amount to 122.4 billion cu. ft. equivalent (55% proved undeveloped), as of year-end 2010.

"With their significant proved developed producing reserve component in a reservoir we know well through our current operations in the region, the assets are a great fit for our KKR Natural Resources platform," adds Jonathan Smidt, a member at KKR and a senior member of KKR's energy and infrastructure business.

Carrizo president and chief executive S. P. (Chip) Johnson IV says, "Our plan to focus our Barnett shale development drilling on our core properties in Tarrant County and our success in the initial development of our liquids-rich Eagle Ford shale and Niobrara resource plays made our Tier 1 Barnett property a candidate for divestiture...The resulting increase in liquidity generated by the sale of these properties will give us the flexibility to increase our investment in liquids-rich resource plays should the opportunity appear."

The company intends to use proceeds from the sale to pay debt, and also expects to use the resulting additional capacity under its revolving credit facility to partially fund its 2011 capital expenditure plan. The deal is expected to close in mid-May.

• Jones Energy Holdings LLC, Austin, Texas, (JEH) has acquired all of the producing properties owned and operated by Southridge Energy LLC and Pablo Energy II in the Arkoma Basin. Additionally, the company entered into a joint venture with Southridge and Pablo to develop the remaining undrilled locations on the acreage. Jones will serve as operator of the assets going forward. Specific transaction and financial terms were not disclosed.

The acquired properties include approximately 20 million cu. ft. equivalent of current net production and over 77,000 gross acres located primarily in the liquids-rich fairway of the Woodford shale in Coal and Atoka counties, Oklahoma.

This transaction represents a strategic expansion to JEH's existing operations, which are focused primarily in the Cleveland Sand and Granite Wash formations of the Texas Panhandle. JEH expects to leverage its drilling and operational expertise developed in the Texas Panhandle over the past two decades to develop the remaining undrilled Woodford locations in a low cost and efficient manner.

"Jerry Steed, CEO of Pablo, and his team have done an excellent job developing this acreage over the past several years and we look forward to working together in the future as we develop these properties," said Jonny Jones, founder and chief executive officer of JEH.

Pro forma for this transaction, JEH will have a significant presence in its two core areas of focus: the Anadarko Basin (Cleveland Sand and Granite Wash formations) and the Arkoma Basin (Woodford shale), both of which have compelling economics in the current commodity price environment.

"This is a synergistic transaction and logical new basin for Jones Energy to enter given our experience in the Texas Panhandle and the close geographic proximity of the two areas. We plan to be active after closing this transaction as we look to expand our presence in both areas through additional partnerships and acquisition-related activity," added Jones.

This transaction represents JEH's third significant acquisition since Metalmark Capital invested in the company in December 2009 to finance the acquisition of Crusader Energy Group out of bankruptcy.

Greg Myers, managing director of Metalmark Capital, commented, "The Jones team has done an excellent job of creating value across industry cycles and different geographies and we are very supportive of their continued growth and development as a part of our long-term partnership."

• Harris Corp., Melbourne, Florida, (NYSE: HRS) has acquired the global connectivity services business from an operating unit of Houston-based oilfield services major Schlumberger Ltd. (NYSE: SLB) for $397.5 million in cash.

Harris combined the former Schlumberger GCS business with its existing maritime communications services business and the recently acquired CapRock Communications, and infrastructure assets from Core180's government business to form Harris CapRock Communications—a provider of managed communications services for remote and harsh environments including those in the energy, government and maritime industries.

Solutions from the newly combined business include mission-critical communications, converged voice, video and data, highly reliable and secure connectivity, and rapid and mobile deployments. Harris paid with cash on hand.

• Renegade Petroleum Ltd., Calgary, (Toronto Venture: RPL) has acquired Petro Uno Resources Ltd., Calgary, (Toronto Venture: PUP) for C$48.3 million in stock.

The deal values Petro Uno's production at C$98,820 per producing BOE and proved and probable reserves at C$27.52 per bbl. equivalent. Renegade paid approximately 11.8 million shares to Petro Uno shareholders. The shares were valued at C$4.09 each on April 14.

Petro Uno's assets in west-central Saskatchewan are in proximity to Renegade's Viking play. The assets feature 6,300 net undeveloped acres and 56 net drilling locations. Production is 450 bbl. equivalent per day (97% oil). Proved and probable reserves as of Dec. 31 were 1.6 million bbl. equivalent.

—Nancy Miller and Stephen Payne