Category Archives: E&P

Magnolia Oil & Gas promotes from within for CFO role

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Magnolia Oil & Gas has promoted Christopher Stavros from CFO to CEO.  Brian Corales becomes the CFO, having previously been VP, Investor Relations. The promotion for Mr. Stavros was announced on September 21, two days before founder and CEO, Stephen Chazen, died.

Magnolia has its head office in Greenway Plaza and operates wells in South Texas around Giddings and in Karnes County. It has a market capitalization of $5.6 billion.

The company began as a SPAC (Special Purpose Acquisition Company) formed by Mr. Chazen (ex-CEO of Occidental Petroleum). Mr. Stavros worked with Mr. Chazen at Oxy for 12 years, eventually becoming the CFO, before leaving in 2017.  The SPAC acquired the South Texas properties from Enervest, a PE firm, in 2018 for $2.7 billion and Mr. Stavros became CFO of Magnolia at that point.

Enervest remains the largest shareholder in Magnolia at 18%. Mr. Chazen owned 3% at the time of his death.

Mr. Corales joined Magnolia in November 2018. Prior to that, he had spent many years in investment banking including Johnson Rice & Co and Scotia Howard Weil. He will receive a base salary of $367,500.

SEC filing – 8-K Magnolia CFO appointment

BP to acquire renewable gas company for $4.1 billion

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BP has agreed to acquire Houston-based Archaea Energy for $26 per share in an all-cash deal that values Archaea at $4.1 billion, including $800 million of debt. The deal values the company at 20 times the expected 2023 EBITDA.



Archaea develops, constructs and maintains renewable natural gas facilities (RNG) that capture waste emissions from landfills and converts them into low-grade fuels and electricity. It currently has 13 of them. The company also has 33 landfill gas to electric facilities, some of which were added after a recent acquisition.

The company is based in the Galleria area and was taken public in September 2021 by a SPAC based in Pennsylvania, Rice Acquisition Corp.  The SPAC actually acquired Archaea LLC for $347 million and Aria Energy LLC for $680 million, with the combined business being renamed Archaea Energy. So, its a tremendous return for its investors.

It is not surprising that they have been acquired by a traditional oil and gas company. Due to high oil prices, they are generating lots of cash, but are under tremendous pressure to invest in anything but traditional oil and gas.

The company appointed Brian McCarthy as its new (old) CFO in August 2022.

The deal is expected to close by the end of 2022.

SEC filing – Archaea – BP

Houston E&P appoints new CEO and CFO

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Epsilon Energy, based in Greenspoint area of North Houston, has appointed a new CEO and CFO.

Jason Stabell is replacing the retiring Mike Raleigh as CEO while Andrew Williamson replaces Lane Bond as CFO.

Mr. Stabell and Mr. Williamson worked together for many years at Merlin International, LLC, an E&P business with its primary operations in Egypt. The business was sold in 2019 to a SOCO International, a UK-listed company. Mr. Stabell stayed on as a consultant until 2021 while Mr. Williamson became the Corporate Development Manager at a small E&P company.

Epsilon primarily owns properties in the Marcellus basin in Pennsylvania. A few years ago, it started acquiring acreage in the Anadarko Basin in Oklahoma. However it is not the operator of those wells. The company has revenues of $48 million and a market capitalization of $130 million.

The departing executives were among the lowest paid executives for their positions. Mr. Raleigh, who had been CEO since 2013, had a base salary of $150,000, though between 2018-2020 he did not take a salary. He will receive a severance of $150,000 plus $480,000 in lieu of equity awards for 2021 and 2022.

Mr. Bond, who had been CFO since 2012 and is also retiring, had a base salary of $200,000. He will receive no severance, but will receive a pro-rata bonus for 2022 of $37,500. However, he will be engaged as a consultant until March 2023 at a monthly rate of $16,667.

Incoming CEO Stabell will have a base salary of $300,000 while Mr. Williamson will have a base of $230,000.

SEC filing – Epsilon Energy CEO CFO change

 

Murphy Oil CFO to retire

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David Looney, CFO of Murphy Oil, has announced his retirement, effective June 30, 2022. He will be replaced by Tom Mireles, who is currently Senior VP of Technical Services.



Murphy Oil has a market capitalization of $5.6 billion. It is the 5th largest producer in the Gulf of Mexico and also has producing assets in onshore Canada and the Eagle Ford shale basin. The company also owns exploratory blocks or interests in Australia, Brazil, Brunei, Mexico and Vietnam.

In 2020, it moved its head office from El Dorado, Arkansas to the Memorial City area.

Mr. Looney, who is 64, joined the company as its CFO in 2018. Mr. Mireles joined the company in 2005 and has held various roles such as Senior Manager of Planning and Business Development and Senior VP in both Eastern and Western hemispheres.

Mr. Mireles will receive a base salary of $500,000.

E&P companies to combine in $6 billion transaction

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[UPDATE 07-07-22 The deal has now been completed. Combined group is now called Chord Energy].

Two E&P companies, Oasis Petroleum and Whiting Petroleum are merging in a $6 billion deal, including debt. Oasis is based in downtown Houston, while Whiting has its head office in Denver. The combined company will have its head office in Houston and will have a new, yet-to-be-determined name. The Denver office will remain open for the foreseeable future.



Both companies have their main operations in the Williston Basin of North Dakota, Montana and Saskatchewan. (The Bakken is the main oil-producing rock formation of the Basin, but there are others). In terms of acreage, the deal combines the number 3 and 4 players into the largest operator in the Basin, ahead of Continental Resources and ConocoPhillips.

Both companies filed for pre-packaged bankruptcies in 2020. Whiting filed first, in April 2020 and exited in September 2020, having converted $2.4 billion of debt into equity. Likewise, Oasis filed in September 2020 and exited three months later. It converted $1.9 million of debt into equity.

After exiting bankruptcy, Oasis sold its Permian Basin acreage for more than $400 million and bought assets in the Williston Basin from Diamondback Energy for $745 million.

Management

Both companies have CEOs who were appointed after exiting Chapter 11. Lynn Peterson, the CEO of Whiting, was appointed in September 2020. He will become Chairman of the combined company. Danny Brown, CEO of Oasis, joined in April 2021. Previously, he was head of US onshore operations for Anadarko. Mr. Brown will be the CEO of the combined company.

Longtime Oasis CFO Michael Lou will be the CFO of the combined company.

Transaction structure

The deal is a combined stock and cash deal. Oasis is the surviving entity and its shareholders will get a special dividend of $15 a share. Whiting shareholders will get 0.5774 shares of Oasis and $6.25 in cash for each share of Whiting they own. Once the deal closes later this year, Whiting shareholders will own about 53% of the combined company.

The company expects to achieve savings of $65 million by the end of 2023. $30 million will come from administrative savings, the rest will come from operational cost synergies.

Oasis – Whiting Investor Presentation

Goodrich Petroleum to be taken private by Encap Investments

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Goodrich Petroleum, an E&P company based in downtown Houston, is to go private after agreeing to be acquired by an affiliate of Encap Investments for $23 per share. Including the assumption of debt, the transaction is valued at $480 million.



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Goodrich was formed in 1975 and went public via a reverse takeover of Patrick Petroleum in 1995. The company primarily owns gas producing wells in the Haynesville Basin.

The company filed for bankruptcy in 2016 during which lenders wrote off $426 million in debt in exchange for most of the equity in the successor company.

Encap Investments is a Houston-based investment firm. It will buy Goodrich using a $7 billion fund raised in 2017.

The offer price represents an approximately 7% premium to the closing price of the stock on November 19, 2021. Certain stockholders have agreed to support the deal. In addition, there is $32.5 million of 13.5% loan notes that can convert to equity at $21.33. Taking the conversion into account, more than 50% of shareholders support the deal.

The deal is expected to close in December 2021.

[UPDATE 11-23-21 Gen IV Investments who were the second largest shareholder (~12%) sold their shares to EnCap. Frankin, the largest shareholder (15%) and Anchorage Capital Group (10%) tendered their shares in support, in addition to the senior management (12%). These percentages exclude the shares that their parties own from the convertible notes.]

SEC filing – Goodrich going private

E&P companies merge to form Coterra Energy

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Coterra Logo

Cabot Oil & Gas, based in Houston, and Cimarex Energy, based in Denver, have completed their $17 billion merger. The combined company has been renamed Coterra Energy and has its head office in Houston.



The deal was originally announced back in May. Cimarex shareholders ended up with 50.5% of the combined stock. When the deal was announced, Wall Street wasn’t impressed as Cabot mainly operates in the Marcellus Basin (primarily gas) while Cimarex is mainly in the Permian Basin. They wanted Cimarex to merge with another Permian Basin operator. The deal with Cabot limited the scope for synergies.

Natural gas prices have almost doubled since the deal was announced, so the deal looks better from Cimarex’s perspective now.

In terms of the new management, Cabot CEO Dan Dinges becomes Executive Chairman, Cimarex CEO Thomas Jorden becomes the CEO, while Cabot CFO Scott Schroeder is appointed CFO.

Severance

Cimarex CFO Mark Burford is not an Executive officer of the combined group. I am not sure if he has left the company, as there is no official confirmation of that from the company. If he has, he will be entitled to a cash severance of $2.2 million (2x average annual compensation for the past two years, plus a pro-rata bonus for 2021). Even if he has not been terminated, his equity will vest, worth $9.7 million.

Mr. Dingles will be Executive Chairman until no later than December 2022. When he steps down, he will receive a $10 million severance payment.

Background to the merger

Cabot started looking at the possibility of combining with another E&P company in late 2019. At one point, in mid-2020 Cabot was looking at a three-party business combination. That deal fell through because one of the parties demanded a premium. Around the same time, Cimarex started preliminary discussions with other Permian Basin parties about potential mergers.

In the last few months of 2020, a representative of Tudor Pickering Holt had several separate conversations with Mr. Jorden and Mr. Schroeder. In January 2021, the representative suggested that two companies had enough common ground to start direct conversations.

The combined company had $1 billion of proforma revenues for the first quarter. its debt is 0.7 times EBITDAX (earnings before interest, tax, depreciation, amortization and exploration expenses).

SEC filing – Coterra Energy

Shell to sell Permian Basin assets to ConocoPhillips for $9.5 billion

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Shell is to sell its assets in the Permian Basin to ConocoPhiliips for $9.5 billion cash. The assets are all in Texas and amount to 225,000 net acres and 600 miles of related pipelines and infrastructure. The purchase price of $47,500 per barrel of oil equivalent is in line with other recent transactions in the Permian Basin.



The effective date of the transaction is July 1, 2021, with an anticipated closing date in the fourth quarter.

Shell acquired the bulk of the assets in 2012 from Chesapeake Energy for $1.9 billion. It expects to book an after-tax gain of $2.4 to $2.6 billion once the deal closes. The company plans to pay a special dividend to shareholders of $7 billion.

The majority of Shell’s Midland-based Permian employees and many Houston-based employees will be offered employment by ConocoPhillips.

In June, a Dutch court ruled that Shell was partially responsible for climate change and ordered the company to reduce its carbon emissions (in absolute levels) by 45% by 2030, compared with 2019 levels.  Shell had already committed to a 45% (relative) reduction in net carbon intensity (i.e. the volume of carbon per unit of energy) by 2035.

Shell has been in the process of selling off assets in Egypt, Nigeria and Australia. It also sold its Alberta shale light oil production for $707 million in February. It plans to invest more in low-carbon fuels (biofuels and hydrogen) and carbon capture and storage.

ConocoPhillips has a target to reduce greenhouse gas emissions intensity by 35-45% by 2035 from a 2016 baseline. Shell probably felt some pressure to sell to someone with somewhat similar goals in terms of emissions reductions.

https://static.conocophillips.com/files/resources/transaction-announcement-and-market-update.pdf

 

Houston E&P SPAC goes public in $150 million IPO

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CENAQ Energy Corp, a SPAC (otherwise known as a blank check company) based in the Galleria area, has completed its $150 million Initial Public Offering. It intends to buy E&P assets in North America.



Chairman John Connally is a veteran of many E&P companies such as Nuevo Energy (acquired by Plains Exploration for $945 million in 2004). Interestingly, he is also the Chairman of  Texas South Energy. This is an E&P company that trades over-the-counter and is based in the same office suite as CENAQ. In July, the Securities and Exchange Commission (SEC) revoked the registration of Texas South as the company hadn’t filed any quarterly or annual reports since March 31, 2019.

As an aside, one of the reasons for the delay was because LBB Associates was the auditor to Texas South. They had to resign in early 2020 as the majority partner, Carlos Lopez, was barred by the SEC for professional misconduct in a case unrelated to Texas South.

The CEO of CENAQ is Russell Porter. He spent 18 years at Gastar Energy. He resigned as CEO in February 2018 and received a severance payment of $3.5 million. In November 2018, Gastar filed for bankruptcy with $342 million of assets and $454 million of debt. It exited Chapter 11 three months later, having converted $350 million of debt into equity. The company was later sold to Chisholm Oil and Gas, based in Tulsa.

Mike Mayell is the CFO of CENAQ. He also serves as the CEO of Texas South. Mr. Mayell co-founded Meridian Resource and was its COO until 2008. Meridian was sold to Alta Mesa in 2009 for $27 million.

Houston area SPACS

CENAQ becomes the 13th blank check company based in the Houston area. You can see the complete list of Houston-area public companies here.

I’ve taken a couple of the blank check companies off the list recently as they have taken businesses public.

NewHold Investment has now taken Evolv Technologies public in a $1.3 billion transaction. Evolv is a security screening company based in Boston.

Landcadia Holdings III has now taken The Hillman Group public in a $2.6 billion transaction. Hillman, based in Cincinnati, distributes fasteners and work gear to Lowe’s, Home Depot and Walmart.

SEC filing – CENAQ IPO

ExxonMobil appoints outsider as its new CFO

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ExxonMobil has appointed Kathryn Mikells as its new CFO. She replaces Andrew Swiger, who has been the CFO since 2013. Mr Swiger is retiring in September after a 43-year career with the company. Exxon has a mandatory retirement age of 65.



The company has its corporate office in Irving, TX , though it has a large presence in Houston. It is unusual for Exxon to appoint an outsider for a senior executive position but it has been under pressure from activist shareholders recently (more on that below). Ms. Mikells is the first woman appointed to the Executive leadership team at Exxon.

Ms. Mikells has a diverse background. For the past four plus years, she has been based in London as the CFO of Diageo PLC, the drinks manufacturer. Ms. Mikells announced her resignation in January as she planned to return to the US.

Prior to that, she was CFO at Xerox (2013-2015), ADT (2012-2013) and Nalco, a chemicals company (2010-2011).  She worked at United Airlines in Chicago for 16 years, where she ended up as CFO. When United merged with Houston-based Continental Airlines in 2010 she lost out on the CFO position of the combined group to Continental CFO Zane Rowe.

Ms. Mikells will receive a base salary of $1.1 million.

Activist Investor

In June, an activist investor, Engine No 1, won three seats on the Board of Exxon, despite the objections of the company and its CEO, Darren Woods. The hedge fund, which only owns 0.02% of Exxon’s stock, argued that the company did not have a coherent plan for a transition to cleaner energy sources. It also argued that the company was too insular and needed outside perspectives. Other investors backed the hedge fund, mainly because Exxon’s recent financial performance has been shocking.

Poor financial performance

In the first decade of this century, Exxon had around $20 billion of net cash and was making a return on capital in excess of 25% a year. Now, net debt is nearly $50 billion and returns have fallen below 5%. As an example, the $41 billion acquisition of XTO Energy, a natural gas producer, in early 2010 was overpriced and ill-timed (the CEO at the time was Rex Tillerson).

Back in June, a report in Bloomberg stated that Exxon planned to reduce its headcount in the US offices by 5-10% annually for the next three to five years.

SEC filing – ExxonMobil CFO appointment