American Oil and Gas Reporter - September 2016 - 121

porated attachments contradict this position, the analysis states. It points out that
in the introduction to the NTL, BOEM
says the new notice discontinues policies
authorized under NTL No. 2008-N07
that said lessees with sufficient financial
strength and reliability need not provide
additional security. Instead, the new notice
says lessees will no longer be granted
waivers, but may be eligible for self-in-

surance to meet some or all or their supplemental bond obligations, Baker
Hostetler details.
"BOEM's position appears to be that
every company must provide supplemental
financial assurance-it's just a matter of
finding the right mix of self-insurance (if
a company qualifies) and bonding through
a tailored financial plan," Baker Hostetler
says. "But this is not merely a change in

policy; it is contrary to the regulations.
BOEM is not permitted by its regulations
to assume that a company lacks adequate
financial capacity. It first must affirmatively
find the lessee does not."
The analysis is available at http://www.bakerlaw.com/alerts/three-reasons-whyboems-updated-financial-assurance-andrisk-management-requirements-are-unenforceable.
❒

Shale M&A Interest Rising, PwC Says
HOUSTON-The number of mergers
and acquisitions in the Permian and Marcellus basins saw a strong upswing in the
second quarter of 2016, PricewaterhouseCoopers says, reporting six deals worth
$2.1 billion in the former and four deals
totaling $1.3 billion in the latter.
PwC's Energy Deals Report notes that
across the country, small deals in the upstream segment pushed up M&A in the
U.S. oil and gas industry slightly. The
majority of the deals announced-35 out
of 51-were in the upstream space, an 84
percent sequential and 94 percent yearon-year increase. PwC points out 27 of
these upstream deals were asset deals
and 23 were shale transactions.
According to the PwC analysis:
* Deal volume in second quarter 2016
increased 31 percent compared with the
first quarter. Companies announced 51
oil and gas deals with values greater than
$50.0 million, totaling $26.1 billion. That
compares with 39 deals worth $28.1
billion in the first quarter of 2016.
* Overall, there were only two
megadeals (worth more than $1.0 billion)
in the second quarter. Those two transactions, worth $10.9 billion, represented
42 percent of total deal value. The
megadeals were in the upstream and oil
field services space.
* Financial investors accounted for
13 transactions, a 60 percent decrease in
total value year-over-year. Equity commitments from private investors accounted
for six of those deals, a $2.0 billion tranche.
* The upstream segment contributed
to the majority of the deals announced in
the second quarter, generating 35 deals
worth a total of $15.3 billion.
Conservative strategies dominated the
second quarter deals market, PwC says,
with companies focusing on core assets,
not long shots. The report describes deal
makers as concentrating on rationalizing
their portfolios and generating more cash
flow. It adds divestiture proceeds are
being earmarked for reducing debt or
reinvesting, either through capital expenditures or acquisitions.

After driving much of the U.S. oil and
gas M&A in 2015, Energy Deals Report
says midstream segment deals continued
to plummet in the second quarter of this
year. There were only eight midstream
deals announced, compared with 11 in
first quarter 2016 and 21 in second quarter
2015. PwC says the $3.3 billion total represents an 81 percent sequential fall and
an 88 percent year-over-year decline.
Midstream companies continue to face
the dual headwinds of constrained cash
flow and reduced access to the debt and
equity markets, the company assesses.
Shale Deals
PwC says shale deals made a strong
comeback in the second quarter, as companies announced 23 transactions, the highest
second-quarter number since the 23 shale
deals reported in second quarter 2014.
The value of the shale transactions
was $7.5 billion, a 37 percent sequential
increase. All the shale-related deals were
in the upstream segment, Energy Deals
Report indicates.
In addition to the Permian and Marcellus transactions, PwC says the Eagle
Ford Shale contributed two deals worth
$626 million, while the Niobrara and the
Bakken each contributed one transaction

worth $505 million and $50 million, respectively. The company notes there were
no reported deals associated with the
Utica or Haynesville basins.
Looking ahead, PwC says with commodity prices rising from historic lows and
global commodity demand beginning to
strengthen, the second half of 2016 could
see an acceleration in deal-making activity.
However, it cautions this uptick is unlikely
to occur across all industry segments.
The upstream sector could benefit most
from the uptick as companies focus on
core assets, reinvesting the proceeds of
divestments back into their businesses or
paying down debt. Midstream M&A may
remain subdued because of the challenges
in accessing the broader capital markets-
the lifeblood of deals in that segment,
Energy Deals Report predicts. It forecasts
that deal activity will continue to be driven
by nontraditional counterparties such as
infrastructure funds, pension plans, and
regulated utility holding companies.
The bid-ask spread and lack of access
to capital is presenting difficulties in
getting deals to materialize in the oil
field services segment, the report adds,
although it says there is a possibility activity levels will increase in the second
half of the year.
❒

Devon Completes Test Of Multiple STACK Wells
OKLAHOMA CITY-Devon Energy
Corp. says it has brought on line another
successful spacing pilot, as well as a
record-setting oil well in the overpressured
window of Oklahoma's STACK play.
The Alma spacing pilot program tested
five wells a section across a single interval
in the upper Meramec, Devon says, delivering 30-day production rates averaging
1,400 barrels of oil equivalent a day per
well, of which 60 percent was light oil. In
addition to the strong initial production
rates, the company reports early flowback
results indicate minimal interference between wells, suggesting potential for tighter
spacing in the overpressured oil window.
The Alma wells were drilled with

5,000-foot laterals, and were conservatively
brought on line with a 12⁄64-inch choke,
which Devon says gradually was increased
to a 20⁄64-inch choke.
According to the company, it also
brought a Kingfisher County well on line.
The Pony Express 27-1H was drilled with
a 5,000-foot lateral, and achieved a 30day average production rate of 2,100 boe/d,
consisting of 1,500 bbl/d of oil. Devon
points out the well's oil productivity on a
per lateral foot basis is the highest of any
Meramec well drilled to date in the play.
"These successful well results help us
further understand the optimal STACK development scheme," says Tony Vaughn,
the company's chief operating officer. ❒
SEPTEMBER 2016 121

American Oil and Gas Reporter - September 2016

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