Monday, March 21, 2016

Bye-Bye EP

Looks like another one bites the dust.  EP Energy, the old El Paso (Energy, not taco mix) quietly disclosed in an SEC 8-K filing last Friday that it had sold its Haynesville interests for $420 million to Covey Park Gas, LLC.  Covey Park is a private equity funded company formed in 2013 presumably to feast on the downturn in the natural gas market.

No press release?  Why the secret?  Timing it on a Friday under the cover of darkness?  Seems like what they do in D.C.  Here is the brief SEC disclosure:
"On March 18, 2016, subsidiaries (the “Sellers”) of EP Energy Corporation (the “Company”) entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Covey Park Gas LLC (the “Buyer”). Pursuant to the Purchase and Sale Agreement, the Sellers have agreed to sell to the Buyer substantially all of their assets located in the Haynesville and Bossier shales. The total consideration to be received by the Sellers pursuant to the Purchase and Sale Agreement is $420,000,000 in cash, subject to customary adjustments for this type of transaction. The Buyer delivered into escrow a deposit of $21,000,000 in connection with the execution of the Purchase and Sale Agreement. The transaction, which has an effective time of November 1, 2015, is expected to close in the second quarter of 2016, subject to certain customary closing conditions. The Purchase and Sale Agreement contains representations, warranties, covenants and indemnification customary for this type of transaction. The Purchase and Sale Agreement provides the Sellers and the Buyer certain termination rights, including if closing has not occurred by July 1, 2016 or if the downward adjustments to the purchase price pursuant to casualty losses, title defects and environmental defects, in the aggregate, exceed 10% of the base purchase price."

Thursday, March 3, 2016

Aubrey McClendon - The End of an Era

I can't stop thinking about Aubrey McClendon.  Yesterday, I wrote that his indictment by the Department of Justice felt a little like the line of a circle coming back around, but upon hearing of his death I feel instead like it's the end of an era.  He symbolized the shale revolution:  the embrace of new technology, the gun slinging risk of the scrappy independent and the ability to succeed where others had not dared to try.  Aubrey didn't invent the shale gas industry, but he put it on the front page.

For years, I couldn't help but think about Aubrey.  Here was this larger than life character, an old fashioned wildcatter who was at the leading edge of a revolution.  His company, his lifestyle, his guts and of course his glory were painted all over shale gas.  Around 2009, I contemplated creating a character called Fake Aubrey based on Fake Steve Jobs, where I could opine daily on the gas industry and life in general in the caricatural voice of a swaggering, egotistic oil man.  I gathered a bunch of research, but I never got around to writing it.  Although Aubrey was a distant public figure, I had this odd feeling that he was a part of my life and the whole thing just felt wrong.

I'm sure there will be a lot said in the media today and in coming weeks about Aubrey.  At this point we can speculate about how the crash happened and probably draw similar conclusions, but that should not diminish his legacy.  He will remain the second most important figure in shale gas (George Mitchell will always be #1).  He was the classic Type A businessman that pushed the envelope to build his business and an entire industry in lighting speed.  It was fast and messy, as one might expect in retrospect when you combine transformational technology with a highly cyclical industry, but he led America back into a leadership position in world energy production. He took people on a roller coaster ride and made a lot of them rich along the way.

Aubrey's era was probably already over before he died.  The investors, lawyers and accountants long ago took over from the swashbucklers at the energy independents.  Another golden age of independents has passed for now, but when they return - and they absolutely will at some point - the memory of Aubrey McClendon will rise with them.  Love him or hate him, he will not soon be forgotten.

[3/4/16: FT.com has a nice, balanced piece on Aubrey (may require registration)]

Holy Crap: Gas in Storage Only Down 48 Bcf Last Week

Do you want to see what trouble looks like in three pictures?




 As you may remember, 2012 was a terrible year for natural gas, as storage soared and prices set new lows all year long.  This does not look good.

Wednesday, March 2, 2016

Aubrey Indicted

The Justice Department yesterday indicted former Chesapeake Energy CEO Aubrey McClendon for violating anti-trust statutes.  The DOJ alleges that he conspired with another unnamed company to decide beforehand who would bid for certain leases in northwest Oklahoma between 2007 and 2012 to avoid a bidding war to keep the lease bonus prices down.  Down the road, the two companies would split the leases.

This feels a bit like a full circle for me:  Aubrey and Chesapeake were the ones who first shined a bright light on the Haynesville Shale and sparked more than a few lease bidding wars.  I'm sure competing companies that had to pay large Haynesville bonuses feel more than a little schadenfreude that the man who may have torpedoed the economics on many Haynesville leases got caught suppressing lease bonus prices elsewhere.

It appears that Chesapeake cooperated with DOJ and does not expect to be charged, probably furthering the ill will between Chesapeake and its co-founder.  Not sure about unnamed Company B, which is also based in OKC.  I haven't seen that they've been identified yet, but it won't be that hard to figure out.