A&D Activities

United States

Devon Energy $1 billion Non-core Divestments in East Texas and Oklahoma

Oklahoma‐based Devon Energy (Devon) has entered into definitive agreements for the sale of roughly $1 billion of non‐core upstream assets in East Texas, the Anadarko Basin and an overriding royalty interest in the northern Midland Basin. Devon, the second largest oil producer among North American onshore independents, has not disclosed the parties acquiring the assets. An announcement is also due in the next a few weeks on the sale of Devon’s 50% interest in the Access Pipeline in Canada. Combined with other recent asset sales, Devon has now announced $1.3 billion of gas-focused upstream divestitures.

Range Buys Memorial For $4.4 Billion, Tapping Into Northern Louisiana Play

Marcellus shale-focused Range Resources is acquiring the entire stock capital of domestic producer Memorial Resource Development Corp. (Memorial) valued at $4.4 billion from MRD Holdco LLC in a stock exchange transaction. Substantially all of Memorial’s assets are located in the Cotton Valley formation in Northern Louisiana, where more than 21,000 vertical wells have been drilled. Some A&D analysts view this deal as a sign of recovery for the deal market. This is the largest U.S. upstream acquisition since Repsol bought Talisman Energy for $12.9 billion in December 2014. This is also the first deal above the billion-dollar mark since Fall 2014 in this down cycle.

Noble Selling Colorado Acreage to Synergy on A $505 Million Deal

Denver-based Synergy Resources Corp. (Synergy) definitively agreed to acquire 33,100 net acres in the Greeley Crescent area of Weld County, Colorado, from Houston-based Noble Energy Inc. (Noble) for $505 million in cash. Average production on the assets is 2,400 boe/d net to Noble. Separately, Synergy has agreed to acquire from two private entities 3,700 net undeveloped acres and 107 vertical wells primarily in Adams County, Colorado, for $27 million in cash. The assets have associated production of 200 boe/d. Synergy expects to close on its purchase of undeveloped land and non-operated production sites by the end of June, followed by operated properties later in the year.

Bill Barrett Divests Additional Uinta Basin Assets For $30 Million

Bill Barrett Corp. (Bill Barrett), a Denver-based producer of crude petroleum and natural gas, agreed to divest certain none-core assets located in Uinta Basin, Colorado to an undisclosed acquiror, for an estimated $30 million. The assets produced approximately 1,000 boe/d (63% oil) during the first quarter of 2016 and had estimated proved reserves of 2 million barrels of oil equivalent (87% proved developed) as of December 31, 2015. Bill Barrett sold other assets in the Uinta Basin in September 2015 for $27 million with an outlook to focus on its core assets in the Denver-Julesburg Basin.

Indigo Sold Minority Stake to Trilantic Investor Group For $375 Million

An investor group led by Trilantic Capital Management LP and including Martin Cos LLC, Yorktown Partners LLC and Ridgemont Equity Partners, acquired an undisclosed minority stake in Indigo Minerals LLC, a Houston-based upstream company for $375 million in a privately negotiated transaction.

Mexico & Canada

IEnova And TransCanada Remaining Bidders For Marino Pipeline

A joint venture between IEnova Infraestructura Energetica, a Sempra Energy company that builds energy infrastructure in Mexico (IEnova), and TransCanada Corporation, an Alberta-based energy infrastructure developer (TransCanada), was the only technically compliant bidder in a tender held by Mexico’s electricity commission CFE for the Marino underwater gas pipeline.

IEnova and TransCanada’s Marino del Golfo consortium presented technical and economic bids for the project along with the Ducto Mar Gas consortium (of the local Carso group) on May 19, 2016. Marino will supply natural gas to CFE-owned power facilities in the states of Tamaulipas and Veracruz, as well as the Eastern, Central and Western regions of Mexico. The pipe will interconnect with the Nueces-Brownsville gas pipeline, which is about to start its bidding process.

Husky Selling Midstream Assets For $1.7 Billion To Hong Kong’s Richest Man

Hong Kong tycoon Li Ka-shing is using two of his listed companies, Cheung Kong Infrastructure Holdings Ltd. and Power Assets Holdings Ltd. in a joint venture to acquire a 65% ownership interest in the midstream assets of Husky Energy Inc., a Calgary-based E&P company (Husky), located in Lloydminsteregion of Alberta and Saskatchewan, for CAD $1.155 billion (USD $1.7 billion). Upon completion, the joint venture will be named Husky Midstream LP and Husky will remain the operator. The sale price represents about 13 times the expected 2016 EBITDA of the midstream assets of approximately $180 million. Mr. Li, who is Hong Kong’s richest man, also holds a controlling 29.31% stake in Husky. The transaction is subject to regulatory approval.

Drill Bits

AMIs

Areas of Mutual Interest (AMIs) are geographic locations where two or more oil and gas companies agree to share certain leases or other interests acquired by any of them in a defined geographic area in the future. An area of mutual interest agreement is a contract between parties who want to maintain a specified allocation of ownership interests within a prospect area. AMIs can be incorporated into purchases and sales of fractional leasehold interests joint operating agreements (JOAs) and farmouts. AMI clauses typically provide that if one party to the agreement acquires an oil and gas interest, it is required to offer to convey a portion of that interest to the other parties to the agreement.

A buyer must exercise careful due diligence regarding the existence of AMIs. The oil and gas assets a buyer acquires may be within an area where the seller is subject to an AMI, or subject to claims made by third parties for the seller’s or predecessors’ failure to offer acreage to the third party in accordance with the AMI.

As a seller, limiting the representations regarding AMIs is important. If the leases included in the assets being sold have been held by different parties, a seller should require its representation regarding AMIs to be limited to its knowledge.

A future acquirer to the interests in an area subject to an AMI is bound by the original AMI clause. San Antonio Court of Appeals made this clear in a recent Texas case, Anderson Energy Corp. v. Dominion Oklahoma Texas Exploration & Prod., Inc. (June 30, 2015). The court held that a 1977 AAPL JOA with a typewritten AMI clause covered subsequently acquired interests after execution of the JOA, although the JOA did not state that subsequent acquisitions by JOA parties would be subject to the AMI clause. In holding that the terms of the AMI clause extended to interests subsequently acquired, the court opined that the AMI provision was the “most telling indicator” of the intent of the signatories regarding future mineral property procurements because AMIs, by definition, were intended to cover future acquisitions.