April 12, 2018, by Jessica Resnick-Ault and Jessica DiNapoli
NEW YORK (Reuters) – The Chief Executive of offshore oil and gas driller Fieldwood Energy LLC, Matt McCarroll, says he is not scared of the hurricanes, geological risks and costs that keep some oil companies out of the Gulf of Mexico. Instead, he is doubling down.
The private equity-backed company – already the largest operator on the U.S. outer continental shelf – announced on Thursday it is closing a $480 million acquisition of Noble Energy’s assets in the Gulf of Mexico that will add 25,000 barrels per day (bpd) to its current net production of 72,000 bpd of oil equivalent.
Fieldwood initiated the deal while in the midst of bankruptcy and the acquisition will close on the day it emerges.
“Where others may see it as maturing or dead, we think (the U.S. Gulf of Mexico) still holds vast opportunities for those of us with the unique experience to manage the challenges,” he told Reuters in an interview.
McCarroll said Fieldwood will start a drilling program on the newly-acquired assets that are not currently producing within six to twelve months, and will evaluate its existing acreage before making another acquisition.
Fieldwood has already accumulated more than 2 million acres of mainly shallow-water leases in the Gulf of Mexico, including a new block which it leased in last month’s federal oil auction, making it the No. 1 operator on the shelf.
Many of those assets have been gathered up in a string of acquisitions, including of units of Apache Corp and SandRidge Energy.
The company’s acquisition of the Noble assets boosts its deepwater position. Noble’s leases are nearly all deepwater blocks, according to Bureau of Ocean Energy Management data reviewed by Reuters. The position includes blocks in the Mississippi Canyon and Viosca Knoll formations of the Gulf.
But if the past is a guide, the strategy can be risky.
Oil companies that drilled offshore were badly hit by the oil price downturn that started in 2014 and rising competition from shale producers onshore.
Companies including Energy XXI, Cobalt International Energy and Stone Energy filed for bankruptcy protection in 2016 and 2017. In addition to the costs associated with exploration and production, companies drilling offshore often must provide bonds to prove they can pay for oil spills and other accidents – a burden not carried by lower cost onshore rivals.
Fieldwood will exit bankruptcy with approximately $1.6 billion in debt, after cutting about half of that during the Chapter 11 proceedings that it filed in February. Private equity firm Riverstone Holdings LLC, Fieldwood’s owner before the filing, will still hold about half the equity of the oil-and-gas explorer, with the rest taken by its former creditors.
But McCarroll said the company comes out strong, with the financial wherewithal to make more deals where it makes sense.
“We’re a buyer, not a seller,” McCarroll said, adding that they will be selective in their buying.
The company raised $525 million of new equity from its creditors that it will use for the $480 million Noble acquisition.
McCarroll said there were no layoffs in the bankruptcy, no unsecured claims left behind, and that Fieldwood had adequate liquidity. He called the process a “recapitalization” that allowed Fieldwood to reorganize its balance sheet.
Fieldwood is not the only company that has been on the hunt in the Gulf of Mexico. Talos Energy LLC and Stone Energy Corp announced in November that they would merge, creating a new company valued at $2.5 billion including debt.
Industry analysts have forecast further consolidation because of the pressures on offshore drillers.
“It’s less fragmented than it was 10 years ago, and more fragmented than it will be five years from now,” McCarroll said.
Reporting By Jessica Resnick-Ault, additional reporting by Jessica DiNapoli in New York; Editing by Christian Schmollinger