Tokyo Gas Raising Stake in Haynesville-Focused Castleton Resources

By Jamison Cocklin   July 29, 2020  naturalgasintel.com

Tokyo Gas Co. Ltd. said Wednesday it is increasing its stake in Haynesville Shale producer Castleton Resources LLC to expand its portfolio in North America. 

Through a subsidiary, Tokyo Gas agreed to boost its ownership interest to 70% from 46% for an undisclosed amount. Castleton, a natural gas-focused operator with assets in East Texas that also targets the Cotton Valley formation, would then change its name to TG Natural Resources LLC. The deal is expected to close in August.

Tokyo Gas also said it plans to acquire additional oil and gas properties in Louisiana. The additional transaction is expected to increase Castleton production from 296 MMcfe/d to 473 MMcfe/d. 

Tokyo Gas has global operations across the natural gas value chain, including production, liquefied natural gas (LNG) procurement, shipping and downstream operations. It’s been working to build out its footprint in North America under a broader strategy aimed at boosting overseas profits. 

The company is Japan’s largest provider of city gas, serving more than 11 million customers in Tokyo and the surrounding region.

It owns 130,000 net acres in the Barnett Shale of North Texas and another 34,000 net acres in the Eagle Ford Shale of South Texas. The company also has power generation assets in North America, along with tolling capacity at the Cove Point LNG export terminal in Maryland. It has an agreement in place for capacity at the Energia Costa Azul LNG export project that is under development in Baja California.

Japan is the world’s largest LNG importer, taking in 76.9 million tons in 2019, according to the International Group of LNG Importers.

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sounds like a good candidate to swoop in and buy CHK.

I think that Tokyo Gas's interest begins and ends with natural gas.  I doubt they would want to buy CHK lock stock and barrel.  Too many oily assets.  After exiting bankruptcy I suspect we will see a few asset sales by CHK.  Might one be their LA Haynesville/Bossier assets?  Depends on how much of their overhead can be jettisoned thru Chapter 11 and their new Haynesville ROI.  It will be interesting to see what the C Suite chooses to keep and what to attempt to sell. Maybe CHK will be in talks with Jerry again?  I think that deal came close to being done and there was no way to know then what Q1 2020 would bring.

If I were interested (and, had a billion or two lying around or had lenders standing by), I would not have wanted to buy anything from CHK knowing the company would likely be in bankruptcy soon.  Too much risk of getting a better deal later.  But "now" is later, it seems to me.  

Have you (I haven't) gone it to see what CHK's debt load looks like, and who the lenders/bond holders are?  Not sure how easy it is to get that info.

We both know someone who might answer that question.  The better deal would have come before bankruptcy.  After a successful shedding of the underlying contractual obligations, the ROI should be improved on all CHK assets.  How much is anyone's guess at this point. 

It is helpful to recall that CHK, and other Haynesville Shale players, built gathering and treating systems that were later sold when the cash crunch came.  In order to maximize the sale proceeds, CHK and others, signed deals with minimum volume commitments , high per mcf charges and guaranteed profit margins for midstream operators.  Those deals maximized cash on the front end but saddled the O&G companies with onerous, long term costs.  It is certainly worth mentioning that they saddled their royalty and working interests with those increased costs while not providing them with any benefits of the sale.  Of course this was not just a Haynesville hiccup, companies did this across numerous basins.  All those assets were burdened with those lousy and expensive post production costs.  An interested buyer would want to wait to pull the trigger on a sale until CHK had shed those contractual obligations through bankruptcy.

Shale Driller Unloading Gas Fields for Pennies on the Dollar

Range Resources divesting assets acquired in biggest-ever deal 


Bloomberg / By Joe Carroll
August 3, 2020, 3:56 PM PDT

Range Resources Corp. sold its Louisiana shale fields for about one-tenth of what it paid for them just four years ago as depressed natural gas prices hammered the heavily indebted driller.

Range agreed to sell the assets acquired in its 2016 takeover of Memorial Resource Development Corp. to Castleton Resources LLC for $245 million, according to statements by both companies Monday. Range stands to reap an additional $90 million in the future, contingent on higher commodity prices.

The $335 million potential total value compares to the $3.3 billion Range originally paid in an all-stock deal for the fields. The biggest-ever deal for Range turned into a bust when the company’s geologists and engineers soured on the quality of the rocks in early 2018.

Range fell 3% in post-market trading. The sale is expected to close this month and the effective date will be backdated to Feb. 1, according to the statement. Castleton Resources is owned by Castleton Commodities International LLC and Tokyo Gas Co.

Range bragged about their ability to drill better Terryville Complex wells and then went right out and proved that claim to be demonstrably false.  At this point it is not clear that Castleton got a great deal.  The Terryville Complex is about tapped out.  Not much room left for additional wells.  It is not a resource play, it is conventional tight LCV, and does not extend much outside of the lower two thirds of 19N-4W.  The wells in the Choudrant and Ruston fields have been considerably less productive than the legacy Terryville wells.

Sad to see this happen but sometimes you have to say "uncle" and bail for whatever you can get.

Not the first time a company paid top dollar and ended up giving the assets away to get out and stop the bleeding.

Petrohawk bailed on the Terryville Complex in the early Haynesville Shale land rush to raise capital so Floyd could compete with Aubrey.  Wildhorse Resources figured out the key to horizontal development and drilled hundreds of really good LCV wells, impressive volumes of wet gas.  With a limited sweet spot and three landing zones, the company drilled hundreds of wells.  I have been on one of their pads that had fourteen well signs.  Below is a cut-and-paste of Section 14, 38 producing wells.

Section Township Range
014 19N 4W
Count Well Serial Well Name Well Num Field ID Org ID Parish Upper Perf Lower Perf Total Depth API Count LUW Code LUW Type Well Status
1 35157 T L MCCRARY UNIT B-31 001 4499 9999 31 8912 8924 9200 1 30
2 75727 TAY SUC; T.C. COLVIN 001 4499 1193 31 9524 9596 10039 1 30
3 100605 ANNA D. WRIGHT ET AL 001 4499 1194 31 6909 6915 8215 2 30
4 101533 T L MCCRARY ETAL 002 4499 9999 31 7100 1 29
5 102341 ANNA D WRIGHT ETAL 001-D 4499 1194 31 7942 7957 8215 2 30
6 195613 HOSS E SUR;LA METH ORPHAN 14 001 4499 C332 31 7892 7927 9100 1 30
7 236416 LCV RA SUNN;T L MCCRARY 14 001-ALT 8891 R3800 31 9588 10861 11105 1 615036 2 10
8 236600 LCV RA SUNN;T L MCCRARY 14 002-ALT 8891 R3800 31 9550 11074 13414 1 615036 2 10
9 236766 LCV RA SUI;KING 14 001 4499 R3800 31 9650 11085 11170 1 615099 2 10
10 237075 LCV RA SUI;LA UNITED METH 14 001-ALT 4499 R3800 31 9537 11174 11395 1 615099 2 10
11 237076 LCV RA SUI;WRIGHT HEIRS 14 001-ALT 4499 R3800 31 9650 11280 11432 1 615099 2 10
12 237137 LCV RA SUI;LA METH ORPHAN 14 001-ALT 4499 R3800 31 9120 11002 11223 1 615099 2 10
13 237138 LCV RA SUI;CONSOL CRESCENT 14 001-ALT 4499 R3800 31 9592 11020 11225 1 615099 2 10
14 237183 LCV RA SUI;WRIGHT HEIRS 14 002-ALT 4499 R3800 31 8536 11210 11302 1 615099 2 10
15 237254 LCV RA SUI;KING 14 002-ALT 4499 R3800 31 9588 11112 11251 1 615099 2 10
16 237341 LCV RA SUI;T L MCCRARY 14 HK 001-ALT 4499 R3800 31 9778 11079 11240 1 615099 2 10
17 237342 LCV RA SUNN;T L MCCRARY 14 004-ALT 8891 R3800 31 9564 10994 11175 1 615036 2 10
18 237620 LCV RA SUNN;T L MCCRARY 14 003-ALT 8891 R3800 31 9581 10991 11150 1 615036 2 10
19 237766 LCV RA SUI;T L MCCRARY 14 HK 002-ALT 4499 R3800 31 9465 11050 11235 1 615099 2 10
20 237767 LCV RA SUI;T L MCCRARY 14 HK 003-ALT 4499 R3800 31 9591 11042 11245 1 615099 2 10
21 237925 LCV RA SUI;T L MCCRARY 14 HK 005-ALT 4499 R3800 31 9677 10997 11180 1 615099 2 10
22 237937 LCV RA SUI;T L MCCRARY 14 HK 004-ALT 4499 R3800 31 9600 11074 11200 1 615099 2 10
23 242471 LCV RA SUNN;T L MCCRARY 14 005-ALT 8891 R3800 31 9666 11050 11260 1 615036 2 10
24 243182 LCV RA SUI;KING 14 003-ALT 4499 W192 31 11331 2 03
25 244334 LCV RA SUI;KING 14 003-ALT 4499 R3800 31 9494 11202 11434 2 615099 2 10
26 244387 LCV RA SUNN;T L MCCRARY 14 H 001-ALT 8891 R3800 31 11802 16346 16490 1 615036 2 10
27 245789 LCV RA SUI;LA METH ORPHAN 14 H 003-ALT 4499 W192 31 1 03
28 247292 LCV RA SUI;TL MCCRARY 14-11 HC 005-ALT 4499 R3800 31 11110 16985 17097 1 615099 2 10
29 247293 TL MCCRARY 14-11 H 006 4499 W192 31 10124 1 29
30 247480 LCV RA SUI;TL MCCRARY 14-11 HC 001-ALT 4499 R3800 31 11182 15392 15587 1 615099 2 10
31 247481 LCV RA SUI;TL MCCRARY 14-11 HC 002-ALT 4499 R3800 31 11382 15392 15474 1 615099 2 10
32 247482 LCV RA SUI;TL MCCRARY 14-11 HC 003-ALT 4499 R3800 31 11175 15795 15960 1 615099 2 10
33 247483 LCV RA SUI;TL MCCRARY 14-11 HC 004-ALT 4499 R3800 31 10779 15589 15726 1 615014 2 10
34 248022 LCV RA SUNN;MCCRARY 14-11 HC 007-ALT 8891 R3800 31 11240 17607 17732 1 615036 2 10
35 248023 LCV RA SUNN;MCCRARY 14-11 HC 008-ALT 8891 R3800 31 10306 17458 17597 1 615036 2 10
36 248045 LCV RA SUNN;MCCRARY 14-23-26HC 001-ALT 8891 R3800 31 11386 18396 18450 1 615333 2 10
37 248314 LCV RA SUNN;MCCRARY 13-24-25HC 001-ALT 8891 R3800 31 10890 17795 17962 1 615036 2 10
38 248344 LCV RA SUNN;MCCRARY 14-23-26HC 002-ALT 8891 R3800 31 10828 17397 17765 1 615036 2 10
39 249001 LCV RA SUNN;MCCRARY 14-23-26HC 003-ALT 8891 R3800 31 11159 19148 19285 1 615036 2 10
40 249002 LCV RA SUNN;MCCRARY 14-23-26HC 004-ALT 8891 R3800 31 10710 18862 19000 1 615036 2 10
41 249003 LCV RA SUNN;MCCRARY 14-23-26HC 005-ALT 8891 R3800 31 10734 18686 18870 1 615036 2 10
42 249004 LCV RA SUNN;MCCRARY 14-23-26HC 006-ALT 8891 R3800 31 10978 18926 19082 1 615036 2 10
43 249005 LCV RA SUI;MCCRARY 14-23-26HC 007-ALT 4499 R3800 31 11062 19214 19352 1 615099 2 10
44 249006 LCV RA SUI; MCCRARY 14-23-26HC 008-ALT 4499 R3800 31 11014 19003 19119 1 615099 2 10
45 249917 LCV RA SUNN;MCCRARY 14-11 HC 009-ALT 8891 R3800 31 10405 17712 17829 1 615036 2 10
46 249938 LCV RA SUNN;MCCRARY 23-26 HC 001-ALT 8891 R3800 31 10419 19928 20046 1 615036 2 10
47 249939 LCV RA SUNN;MCCRARY 23-26 HC 002-ALT 8891 R3800 31 10877 19248 19395 1 615036 2 10

 

Good summary

So subsurface changes in geology and reservoir quality are the key to the prospectivity in the Terryville Complex?? I bet many thought that this was a more blanket geology / extensive system of "good rock".

As always, the rock is the key to plays like this. And some companies don't have the expertise or creativity to dive deep into the rock and figure it out.

The Complex is heavily faulted in the northern third of the township.  South of the township is the city of Ruston which makes development more difficult.  Range leased some large tracts within the city limits which were never drilled.  Wells drilled to the east (Choudrant Field) have not been as prolific but might be economic in a better commodity price climate.  There are also a handful of wells south of Ruston in Jackson Parish.  Those wells are also not as productive as Terryville.  The same productivity decline occurs not far west of the township.  I visited several of the pads for well tests west of the Complex and none were ever completed so I surmise that Wildhorse did not find what they were looking for.

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