Aethon likes Haynesville’s proximity to Gulf markets, Henry Hub

In mid-November, QEP Resources (stock ticker: QEP) announced that its subsidiaries, QEP Energy Company, QEP Marketing Company, and QEP Oil & Gas Company, had entered into a definitive agreement to sell its Haynesville/Cotton Valley oil and gas assets for $735 million.

Those assets include natural gas and oil producing properties, undeveloped acreage and associated gas gathering and treating systems.

The buyer was Dallas-based private investment firm Aethon Energy Management LLC and its Aethon III fund.

Aethon Energy Management was formed in 1990 and has managed and operated over $2.5 billion of assets in that time, according to the company. Aethon III was formed in partnership with the Ontario Teachers’ Pension Plan and Redbird Capital Partners.

The effective date of the transaction is July 1, 2018, and the projected closing is expected in January 2019, pending approvals.

Oil & Gas 360® interviewed Aethon Partner and Co-President Gordon Huddleston in mid-December about what Aethon looks at for direct investment in oil and gas assets and what it liked with respect to the QEP assets in the Haynesville.

[EDITOR’S NOTE: Only a portion of the interview with Gordon Huddleston appears below. The full interview will be published in a Haynesville special feature coming to Oil & Gas 360® in January.]

OAG360: Aethon recently announced it had entered into an agreement to acquire QEP’s Haynesville assets, which is expected to close in January. With so much activity focused on oil in the past few years, why did you look to the Haynesville for your newest opportunity?

‘Robust Midstream Component’ of $735-Million Haynesville Deal with QEP was Draw: Aethon Co-President

Aethon Energy Co-President Gordon Huddleston

Aethon Energy Partner and Co-President Gordon Huddleston: We’ve been active in the Haynesville for some time, starting with first our acquisition from Noble Energy in 2014. What we like about the Haynesville is the proximity to Henry Hub relative to a lot of demand coming from the LNG export and the petrochemical industries.

We also like the high quality of the rock and the resource. When we first entered the Haynesville, there wasn’t a lot of focus on the play. In fact, a lot of people were leaving, and we saw the opportunity to bring our technical expertise from other basins where we were active and apply those completion methodologies to the Haynesville, and that’s been very successful for us.

OAG360: There are strong projections for future gas demand to supply LNG exports from the U.S.

Gordon Huddleston: We definitely believe in the macro story of natural gas. From a long-term energy mix, we think it makes sense as a transition fuel in a low-carbon economy. We’re seeing that in emerging markets. There is a focus on reducing emissions and not just around CO2, but traditional emissions, particulate matter. Natural gas has a lot of good things going for it that we like from a fundamental perspective.

OAG360: What do you think is the key to developing the Haynesville play?

Gordon Huddleston: We’ve done seven major acquisitions in the Haynesville to date, and we like to focus on vertically integrating.

One of the attractive things about the QEP assets is that they come with a robust midstream component. We’re looking to really expand our margins as much as we can, so for example, we look at companies with ancillary services and businesses where we can start to provide those services to other operators. Those are the types of opportunities we look to capture greater margin and I think the Haynesville has been a good place to do that.

And given that it’s dry gas, it makes the midstream component simpler to build out—less costly relative to a rich gas play, like what you’re having in the Permian where it’s very expensive to build those gas plants; it’s a different type of midstream.

OAG360: Could you talk about your plans for your Haynesville assets?

Gordon Huddleston: Today we’re running about six rigs in the Haynesville on our existing assets, and for these new assets we will look to add several rigs next year and continue to ramp development activity there over the next three years. Drilling plans will be dependent on commodity pricing and the general economic climate.

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