Peer Group

36 Regarding the volume, price and production costs data, it is worth noting that total production has declined since 2015, whilst oil production increased from 2014 to 2015. In line with lower production, oil prices had dropped significantly from 2014 to 2016. Nonetheless, the table shows a decline in average production cost over the years, despite lower production and prices.

In addition to upstream activates, CWEI also operated within the midstream sector. According to the annual report of 2016, ‘pipelines and other midstream facilities’ consisted of oil, gas and salt-water disposal pipelines totaling 423 miles, two wastewater-treating plants, one dehydration (purification) facility and multiple compression stations. As oil and gas often contains impurities, a purification process through the abovementioned facilities are necessary to make the products ready for distribution. ‘Salt water’, i.e. the water leftover from the purification process is a byproduct, which must thus be handled with caution and according to existing laws (Tech-Flo Consulting, 2018).

Depicted below is the pipeline network its capacity as of 31th of December 2016.

Table 10: Overview of CWEI's pipeline capacity (CWEI, 2017)

5.1.2.2 Recent Developments

In an attempt to mitigate the effect from the dramatic drop in oil prices in 2014, management undertook managerial actions to improve margins by reducing costs. However, the effects of the vast drop in oil price forced management to seek other strategic and financial alternatives for the firm.

37 West Texas. By the end of 2016, Approach Resources controlled over 123.000 acres in the Basin, estimated to contain proven reserves of 156.4 MMBoe of oil equivalent (32% oil, 30% NGL and 38%

natural gas).

The business strategy is based on concentrating their acreage to improve operating and recovery efficiency to reduce costs. Their strategic aim is to grow current reserves and production at an attractive rate of return by mainly develop and expanding current shale oil production through horizontal drilling. In addition, emphasis is put on cost efficiency to strengthen their balance sheet as they seek to achieve financial flexibility (Approach Resources Inc., 2017).

Their current market consists of two buyers, whereas total sales stemmed for JP Energy Development and DCP Midstream LP, which account for 54% and 46% of the total sales respectively. Production levels during 2016 reached 4.5 MMBoe, the equivalent of 12.4 MBoe/d and revenues were approximately $90.3M (Approach Resources Inc., 2017).

5.1.3.2 Callon Petroleum

Callon Petroleum focuses on the acquisition and development of unconventional oil and gas in the Permian Basin. As of 2016, the company has geographically expanded their operations to include the Delaware Basin in addition to their main acreage in the Midland Basin. Callon Petroluem controls over 56.000 acres in the Permian Basin, estimated to contain proved reserves of 91.6 MMBoe of oil equivalent (78% oil, 22% natural gas, including NGLs).

The business strategy is based on collecting data on subsurface geologic and technical data to further leverage the specialized knowledge through horizontal drilling. According to the annual report of 2016, their objective is to horizontally drill on geographical location where hydrocarbons have previously been exploited by conventional vertical wells.

Major customers include Enterprise Crude Oil LLC, Shell Trading Co. and Sunoco, which accounted for 43%, 18% and 16% of total sales in 2016 respectively. Annual production reached 5.573 MBoe, the equivalent of 15.227 Boe/d and revenues were approximately $201M (Callon Petroleum, 2017).

38 5.1.3.3 Carrizo Oil & Gas, Inc.

Carizzo engages in the exploration, development and production of oil and gas primarily within the United States. U.S. operations are located in the Eagle Ford Shale (South Texas), the Delaware Basin (West Texas) and various locations throughout the Midwest region. Carizzo controls roughly 179.179 net acres with a combined proven reserve estimated at 200.2 MMBoe of oil equivalent (64% oil, 12%

liquefied natural gas and 24% natural gas). The majority stems from the Eagle Ford Shale region, however, the proven reserves of Delaware Basin increased significantly between 2015 and 2016, up from 1MMBoe to 11.7 MMBoe.

The business strategy is based on opportunistic acquisitions of oil and gas properties. The company communicates a great focus on maintaining risk in form of exploitation of wells with levels of uncertainty by the utilizing advanced technologies such as 3D seismic and micro-seismic analysis.

Shell Trading Co. is a major customer along with Flint Hills Resources LP, which accounts for 56%

and 15% of the total sales respectively. Annual production during 2016 reached 9.423 MBoe, the equivalent of 42.276 Boe/d and revenues of $443.594M (Carrizo Oil & Gas, 2017).

5.1.3.4 Contango Oil & Gas Co.

Contango participates in the exploration, development, acquisition and production of oil and gas properties located both in- and offshore on the inlands of Texas and Wyoming and offshore in the Gulf of Mexico and the Texas Gulf Coast. Contango controlled a total acreage of 153.629 whereas approximately 115.000 acres are within the Texas region. The proven reserve consists mainly of natural gas, hence cubic feet is the main measurement. Regardless, the proven reserve is estimated at 151.8 Bcfe of natural gas equivalent (105.1 Bcf of natural gas, 3.4MMBoe of crude oil and 4.4 MMBbl of liquefied natural gas).

The business strategy is based on the acquisition of both previously exploited and unexploited properties, however, their area of operating expertise resides in undeveloped properties. Since the merger of E&P company Crimson Exploration Inc. in 2013, Contango has focused on horizontal drilling mainly in the inland region of Texas and Wyoming.

39 Major customers include ConocoPhilips, Sunoco and Shell Trading Co., which accounted for 45.9%, 14.2% and 10.6% of the total sales in 2016 respectively. Annual production in 2016 was estimated at 10.626 MMcf of natural gas and 127 MBls of crude oil and revenues of approximately $78M (Contango Oil & Gas, 2017).

5.1.3.5 Laredo Petroleum

Laredo focuses on the acquisition, exploration, development and transportation of oil and gas within the Permian Basin. As of December 2016, Laredo controls 127.847 acres with an estimated proven reserve of 167.1 MMBoe of oil equivalent (47% oil, 27% natural gas and 26% liquefied natural gas.).

In addition to upstream operations, Laredo engages in midstream and marketing through its subsidiary LMS.

The business strategy is based on horizontal drilling of longer laterals, averaging approximately 10.000 feet. However, conventional methods are not excluded from their current strategy. Laredo concentrates on drilling in multi-wells packages around established production corridors. The established corridors provide infrastructure and the flexibility and thus operational flexibility.

Major customers are not disclosed, however, three customers accounted for 48.5%, 23% and 17% of the total sales of oil, natural gas and NGLs. Total revenues accounted for $597M whereas $426M stems from the sales of self-produced oil and gas products (Laredo Petroleum, 2017).