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China's Blue Whale Continues Building Permian Portfolio

Houston-based Blue Whale Energy North America, formed by a Chinese holding company to acquire U.S. oil and natural gas projects, on Monday said it had completed its $1 billion-plus purchase of more than 78,000 net acres in the Permian Basin of Texas from two private equity-backed producers. Blue Whale to date this year has paid $1.4 billion to accumulate a Permian portfolio across 85,000 net acres.

The latest deal by Blue Whale first was announced in late October between Tall City Exploration LLC and Plymouth Petroleum LLC (see Shale DailyOct. 26). The transaction, now valued at $1.084 billion, adds properties in Howard and Borden counties that produce about 6,000 boe/d net. Tall City contributed nearly all of the assets, with its deal estimated to be worth $803 million for 71,000 net acres and interest in 34 horizontal and six vertical wells that now produce 3,750 boe/d.

The Beijing-based Blue Whale Energy Ltd. subsidiary, through Moss Creek Resources LLC, earlier this year paid $315 million to acquire more than 7,100 net acres on the northern edge of the Permian in Crosby County, TX that were producing 2,500 boe/d. The Permian leasehold is to be operated by Blue Whale's Surge Energy Operating, also based in Houston.

Moss Creek CEO Curtis Newstrom, who also runs Blue Whale Energy North America, said the deal would place Moss Creek "in what we believe to be highly prolific acreage" in the core of the Permian's northern Midland sub-basin. Newstrom from 2010 to 2014 was senior vice president of business development for Midstates Petroleum Co. Inc. From 2007 to 2010 he was Linn Energy LLC's vice president of business development and strategic planning. Most of Newstrom's career was spent with the former Burlington Resources Corp., which was bought by ConocoPhillips in 2006.

Tall City was formed three years ago by Denham Capital Management LP, while Plymouth was formed in 2011 by ArcLight Capital Partners LLC. The producers are both based in Midland, TX, and each were formed to acquire and develop oil and gas properties in the Permian.

Tall City late last year sold about 15,000 net acres and 1,400 boe/d in the West Texas counties of Reagan and Crockett for $440 million to the Permian affiliate of American Energy Partners LP (see Shale DailyNov. 24, 2014). With the Moss Creek deal, Tall City has recouped more than $1.2 billion for its Permian portfolio, which initially was funded by Denham with $300 million.

"When we formed Tall City Exploration in 2012, we believed in the opportunity the Permian Basin had to offer our team and investors," said CEO Mike Oestmann. "We anticipate that, through this transaction, our active drilling program will be maintained despite the market's recent downturn and that it will continue providing jobs, tax and royalty income to the local, state and national economy."

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