Although Norse Energy Corp. ASA has put most of its leasehold in New York up for sale, the company said it hopes to continue doing business in the state -- especially through a joint venture (JV) -- and is currently in negotiations with several interested parties over its assets.
Dennis Holbrook, Norse's spokesman and executive vice president, confirmed that the Norwegian company has put 130,000 net acres in Broome and Chenango counties up for sale as it looks to recover and move forward after falling $90 million in debt (see Shale Daily, Oct. 25).
"These are challenging economic times for us, for all of the obvious reasons," Holbrook told NGI's Shale Daily. "We've paid a tremendous price in terms of the cost of delay. Our hope is that we can do a partial asset sale and give ourselves some running space to take advantage of this long-awaited process. I'm hopeful this is finally coming to fruition."
Last Tuesday that "long-awaited process" got a bit longer after New York Department of Environmental Conservation (DEC) Commissioner Joseph Martens announced that a key advisory panel would need to work into the early months of 2012 to complete their recommendations (see Shale Daily, Oct. 28). Meanwhile the DEC is currently in the midst of a 60-day comment period over its proposed rules governing hydraulic fracturing (fracking) in the state. A revised draft supplemental generic environmental impact statement (SGEIS) was issued on the practice in September (see Shale Daily, Sept. 8).
Asked if the company would abandon New York and focus elsewhere, perhaps Pennsylvania, Holbrook said Norse has "had operations in [both states], but right now we're trying to see if we can get some proper valuations for some portion of our assets in New York.
"It's our hope and expectation that we'll be able to continue to operate [in New York] and take advantage of the SGEIS when it finally comes to fruition. Our hope would be that we could sell some [assets] and keep some. We'd love to partner up with the right party so that we sell a portion of our interests and have some participation rights going forward. All of those things are on the table for consideration."
Holbrook said Norse was currently in discussion with several parties over a possible deal.
"You end up with a lot of tires being kicked," Holbrook said. "With the uncertainty that New York has presented over the last few years, a lot of parties have been taking a wait-and-see type of attitude. But I have noticed some improvement recently. There are a couple [of] parties that look like they're serious about advancing the process. Our hope is that the right deal is out there that will make sense for both sides to move forward."
Oil and gas companies have generally reacted favorably to the DEC's recommendations enshrined in the SGEIS, although some companies, the American Petroleum Institute and others have complained that the guidelines needlessly exclude thousands of acres in the Marcellus Shale from development (see Shale Daily, Sept. 9; July 5).
At first blush, Holbrook said he couldn't comment on precisely how the DEC's guidelines would affect the 130,000 leasehold acres that Norse is trying to sell or partner with in central New York, other than to say that "there are significant setoffs and restrictions on access that historically weren't there, including surface rights on state lands."
But Holbrook indicated that the company has already conducted at least an informal review of its acreage position and, in some cases, its existing gathering system.
"We're not in the New York City [or Syracuse] watershed areas or even close to them," Holbrook said. "We believe that we're in a pretty good position from an acreage standpoint to move forward. We're reasonably comfortable with what we'll be able to do with our acreage position. We do avoid the excluded areas for the most part."
According to Holbrook, Norse has completed construction of an interconnection with two Dominion Transmission parallel pipelines near Morrisville, NY, and is currently conducting line testing (see Daily GPI, Oct. 7, 2010).
Holbrook estimates that once state officials approve the SGEIS and permits are issued, operators could begin drilling horizontal wells in New York by the late spring or early summer of 2012.
"So we will have approached almost four years since New York held things up," Holbrook said, adding that lease terms typically average five years. "That's a long time to wait."
Holbrook also predicted that the continuing regulatory uncertainty in New York would foster further consolidation among the oil and gas companies.
"If you look out in the industry, you will see that some pretty good-sized companies have realized that they need to partner up [with another company] to properly develop the shales because of the capital-intensive nature of it," Holbrook said. "We've been looking off and on over the course of at least a couple [of] years now for potential JV partners, or some other arrangement, under which we could jointly develop our property and get some capital infusion up front."
Holbrook said that for at least the last two years Norse has been exploring the possibility -- especially through private channels -- of entering into a JV or selling some of its assets. But he said those private channels "didn't pan out, so we've decided to go more public.
"A lot of folks are very excited about the geologic potential of New York. Some of the best wells being drilled in Pennsylvania are close to our acreage position. But some of them, even the big guys, have stumbled. They're reluctant to [get into New York] given the regulatory uncertainty the state has created and the media attention from New York City."
But Holbrook said it wasn't all bad news.
"The SGEIS looks like it is finally on a reasonably firm timetable for completion, and that is helping," Holbrook said. "The problem we're challenged with is that it's been so long in the process that we've been stretched pretty significantly financially during this waiting period."