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Energy Trader, Equity Partners Finance GOM Deal

Energy trading house Freepoint Commodities LLC and two private equity (PE) partners on Monday agreed to provide $110 million to Whistler Energy II LLC to buy two producing blocks in the deepwater Gulf of Mexico (GOM).

Freepoint was formed two years ago by former Sempra Energy Trading Corp. (SET) executives.

With the backing of Freepoint subsidiary Commerce Oil LLC, as well as affiliates of Apollo Global Management LLC and Summit Partners Credit Advisors LLP, Whistler is buying out all of the working interests in Green Canyon (GC) blocks 18 and 60 from ExxonMobil Corp. and W&T Offshore Inc. Whistler also is acquiring the GC Block 18 production platform, which is about 150 miles southwest of Louisiana in 750 feet of water.

In addition, committed funding by Freepoint is financing a field redevelopment program to be carried out by Whistler.

"I view this partnership as a perfect opportunity to redevelop a world-class asset with our new partners," said Whistler CEO Scott Frankel.

According to Freepoint, historic production rates at GC Block 18 peaked at 30,000 boe/d. The trader would serve as the physical offtaker of existing and future oil and natural gas production from the platform.

The GOM "transaction is another example of how Freepoint is well positioned to provide both financing and physical trading capabilities to the upstream energy sector," said Freepoint's Brian Cumming, who manages structured finance for the firm. Cumming is a former Deutsche Bank and JPMorgan executive.

Freepoint was founded by the former heads of SET and RBS Sempra Commodities executives. The SET/RBS joint venture was broken up and sold three years ago to JPMorgan Chase and others for about $2 billion (see Daily GPIJuly 2, 2010). The Stamford, CT-based firm was formed in 2011 initially with PE funds managed by Stone Point Capital.

Freepoint CEO David Messer formerly was president of AIG Trading Corp. until the unit's sale to Sempra in late 1997. SET was established a year later, growing from a $50 million annual revenue enterprise in 1998 to annual revenues of $1.5 billion by 2005. Messer led the sale of most of SET to The Royal Bank of Scotland (RBS) in 2008, which formed RBS Sempra Commodities. He was CEO of the joint venture and global head of commodities for RBS until March 2009, when he resigned.

Last month Freepoint completed a volumetric production payment transaction with privately held Elm Ridge Exploration Co. LLC involving the purchase of a term overriding royalty interest in the producer's proved developed producing and proved undeveloped oil and gas reserves. With specified volumes of oil and gas to be delivered over an 11-year term, the transaction involves production from almost 1,000 wells in the San Juan Basin of New Mexico and Colorado.

The GOM investment, similar to a natural gas well purchase late last year in Wyoming, "reflects Freepoint's strategy to invest in hydrocarbon producing assets," management said. In December, subsidiary Freepoint Resources LLC paid Bucking Horse Energy Inc. $61 million for 66 natural gas wells in the Pinedale Anticline.

 "The strategy to purchase natural gas producing assets, and the development of Freepoint Resources as a natural gas producer, has been an essential part of our growth plan and broadens our portfolio of commodity platforms," said Messer at the time. "By joining our merchant activity with assets at different points of the commodity value chain, we are able to deliver attractive returns to our stakeholders."

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