Saudi Arabia - joining the dots

A series of blog entries exploring Saudi Arabia's role in the oil markets with a brief look at the history of the royal family and politics that dictate and influence the Kingdom's oil policy

AIM - Assets In Market

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Iran negotiations - is the end nigh?

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Yemen: The Islamic Chessboard?

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Acquisition Criteria

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Valuation Series

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Thursday, 25 May 2017

Gina Krog nears first oil


The NPD has today granted Statoil, the operator, to commence production at Gina Krog in June. The field was originally a gas discovery made in 1974 and had been considered for development on a number of occasions throughout history. In 2007, oil (and gas) was discovered in a nearby prospect and Gina Krog was subsequently reviewed again with a full appraisal and delineation programme taking place between 2008-2011 which confirmed substantial amounts of oil under the entire structure.

A Plan for Development and Operation was submitted in December 2012, with approval obtained in March 2013. The field will be developed using a fixed steel platform and FSO, with oil exported via shuttle tankers. The development is planned to utilise 10 production wells and 4 gas combined injection/production wells. The field is estimated to contain 225mmboe. Most of the gas will initially be re-injected for reservoir support with minimal sales gas during this first phase. This will be followed by a gas blow-down phase, expected to commence in the mid-2020s which will see gas exported to the Sleipner facilities for processing and onward sale.
The partners in the field are:
  • Statoil 58.7%, operator
  • KUFPEC 15%
  • Total 15%
  • PGNiG 8%
  • Aker BP 3.3%

Total has been offloading its stake in Gina Krog since 2014 in an attempt to reduce exposure to relatively high cost fields and development capex.

Total is aiming to move down the cost curve by divesting higher cost assets globally. Its near-term capex is 20% weighted to Norway post Gina Krog start-up, so any sale proceeds will be a welcome contribution to ongoing spend, including the Total operated Martin Linge development which is scheduled to produce first oil in early 2018.


Kraken on track for first oil in June

EnQuest has reported that Kraken remains on track for first oil before the end of June 2017. Drilling is now complete at the first two drilling centres (DC1 and DC2), the rig is currently at DC3. Drilling performance to date has de-risked delivery of the project to and beyond first oil.  At start up, 7 producers and 6 injectors will be in place. Handover of FPSO systems from commissioning to operations continues and the wells will be brought onstream in a phased manner in June. EnQuest emphasises that the project continues to be under budget and on schedule.

Wednesday, 24 May 2017

INEOS acquires DONG E&P portfolio

On 24th May, INEOS announced the acquisition of DONG's E&P business for USD1.05bn with two further contingent payments:

  • USD150 million relating to the Frederica stabilisation plant; and
  • USD100 million subject to the development of Rosebank
As part of the transaction, DONG will retain all hedges that are currently in place (worth USD285 million) and cashflows from the oil & gas business (worth c.USD310 million). Ineos will adopt all decommissioning liabilities (c.USD1.1 billion).

The deal includes a portfolio of long life assets with 100mboepd production and 570mmboe of commercial reserves and contingent resources. The portfolio's corner stone assets are Ormen Lange (Norwegian gas) and Laggan-Tormore (new gas field in West of Shetlands).

All 440 DONG personnel will transfer to INEOS on completion, which is expected towards the end of 2017. The deal with propel INEOS into the top 10 league of North Sea players and enable the company to significantly expand its trading and shipping activities.

Wednesday, 10 May 2017

Yakaar - major gas discovery offshore Senegal


 Kosmos has made a substantial 15tcf gas discovery offshore Senegal. The Yakaar-1 well on the Cayar Offshore Profond licence intersected a gross hydrocarbon column of 120m and encountered 45m of net pay. The well confirmed the presence of thick, stacked, reservoir sands over a large area with very good porosity and permeability.

This discovery marks the continuation of Kosmos’ success in the Mauritania/Senegal river basin (Tortue, Ahmeyin, Marsouin and Teranga). Yakaar and Teranga together hold 20tcf (Pmean gas resource) and creates the opportunity for a second LNG hub in Senegal (in addition to the planned Greater Tortue Area).

Source: Kosmos Energy May 2017 company presentation
Kosmos has revised its exploration schedule since February 2017, introducing Hippocampe to the mix which has been prioritised ahead of Lamantin and Requin Tigre. Hippocampe is potentially a more valuable, liquid prone prospect and would likely be easier to commercialise in the case of success than the deepwater gas resources to date.

The drilling schedule over the next 12 months is now:

  • Tortue-DST (imminent)
  • Hippocampe-1 (Q3/4 2017)
  • Lamantin-1 (Q4 2017)
  • Requin Tigre-1 (Q4 2017/Q1 2018)

Thursday, 4 May 2017

DNO: Branching out

 

In a move as surprising as TransGlobe's entry into Canada, DNO has announced the acquisition or Origo Exploration, a UK and Norway focussed private explorer backed by GNRI, Riverstone and Temasek. As consideration, DNO will assume Origo's exploration commitments and licence obligations.

Origo has interests in 11 blocks offshore UK and Norway, with 20-30% non-operated interest in each block. This portfolio is expected to generate around three exploration drilling opportunties per year. The management team and staff will be reataiend as part of the acquisition as will its office in Stavanger.

DNO could use this platform to establish a North Sea base (organically and through acquisitions), and although the strategic logic of this acquisition is currently unclear, it presents a new region for DNO to replicate its past exploration and operational success. It also signals the fact that DNO may see limited attractive opportunities in Kurdistan to reinvest its growing cash base on a risk-reward basis.


Origo Portfolio
Source: Company information, NPD

Wednesday, 3 May 2017

Major interest in Senegal

On 3rd May, Total announced that it had signed two agreements with Senegal:

  • Acquisition of the RPO block (Total 90%, Petrosen 10%) which lies in deepwater immediately adjacent to the SNE and FAN discoveries (Cairn 40%, Woodside 35%, FAR 15%, Petrosen 10%)
  • Agreement to perform studies to assess the exploration potential of Senegal’s ultra-deep offshore and become operator of an exploration block.

This activity follows the recent transaction by BP into Kosmos’ exploration and appraisal acreage in Mauritania and Senegal, and CNOOC Nexen’s strategic partnership with FAR in Senegal and The Gambia. In the latter, the partnership covers an initial two year period, providing for co-operation and potential joint bidding on farm-ins, acquisitions and open acreage. FAR and CNOOC Nexen will also share technical expertise and relationships.

While the tangible benefits of this relationship cannot currently be quantified, CNOOC Nexen will be a useful partner to have as SNE progresses towards FEED and may eventually acquire or help fund FAR post FID. CNOOC Nexen could also have an interest in FAR’s Gambian blocks that lie to the south of SNE.

CNOOC is an established player in Africa with development/production in Uganda and Nigeria and exploration interests in Equatorial Guinea, Gabon and the Republic of Congo.

Friday, 28 April 2017

Saudi Arabia: Consolidating power and austerity tested

Earlier this week, Saudi Arabia announced two pieces of news that the oil markets will be keeping a close eye on. In this latest episode of palace intrigue, King Salman has taken further steps to consolidate power in the Salman branch of the royal family and reversed some of the austerity measures implemented in 2016, the latter signalling tears in the fabric of the social contract with the Saudi public.

King Salman’s sons, Abdulaziz bin Salman and Khaled bin Salman, will become Minister of State for Energy and Saudi Ambassador to the US respectively.

  • Prince Abdulaziz has held a variety of senior positions in the oil ministry through the years and was a proponent of abandoning the market share strategy
  • Prince Khaled has served as an advisor to the Saudi embassy in Washington – his placement will be to help strengthen ties between the US and Saudi, consistent with the messages since the Trump and Deputy Crown Prince meeting in March 2017

Prince Abdulaziz and Prince Khaled are half-brothers; Prince Khaled is a younger brother to the Deputy Crown Prince, Mohammed bin Salman.

The other key decision this week was the reversal of civil service salary and benefits cuts. The austerity measures have caused discontent with the public, of which c.70% work for the civil service, leading to cries demanding the reversal of salary cuts, reinstatement of benefits, scrapping the planned IPO of Saudi Aramco and a change of the ruling system from an absolute to a constitutional monarchy – the latter being a key concern and threat to the Salmans’ power. The reversal of the cuts were well received and although undermines the economic outlook of Saudi Arabia, is clearly much more desirable than public revolt.

The temporary austerity measures reduced the spending deficit from USD97 billion in 2015 to USD79 billion in 2016. The target for 2017 was set at an ambitious USD53 billion, but this now looks unachievable with the announced reversals. The reversals place the Deputy Crown Prince in an awkward position within the family’s diverging aspirations for the Kingdom with the potential undermining of his Vision 2030 which aimed to scale back the public sector wage bill and civil service, with diversification of the economy. The durability and longevity of other Saudi measures and now being put to the test.