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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Monday, 27 March 2017

Shell sells onshore Gabon to Carlyle

On 24th March, Shell announced the sale of its onshore Gabon assets to Assala Energy Holdings (a portfolio company backed by Carlyle Group).

Assala will pay USD587 million and assume debt of USD285 million, taking “enterprise value” to c.USD870 million. Shell will also receive up to a further USD150 million in contingent payments depending on oil prices and performance. This compares with a Wood Mackenzie NPV10 of c.USD600 million and implies that some value being placed on the gas resources.

The onshore portfolio comprises c.60mmbbl of oil (commercial) and c.160bcf of contingent gas. The gas is currently undeveloped due to a limited market, but could one day be used to supply local power generation. The portfolio produces c.35mbopd of and Shell Trading will retain lifting rights from the assets for the next five years.

The licences being acquired are a mix of PSCs and concessions with some of the concessions being converted into PSCs over the last 10-20 years when they came up for renewal. The licences are owned directly and indirectly through a JV with the Gabonese government (75% Shell, 25% State). The largest asset in the portfolio is Toucan which commenced production in 2003 – significant investment was made between 2012-2014 as part of an additional phase of development to extend the field life to c.2030.

The offshore licences (BC9 and BC10) are excluded from the same, where Shell made the large Leopard-1 discovery in 2014 which is estimated to contain close to 1tcf of recoverable gas.

Tuesday, 7 March 2017

Bowleven Bomono farm-out

Bowleven and Victoria Oil & Gas ("VOG") have signed a farm-out agreement relating to the Bomono production sharing contract. VOG is a domestic Cameroon gas supplier, and gas upcoming production from Bomono fits in with its strategy of expanding local supply.

Bowleven will retain a 20% operated interest in the Bomono PSC and VOG will have an 80% interest. Bowleven will receive £100,000 worth of new ordinary shares in VOG and a 3.5% royalty from VOG’s production share from the licence, with a cap limiting the total royalty payments to USD20 million. VOG will complete the civil engineering (c.USD6 million) and Bowleven has agreed to pay 50% of any deficit, limited to a USD2 million.

Gas produced from the Bomono PSC is expected to be fed into the customer distribution network owned and operated by Gaz du Cameroun, a wholly owned subsidiary of VOG and the gas will be sold to GDC less a tolling fee. First gas supply to the GDC network is anticipated to start following granting of a Provisional Exploitation Authorisation ("PEA") and other approvals.

Bowleven’s detailed prospect inventory indicates there is 146bcf and 263bcf of mean un-risked GIIP in the Tertiary and deeper Cretaceous reservoir intervals respectively. Completion of the deal is subject to the grant of a PEA over the Bomono PSC and approval from the Cameroon Government.

Monday, 6 March 2017

Perenco acquires Gabonese assets from Total

On 27th February Total announced that it had agreed the sale of its Gabonese assets to Perenco for USD350 million. Perenco will acquire:

  • Total Participations Petrolières Gabon ("TPPG") a wholly owned subsidiary of Total which has interests in 10 assets; and
  • 5 assets from Total Gabon, the publicly listed entity in which Total owns 58.3% and the government of Gabon 41.7%

The package will comprise of 12 fields (some are owned by ‎TPPG and Total Gabon) with 13mbopd production as well as the operated Rabi-Coucal-Cap pipeline. Perenco will acquire operatorship of all the assets apart from Rabi which is operated by Shell.

The assets are mature with the majority currently having an expected end of life between 2020 and 2030. However the deal fits with Perenco's successful strategy of creating value from mature assets. Perenco has a track record of exploiting mature assets around the world, including in Colombia, the UK, Congo and Cameroon. Perenco already has assets in Gabon and this acquisition provides an opportunity for operational and cost synergies and cements West Africa as a core region for the company.

Although the assets provide only oil production, there ‎are significant contingent gas resources especially in Rabin with an estimated 250 bcf gas cap. Perenco is currently the sole gas producer in the country, supplying local power plants and the new gas provides significant back up volumes.

For Total, the divestment will contribute towards the 2014 mandated divestment target of USD10 billion to 2017, of which c.USD8 billion has been achieved to date. It should be noted that this does not represent a complete country exit for Total which still retains assets through Total Gabon, such as Grand Anguille and the deep water Diaba exploration block.

Friday, 3 March 2017

Sterling sells out to Oranje-Nassau Energie

Sterling Resources has announced it has entered into an agreement to sell its SRUK Holdings subsidiary to Oranje-Nassau Energie for a net consideration of USD113 million, assuming the bonds are fully redeemed and the super senior revolving credit facility is cancelled. Sterling anticipates a completion date of 15th May.

Following Sterling’s recapitalization in May 2016, the board of continued to review and pursue various M&A opportunities to rebuild the business. Sterling considered a number of opportunities and alternatives, including mergers with a variety of potential counterparties. Ultimately, this process culminated with the board of Sterling recommending the sale of SRUK Holdings to Oranje-Nassau. Once the transaction is approved by shareholders, Sterling will no longer have

any business operations and it currently intends to undertake a voluntary winding-up, with the distribution of all net proceeds of the transaction to shareholders. The shares of Sterling are expected to cease trading and be delisted from the TSX-V following the final distribution.

Thursday, 2 March 2017

More success at Jacana

GeoPark today announced the successful drilling and testing of the Jacana-11 appraisal well on block LLA-34. The well, located 2.5km southwest of Jacana-6 and extends the Tigana/Jacana oilfield to the south-west edge of the block. The well reached TD of 11,618ft and did not encounter the oil-water contact.

Jacana-11 tested at c.2,100b/d (18.7 API, <1% water cut) with an ESP from the Guadalupe formation, and the well is already in production.

The Jacana Sur-2 well is the next well scheduled to be drilled and is targeting a further extension of the field in the northwest direction.

Wednesday, 1 March 2017

BP continues foray into clean energy and US gas supply

BP has agreed to acquire Clean Energy Fuels Corp's biomethane production assets for USD155 million, expanding BP's gas supply portfolio in the US. BP will take over Clean Energy Fuels Corp's existing and two new biomethane production sites as well as supply contracts from third parties. As part of the deal, the Clean Energy will also signed a long-term agreement to purchase biomethane from BP.

Press release:

CHICAGO, Ill. and NEWPORT BEACH, Calif. – BP p.l.c. (NYSE: BP) and Clean Energy Fuels Corp. (Nasdaq: CLNE) today announced that BP will acquire the upstream portion of Clean Energy’s renewable natural gas business and sign a long-term supply contract with Clean Energy to support the firm’s continuing downstream renewable natural gas business. The deal enables both companies to accelerate the growth in renewable natural gas supply and meet the growing demand of the natural gas vehicle fuel market.

Renewable natural gas fuel, or biomethane, is produced entirely from organic waste.  As a fuel for natural gas vehicle fleets, including heavy-duty trucks, it is estimated to result in 70 percent lower greenhouse gas emissions than from equivalent gasoline or diesel fueled vehicles.

Under terms of the agreement, BP will pay $155 million for Clean Energy’s existing biomethane production facilities, its share of two new facilities and its existing third party supply contracts for renewable natural gas. Closing the transaction is subject to regulatory approval. Clean Energy will continue to have access to a secure and expanding supply to sell to the growing customer base of its Redeem™-branded renewable natural gas fuel through a long-term supply contract with BP.

“Demand for renewable natural gas is growing quickly and BP is pleased to expand our supply capability in this area,” said Alan Haywood, chief executive officer of BP’s supply and trading business. “BP is committed to supporting developments towards a lower carbon future and, working with Clean Energy, we believe we will be well-positioned to participate in the growth of this lower carbon fuel in the U.S.”

Clean Energy, in turn, will be able to expand its Redeem customer base at its North American network of natural gas fueling stations, allowing customers to take advantage of the ease and affordability of switching to a fuel that is both renewable and can significantly reduce greenhouse gas emissions compared with diesel.

“We started our Redeem fueling business from scratch less than four years ago and have grown it into a significant enterprise,” said Andrew Littlefair, Clean Energy’s president and chief executive officer. “This transaction will help to take it to the next level. BP’s investment in and focus on renewable natural gas supply will ensure that Clean Energy can meet the growing demand of our customers for low carbon, renewable fuel.”

Clean Energy will buy renewable natural gas fuel from BP and collect royalties on gas purchased from BP and sold as Redeem at it stations. This royalty payment is in addition to any payment under BP’s contractual obligation.

Tuesday, 28 February 2017

Africa Oil - slowly progressing

Africa Oil published its 2016 financials last night - the USD850 million company (market capitalisation) ended the year with cash-in-hand of USD463 million.

The release included few updates – G&A was down c.50% year-on-year as a result of lower equity-based payments and the impact of the weak Canadian dollar on head office salaries, and the company reported a small USD6.5 million write off on its Ethiopian assets.

Attention remains focused on the Lokichar Basin development - preparations for FEED are underway, the pipeline Joint Development Agreement is currently in the final stages of negotiation. Separately the conclusion of the Maersk carry, an additional USD75 million of development carry may become available to Africa Oil upon confirmation of existing resources.

During Q4 2016, the company elected to relinquish its 15% working interest in the South Omo Block in Ethiopia, resulting in the USD6.5 million impairment charge mentioned above. Africa Oil’s joint venture partners in the Rift Basin Area of Ethiopia and Block 9 in Kenya have provided notification of their intent to withdraw from the joint venture; the company’s working interest in the blocks will therefore increase to 100%. These licences are due to expire in February and June 2017, respectively.