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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Tuesday 16 December 2014

Repsol makes US$8.3bn offer for Talisman Energy

Repsol makes US$8.3bn offer for Talisman Energy @ US$8/share




86% premium to 12 December closing price


...but not that big in the context of the recent share price fall



Saturday 6 December 2014

Sub-Saharan Africa - newsflow update



Gabon Deepwater - Leopard discovery

  • Leopard-1 was drilled on licence BCD10
  • Shell 75%*, CNOOC 25%
  • Encountered substantial gas column with 200m net gas pay
  • Further appraisal required
  • FLNG? 3-4 tcf may be required, although economics of sales into Europe are marginal
  • Government is also keen to grow domestic gas market

Congo Offshore - Eni/NewAge - follow up discovery in Marine XII
  • Minsala Marine discovery
  • Estimated 1bnboe in place, of which 80% oil
  • In same shallow water block as the Litchendjili and Nene Marine fields, both of which are currently undergoing development

Angola - first discovery in Kwanza Basin
  • Pre-salt offshore Kwanza Basin - oil discovery made by Repsol
  • Will evaluate commerciality of the Locosso oil field
  • Located in Block 22, immediately to south of Cobalt's Block 21 which contains the play opening Cameia field
  • Given remote location and water depth, Wood Mackenzie estimates will require 300mmbbl to be commercial on standalone basis

Liberia, Cote d'Ivoire - Anadarko's non-commercial wells

Nigeria - NNPC pre-empts sale of OML25
  • NNPC has pre-empted on the sale of OML25
  • Post transaction, NNPC will own 100% and likely transfer the interest to NPDC
  • NPDC's portfolio is already overstretched and future investment will be heavily constrained
  • The winning bidder of the Shell, Eni, Total process was Crestar Integrated Natural Resources Limited
  • It is believed that the pre-emption, a decision made by the Minster of Energy, is due to Crestar's Chairman being  Osten Olorunsola
    • The Minister of Energy had fired Osten Olorunsola as Director of Petroleum Resources in June 2013
  • http://africaoilgasreport.com/2014/11/farm-in-farm-out/nnpc-in-desperate-search-for-funds-to-pay-for-oml-25/
South Sudan - fighting likely to intensify around fields
  • Government and rebels now re-arming following end of rainy season
  • Sudan is providing South Sudanese Machar-led rebels with weapons and intelligence
  • Rebels likely to set-up bases where they can attack oil fields
  • Local self defence militia are guarding fields bolstered by Chinese peacekeepers
    • Should prevent rebels gaining control of fields, but fighting likely to intensify
East African export pipeline
  • World bank has pledged USD600mm funding towards Ugandan/Kenyan export pipeline
  • Total cost estimated to be >USD4bn
  • Project still remains in early stages - commercial structure, construction, ownership and operations all yet to be determined
  • FEED contracts expected to be awarded end of 2014

Monday 10 November 2014

Brent falls - impact on E&A


Brent (above) has now fallen >25% since June...what are the E&Ps going to do...

Onshore flexibility, but not in the offshore
  • Longer lead times, offshore spend tends to be committed vs. onshore
  • Likely see cut back in E&A instead


Delayed payments
  • Kurdistan, DNO and Genel are still to be paid for pipeline exports
  • Egypt, TransGlobe has built up USD185m of receivables
  • Nigeria, Seplat has built up USD215m receivables as government partners/stakeholders have been slow to pay


Wednesday 22 October 2014

Obama Administration to bypass Congress on deal with Iran?



Obama Administration reported plan to bypass Congress on a deal with Iran
  • Administration’s plan to suspend economic sanctions against Iran without a vote in Congress
  • …Administration says Congress will have final say in whether to permanently lift sanctions


Permanent sanctions would only be lifted if Tehran demonstrates compliance with restrictions on its nuclear programme
  • …and Iran must make sufficient progress in conceding its programme


At the same time, consider whether US requires Iranian support in the battle against the Islamic State?

According to Saudi intelligence, the P5+1 have conceded that Iran can maintain a civilian nuclear infrastructure

  • Saudi wants the GCC to influence Congress to not approve retention of any nuclear facility

Wednesday 8 October 2014

Sangomar Deep - Senegal's first offshore discovery




  • On 7 October 2014, Cairn Energy and its partners announced that a significant oil discovery had been made in the FAN-1 exploration well in the Sangomar Deep block, Senegal's first offshore discovery
    • 29m net pay
    • Gross oil interval of >500m
    • No OWC encountered
    • Distinct oil types recovered 28-41 API
  • This was followed by a second discovery in the SNE-1 well, announced on 10 November 2014
    • 36m net pay
    • Gross oil interval of 95m with gas cap
    • Oil of 32 API, oil and water recovered to surface
    • 1C: 150mmbbl, 2C:330mmbbl, 3C: 670mmbbl
  • Block is operated by Cairn (40%) - other partners are COP (35%), Far (15%), Petrosen (10%)
  • SNE-1 is potentially commercial on a standalone basis; FAN-1 economics more marginal - may be tied back to SNE-1 or warrant a stand-alone development, will need further delineation




Monday 1 September 2014

Gunvor to expand into spot LNG trading as supply increases

Bloomberg

Gunvor Group, the world’s fourth-biggest oil trader, plans to expand into short-term buying and selling of liquefied natural gas (LNG) as global supply rises, two people with direct knowledge of the matter said.

The Cyprus-based trading house will charter vessels for spot agreements and sell cargoes in Asia and the Atlantic basin, tapping into supply from Nigeria, Australia and Southeast Asia, the people said, asking not to be identified because the plan is confidential.

Seth Pietras, a spokesman for Gunvor in Geneva, declined to comment by e-mail.

Gunvor follows Vitol, Trafigura Beheer, Glencore, global energy companies and utilities in competing for spot cargoes as new projects boost LNG supply, first from Australia and later from the US.

The company, which has so far focused on long-term contracts, has an agreement to liquefy natural gas at the planned Magnolia LNG project in the US as well as an accord to supply Panama with the fuel.

Gunvor is also considering a tie-up with OAO Novatek for the sale of fuel from the proposed Yamal LNG project in the Russian Arctic, Leonid Mikhelson, CEO of Tarko-Sale, Siberia-based Novatek, said in January.

Gunvor hired Ksenia Babenkova as an LNG trader for its Geneva office from Gazprom Marketing & Trading, while Kalpesh Patel from BG Group will start in Singapore, according to the people. They will focus on short-term trading.

Rising Trade

LNG trade will rise by 40% to 450 billion cubic meters (16 trillion cubic feet) by 2019, the International Energy Agency said in its medium-term gas market report in June. Spot and short-term LNG contracts accounted for 27% of total trade last year, compared with 25% in 2012, according to the International Group of Liquefied Natural Gas Importers, a Paris-based lobby group.

Spot prices for cargoes delivered to Northeast Asia, the world’s biggest buyer of LNG, rebounded to $11.70/MMBtu on Aug. 18, according to New York-based Energy Intelligence Group’s World Gas Intelligence publication. Prices fell for 21 weeks through July 14, the longest stretch since Bloomberg began reporting WGI data in June 2010, from an historic high of $19.70 earlier this year.

Almost 70 million metric tons of LNG capacity, or 20% of global capacity, is poised to come online in the next few years in Australia, Neil Beveridge and Oswald Clint, analysts at Sanford C. Bernstein & Co., said in an Aug. 22 report.

Source: Bloomberg

Monday 25 August 2014

Waha resumes production - a brief history of the Waha fields


  • Comprises a number of concessions located in the Sirte Basin in eastern Libya
  • Four main fields are: Waha, Gialo, Dahra and Defa
  • Originally issued to Oasis Oil Company (consortium of Conoco, MRO and Amerada Hess)
    • In 1986, US sanctions required all US companies to withdraw
    • Concessions were held in escrow
    • NOC established 100% subsidiary, the Waha Oil Company, to operate the fields until 2005 when the US companies re-entered
  • In 2009, list of 24 fields to be developed were drawn up, however development has been slowed by NOC budget constraints
  • In March 2011, production halted due to outbreak of civil war
    • Production restarted in November 2011 and climbed quickly to pre-war levels as there was minimal damage to facilities
    • However, in 2013...
      • Operations were disrupted at the Dahra field due to clashes between armed militias and security guards
      • Production at Gialo was disrupted by protesters demanding better jobs and living conditions from the government
      • Disruptions have since worsened with local tribes and militias targeting oil and gas facilities with prolonged shut-ins since H2 2013
    • According to various news sources, NOC announced on 25 August 2014 that production at the Waha concessions have resumed: http://www.bidnessetc.com/24617-libya-resumes-crude-oil-production-as-fighting-continues/


Current participations is (August 2014):
NOC 59.18%
COP: 16.33%
MRO: 16.33%
Hess: 8.16%
Waha Oil Company: -*

Sunday 17 August 2014

Notes on Yemen - Summary

Summary




  • Oil production dominated by 2 blocks:
    • Masila (Bloack 14)
      • Licence expired in 2011
      • Operations taken over by newly formed government op co
      • May impact production levels and future development
    • Marib-Jawf (Block 18)
  • Production peaked in 2002 at 160mbopd
    • Absent further discoveries, reserves will be depleted over next decade
    • A number of licences are due to expire in coming years, if not renewed, could exacerbate declining reserves problem
  • Small discoveries in basement formation by Total and OMV may help reduce decline in the immediate future
  • Deteriorating security situation
    • Attacks on Marib export pipeline means pipeline regularly non-operational
    • Ongoing tensions between gov and local tribesmen
    • Unrest will impact future production as troops previously assigned to guarding oil infra are relocated to cities
  • In recent years, government has addressed declining revenue from oil by monetising gas
    • Yemen LNG commissioned in 2009
    • Fed by Total-led East Shabwa gas project
  • Government also keen on moving away from heavily subsidised diesel power gen by incentivising gas on commercial terms
  • Due to maturity, Yemen of interest to small/med cos
    • Despite security concerns, attractive fiscal terms and rel low capex/opex mean attractive returns on investments can be made for those willing to accept risk

Saturday 16 August 2014

Yemen - Key Companies and Licensing

Key companies

  • Total is largest resource holder due to interest in Yemen LNG
    • Partners are: Hunt Oil and SK Energy
  • Occidental is most significant IOC not in Yemen LNG
    • Acreage, reserves and production reduced following expiry of Masila block in 2011
    • Its East Shabwa (Block 10) is due to expire in 2015 - extension unlikely to be granted
    • Nexen was also a key player in Yemen until expiry of Masila block (Block 14)
  • Low capex in 2013 reflects maturity as an oil producer
    • Spending likely curtailed until licence extensions are negotiated
Licensing
  • In 1990s, PSC terms became less favourable following spate of discoveries and developments
    • Led to many relinquishments in mid-1990s
    • Yemen subsequently improved the terms on offer and 14 PSCs were signed in 1997-98
  • Four rounds held between 2004-7
    • However, work programmes were held up by delays to the award ratification process
    • 2006 licences were only ratified in 2009
    • For the 2007 bid round for offshore blocks, no bids were received and bid round was abandoned
    • Deepwater blocks are far from infra, in insecure areas and prospectivity unknown - unlikely to attract much interest

Yemen LNG

Friday 15 August 2014

Apache divesting international assets? A hard one!


On 31 July 2014, Apache announced its Q2 2014 results
  • Apache said it was looking to exit its Canadian LNG positions and was considering options around its international assets
  • This comes amidst Jana Partners, a hedge fund which recently picked up c.USD1bn of shares in Apache, wrote to investors arguing that Apache should focus its efforts on the North American onshore
    • Reasoning behind this is that over the last few years, a number of North American onshore pure plays have outperformed Apache
    • Apache's international assets, it is argued, are diluting its North American onshore story
  • However, analysts do not necessarily agree
    • Apache's international assets, especially those in Egypt and the North Sea, generate significant free cash flow for the group
    • These are areas of existing production and are low risk operations
    • The cash flows are important for the funding of the North American portfolio
  • It is further noted that given the number of North Sea assets on the market, the geopolitic issues plaguing North Africa and the relative maturity (though strong cash flow generation) of these assets, it is unlikely that Apache will fund a buyer willing to pay full value
  • Its other main operations are in Australia, including the Wheatstone LNG project

Sunday 10 August 2014

Notes on Oman

Executive summary

  • After years of declining production, crude output has increased y-o-y since 2008 due to:
    • Oman's EOR project at the Mukhaizna field; and
    • Stabilisation of production at PDO's Block 6 (Oman's main producing area)
    • PDO has also implemented a number of EOR initiatives to maintain its own production of c.550mbopd over the next 5 to 8 years
    • The success of these EOR projects will largely dictate the level to which Oman can maintain liquids production over the medium term
  • Increasing focus on gas production in response to projected shortfalls
    • Encourage the appraisal and development of tight gas reserves
    • Large part of these volumes will depend on success of BP-operated Khazzan Makarem project
  • Oman viewed as a stable operating environments
    • Has collaborative government offering PSCs with relatively favourable terms relative to regional peers

Key companies
  • Petroleum Development Oman ("PDO") is dominant player: Government of Oman 60%, Shell 34%, Total 4%, Partex 2%
    • PDO produces over 75% of Oman's hydrocarbons from over 100 fields
  • BP's reserves come solely from its Khazzan-Makarem project
  • Occidental, Mubadala and Oman Oil Company reserves largely from the redevelopment of Mukhaizna

Licensing
  • Majority of licensing activity is onshore, accounting for 95% of active licences
  • 5 active offshore licences
  • New licensing opportunities for IOCs constrained by fact that PDO has operated a vast concessino area covering much of the country
    • much of the acreage outside of PDO's concession area has been licensed, relinquished and re-licensed several times
  • Licensing activity has increased significantly over the last 10 years
    • re-licensing of PDO relinquished acreage
    • response to falling oil production and rising gas demand

Reserves
  • Main oil fields now mature
    • remaining reserves depend on how successful PDO and Occidental's EOR is
  • Remaining gas reserves estimated at 30-35tcf
    • vast majority held in PDO areas; 85% of Oman's remaining gas reserves are contained in 10 fields operated by PDO, most of which are in Qarn Alam area of Block 6
  • Gas reserves will increase significantly if BP's Khazzan-Makarem field and Oman Oil Comapny's Abu Butabul field are successful appraised

Production
  • Between 2000 and 2008, Oman experienced production decline - PDO ageing fields
    • In response, PDO shifted focus on EOR from existing fields
  • Since 1999, PDO has increased sales gas significantly as the giant Qarn Alam fields were brought onstream to supply Oman's new LNG plants
  • Demand for gas expected to grow to support growing industrial and domestic gas markets

Infrastructure
  • Highly developed network, almost exclusively owned and operated by PDO; c.2,200km of pipeline
    • Oman's main terminal is located near Muscat - all crude is either exported or processed at the refinery for domestic use
  • Gas pipeline network owned by Oman Gas Company ("OGC"): Government of Oman 80%, Oman Oil Company 20%
    • Network of c.2,500km
    • Gas supplies Qalhat LNG terminal or domestic use
Key issues
  • Largest non-OPEC producer in the Middle East
  • Crude production has increased since 2008, following previous declines
  • Relatively attractive fiscal regime has drawn international investors
  • Leading proponent for EOR developments in the Middle East
  • Challenging geology has resulted in relatively high cost developments
    • PDO carries out 3 types of EOR in its contract area: Polymer, Steam and gas injection
    • Other operators developing small scale, cost effective EOR techniques designed for small to medium sized fields
    • Reduced availability of gas has led to innovative use of solar panels to produce steam required to mobilise heavier crudes in the south of Oman
  • Gas supply remains an issue
    • Khazzan-Makarem needs to realise a higher gas price to proceed

Sunday 3 August 2014

Tullow exits Liberia and Sierra Leone

On 30 July, Tullow published in H1 2014 results.

Within the results, Tullow stated:

"After evaluating potential options in Liberia and Sierra Leone, Tullow made the decision not to renew its licence interests and will exit its position. Tullow’s interest in LB-15 in Liberia expired in June 2014 and its interest in SL-07B-11 in Sierra Leone will expire in August 2014, following which Tullow will have no licence interests in either country"


Acreage map taken from Simba Energy for Liberia shows Tullow's acreage position in that country:



Acreage map for Sierra Leone from Tullow and the Petroleum Directorate respectively:






Friday 1 August 2014

Afren - CEO and COO suspended re unauthorised payments


  • On 31 July 2014, Afren has temporarily suspended its CEO, Osman Shahenshah and the COO, Shahid Ullah
  • During an independent review by Willkie Farr & Gallagher, evidence had been uncovered showing the CEO and COO were in receipt of unauthorised payments
    • These payments were not made by Afren
    • The investigation continues, no conclusive findings to date
    • No evidence found that any other directors involved
  • Egbert Imomoh (Non-Executive Chairman) has been appointed as Executive Chairman
  • Toby Hayward (NED) has been appointed as interim CEO
  • Afren's H1 2014 results, originally scheduled for 4 August 2014, will now be postponed to no later than the end of August

SUPPLEMENTARY
OML113 and OPL 310
Aje and Ogo



Sunday 27 July 2014

Sebuku PSC

Overview

  • Contains 2 discoveries: Ruby gas field and the small Pangkat oil deposit
  • Plan of development for Ruby approved in July 2008
    • incorporates two bridge-linked platforms and initially four development wells
    • 312km pipeline to transport gas to new onshore receiving terminal for processing
    • Gas sold to the local Kaltim fertiliser plants
  • Ruby currently contracted to supply 85mmcfpd
    • Production capacity of 115mmcfpd, so scope to provide more gas
Participation
  • Mubadala (70%*), INPEX (15%), Total (15%)

Exploration
  • 11 wells drilled to date
  • Latest activity: Mubadala returned to drilling on the PSC in March 2010 - drilled NW Ruby-1 wildcat to test satellite prospect - unsuccessful
  • Further exploration planned
    • In March 2013, Mubadala awarded exploration block for the acreage surrounding Sebuku PSC, the West Sebuku block; 3D scheduled in 2014 with view to identifying future exploration prospects
Reserves, production and sales
  • Commercial WM: 215mmcfd (gross at 1/1/2014)
  • Production began in 2013 at 14mmcfpd, ramping up to 75mmcfpd in 2014
  • GSA signed in June 2011 for the supply of gas for 10 years to PT Pupuk Kaltim at c.80mmcfpd
    • Ruby gas to be predominantly used for fertiliser plant operations of the Kaltim V plant; however, as field declines, gas from other PSCs will be required to fulfil GSA
    • Price formula reflects local pricing and international ammonia and urea costs
      • Estimated USD/mcf: 2013 (7.7), 2014 (7.1), 2015 (7.0), 2016 (6.7)
Development
  • Currently produces from 4 wells, with additional drilling in future depending on reservoir performance
  • Installation/construction of onshore facilities finished at end 2012, offshore platforms in June 2013
  • First gas in October 2013
Fiscal and NPV
  • First Tranche Petroleum at 20%
  • Post-tax profit gas split is 65:35 in the government's favour; 80:20 for oil
  • Corporate tax of 40%
  • DMO applied at 6.7% after 60-month holiday, reimbursed at 15% of export price

Sunday 29 June 2014

ISIS: Sectarian furies unleashed again




The recent events in Iraq is a continuation of a rift between Sunni and Shias that began over a thousand years ago
  • Shias believed Ali, the son-in-law of the Prophet Muhammad should take over the leadership upon his death
  • Sunnis believed the Muslim community should determine the new leadership by consensus
  • Ali became the new leader, but upon his assassination in 661, war broke out between the two groups

Islamic terrorism once seemed to wear a Shi'ite face and put the US on the side of the Sunni Iraqi dictator Saddam Hussein
  • In 1979 Khomeini, leader of the Iranian revolution, overthrew the pro-American Shah if Iran, Pahlavi
    • Together with the Iran hostage crisis which saw 52 American diplomats and citizens held hostage between November 1979 and January 1981 made Iran an enemy of the West
    • In 1983, when Shi'ite militant group Hezbollah bombed US marine barracks in Beirut (Lebanon) made the US side with Hussein
  • The US also supported and trained jihadists, including Osama bin Laden, in their fight in Afghanistan against the Soviets
  • Bin Laden believed that Allah had empowered him and his followers to establish a new caliphate
    • The ambition became absolute Sunni authority and Sharia law over the Muslim world

Tuesday 24 June 2014

Ivar Aasen crib sheet



  • Contains 4 fields: Ivar Aasen, West Cable, Hanz, Asha
  • PDO approved in March 2013
  • Development costs relatively high
    • Discovery of Asha in December 2012, and inclusion of Asha in development improves economics
    • Edvard Greig and Johan Sverdrup could push cost of services market higher
    • Ivar Aasen expected to receive transitional terms , whereas other fields will be taxed under new terms


Participation
  • Ivar Aasen Area contains 3 licences
    • Ivar Aasen/West Cable (PL001B)
    • Hanz (PL028B)
    • Asha (PL457)
  • Field unitisation expected mid-2014
  • Estimated unitised participations are: Statoil (41.15%), Det Norske (28.8%)*, Bayerngas (12.34%), Wintershall (7.08%), EON (3.54%), Spike (3.54%), Verbundnetz (3.54%)
  • Note that on 25 June 2014, Det Norske increased its stake in PL457 (above unitisation does not reflect this)
    • EON to receive 15% WI in PL613 (Barents) and 10% WI in licence PL676S (North Sea) + Cash
    • Det Norske increases interest in PL457 from 20% to 40% WI


Reserves
  • WM Commercial reserves: 149mmbbl + 181bcf
    • Hanz: good reservoir – expect high RF
    • West Cable: strong acquisfer support – expect high RF
    • Ivar Aasen and Asha reservoir more complex, varying sand quality


 Production
  • Ivar Aasen, Asha and West Cable production from 2016; Hanz in 2019
  • High rates of gas production expected from some wells due to gas cap in Ivar Aasen and Hanz reservoirs
  • Wells will be drilled in order that gas production can be shut off to maximize oil recovery
  • Asha gas initially reinjected



Development
  • Ivar Aasen, Asha, West Cable: developed using fixed platform
    • 20 well slots with partial processing facilities
    • Production and injection wells will be drilled using jack-up positioned next to platform to 2016/17
  • Hanz will be developed using subsea tie back to Ivar Aasen platform
    • Exports via Edvard Grieg facilities

Thursday 5 June 2014

Eagle Ford Shale

Intro and history

  • Play in South Texas stretching into Louisiana; contributes c.10% towards US production
  • Three “windows” to the play – oil, gas-condensate, dry gas; focus has been on development of the liquids section
  • Eagle Ford formation not singled out until 2008 although routinely tested before then
  • Initial production was gas/condensates by Petrohawk with Apache testing oil around the same time
  • Big change in 2010: EOG acquired acreage in oil window, changing Eagle Ford into a liquids focused play


Well economics

  • Production and reservoir quality varies greatly in Eagle Ford; EURs can range from 200mboe to > 1mmboe per well
  • Drilling and completion costs: USD5.5-9.5m / well
  • Early Eagle Ford wells were completed with 10-stage hydraulic fracs; now common for 15-20 stages

Infrastructure


  • Ideally located to supply refineries in Corpus Christi and Houston
    • Short distance to Gulf Coast refineries reduces costs and allows for more transport options (barges, pipelines, rail and trucks)
  • Volume of crude, condensate and NGLs that require processing has led to the construction of several projects; trucks will continue as intermediate solution whilst projects are being completed
    • Eagle Ford Crude Oil Pipeline (Enterprise Products): 350mboepd capacity with interconnections to Seaway Pipeline and the new 5mmbbl Echo Terminal in houston
    • Kinder Morgan condensate pipeline: Eagle Ford to Pasadena, 300mbopepd capacity
    • Koch/NuStar/Arrowhead: 200mboepd capacity
    • Plains All American: Eagle Ford to Corpus Christi, 300mboepd capacity
Outlook
  • Operators looking to increase resource potential through down spacing and testing additional formations

Tuesday 3 June 2014

Bakken

Intro and history

  • Spans western North Dakota, eastern Montana in US and parts of Saskatchewan and Manitoba in Canada
  • Named after Montana farmland owner Henry Bakken
  • Recoverable estimates continue to increase as more about the play is understood
  • First production in 1951, after which, formation began to be mapped
  • In mid-90s, Elm Coulee field discovered with significant oil accumulation in the middle Bakken member
    • In mid-2000s, EOG drilled the Nelson Farms 1-24H well; demonstrated H-wells with fracture stimulation could produce high IPs
    • In 2009, Continental Resources found that the Bakken and Three Forks formations were separate reservoirs and could be produced independently


Well economics

  • EURs highly dependent on location: range 200 to >1,000mboe, average 450-650mboe
  • Wells average USD9.5m to drill and complete, but can vary depending on length of lateral and material usage
    • 10,000ft laterals and 40 fracture stages becoming common
    • Implementation of pad drilling is reducing costs


Infrastructure

  • c.65% oil shipped via rail; enables access to higher Gulf Coast sales prices (Light Louisiana Sweet “LLS”)
  • 2012 production: >700mbopd vs. 2007 production: c.200mbopd
  • Transporting to Gulf Coast has been economically more attractive than to the oil congested WTI hub at Cushing, Oklahoma
  • Explosive growth meant existing inter and intra-state pipelines quickly reached capacity
    • Within play, crude transported by truck
    • Outside play, rail and pipeline used
    • Rail (USD15-20/bbl) is more expensive than pipeline (USD8-9/bbl), but allows access to LLS pricing


Outlook

  • Cost reduction
  • Expand longevity of play by testing lower Three Forks
  • Down spacing
  • Secondary and tertiary recovery

Tuesday 27 May 2014

The state of the UK North Sea


  • Tax incentives have encouraged capex spend
    • ...but this has led to an overheated OFS market
    • and rising costs have caused some marginal projects to be postponed or even cancelled (Bressay (Statoil) and Rosebank (Chevron) being well known examples)
  • Production decline continued in 2013...
    • Increase in planned and unplanned shutdowns
    • Ageing infrastructure
  • ...compounded by few large field start-ups and poor exploration success
    • WM estimates UKNS average discovery size in 2013 to be c.11.3mmbbl, which struggle to meet commercial thresholds in current high cost environment
    • Most discoveries have been tie-back opportunities
  • This concerning state of UKNS will impact OFS providers; UKNS represents c.20% of global offshore spend
    • Poor exploration results in recent years will lead to lower levels of future project development
    • Laggan and Tormore start-up in 2014 - accounted for significant portion of UKNS capex previously
    • Current backlog will support 2014/15, but backlog growth looks challenging
    • Focus of oil companies has shifted to completing existing projects
  • Brownfield may be a bright spot for UKNS OFS
    • Drivers: increasing recovery, maintaining ever ageing infrastructure, expansion of platforms to accommodate tie-backs
  • Seismic may or may not be a growth area
    • Poor exploration results may lead to greater spend on seismic, but the UKNS unlikely to be seen as region with further significant potential
    • With the industry in a state of strict capital discipline, cash is likely to be spent on regions where exploration is seen as more prolific
    • Declining M&A reflects the downside risk perceived by buyers of the UKNS

Monday 26 May 2014

Thoughts around using a high discount rate

Higher discount rates may be used to reflect the greater risk averseness adopted by a company/project manager. This may also be used as a screening tool, with lower NPV projects rejected. In O&G, and other fields, higher discount rates should be used in conjunction with other tools to evaluate projects.

At the planning level, the use of higher discount rates has its own limitations due to conflicting interests between the project team (e.g. staying in the job) and management.

  • Encourages projects with near term and/or higher levels of early production 
    • Implication: capex spent on projects with shorter lives at expense of a developing longer life assets; capex is accelerated
  • Capex is low-balled to get projects/wells approved
    • Implication: actual costs are inevitably higher leading to under-performance of project; capital not deployed efficiently
  • Riskier exploration may be undertaken
    • Implication: more optimistic view taken on reserves and costs to push projects forward
The above actually leads to projects that are inherently more risky being undertaken and increases the exposure of the business to risk, countering the original intentional of using a higher discount rate!

Global upstream review - 2014

Transaction activity declined sharply in 2013
  • Record M&A in 2010-12, companies switched focus to developing acquired acreage
  • Corporate activity weak – NOCs faced hurdles in NAM, public companies weary of overreaching with strict capital discipline and own paper cheap
    • In NAM, prime acreage now leased up; valuations mixed as drilling results and understanding of plays have progressed
    • Asian NOCs bidding aggressively on global assets as large corporate opportunities limited or more difficult to transact – have seen spending from this group of buyers up

M&A buyer/seller landscape evolving
  • Asian NOCs remain largest buyer group
    • Chinese NOCs competing with Asian NOCs who are heavily reliant on import and with mandated overseas growth targets
    • Pertamina, PTTEP, CPC and Indian NOCs have focus on Africa
    • KNOC has, in contrast, spend USD20bn in past 3 years with poor returns and underperformance
      • High debt, looking to downsize portfolio

NAM E&Ps largest sellers of overseas assets
  • Retrench to NAM, divest wider international portfolio to focus on core regions, capital discipline
  • Financial investors/PE increasing O&G footprint outside of NAM
 
LNG market shifted to emerging basins
  • Australia market crowded with competing projects and escalating costs
  • East Africa attracting huge Asian NOC investment
  • East Med gas in early stages, welcoming experienced LNG players
  • Arbitrage opportunity for NAM LNG to APAC/Europe, competing with Middle Eastern basins
 
US conventionals spending falls with shift to liquid plays
  • Top performing liquids rich plays have grown market share (Eagle Ford, Bakken); Gas plays (Marcellus) have lost market share
  •  PE seeks bargains in nat gas; more efficient tax structures; can wait for gas price to recover

Key themes for 2014
  • Majors continue to rationalise portfolios amid shareholder pressure for better returns and weak growth/high capex
  • E&Ps - pressure for discipline rather than grow (inorganically); reluctance for large corporate deals unless compelling 
  • NAM E&Ps expensive, trades with oil despite gas weighting
  • Emergence of Asian private buyers - financial, industrial, OFS and private money looking to diversify into E&P (e.g. Brightoil)

Wednesday 21 May 2014

Repsol hit with further delays offshore Namibia: Welwitschia


  • Welwitschia prospect being drilled on PEL0010: Repsol (44%*), Tower (30%), Arcardia (26%)
  • Welwitschia-1 spud last month
    • Due to issues with wellhead housing, well was plugged and abandoned
    • Decision made to drill Welwitschia-1A 50m away, which was spud 1 May 2014
  • Welwitschia-1A now at 1,879m but problems with blowout preventer system has halted drilling
  • Prospect estimated to have multi-billion bbl potential and is being drilled to test the Maastrichtian and Aptian-Albian reservoir sequences

Libya update: co-ordinated militia attacks against Islamists


  • On 16 May, forces loyal to Colonel Haftar attacked the bases of two Islamist militias in the eastern Libyan city of Benghazi: Ansar al-Sharia and 17 February Martyrs Brigade
    • Haftar commands the "national army"
    • Aim of attack to remove Islamist militias from Benghazi
  • Ansar al-Sharia aims to impose Sharia law in Libya
    • Allied with 17 February Martyrs, who report to the Government
  • In Western city of Tripoli, militias allied with the Zintan Brigade also moved in support of Haftar's actions and attached the General National Congress ("GNC")
    • Colonel Obaidi, the chief of staff of the Libyan Army, has said the army will support the GNC and branded the move by Haftar as a coup attempt
  • Increasing number of former Libyan Islamic Fighting Group ("LIFG") have taken up senior Government security positions
    • LIFG as similar ideology to Ansar al-Sharia
      • Two groups rumoured to be working with the Muslim Brotherhood to takeover the governance of Libya
  • Haftar and his affiliates have called for further forces to support his cause, but us unlikely to have the funding and resources to oust the Islamist militants; in Western Libya, the Sintan Brigade is also unlikely to have the resources to capture Tripoli - most likely outcome is protracted fighting and stalemate

Tuesday 20 May 2014

Lekoil acquires 40% WI in Otakikpo Marginal Field


  • 20 May 2014: Lekoil announced acquisition of 40% participating and economic interest in Otakikpo, a Nigerian onshore Marginal Field; located within OML11
    • Vendor: Green Energy
    • Consideration: USD7m upfront, plus USD4m contingent on production and ministerial approval
    • Lekoil will also fund work programme for re-entry of existing wells and all costs up to production (estimated c.USD67m); this is recoverable from enhanced share (88%) of production cash flow
    • Lekoil expects to bring Otakikpo into production within 12-18 months
  • Acquisition and work programme partly funded by placing; 70-80% of the work programme expected to be funded through RBL
  • 2C estimate: 36mmbbl + 31 bcf (gross)
  • Otakikpo has partial 2D and 3D coverage; 3 wells to date, with h/c encountered in multiple intervals; field is close to existing infrastructure
  • Lekoil's other assets are:
    • 30% economic interest in OPL310 (17.14% WI) which contains Ogo. Partners are Optimum (30% economic interest, 60% WI), Afren (40% economic interest, 22.86% WI)
    • 1% in OPL241
    • 77.5% in exploration Blocks 2514A and 2514B, Namibia

Monday 19 May 2014

Oryx: Appraisal drilling update for Demir Dagh, Kurdistan


  • Oryx holds 65% WI in Hawler licence (Operator), KNOC (15%), KRG (20%)
  • On 19 May 2014, announced test results for Demir Dagh-3 ("DD-3") and Demir Dagh-5 ("DD-5") wells
    • DD-3: all four tests flowed successfully; crude quality similar to that at DD-2 and -4
      • Spudded in November 2013, 3km south-east of DD-2
      • Will now be completed as producer with DD-2 and -4
    • DD-5: Logging data and drilling fluid losses during drilling, only small amount of hydrocarbons recovered to surface
  • First production from Demir Dagh Area expected Q2 2014
  • DD-6 plus a further 4 appraisal/development wells to be drilled in 2014 to:
    • further increase production capacity
    • delineate reservoir
  • DD-6 well now spudded
  • Oryx also holds a 50% WI in Wasit, Kurdistan
    • Wasit is close to the super-giant East Baghdad field
    • 5 leads identified with 404mmbbl gross unrisked prospective resources
    • Seismic has been planned on the licence in 2014

Friday 16 May 2014

Petroceltic successfully completes USD100m placing


  • Joint book-runners are Davy, HSBC and Mirabaud
  • Proceeds will be used to "provide financial flexibility to pursue growth opportunities across Petroceltic's existing portfolio and also through new ventures"
  • Dovenby Capital will be a new strategic shareholder, subscribing to USD50m of the placing
    • Dovenby Captial is an investment company led by Dato' Ahmad Fuad, a Malaysian oil and gas industry specialist
Update on assets

  • Algeria
    • Ain Tsila / Isarene PSC - tender for FEED at end 2013, farm-out to Sonatrach (pre-empted) - post farm-out Petroceltic (38.25%), Sonatrach (43.375%), Enel (18.375%)
  • Egypt
    • Award of El Qa'a Plain, North Thekahm South Idku ratified
    • Commenced drilling on South Dikimis in May 2014; gross mean unrisked prospective of 7.6mmboe
  • Kurdistan
    • Shakrok-1 TD reached in April 2014; four zones selected for testing - 2 flowed formation water and no hydrocarbons, remaining 2 zones still being tested
    • On Dinarta licence, preparation for drilling Shireen-1 well, targeting gross mean unrisked prospective of 706mmbbl
    • Petroceltic holds 16% WI in the above two licences, Hess (64%*), KRG (20%)
  • Other assets in Bulgaria, Romania and Italy