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

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

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

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