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 18 June 2015

Why Kenyan crude will be exported and not domestically refined

Mombasa refinery
Source: http://mygov.go.ke/national-treasury-sets-aside-funds-to-buy-essar-stake-in-refinery/

Kenya currently has no crude oil production and relies solely on imports to feed the domestic refinery in Mombasa. Aside from feedstock for the refinery, there is no other demand for crude oil in Kenya.

In 2012, domestic consumption of refined products was 73mbbl/d – this was satisfied by 20mbbl/d of domestic production from the refinery and 53mbbl/d of imports. The shortfall in domestic production has been met by imports for many years and this has steadily grown from 22mbbl/d in 2005 along with the increasing demand for refined products. The shortfall suggests that there is scope to increase throughput of the refinery and reduce the level of imports.

Kenya Refined Products Production and Consumption
Source: Kenya National Bureau of Statistics, Kenya Petroleum Refineries Limited, OGInsights

The refinery has a design capacity of 80mbbl/d, but has continually operated at c.40% of capacity. This low utilisation is due to a number of reasons including regular utility supply outages, limitation on size of cargoes it can accommodate, low profitability (some batches of processing are loss making), limitation on product slate and general inefficiency of the refinery. The refinery has a reformer and a catalytic hydro-treater, but no upgrading units; the refinery’s two complexes were commissioned in 1963 and 1974 with minimal investment since. The profitability of the refinery was further hit in 2013 when the incoming government removed the price protection previously provided to the refinery, making it uncompetitive relative to refined product imports.

The refinery’s current configuration is designed to handle heavy crude grades from the Middle East. In 2012, a refinery upgrade project was considered by the then owners (50% Essar Energy, 50% Government of Kenya). The plans included changing the configuration to handle lighter crudes and would incorporate the ability to process Lokichar crude. However, the $1.5bn cost of the upgrade was deemed to be too expensive and uneconomic; as a result the upgrade was abandoned, following which, Essar Energy decided to exit the joint venture. In December 2014, Essar Energy sold its 50% interest in the refinery to the Government of Kenya.

The refinery has been mothballed since mid-2013 and now acts as a storage facility for imported refined products. All demand for refined products are now met by imports. There are currently no plans to restart the refinery, and without further investment, it is unlikely the refinery would be able to operate profitably. Until there is a plan and willing financing to upgrade the refinery, the destination for Lokichar crude is most likely to be the export market - in its current state, the refinery configuration is not designed to process Lokichar crude.

In a scenario where the refinery was upgraded and being wholly fed by Lokichar crude, then feedstock requirements could reach c.100mbbl/d by 2020 in order to fully meet forecast domestic demand for refined products (96mbbl/d estimate by Kenya Petroleum Refineries Limited). However, this scenario is deemed to be highly unlikely in the foreseeable future.

Wednesday 17 June 2015

Colombia calling: Petroamerica acquires PetroNova

Cartagena, Colombia
Source: http://www.backtrackers.nl/colombia/

The Colombian E&P landscape is characterised by a few IOCs with 100mmbbl+ of reserves (e.g. Repsol, Chevron, Occidental) and a large number of independent E&Ps. The smaller end of the scale is dominated by many small players with more than 25 companies with less than 2.5mmboe of reserves.

Thursday 11 June 2015

The Apache Egypt treasure map

Source: Houston Geological Society, HGS

Apache is a significant acreage holder onshore Egypt with an extensive infrastructure network which allows new discoveries to be brought onstream quickly and at relatively low cost. Its acreage can be broadly split into four areas, the most significant of these is the Western Desert Gas area which underpins the portfolio’s gas reserves and is a key supplier of gas to the domestic market.

Source: OGInsights

 The highlights from each area are below.

Western Desert Gas
This area has been a key source of growth in recent years and accounts for 80% of Apache’s Egyptian 2P reserves (Wood Mackenzie). The area comprises three sub-areas with the Khalda Area, which has been producing since the 1970s, being the most established. The Fahgur, Sushan and Matruh Areas all commenced production post 2005 and have all been a target area for exploration. Production in the Western Desert is currently constrained by lack of gas processing capacity (currently 900mmcf/d) and further investment to debottleneck the facilities is dependent on increase in gas prices.

Apache Merged Area
The blocks in this area were acquired from BP in 2010 with production underpinned by two fields: Abu Gharadig and Razzak. Both of these fields are mature and in terminal decline, although horizontal drilling and water flooding efforts have been successful in arresting declines. The area is considered as underexplored and exploration success will be important to maintain production levels in the longer term. A seismic programme in 2010/11 and subsequent simulation studies has helped Apache identify new targets for future exploration and development.

East Bahariya Area
Apache aggressively explored the East Bahariya block between 2000-2005 bringing on-stream a number of discoveries. Since 2005, Apache has implemented water flooding on all the fields in the block which has boosted production. In 2008, the Heba Ridge cluster of fields were discovered which is now a key growth area on the block. Apache acquired the nearby El Diyur and North El Diyur blocks after recognising the
extension of one of the East Bahariya reservoirs into these blocks.

Qarun
The fields on the Qarun block are mature and in decline with production expected to cease in the next few years. The East Beni Suef block is also in decline, although Apache has been able to sustain production through water flooding. Exploration success on East Beni Suef has also helped to maintain production, although discoveries have been small in size (1-5mmbbl).


Apache exports its production via an extensive network of oil and gas pipelines and facilities. A schematic of the network is shown below.

Source: OGInsights


Source: Apache Egypt EIA
https://www.miga.org/documents/Apache_Egypt_2004_Egyptian_Oil_and_Gas_Activities_EIA.pdf

Thursday 4 June 2015

Apache exits LNG business through sale to Woodside

Source: OGInsights

On 15 December 2014, Apache announced the sale of its interests in the Wheatstone and Kitimat LNG projects to Woodside for USD2.75bn. The move was widely anticipated with Apache announcing in its Q2 2014 results its intention to completely exit LNG; this message was reinforced in the company’s Q3 results on 7 November 2014.

Wednesday 3 June 2015

Lundin stops funding Africa Oil


Africa Oil’s history dates back to 1983, when it was founded as Canmex Minerals with funding from the Lundin family. The company was officially renamed to Africa Oil in June 2009 to reflect its strategic and geographic focus. Since 2009, the company went through a series of acquisitions to consolidate its position in Kenya and Ethiopia.