Support for the Danish DUC

On Wednesday 21st September Lars Christian Lilleholt, the Danish energy minister said that the government is determined to find an economically viable solution that will allow the Trya complex to continue production. This follows Maersk Oil’s announcement in April that it would cease production at the Tyra complex if no solution to extend its economic life during 2016.

The Tyra complex is operated by Maersk Oil on behalf of the DUC, a partnership between A.P. Moller Maersk (31.2%), Shell (36.8%), Nordsøfonden (20%) and Chevron (12%). Tyra is Denmark’s largest gas accumulation and the facilities are the processing and export centre for all gas produced by the Danish Underground Consortium (“DUC”). More than 90% of Denmark’s gas production is processed through the facilities, including production from Norway’s Trym field.

The government’s announcement is potentially positive for the Trym partners (Bayerngas 50%, Faroe 50% operator). Trym was acquired by Faroe from DONG E&P in July 2016 as part of a wider package; the transaction is expected to close in the coming months. Faroe’s acquisition case assumed Trym would cease production in 2018, so any extension of the Tyra complex could allow Faroe to book additional reserves.

Danish North Sea - DUC Network (Northern Segment)
Source: Maersk Oil

Canacol doesn’t lose sleep over oil prices

Canacol is distinct from its Colombian E&P peers‎, being a gas-weighted producer with operations focussed in the Lower Magdalena Basin. Its gas operations and gas offtake contracts mean that the company has a much lower exposure to oil prices. In the company's recent investor update, it noted that it would generate EBITDA of USD107 million if the oil price was zero! Given this special situation within the Colombian and wider international E&P universe, we look to dedicate a few articles looking at Canacol in more detail.

Canacol: Sensitivity to WTI
Source: Investor presentation

Canacol was initially established as a Latin American focussed E&P and listed on the Toronto stock exchange in 2009 through a reverse takeover. The company has somewhat haphazardly experimented with different strategies and now appears to have settled on one that works: gas production supplying the growing domestic market. As a result of its past, the company has now amassed a position of 23 blocks in the Magdalena, Llanos and Putumayo Basins as well as a service contract in Ecuador, through a series of acquisitions and licensing rounds. It also previously held assets in Brazil and Guyana which have now been sold off.

Key acquisitions in the company’s history include:

• Carrao Energy (November 2011) which came with LLA-23 and Middle Madalena blocks Santa Isabel, VMM-2 and VMM-3
• Shona Energy (December 2012) which had a 100% interest in Esperanza and production in four blocks across Colombia
• 100% interest in VIM-5 and VIM-9, acquired from OGX in December 2014

Esperanza and VIM-5 are now the key assets in the company’s portfolio.