Eni enters the Emirates

Eni has made its first move into the Emirates with entry into various fields in Abu Dhabi. It has paid ADNOC USD875 million to acquire a 40-year licence on:

• 5% in Lower Zakum offshore oil field
• 10% in Umm, Shaif and Nasr offshore oil, condensate and gas fields

The fields require further investment with combined gross production from the fields targeting 910mbopd. Once at plateau, the fields will contribute material production and generate significant cash flow.

Eni press release below

Eni signed today in Abu Dhabi two Concession Agreements for the acquisition of a 5% stake in the Lower Zakum offshore oil field and of a 10% stake in the oil, condensate and gas offshore fields of Umm Shaif and Nasr, for a total participation fee of about 875 million US dollar and a duration of 40 years.

The signing ceremony was attended by His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi, and Deputy Supreme Commander of the United Arab Emirates Armed Forces, the Italian Prime Minister, Paolo Gentiloni, His Excellency Dr Sultan Ahmed Al Jaber, ADNOC Group Chief Executive Officer, and Eni’s Chief Executive Officer, Claudio Descalzi.

The agreements represent a strategic move for Eni gaining access to a Country with hydrocarbons reserves among the largest in the world.

Lower Zakum is located about 65 kilometers off the coast of Abu Dhabi. The discovery dates back to 1963 and production began in 1967. It has a target production of 450,000 barrels of oil per day. Umm Shaif and Nasr are located about 135 kilometers from the coast of Abu Dhabi and have a target production of 460,000 barrels of oil per day.

Eni's CEO Claudio Descalzi commented: «I'm very pleased about this agreement creating a larger presence for Eni in Middle East, in line with our expansion strategy, and creating a strong alliance with ADNOC and Abu Dhabi. The stakes in the two concessions give access to giant fields with huge potential and Eni is willing to contribute its best technology to maximize the future production».

H.E. Dr Al Jaber said: «These agreements underline the international market’s confidence in ADNOC’s long-term growth plans and the UAE’s stable and reliable investment environment. They also broaden and diversify our partnership base, while contributing experience, technology, capital and market access.

“Our partnership with Eni, and other concession partners, will enable us to accelerate our growth, increase revenue and improve integration across the upstream value chain, as part of our ongoing transformation and build on the foundations that have been laid to deliver a more profitable upstream business. With these agreements ADNOC continues to leverage its 46-year legacy of successful energy partnerships, in support of its 2030 strategy”.

In both concessions, ADNOC owns a 60% stake. The operator is ADNOC Offshore.

Eni press release: https://www.eni.com/en_IT/media/2018/03/eni-establishes-a-long-term-presence-in-uae-acquiring-a-stake-in-two-offshore-producing-concessions?lnkfrm=serp

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All’s well in western Kurdistan

The western part of Kurdistan appears to be holding up following the referendum last autumn. Although there is much to do to reconcile the fragile relationship between Federal Iraq and the Kurdistan region, things for now appear to have stabilised – however upcoming elections in both is limiting any meaningful progress with political candidates not willing to make any bold reconciliatory moves to avoid alienating voters.

The operators in western Kurdistan continue their business. They are getting paid by the KRG although the ability to maintain payments given loss of Kirkuk revenues, which has been reclaimed by Federal Iraq, remains in question. Exports through the Fishkabour-Ceyhan pipeline has not been interrupted despite threats last summer by the Turkish to halt exports through the pipeline if the referendum went ahead – that threat has not been followed through by action luckily for Kurdistan where oil exports remains its financial lifeline.

Based on our discussions with operators, the key constraint to operations is staff and supplies. With the regional airport closed, it has been difficult to get the right manpower and supplies to the oil fields. Transportation is currently from Turkey or from Baghdad. 

Sarsang (HKN 37% operator, KRG 25%, Marathon 20%, Total/Maersk 18%)

Total has taken over Maersk’s stake in the light oil field following the acquisition of Maersk; it may consider divesting the interest given lack of obvious synergies with the wider global portfolio and presence in Federal Iraq. At the end of last year, the field was producing at 15mbbl/d and will be continuing to ramp-up this year potentially reaching 30mbbl/d by year end.

Atrush (TAQA 39.9% operator, Shamaran 20.1%, Marathon 15%, KRG 25%)

First production was achieved in July 2017 and production has ramped up to c.26mbopd. The Phase I facilities are complete with five producers drilled and well capacity of over 40mbopd, although production is currently constrained by facilities at 30mbopd. 2P of 103mmboe and 2C of 304mmboe at the end of 2017 – further conversion of resources into reserves as more wells are drilled and further phases of the development are defined. 

The export pipeline from Atrush to the KRG pipeline is operational and the Atrush oil sales agreement was renewed in February 2018 with crude selling at Brent less USD15.73/bbl including quality discount and transportation costs.

With further appraisal work, debottlenecking and expansion of the development, production could reach 100mbopd.

Source: Shamaran February 2018 investor presentation

Shaikan (Gulf Keystone 58% operator, KRG 27.5%, MOL 14.5%)

Production in 2018 is expected to be 27-32mbopd. Subject to continued payments, Gulf Keystone would look to invest in additional wells and capacity this year to take production capacity up to 55mbopd.

In January 2018, Gulf Keystone signed a new oil sales agreement with the KRG at a price of Brent less USD22/bbl including quality discount and transportation costs. Shaikan crude is largely trucked to Fishkabour for injection into the export pipeline to Ceyhan. Shaikan should begin exporting via the Atrush tie-in pipeline shortly which will reduce trucking requirements and reduce netbacks.

Ain Sifni (Hunt Oil 80% operator, KRG 20%)

Production continues to hover around 10mbbl/d and the operator continues to progress the development which could see production grow to 30mbbl/d. Crude is currently trucked to Fishkabour for injection into the export pipeline to Ceyhan. As production grows, Ain Sifni production could also tie into the Atrush export line.

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Mubadala enters Zohr - acquires 10% from Eni

Mubadala has agreed to acquire a 10% interest in Zohr from USD934 million. Mubadala will acquire an interest in the Shorouk concession which contains the Zohr field. The super giant field came onstream in December 2017, 28 months after its discovery. The field is currently producing 400mmcfpd and planned to reach plateau by the end of 2019.

For Mubadala, this adds a world class asset with long term cash flows into its investment portfolio. Musabbeh Al Kaabi, Chief Executive Officer of Petroleum & Petrochemicals, Mubadala Investment Company, and Chairman of Mubadala Petroleum said: “This is an important and attractive investment for Mubadala, adding a world-class asset to our portfolio with long-term cash flows. We are joining a strong partnership with Eni as operator, who have delivered the project in record time and with the full support of the Egyptian authorities.”

For Eni, the deal is consistent with its strategy of monetising development and producing assets to recycle cash flows for exploration. It also reduces Eni’s portfolio weighting more towards OECD, a long term shift that the company continues to pursue. Claudio Descalzi, Chief Executive Office of Eni, said: “We are pleased to be working with Mubadala and welcome them into the partnership for the Shorouk concession. This represents a further signal about the strength and quality of this world class asset developed by Eni”.

The deal follows Eni’s farm-out of Zohr to BP and Rosneft in November and December 2016 prior to development spending. At the time, BP acquired 10% for USD525 million and 30% to Rosneft for USD1.125 billion. This compares with Mubadala’s current buy-in price of USD934 million for 10%.

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Tamar Petroleum to raise bonds to finance acquisition of Tamar from Noble

As reported previously, Tamar Petroleum is acquiring a 7.5% stake in the Tamar field from Noble Energy for USD800 million. The consideration will be paid USD560 million in cash with the remainder in Tamar Petroleum shares.

To help finance the transaction, Tamar Petroleum is planning to raise USD 625million (ILS 2.178bn) through the sale of bonds, Ha'aretz. reported. The net proceeds are expected to be c.USD605 million, the excess would be put in a special fund for a potential bond buyback, or early repayment.

Tamar Petroleum's holding in the field will increase to 16.75% following the deal, whereas Noble will be left with a 25% stake. This deal builds on Tamar's acqusition of 9.25% in the field from Delek Group for USD980 million in 2017.

Tamar Petroleum was a wholly owned subsidiary of Delek Drilling that was established to acquire the initial 9.25% stake in Tamar from Delek. The subsidiary was listed on the Tel Aviv Stock Exchange in 2017, raising USD330 million as part of the IPO. At the same time, it also raised USD650 million on the bond markets to fund the acquisition.

The move by Delek Drilling was the first in a series of steps to sell its entire 31.25% stake in the Tamar field by 2021 as mandated by the government due to competition concerns.

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Venture Global doubles LNG supply contract with Shell on Calcasieu Pass

On 6^th March, Venture Global announced that it had agreed to double its gas sales with Shell North America LNG from 1mtpa to 2mtpa under an amendment to the earlier gas sales agreement for LNG from Calcasieu Pass.

This brings the total committed capacity to 3mtpa with Edison having agreed 1mtpa in September 2017. The sale contracts are for 20 years and under FOB terms. The counterparties to date provide validation of the attractiveness of the project being one of the lower cost, mid-scale liquefaction projects and shows confidence in it going ahead and being able to deliver LNG in a reasonable timescale.

The Calcasieu Pass project is for 10mtpa with easy access to the sea and more than a mile of deep water frontage. It is waiting for non-FTA export approval later in 2018 following which it will look to take FID dependent on securing of further gas sales contracts. Venture Global sees first commercial operations at the end of 2021.

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Chevron shuts in Alba platform as Mitsui and Statoil try to sell the field

Chevron the operator of the Alba field in the UK North Sea has announced at the end of last week that it had been forced to shut down production at the field. This follows a power outage at the platform. Emergency back-up power is in place and the crew continues to try and restore power. The mature heavy oil field which was brought onstream in 1994 is exploited from a fixed platform tied to a floating storage unit.

Endeavour had tried to sell its interest in the field in the past without success and is currently going through bankruptcy proceedings and could lose its stake with the other partners picking up pro rata. Statoil and Mitsui are trying to sell their stakes, but the prospect of unintentionally picking up additional interests from an Endeavour bankruptcy has scared off some potential buyers as this comes with an increased exposure to near-term decommissioning costs which are high for a development of this kind.

The partners in Alba are Chevron (23.37% operator), Endeavour (25.68%), Statoil (17%), Mitsui (13%), Spirit Energy née Centrica (12.65%), EnQuest (8%).

Further issues raised by parties considering the Alba stakes from Statoil and Mitsui include the non-operated interest, limited upside and decommissioning and is detailed in an earlier article compiled from interviews with various potential buyers who looked in the data room: Endeavour endangers Alba sale for Statoil and Mitsui.

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Nova development could face delays with Gjøa tie-back challenges

Nova (formerly Skarfjell) is planning to submit the field development plan to the Norwegian authorities in H1 2018. The selected development concept is four production wells and three injection wells from two subsea templates tied back to the Gjøa platform. Neptune which operates Gjøa has raised concerns about the potential tie-back which it has now raised with the Ministry of Petroleum.

Nova is an oil and gas field operated by Wintershall and this would make it the company’s second development in Norway after Maria. The field is estimated to contain c.100mmboe of resources with c.70% oil. In December, the Ministry ruled that field that tie-back to existing infrastructure only need to cover the direct incremental costs of the host platform and not any of the existing operational costs. This was intended to boost activity in Norway. However, Neptune claims that the tie-back could increase overall costs for Neptune as well as impact its ability to tie-back its own discoveries including Cara and 35/9-3 in the vicinity.

A response from the Ministry is now pending and the ruling could determine how the Nova development plan filing will proceed.

The Nova partners are Wintershall/DEA (35% operator/10%), Cairn (20%), Spirit Energy (20%) and Edison (15%).

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