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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Monday 5 February 2018

Mitsui victory for AWE battle?

AWE’s board has recommended Mitsui’s all cash bid of A$0.95/share which was received on 28th January. This superior offer follows a heated battle since the end  of last year.
The Mitsui bid is comparatively clean – all cash, no further due diligence and FIRB approval already obtained. As Mineral Resources did not come back with a superior offer by the deadline of 2nd February, AWE has entered into an implementation deed with Mitsui with a recommendation to shareholders by the AWE board. Mitsui has a right to match any superior offer and there is a break fee if AWE changes its recommendation.

Mitsui is a natural buyer of AWE and its assets with an established history in Australian E&P. It is in the Northwest Shelf LNG project with Mitsubishi on the west coast, in offshore Victoria gas and Queensland Coal Bed Methane gas project.

Absent any superior offers, Mitsui offer documents are planned to be dispatched to shareholders on Monday 12th February with the offer period for shareholders to accept the offer open until 20th March. The offer required 50.1% acceptances from shareholders to proceed.

Thursday 1 February 2018

Israel capital cycle: Noble sells down Tamar to fund Leviathan

Noble Energy is divesting 7.5% of its 32.5% interest in the Tamar field for USD800 million. This will reduce Noble’s interest to 25% as required by the Israeli government’s competition requirements. The buyer is Tamar Petroleum who will pay for the acquisition with USD560 million in cash and 38.5 million shares in Tamar Petroleum. The divested interest represents 62mmcfpd of production in 2017 and reserves of 500bcfe.

Noble intends to sell-down the share portion of the consideration over the next few years. After capital gains tax on the USD800 million, Noble will net around USD615 million which it will use to help cover upcoming development expenditure on the giant Leviathan development. The spend in 2018, net to Noble, is USD600 million in 2018 and USD425 million in 2019.

Noble continues to be a major player in the Eastern Mediterranean and advances its contracting efforts on Leviathan where it has signed up 525mmcfpd is gas sales contracts with another 1,100mmcfpd being negotiated.

Wednesday 31 January 2018

EnQuest agrees Thistle decommissioning with BP

Following on from last year's acquisition from BP, EnQuest has agreed with BP to undertake the management of the decommissioning activities for Thistle and Deveron.

EnQuest will receive USD30 million in cash for management of the decommissioning and for taking on 3.7% of the gross decommissioning costs of the Thistle and Deveron fields, subject to a cap of USD80 million. EnQuest estimates its exposure to costs is currently less than the cash being received.

EnQuest also has an option, exercisable over a 12-month period, to receive a further USD20 million in return for taking on a further 2.4% of the gross decommissioning costs of these fields, subject to a cap of USD59 million.

Wednesday 24 January 2018

Endeavour endangers Alba sale for Statoil and Mitsui


Statoil and Mitsui started marketing their stakes in the Alba heavy oil field in the North Sea at the end of 2017. The field is located in a complex reservoir and developed from a steel platform tied to a floating storage unit.

The field has been marketed by partner Endeavour before without success. Endeavour put its stake up for sale in 2015 but failed to attract sufficient interest.

Sources have revealed that interest in the current sales effort is also thin with potential buyers raising a number of concerns:

Non-operated stake Both Statoil (17%) and Mitsui (13.3%) hold non-operated stakes. The operator is Chevron with 23.4%. This limits the new owner’s ability to implement efficiencies, especially as neither on their own or combined have a controlling stake. Chevron is a decent operator, but being a “major” inevitably means inefficiencies and costs creeping in. This is why the likes of BP have passed assets onto more nimble E&Ps who they know can run assets more efficiently.

Limited upside The field has been producing since 1994 and approaching end of life. Production could continue into the late 2020s but at increasingly insignificant volumes. In 2016, Alba produced at 15.3mbopd which compares to a peak of 80-90mbopd in the early 2000s. In 2014, Chevron undertook a 4D seismic survey to identify infill targets – although infill drilling could continue, Chevron has not committed to a full drilling programme of the prospects. Furthermore, Chevron is divided on its view of the North Sea portfolio – it is a good collection of assets generating good cash flow for North America but at the same time focus is turning to the US onshore. With Chevron’s new CEO Mike Wirth coming onboard in February and his background in downstream, the desire to put capital into the North Sea remains in question.

Decommissioning With a large number of wells and a steel platform, decommissioning will be a complex and high cost exercise – no small endeavour for a buyer to take on. Costs are currently estimated at c.USD750 million in real terms and could go up with the blanket of decommissioning activity coming up in the North Sea.

Endeavour bankruptcy Endeavour is the largest partner at 25.7%. Its US parent company entered into financial restructuring and the UK business is under creditor protection. The UK subsidiary Endeavour Energy UK Limited holds the interest in the field and still has debts of close to USD1 billion. The UK business is in default and the lenders, primarily Credit Suisse, have so far have extended repayment deadlines. However, if the lenders pull the plug on the business in light of Alba continuing to be loss making (per latest financial statements), then the remaining partners in the field will be compelled to take on additional stakes in Alba pro rata. This is a risk to a potential new owner and would increase exposure to future capex and decommissioning.

From the buyer feedback, it is clear why Statoil and Mitsui want to exit the asset. For Statoil, the UK North Sea is becoming less of a focus apart from its remaining large developments. For Mitsui its UK strategy appears to be retreat. Whether a sale goes ahead or not remains to be seen.

UPDATE 24 March 2018: Bidders pull out of Alba sale by Statoil and Mitsui

Monday 22 January 2018

Kurdistan payments and new oil sales agreements

Kurdistan producers receive payment for October sales
Gulf Keystone signs new oil sales agreement with the KRG

DNO has reported a payment of USD54 million for Tawke production from the Kurdistan Regional Government. This is in respect of October oil deliveries. The payment will be shared between the licence partners WHO 75% and Genel 25%. Although there is a lag in payments between production and receipt, this is viewed as normal with October sales invoiced in November and approval by the Government in December with payment the following month. The continued stream of payments demonstrates the importance of oil exports to Kurdistan, especially following the independence referendum last year which threw doubt on the region's ability to carry on managing its finances.

In December, DNO reported production from its two field on the Tawke PSC averaged 110mbopd. Production is expected to climb from these levels as operations ramp up at the Peshkabir field. With higher oil prices and continued payment, DNO could begin to undertake infill drilling on the PSC later this year.

Last week, Gulf Keystone also announced that it had agreed a new PSC-linked oil sales agreement with the Government for its Shaikan crude, reinforcing continued progress in the region around oil company activities. Under the agreement, the KRG agreed to buy crude at Brent less USD22/bbl reflecting a quality discount and transportation costs. Kurdistan crude has historically been marketed following a SOMO (Federal Iraq’s State Organisation for marketing of Oil) formula which provides for a discount of c.USD0.4/bbl of API quality. With Shaikan crude at 18˚ (vs. Brent 38˚) suggesting a USD8/bbl discount plus pipeline export costs to Ceyhan estimated at USD4/bbl, the USD22/bbl discount agreed with the KRG seems to be extremely high. This is likely due to additional discounts on Kurdistan originating crude, where the international buyer community could be thin, resulting from political sensitivities of taking on crude from the disputed region.

Thursday 18 January 2018

VNG to evaluate options for its Norwegian E&P business

As widely expected, VNG's owner EnBW is looking for a partner or buyer for its E&P business VNG - full press release below.

As part of VNG Group’s strategic programme “VNG 2030+”, VNG – Verbundnetz Gas Aktiengesellschaft (VNG AG) will explore strategic options for its oil and gas exploration and production business in Norway and Denmark, VNG Norge AS (“VNG Norge”). As VNG AG sees long term value creation potential in the E&P-business, the main objectives are to maximise the value of VNG Norge and to support further growth to position the shareholding as a leading player on the Norwegian Continental Shelf together with a strategic partner.

VNG Norge is a full-cycle Norway-focused E&P company, with a solid growth portfolio underpinned by the operated flagship asset “Fenja”, one of the largest Norwegian discoveries in recent years (formerly “Pil”), which is proceeding according to plan, sanctioned by VNG AG and fully supported by all shareholders of VNG AG. Overall the company holds interests in 32 licenses in Norway, two in Denmark and participates in five producing fields and in three field developments at the end of 2017.


Tuesday 16 January 2018

Norway awards record 75 exploration licences in 2017 APA

Norway has awarded a record number of 75 exploration licences in the APA 2017 licensing round to 34 companies. The licences comprised 45 in the Norwegian North Sea, 22 in the Norwegian Sea and 8 in the Barents Sea.

Statoil was the biggest winnder with 31 awards. Supermajors ConocoPhillips, ExxonMobil, Shell and Total also picked up licences.

Of the E&Ps:

  • Aker BP was the winner with 23 licences (14 as operator)
  • Lundin has been awarded 14 licences (5 as operator)
  • DNO has been awarded in 10 licences
  • Faroe Petroleum has been awarded 8 licences (four as operator)
  • Cairn Energy has been awarded 5 licences

The Annual Predefined Areas or APA round was introduced in 2003 to encourage exploration and development of discoveries near existing infrastructure. Across all the awards this time, there are three licences with firm drilling commitments, with the remaining having drill or drop options in the next 12-24 months.