The state of the UK North Sea

Tax incentives have encouraged capex spend...but this has led to an overheated OFS marketand rising costs have caused some marginal projects to be postponed or even cancelled (Bressay (Statoil) and Rosebank (Chevron) being well known examples)Production decline continued in 2013...Increase in planned and unplanned shutdownsAgeing infrastructure...compounded by few large field start-ups and poor exploration successWM estimates UKNS average discovery size in 2013 to be c.11.3mmbbl, which struggle to meet commercial thresholds in current high cost...

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Thoughts around using a high discount rate

Higher discount rates may be used to reflect the greater risk averseness adopted by a company/project manager. This may also be used as a screening tool, with lower NPV projects rejected. In O&G, and other fields, higher discount rates should be used in conjunction with other tools to evaluate projects.At the planning level, the use of higher discount rates has its own limitations due to conflicting interests between the project team (e.g. staying in the job) and management.Encourages projects with near term and/or higher levels of early production Implication:...

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Global upstream review - 2014

Transaction activity declined sharply in 2013Record M&A in 2010-12, companies switched focus to developing acquired acreageCorporate activity weak – NOCs faced hurdles in NAM, public companies weary of overreaching with strict capital discipline and own paper cheapIn NAM, prime acreage now leased up; valuations mixed as drilling results and understanding of plays have progressedAsian NOCs bidding aggressively on global assets as large corporate opportunities limited or more difficult to transact – have seen spending from this group of buyers...

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Repsol hit with further delays offshore Namibia: Welwitschia

Welwitschia prospect being drilled on PEL0010: Repsol (44%*), Tower (30%), Arcardia (26%)Welwitschia-1 spud last monthDue to issues with wellhead housing, well was plugged and abandonedDecision made to drill Welwitschia-1A 50m away, which was spud 1 May 2014Welwitschia-1A now at 1,879m but problems with blowout preventer system has halted drillingProspect estimated to have multi-billion bbl potential and is being drilled to test the Maastrichtian and Aptian-Albian reservoir sequen...

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Libya update: co-ordinated militia attacks against Islamists

On 16 May, forces loyal to Colonel Haftar attacked the bases of two Islamist militias in the eastern Libyan city of Benghazi: Ansar al-Sharia and 17 February Martyrs BrigadeHaftar commands the "national army"Aim of attack to remove Islamist militias from BenghaziAnsar al-Sharia aims to impose Sharia law in LibyaAllied with 17 February Martyrs, who report to the GovernmentIn Western city of Tripoli, militias allied with the Zintan Brigade also moved in support of Haftar's actions and attached the General National Congress ("GNC")Colonel Obaidi,...

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Lekoil acquires 40% WI in Otakikpo Marginal Field

20 May 2014: Lekoil announced acquisition of 40% participating and economic interest in Otakikpo, a Nigerian onshore Marginal Field; located within OML11Vendor: Green EnergyConsideration: USD7m upfront, plus USD4m contingent on production and ministerial approvalLekoil will also fund work programme for re-entry of existing wells and all costs up to production (estimated c.USD67m); this is recoverable from enhanced share (88%) of production cash flowLekoil expects to bring Otakikpo into production within 12-18 monthsAcquisition and work...

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Oryx: Appraisal drilling update for Demir Dagh, Kurdistan

Oryx holds 65% WI in Hawler licence (Operator), KNOC (15%), KRG (20%)On 19 May 2014, announced test results for Demir Dagh-3 ("DD-3") and Demir Dagh-5 ("DD-5") wellsDD-3: all four tests flowed successfully; crude quality similar to that at DD-2 and -4Spudded in November 2013, 3km south-east of DD-2Will now be completed as producer with DD-2 and -4DD-5: Logging data and drilling fluid losses during drilling, only small amount of hydrocarbons recovered to surfaceFirst production from Demir Dagh Area expected Q2 2014DD-6 plus a further 4 appraisal/development...

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Petroceltic successfully completes USD100m placing

Joint book-runners are Davy, HSBC and MirabaudProceeds will be used to "provide financial flexibility to pursue growth opportunities across Petroceltic's existing portfolio and also through new ventures"Dovenby Capital will be a new strategic shareholder, subscribing to USD50m of the placingDovenby Captial is an investment company led by Dato' Ahmad Fuad, a Malaysian oil and gas industry specialistUpdate on assetsAlgeriaAin Tsila / Isarene PSC - tender for FEED at end 2013, farm-out to Sonatrach (pre-empted) - post farm-out Petroceltic...

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Keystone kills bipartisan energy bill

The Energy Savings and Industrial Competitiveness Act was proposed by Rob Portman, a Ohio RepublicanThe bill had aimed to reduce energy needs and cut emissions by offering incentives for adopting energy-saving technology such as water heaters with smart metersMore importantly, the bill had bipartisan supportAs the bill neared the vote, some Republicans tried to attach amendments to the bill to approve KeystoneHarry Reid (Democrat), Senate Majority Leader, refused the amendment and the amendment's supporters retaliated by blocking the main billTransCanada...

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Statoil divests its 5% WI in 15/06 Angola to Sonangol

Statoil announced on 12 May 2014 that it is divesting its 5% WI in Eni-operated Block 15/06 to Sonangol for USD200mStatoil's remaining licences in Angola are Blocks 17, 15, 31, 4/05, 22 (pre-salt), 25 (pre-salt) and  40 (pre-salt)Statoil is also operator of pre-salt Blocks 38 and 39In April 2014, Statoil also farmed down a 15% WI in Block 39 to WRG, a 50/50 JV between White Rose and Genel. Post transaction, interests will be Statoil (40%), Sonangol (30%), Total (15%) and WRG (15%)WRG also acquired, concomitantly, a 15%...

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Egypt: the gas conundrum

LNG exports have dwindled as domestic consumption has increased and upstream production has declined, primarily driven by the decline in the mature offshore fields in the Nile Delta which account for the majority of Egypt’s gas productionThe declines have been exacerbated by the IOCs moderating capex due to increased political uncertainty and build-up of outstanding payments from the GovernmentIncreasing investment in growing gas production is critical but unattractive fiscal terms have discouraged investmentAlthough in 2010, BP and RWE secured...

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Tunisia E&P activity to slow amidst increased regulatory scrutiny

Tunisia's new constitution, passed in January 2014, includes Article 13 which requires natural resource agreements to be ratified by the National Constituent Assembly rather than the Industry MinisterProponents of Article 13 include President Marzouki's party, and is part of a trend towards growing scrutiny of decision making in the country's upstream sectorThis will add a new layer of approvals for investments, extension of permitting timelines and routine permission held backTunisia's upstream industry is characterised by...

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Further Kashagan delays

Discovered in 2000; project partners are Eni, Total, Shell, XOM (each with 16.8%), KMG (16.9%), CNPC (8.3%), INPEX (7.6%)USD50bn spent on Phae 1; production originally expected to start in 2006 but has been plagued by delays and cost overrunsProduction commenced in September 2013, but subsequently shut down due to leaks of hydrogen sulphide from the extensive gas networkKazakhstan environment ministry will fine the Kashagan companies USD735m for burning gas emptied from the pipeline - the companies have said they will appeal...

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Cobalt makes Orca discovery in Kwanza Basin

Cobalt has 40% WI in Blocks 9, 20 and 21 offshore AngolaIn the company's Q1 results (1 May 2014), Cobalt announced that it had successfully tested the Orca-1 well which flowed at a constrained rate of 3,700bopd + 460mcmpdOrca-1 lies in Block 20 and is the largest discovery to date in the Kwanza Basin; Orca is estimated to hold 400-700mmboeOn Block 21, Cobalt recently began drilling the Cameia-3 well with the field expected to reach first oil in 2017The Cameia-1 discovery was drilled made in 2012 and the Cameia-2 appraisal was drilled in 2013On...

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Libya plans "smart cards" to stop fuel smuggling

Gaddafi introduced subsidies on items from fuel to bread and airline tickets to discourage oppositionThe subsidies, together with public salaries take up more than half of the national budgetCitizens have been subsidised buying fuel and smuggling into Tunisia for resale at higher pricesWith shutdown of oil fields and ports since mid-2013, crude export revenues are drying up and the government is proposing a fuel card system to parliament that will limit the amount of subsidised fuel that can be boughtEgypt has recently implemented such a fuel...

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