UK North Sea gets shot in the arm with Glengorm

CNOOC, Total and Edison have made one of the biggest finds in the UK North Sea in recent years. The Glengorm discovery is estimated to contain recoverable resources of 250mmboe which is even bigger than Total’s recent success in the West of Shetlands at Glendronach which had 1tcf of gas (c.160mmboe). Glengorm sits on licence P2215 and in the vicinity of both the Culzean and Elgin & Franklin gas fields which could act as future hosts for Glengorm.

Glengorm is operated by CNOOC (50%) with Total (25%) and Edison (25%) as partners. The exploration well (22/21c-13) was spud on 26^th August 2018 with the Prospctor 5 jack-up rig targeting the Upper Jurrasic Fulmar and Heather formations. The HPHT prospect was challenging to drill but persistence has paid off. CNOOC tried to drill the prospect twice in 2017 but failed to do so following technical problems.

Maersk, Premier Oil and Centrica had relinquished the licence in which the field is contained back in 2014 when it was deemed too small and complex to commercialise. Glengorm has clearly exceeded all expectations with unrisked recoverable resources estimated at c.65mmboe back in 2014 (41mmbbl oil and 128bcf gas). The 2014 relinquishment report also highlights a number of prospects in the vicinity and CNOOC, Total and Edison have expectations of further prospectivity in the area for future growth.

Source: Maersk 2014 relinquishment report

Source: Maersk 2014 relinquishment report

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Major interest in Senegal

On 3rd May, Total announced that it had signed two agreements with Senegal:

• Acquisition of the RPO block (Total 90%, Petrosen 10%) which lies in deepwater immediately adjacent to the SNE and FAN discoveries (Cairn 40%, Woodside 35%, FAR 15%, Petrosen 10%)
• Agreement to perform studies to assess the exploration potential of Senegal’s ultra-deep offshore and become operator of an exploration block.

This activity follows the recent transaction by BP into Kosmos’ exploration and appraisal acreage in Mauritania and Senegal, and CNOOC Nexen’s strategic partnership with FAR in Senegal and The Gambia. In the latter, the partnership covers an initial two year period, providing for co-operation and potential joint bidding on farm-ins, acquisitions and open acreage. FAR and CNOOC Nexen will also share technical expertise and relationships.

While the tangible benefits of this relationship cannot currently be quantified, CNOOC Nexen will be a useful partner to have as SNE progresses towards FEED and may eventually acquire or help fund FAR post FID. CNOOC Nexen could also have an interest in FAR’s Gambian blocks that lie to the south of SNE.

CNOOC is an established player in Africa with development/production in Uganda and Nigeria and exploration interests in Equatorial Guinea, Gabon and the Republic of Congo.

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CNOOCNexen on the prowl

Last week, we met with the CNOOCNexen corporate team to discuss their thinking in the current low oil price environment and the possibility of using the opportunity to make acquisitions.

At the beginning of 2015, CNOOCNexen expected oil prices to settle at c.USD60/bbl and the second drop in June came as a surprise. Similar to the view held by many oil companies, the oil price is now lower for longer than originally anticipated. CNOOCNexen anticipates oil prices in 2016 to be similar to 2015 levels.

The company’s UK portfolio, which mainly comprise of its 43.21% interest in Buzzard and 36.54% interest in Golden Eagle, is in a relatively good place with operating costs of below USD20/bbl. While the UK operations are not making a fortune at current oil prices, it is keeping its head above water which is more than what can be said for many North Sea fields.

M&A remains on the radar with Beijing head office looking for opportunities in the UK, Brazil, West Africa and Southeast Asia. In fact, the UK North Sea has been cited as one of the top desired areas for further investment and growth. Corporate and farm-in opportunities at all stages of the lifecycle from exploration through to production are of interest. CNOOCNexen did not disclose their oil price assumptions for evaluating acquisitions, but noted that they are beginning to see convergence between buyers and sellers in the market. In terms of acquisition size, USD5 billion would be the top end of what could be do-able. However, CNOOCNexen are still waiting for some stability in oil prices and cost indices before they can feel comfortable with valuations internally and start to make moves.

In the UK North Sea, acquisitions would be to “keep the engine running” rather than building a new business. CNOOCNexen are looking for assets where there is scope for upside and their team could add value; in this regard, assets which have demonstrated reserves creep are of interest such as Apache’s Beryl field and Shell’s Pierce field. Upcoming disposals from the majors, whether piecemeal or as a portfolio, are opportunities coming to market that CNOOCNexen are keeping a close eye on. Development assets are not ruled out given the current North Sea portfolio is in a tax paying position and development expenditure could be used to offset against profits. CNOOCNexen are now beginning to explore heavy oil opportunities as the size of the resource and progress in developing technology to exploit heavy oil (such as by the likes of Statoil) means it can no longer be ignored as a strategy. 

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