Is Busta a bust?

Exploration well on the Busta prospect on PL782S has been drilled in 127m of water in the Jotun-Balder area of the Norwegian North Sea. It appears to be a marginal discovery with preliminary resource estimates of 6-60mmboe (vs. pre-drill 50-200mmboe).

Two separate gas/condensate and oil-bearing intervals totaling ~25m were encountered -the primary target hitting the reservoir with the secondary target water bearing.

Busta is operated by ConocoPhillips (40%) with AkerBP, Dea and Equinor each with 20%.

The Leiv Eiriksson rig which drilled the well is now scheduled to relocate to the neighbouring block, PL917, to drill the Enniberg/ Hasselbaink prospect.

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Dry well in the Barents near Korpfjell

The 7335/3-1 exploration well on Production Licence 859 has drilled a dry well.

The partners on the licence are: Equinor 65% operator, Lundin 15%, DNO 20%.

The licence lies in the Barents Sea and the 7335/3-1 well is located c.8km southeast of the Korpfjell gas discovery.

Both the primary and secondary exploration targets encountered sandy and poor reservoirs. The well was drilled by the West Hercules drilling rig to 4,268m below the sea surface and water depth was 239m The well has not been permanently plugged and abandoned.

The West Hercules rig will now move to drill a wildcat well 7324/6-1 in PL855 in the Barents Sea.

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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.

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Barents Sea licence awards

The Norwegian Ministry of Petroleum and Energy has issued ten new production licences in the Barents Sea as part of Norway’s 23rd licencing round, following applications made by 26 companies in January. This is the first time since 1994 that new exploration acreage has been made available to the industry in the southeastern Barents Sea. 

From the International E&P names:

• Lundin has been awarded interests in five licences (three as operator)
• Det Norske has been awarded interests in three licences (one as operator)
• Tullow has been awarded an interest in one licence (non-operated)
• Cairn (through its Capricorn Norge subsidiary) has been awarded three licences (one as operator)

The companies have committed to binding work programmes that primarily include a drill or drop decision to be made within two years.

Barents Sea licence areas
Source: NPD

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Statoil acquires a further stake in Lundin Petroleum

On 14^th January, Statoil announced that it had acquired 37.1 million shares in Lundin Petroleum, corresponding to 11.9% of the company. Statoil says that it paid c.SEK4.6 billion for the shares, which equates to a price of SEK120/share or a 28% premium to the share price close as of yesterday at SEK97. Statoil purchased the shares over the past few weeks and says it is supportive of Lundin management, its board of directors and strategy, but there is currently no plan to increase its shareholding in the company.

This article was originally posted on 14^th January 2016 and has since been updated

Statoil says "this is a long term shareholding. The Norwegian Continental Shelf is the backbone of Statoil's business, and this transaction indirectly strengthens our total share of the value creation from core, high value assets on the NCS". Despite the longer term strategic rationale, the move is unexpected. Lundin is one of the more expensive E&P stocks and the transaction further increases Statoil’s exposure to the giant Johan Sverdrup development. Questions are now being asked by the market on whether Statoil can continue to pay its dividend.

From an E&P sector perspective, the move is encouraging as it demonstrates industry interest in the subsector, and the news should help shore-up Lundin’s share price. Nevertheless, corporate activity is likely to remain muted until the oil price starts to recover and confidence returns to the sector.

**Update**
On 3rd May, Statoil and Lundin announced than it had acquired an additional 15% in  Edvard Grieg (licence PL388) from Statoil in exchange for issuing 31.3million shares to Statoil worth USD578million. The transaction is expected to close on 30^th June 2016, pending regulatory approvals.

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Lundin CMD: Why doesn't the market understand?

On 3rd February, Lundin Petroleum held its Capital Markets Day, which included new guidance on capex, opex, production profiles and 2016 drilling plans. However, greatest emphasis was placed upon a review of the company's tax position, and the benefit of the weakening Krona on costs. 

The CEO expressed strong frustration with shareholders and the low valuation being attributed to the company, remarking that closer examination of the company’s financial statements should be undertaken, specifically around the tax and FX hedging position. Indirect reference was made to the recent Statoil transaction, where Statoil was willing to pay SEK120/share, a premium of 28% to the share price at the time and banks’ willingness to extend Lundin Petroleum’s RBL debt facility.
Tax synergies make a sizeable contribute to the value of Norwegian E&Ps such as Lundin Petroleum, which are subject to a tax rate of 78% on their profits. Lundin provided an update on its tax pools, which total NOK16.8bn (c. USD2 billion). However, one quote cut to the chase: "if Brent stays below $65/bbl, Lundin won't pay any cash taxes until the Johan Sverdrup field is brought on stream in late 2019".

In 2015, the company underspent on its USD1.28 billion capex budget by c.USD250 million, and a significant portion (c.50%) was due to the weakening Norwegian Krona. Savings were also achieved on operating costs and salaries in Norway. Looking ahead, management sees potential for further saving – Phase 1 development costs at Johan Sverdrup have fallen as a result of the current deflationary environment, but given 60% of the capex is priced in Norwegian Krona (at NOK6/USD) costs should fall further as the currency now trades at NOK8.6/USD. Importantly, Lundin has locked in a significant portion of this gain – the company has hedged NOK7.5 billion (USD890 million) at c.NOK8.4/USD over the period 2016-19.

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Statoil acquires stake in Lundin Petroleum

On 14th January, Statoil announced that it had acquired 37.1 million shares in Lundin Petroleum, corresponding to 11.9% of the company. Statoil says that it paid c.SEK4.6 billion for the shares, which equates to a price of SEK120/share or a 28% premium to the share price close as of yesterday at SEK97. Statoil purchased the shares over the past few weeks and says it is supportive of Lundin management, its board of directors and strategy, but there is currently no plan to increase its shareholding in the company.

Statoil says "this is a long term shareholding. The Norwegian Continental Shelf is the backbone of Statoil's business, and this transaction indirectly strengthens our total share of the value creation from core, high value assets on the NCS". Despite the longer term strategic rationale, the move is unexpected. Lundin is one of the more expensive E&P stocks and the transaction further increases Statoil’s exposure to the giant Johan Sverdrup development. Questions are now being asked by the market on whether Statoil can continue to pay its dividend.

From an E&P sector perspective, the move is encouraging as it demonstrates industry interest in the subsector, and the news should help shore-up Lundin’s share price. Nevertheless, corporate activity is likely to remain muted until the oil price starts to recover and confidence returns to the sector.

Read More