PGNiG expands footprint in Norway

On 18^th October PGNiG announced that it had agreed to acquire Equinor's interest in the Tommeliten Alpha gas and condensate field in the Norwegian North Sea. This continues PGNiG's strategy of diversifying its gas supply away from Russia.

PGNiG has always had an interest in Norwegian gas seeing it as as logical and accessible source of gas for Poland. As the long term Russian gas supply contracts come to expiry, PGNiG is making bold moves to secure new sources of gas and LNG. See PGNiG shuns Russian gas.

The operator of the discovery is ConocoPhilips (28.26%), and current partners are Total (20.23%), Eni Norge (9.13%) and Equinor (42.38%) which will sell its entire working interest to PGNiG. The agreed price for Equinor's stake was USD220 million at 1 January 2018 effective date.

The Tommeliten Alpha discovery is located in the vicinity of large, existing fields, most notably the giant Ekofisk field. According to current plans, production is expected to commence in 2024, and the development concept assumes a subsea tie-back to the existing infrastructure on Ekofisk.

Tommeliten Alpha is a gas and condensate field with estimated recoverable resources of 52 mmboe (net to PGNiG's 42.38%). PGNiG believes in an upside potential in the field reserves as well as significant exploration upside in the area.

The field was originally planned to start production in 2019, but development plans were shelved by operator ConocoPhillips in 2016 due to low oil prices.

#PGNiG #NorthSea #TommelitenAlpha # Equinor #Conoco

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Majors pick up acreage in Brazil

Equinor press release:

Equinor, ExxonMobil and Petrogal Brasil presented the winning bid (75.49% profit oil) for the Uirapuru production sharing contract in the Santos basin. Petrobras exercised its right to enter the consortium and will be the operator with 30% equity.
The final equity distribution is Petrobras (30% operator), Equinor (28%), ExxonMobil (28%) and Petrogal Brasil (14%). The pre-determined signature bonus to be paid by the bidding consortium is BRL 2,65 billion (approximately USD 682** million). The Uirapuru exploration block is located in the Santos basin, north of the BM-S-8 (Carcará discovery) and North Carcará blocks, both operated by Equinor.

A consortium comprising Equinor (25%), Petrobras (45%, operator) and BP (30%) were the high bidders (16.43% profit oil) for the Dois Irmãos producing sharing contract in the Campos basin. The pre-determined signature bonus to be paid by the bidding consortium is BRL 400 million (approximately USD 103**million). The Dois Irmãos block sits adjacent to an area where Equinor with partners were awarded four high potential blocks in the 15th licensing round in March.

“We are very pleased with the opportunities secured in the 4th PSA round,” says Tim Dodson, Equinor’s executive vice president for exploration.

“The prolific basins offshore Brazil represents world class exploration acreage. The results from this and previous bid rounds have added highly prospective acreage to Equinor’s exploration portfolio, allowing us to maintain a significant activity and pursue high value prospects in Brazil in the years ahead,” says Dodson.

“The outcome of this round further strengthens our position in Brazil, considered as a core area for Equinor. We are looking forward to working with our partners, the Brazilian authorities and Pré-sal Petróleo S.A. on the development of these new blocks. We have been increasing our investments in the country in the last two years and our expectation is that this will represent more jobs, taxes and, in the future, royalties that will benefit local communities,” says Anders Opedal, Brazil’s country manager.

This adds to Equinor’s existing portfolio in the Brazilian pre-salt area, which includes BM-S-8 and Carcará North, both in Santos basin, and the BM-C-33 in the Campos basin, containing the Pão de Açúcar discovery.

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Bidders pull out of Alba sale by Statoil and Mitsui

Deloitte has launched the sale of Endeavour Energy UK. The US parent company of Endeavour Energy UK is going through bankruptcy proceedings and Deloitte has been appointed to monetise the company’s UK unit.

Endeavour Energy UK owns a 25.7% in Alba amongst other North Sea assets. This is larger than Statoil’s 17% or Mitsui’s 13.3% stake which is being marketed.

Although Statoil and Mitsui have been trying to sell their stakes since the end of last year, the unusually lengthy process signals the challenges with the asset.

The sale being run by Deloitte will be a bankruptcy sale which will allow buyers to pick up the asset on the cheap. As a result, sources involved in running the Statoil and Mitsui sale say that the Endeavour Energy UK route presents a much cheaper way to pick up the same asset, as well as it being a larger, more meaningful stake.

Challenges which bidders had come to appreciate with Alba include:

• Limited upside
• Expensive and near-term decommissioning
• Bankruptcy of Endeavour Energy which would have left the buyer with larger exposure to future costs

Being able to pick up Alba through the Endeavour Energy proceedings at a lower price therefore makes the risks and challenges of owning Alba much more palatable, another bidder said.

Challenges raised by a number of parties who looked at Alba are discussed in depth here: 

Endeavour endangers Alba sale for Statoil and Mitsui

Related links:

• Endeavour Energy kicks off North Sea assets sale (external – Reuters)
• Chevron shuts in Alba platform as Mitsui and Statoil try to sell the field

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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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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

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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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Statoil acquires Martin Linge from Total for USD1.45bn

Total has agreed to sell all of its interests in the Martin Linge field (51%) and Garantiana discovery (40%) on the Norwegian Continental Shelf to Statoil for USD1.45bn with an effective date of January 1st, 2017.Statoil will also receive remaining tax balances with a nominal post-tax value of more than USD 1 billion.

Martin Linge is a long life oil and gas development with estimated recoverable resources in excess of 300 mmboe. Originally scheduled to come onstream in 2017, first production is now expected in 2019 following a series of project delays and cost increases including a tragic accident at the Samsung ship yard in South Korea where the topside is being completed.

Martin Linge is being developed with a manned wellhead platform - the jacket substructure is already installed on location, while the topside is being completed at the Samsung yard in South-Korea and will be transported to Norway early 2018.

Operations will be controlled remotely from an onshore digital operations centre, enabling reduced operational expenditures. Electrification is made possible through a 160 km cable from shore, the longest AC power link in the world. This will reduce CO2 emissions by 200,000 tonnes per year. Following completion of the transaction, Statoil will increase from 19% to a 70% interest in the field.

Arnaud Breuillac, President, Exploration & Production at Total commented "The forthcoming acquisition of the Maersk Oil portfolio, which will make Total the second largest operator in the North Sea, leads us to review our portfolio in this area so as to focus on the assets in which Total will be able to generate synergies and reduce their breakeven points. In this context, given that Martin Linge is Total's only operated asset in Norway, there is limited scope to optimise operations, whereas with Statoil’s leading operating position on the Norwegian Continental Shelf, Statoil is in a better position to optimize this asset for the benefit of all stakeholders. We are therefore satisfied with the agreement with Statoil, a long time trusted partner, which in addition, offers us a satisfactory value for this asset. Norway remains a strategic country for Total as one of the largest contributors to the Group's production and we of course intend to continue bringing our expertise to Norway by focusing in particular on major non-operated assets such as Ekofisk, Snohvit and Johan Sverdrup."

Statoil's EVP for D&P Norway commented "This transaction adds competitive growth assets to our portfolio on the Norwegian continental shelf. The Martin Linge project features innovative solutions to enhance safety, capture value and reduce emissions, in line with our strategy. By leveraging Statoil’s operational experience and existing contracts, we can realise additional opportunities and synergies from these assets."

The transaction involves the transfer of relevant employees from Total to Statoil and remains subject to final due diligence and approval from the relevant authorities. The transaction will increase Statoil's stake in Martin Linge from 19% to 70% with the DFI holding the remaining 30%.

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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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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.

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Repsol and Statoil announce asset swap

Alfa Sentral platform in the North Sea

On 11th December, Statoil and Repsol announced that they had entered into number of asset swaps as part of a packaged deal:

• In the North Sea, Statoil farms down a 15% WI in Gudrun (Norway), whilst retaining operatorship and will acquire a 31% WI in Alfa Sentral (UK portion), a field which spans the UK-Norway border
• In the US, Statoil acquires a 13% WI in the Eagle Ford JV and becomes operator, taking its interest to 63%; Repsol’s interest reduces to 37%
• In the Brazil Campos Basin, Repsol-Sinopec will transfer operatorship of the BM-C-33 licence to Statoil

Summary of asset swaps

From Statoil's perspective, sole-operatorship on the Eagle Ford JV will allow the company to have more control of the project going forward and improve efficiency of the operations. The JV was previously jointly operated with Repsol operating one-half of the acreage and Statoil operating the other half, leading to sub-optimal development. In the North Sea, Statoil will remain the largest partner in Gudrun and will consolidate its position in Alfa Sentral. Statoil increased its interest in the Norwegian part of Alfa Sentral to 62% in October 2015 (from First Oil) and the 60mmboe gas condensate field is a priority project for Statoil and will be developed as a tie-back to the Sleipner Area. The assumption of operatorship in Brazil will further Statoil’s strategy of growing in the country and enable the company to build on its deepwater experience.

Alfa Sentral tie-back to Sleipner

For Repsol, the key swap is the reduced interest in the Eagleford, alongside acquiring a producing asset in the form of Gudrun. The transaction will support Repsol’s financial position and stretched balance sheet with cash flows expected to improve by €500m in the period 2015-17. Furthermore, the transfer of operatorship in Brazil is consistent with Repsol’s focus on three themes (onshore, shallow offshore and unconventionals) as outlined in its 2016-2020 strategic plan.

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