Sangomar Deep - Senegal's first offshore discovery

• On 7 October 2014, Cairn Energy and its partners announced that a significant oil discovery had been made in the FAN-1 exploration well in the Sangomar Deep block, Senegal's first offshore discovery
• 29m net pay
• Gross oil interval of >500m
• No OWC encountered
• Distinct oil types recovered 28-41 API
• This was followed by a second discovery in the SNE-1 well, announced on 10 November 2014
• 36m net pay
• Gross oil interval of 95m with gas cap
• Oil of 32 API, oil and water recovered to surface
• 1C: 150mmbbl, 2C:330mmbbl, 3C: 670mmbbl
• Block is operated by Cairn (40%) - other partners are COP (35%), Far (15%), Petrosen (10%)
• SNE-1 is potentially commercial on a standalone basis; FAN-1 economics more marginal - may be tied back to SNE-1 or warrant a stand-alone development, will need further delineation

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Gunvor to expand into spot LNG trading as supply increases

Bloomberg

Gunvor Group, the world’s fourth-biggest oil trader, plans to expand into short-term buying and selling of liquefied natural gas (LNG) as global supply rises, two people with direct knowledge of the matter said.

The Cyprus-based trading house will charter vessels for spot agreements and sell cargoes in Asia and the Atlantic basin, tapping into supply from Nigeria, Australia and Southeast Asia, the people said, asking not to be identified because the plan is confidential.

Seth Pietras, a spokesman for Gunvor in Geneva, declined to comment by e-mail.

Gunvor follows Vitol, Trafigura Beheer, Glencore, global energy companies and utilities in competing for spot cargoes as new projects boost LNG supply, first from Australia and later from the US.

The company, which has so far focused on long-term contracts, has an agreement to liquefy natural gas at the planned Magnolia LNG project in the US as well as an accord to supply Panama with the fuel.

Gunvor is also considering a tie-up with OAO Novatek for the sale of fuel from the proposed Yamal LNG project in the Russian Arctic, Leonid Mikhelson, CEO of Tarko-Sale, Siberia-based Novatek, said in January.

Gunvor hired Ksenia Babenkova as an LNG trader for its Geneva office from Gazprom Marketing & Trading, while Kalpesh Patel from BG Group will start in Singapore, according to the people. They will focus on short-term trading.

Rising Trade

LNG trade will rise by 40% to 450 billion cubic meters (16 trillion cubic feet) by 2019, the International Energy Agency said in its medium-term gas market report in June. Spot and short-term LNG contracts accounted for 27% of total trade last year, compared with 25% in 2012, according to the International Group of Liquefied Natural Gas Importers, a Paris-based lobby group.

Spot prices for cargoes delivered to Northeast Asia, the world’s biggest buyer of LNG, rebounded to $11.70/MMBtu on Aug. 18, according to New York-based Energy Intelligence Group’s World Gas Intelligence publication. Prices fell for 21 weeks through July 14, the longest stretch since Bloomberg began reporting WGI data in June 2010, from an historic high of $19.70 earlier this year.

Almost 70 million metric tons of LNG capacity, or 20% of global capacity, is poised to come online in the next few years in Australia, Neil Beveridge and Oswald Clint, analysts at Sanford C. Bernstein & Co., said in an Aug. 22 report.

Source: Bloomberg

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Waha resumes production - a brief history of the Waha fields

• Comprises a number of concessions located in the Sirte Basin in eastern Libya
• Four main fields are: Waha, Gialo, Dahra and Defa
• Originally issued to Oasis Oil Company (consortium of Conoco, MRO and Amerada Hess)
• In 1986, US sanctions required all US companies to withdraw
• Concessions were held in escrow
• NOC established 100% subsidiary, the Waha Oil Company, to operate the fields until 2005 when the US companies re-entered
• In 2009, list of 24 fields to be developed were drawn up, however development has been slowed by NOC budget constraints
• In March 2011, production halted due to outbreak of civil war
• Production restarted in November 2011 and climbed quickly to pre-war levels as there was minimal damage to facilities
• However, in 2013...
• Operations were disrupted at the Dahra field due to clashes between armed militias and security guards
• Production at Gialo was disrupted by protesters demanding better jobs and living conditions from the government
• Disruptions have since worsened with local tribes and militias targeting oil and gas facilities with prolonged shut-ins since H2 2013
• According to various news sources, NOC announced on 25 August 2014 that production at the Waha concessions have resumed: http://www.bidnessetc.com/24617-libya-resumes-crude-oil-production-as-fighting-continues/

Current participations is (August 2014):

NOC 59.18%

COP: 16.33%

MRO: 16.33%

Hess: 8.16%

Waha Oil Company: -*

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Notes on Yemen - Summary

Summary

• Oil production dominated by 2 blocks:
• Masila (Bloack 14)
• Licence expired in 2011
• Operations taken over by newly formed government op co
• May impact production levels and future development
• Marib-Jawf (Block 18)
• Production peaked in 2002 at 160mbopd
• Absent further discoveries, reserves will be depleted over next decade
• A number of licences are due to expire in coming years, if not renewed, could exacerbate declining reserves problem
• Small discoveries in basement formation by Total and OMV may help reduce decline in the immediate future
• Deteriorating security situation
• Attacks on Marib export pipeline means pipeline regularly non-operational
• Ongoing tensions between gov and local tribesmen
• Unrest will impact future production as troops previously assigned to guarding oil infra are relocated to cities
• In recent years, government has addressed declining revenue from oil by monetising gas
• Yemen LNG commissioned in 2009
• Fed by Total-led East Shabwa gas project
• Government also keen on moving away from heavily subsidised diesel power gen by incentivising gas on commercial terms
• Due to maturity, Yemen of interest to small/med cos
• Despite security concerns, attractive fiscal terms and rel low capex/opex mean attractive returns on investments can be made for those willing to accept risk

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Yemen - Key Companies and Licensing

Key companies

• Total is largest resource holder due to interest in Yemen LNG
• Partners are: Hunt Oil and SK Energy
• Occidental is most significant IOC not in Yemen LNG
• Acreage, reserves and production reduced following expiry of Masila block in 2011
• Its East Shabwa (Block 10) is due to expire in 2015 - extension unlikely to be granted
• Nexen was also a key player in Yemen until expiry of Masila block (Block 14)
• Low capex in 2013 reflects maturity as an oil producer
• Spending likely curtailed until licence extensions are negotiated

Licensing

• In 1990s, PSC terms became less favourable following spate of discoveries and developments
• Led to many relinquishments in mid-1990s
• Yemen subsequently improved the terms on offer and 14 PSCs were signed in 1997-98
• Four rounds held between 2004-7
• However, work programmes were held up by delays to the award ratification process
• 2006 licences were only ratified in 2009
• For the 2007 bid round for offshore blocks, no bids were received and bid round was abandoned
• Deepwater blocks are far from infra, in insecure areas and prospectivity unknown - unlikely to attract much interest

Yemen LNG

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Apache divesting international assets? A hard one!

On 31 July 2014, Apache announced its Q2 2014 results

• Apache said it was looking to exit its Canadian LNG positions and was considering options around its international assets
• This comes amidst Jana Partners, a hedge fund which recently picked up c.USD1bn of shares in Apache, wrote to investors arguing that Apache should focus its efforts on the North American onshore
• Reasoning behind this is that over the last few years, a number of North American onshore pure plays have outperformed Apache
• Apache's international assets, it is argued, are diluting its North American onshore story
• However, analysts do not necessarily agree
• Apache's international assets, especially those in Egypt and the North Sea, generate significant free cash flow for the group
• These are areas of existing production and are low risk operations
• The cash flows are important for the funding of the North American portfolio
• It is further noted that given the number of North Sea assets on the market, the geopolitic issues plaguing North Africa and the relative maturity (though strong cash flow generation) of these assets, it is unlikely that Apache will fund a buyer willing to pay full value
• Its other main operations are in Australia, including the Wheatstone LNG project

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Notes on Oman

Executive summary

• After years of declining production, crude output has increased y-o-y since 2008 due to:
• Oman's EOR project at the Mukhaizna field; and
• Stabilisation of production at PDO's Block 6 (Oman's main producing area)
• PDO has also implemented a number of EOR initiatives to maintain its own production of c.550mbopd over the next 5 to 8 years
• The success of these EOR projects will largely dictate the level to which Oman can maintain liquids production over the medium term
• Increasing focus on gas production in response to projected shortfalls
• Encourage the appraisal and development of tight gas reserves
• Large part of these volumes will depend on success of BP-operated Khazzan Makarem project
• Oman viewed as a stable operating environments
• Has collaborative government offering PSCs with relatively favourable terms relative to regional peers

Key companies

• Petroleum Development Oman ("PDO") is dominant player: Government of Oman 60%, Shell 34%, Total 4%, Partex 2%
• PDO produces over 75% of Oman's hydrocarbons from over 100 fields
• BP's reserves come solely from its Khazzan-Makarem project
• Occidental, Mubadala and Oman Oil Company reserves largely from the redevelopment of Mukhaizna

Licensing

• Majority of licensing activity is onshore, accounting for 95% of active licences
• 5 active offshore licences
• New licensing opportunities for IOCs constrained by fact that PDO has operated a vast concessino area covering much of the country
• much of the acreage outside of PDO's concession area has been licensed, relinquished and re-licensed several times
• Licensing activity has increased significantly over the last 10 years
• re-licensing of PDO relinquished acreage
• response to falling oil production and rising gas demand

Reserves

• Main oil fields now mature
• remaining reserves depend on how successful PDO and Occidental's EOR is
• Remaining gas reserves estimated at 30-35tcf
• vast majority held in PDO areas; 85% of Oman's remaining gas reserves are contained in 10 fields operated by PDO, most of which are in Qarn Alam area of Block 6
• Gas reserves will increase significantly if BP's Khazzan-Makarem field and Oman Oil Comapny's Abu Butabul field are successful appraised

Production

• Between 2000 and 2008, Oman experienced production decline - PDO ageing fields
• In response, PDO shifted focus on EOR from existing fields
• Since 1999, PDO has increased sales gas significantly as the giant Qarn Alam fields were brought onstream to supply Oman's new LNG plants
• Demand for gas expected to grow to support growing industrial and domestic gas markets

Infrastructure

• Highly developed network, almost exclusively owned and operated by PDO; c.2,200km of pipeline
• Oman's main terminal is located near Muscat - all crude is either exported or processed at the refinery for domestic use
• Gas pipeline network owned by Oman Gas Company ("OGC"): Government of Oman 80%, Oman Oil Company 20%
• Network of c.2,500km
• Gas supplies Qalhat LNG terminal or domestic use

Key issues

• Largest non-OPEC producer in the Middle East
• Crude production has increased since 2008, following previous declines
• Relatively attractive fiscal regime has drawn international investors
• Leading proponent for EOR developments in the Middle East
• Challenging geology has resulted in relatively high cost developments
• PDO carries out 3 types of EOR in its contract area: Polymer, Steam and gas injection
• Other operators developing small scale, cost effective EOR techniques designed for small to medium sized fields
• Reduced availability of gas has led to innovative use of solar panels to produce steam required to mobilise heavier crudes in the south of Oman
• Gas supply remains an issue
• Khazzan-Makarem needs to realise a higher gas price to proceed

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