Siccar Point is building up its business

OGInsights recently caught up with the Siccar Point team following its successful acquisition of the OMV North Sea business, which includes an 11.8% stake in the flagship Schiehallion oil field. Together with the acquisition of a stake in the Mariner field earlier this year, Siccar Point has now built up a North Sea business of relevant scale.

Siccar Point is a North Sea focussed E&P, with financial backing from Blackstone, Blue Water Energy and GIC. It was set up in 2014 and after extensive screening of the North Sea over the past two years, the team are pleased to have finally closed a couple of transactions – the team have looked at over 50 potentially acquisitions including, not surprisingly, the ConocoPhillips and Shell North Sea assets.

The minority, non-operated stake (8.9%) in Mariner was acquired from JX Nippon with expectations of first oil in 2018. However, it was clear that this was only a first step to building a bigger North Sea business, which a small stake in a single asset is not. In that regard, the OMV package came along at an opportune time.

Having looked at the Shell North Sea assets, Siccar Point and its owners/financiers believed it was best to pass on the opportunity. As well as being a large portfolio for someone the size of Siccar Point, the substantial number of gas assets and attempt to package in the stranded Corrib asset offshore Ireland, made it strategically less attractive. The decommissioning liability that would come along with the Shell portfolio was also challenging. The OMV portfolio, which came with a smaller number of long life assets was therefore much more desirable.

The financing of North Sea assets has been an ongoing challenge for vehicles such as Siccar Point which are backed by private equity money. The business model requires for acquisitions to be financed with substantial amounts of debt, and in most cases, the amount of debt that can be raised is based on the amount of reserves. However, the UK has a regulatory regime which requires operators to provide financial guarantees (generally in the form of letters of credit) for decommissioning liabilities – these are now coming to the forefront of attention given the maturity of the North Sea and imminent or near-term cessation of production across the basin. These guarantees consume much of the debt capacity and therefore require larger cash or “equity cheques” to be fronted by acquirers. Ultimately the OMV North Sea portfolio was one that worked well for Siccar Point in terms of size and ability to finance.

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Not so Stella

Following Ithaca’s recent update on Stella, it has now announced that there will be a short delay to first production with the operation coming on stream in January.

The offshore commissioning of the FPF-1 platform is well advanced and continues. However during routine inspections, faults were found on a number of electrical junction boxes on the vessels processing facilities. Repairs are now underway but this will delay field start up. The repair costs are expected to be immaterial.

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Near-term appraisal for FAR

FAR has announced that the partners of the SNE field have contracted the Stena DrillMax for a minimum two well programme starting in Q2 2017. The ship is currently in the Canary Islands and ready to be deployed with crew assembled.

The two firm wells, SNE-5 and SNE-6, will target the upper reservoir units and will include drill stem testing and likely an interference test between SNE-3 and SNE-5. The programme aims to firm up the resource base to help scope and refine the field development plan.

It is noted that the new rig has been contracted at a significant discount to the previous rig contract and a two well program could cost as little at USD50 million.

Separately, Woodside (35%) has settled its deal to acquire ConocoPhillips' interest in the SNE field as announced on 31^st October and was involved in the approval of this work programme.

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Eland's OML40 ready to ramp up

Eland this morning reported impressive test results from the Opuama-3 well on OML 40. The Long and Short Strings tested at 5,955bopd and 5,067bopd, respectively, and no water. Management now expects Opuama-3 and Opuama-1 to generate gross output to ~14,500bopd.

Unfortunately, OML 40 remains shut in as a result of interruptions to third party export facilities. In light of these export issues, the company intends to accelerate plans to barge crude, with deliveries commencing by January. The company is in discussion with its partner NPDC to accelerate work on a permanent alternative export solution in advance of the material increase in production that is expected from the side-tracking of Opuama-7 and the re-entry and completion of Gbetiokun-1. However, there is no intention to commence these work-overs until production can be regularised.

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Canacol: Second pipeline to double export capacity

Canacol has executed a major agreement with Promigas to expand the gas transmission network from Jobo to the Colombian coast by constructing a second pipeline. The project will be fully funded by Promigas and expected to commence by the end of this year. Permitting is planned to take up to 18 months with construction taking 6 months - the pipeline should be commissioned in 2018/19. The pipeline will more than double Canacol's capacity from 90mmcfpd to 190mmcfpd. Gas supply contracts have been secured for this additional capacity and the company will now need to find additional reserves to fulfil the contracts.

During 2016 Canacol raised USD36 million to accelerate drilling targeting c.100bcf reserves in the Lower Magdalena basin‎. So far the company has successfully drilled the Nispero-1, Trombon-1 and Nelson-6 near field exploration wells. By year end, the Clarinete-3 and Nelson-8 development wells are scheduled to be drilled and tested.

Canacol plans to keep one rig active in 2017 to drill through the company's prospect inventory. This drilling campaign is crucial to establish the gas reserves necessary to underpin the long term contracts. Canacol's reserve base of 79mmboe has a RLI of 12 years at current production levels, but would fall to 6 years if production rises to 190mmcfpd.

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BP: Adapting to the times - Where were they now? (Part 2)

The OGInsights team recently met with the BP corporate strategy department to discuss how the strategic direction of the company has changed since the collapse in oil prices. In this two part entry, we look at where BP were a year ago and where they are now in terms of strategic thinking.

Part 2: Where are they now?
With oil prices appearing to stay lower for longer, BP’s priorities have changed and all large M&A is on hold. Focus is on cost cutting, targeting breakeven of USD 50-55/bbl over the next year and farming down high working interests and material exploration commitments.

On the opposite end of the scale, the BP team remains busy on divestment with a target of offloading USD 3-5 billion this year – this compares with a run rate of USD 2-3 billion per year for BP. However recognising the oil price environment, divestments are aimed at non-oil price linked assets, namely midstream and refining. BP shared that there are no country exits on the mid/downstream side, so the portfolio tidy-up will very much be pruning within the portfolio.

As oil prices recover, BP will begin looking at reshaping the portfolio for the longer term and the focus will be on OECD assets (i.e. as opposed to companies like Tullow, which BP have been reported to be monitoring for years). Of note, BP noted that any material acquisitions will likely be in US tight oil, where BP see a clear gap compared with its peers. Oil sands are a “no” following COP21 and despite other majors investing in renewables, there is currently no interest in this area given the loss making nature of this division historically.

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Stella progress

‎Ithaca has reported that the Stella field is expected to come onstream at the end of November. Production will commence initially from one well, before bringing the remaining four wells online soon after which will ramp up production to plateau by year end.

The vessel hook-up is well advanced and tanker trials have now been completed.‎ The 44km spurline connecting the field to the Norpipe system was also successfully installed with switching from tanker to pipeline export to occur during 2017.

Ithaca expects to add a tie-back to the FPF-1 platform every two years to maintain production efficiency. As a result, it is expected that the Harrier development will soon commence with contracting in the near future to make the most of current low rates; separately Vorlich will be progressed towards FDP approval.

The commissioning of Stella will more than double Ithaca's existing production and reduces group opex towards USD17/bbl and cash break-even to USD22/bbl. Ithaca's balance sheet will begin to materially de-lever from the beginning of next year, putting the company in a good position ahead of its upcoming debt refinancing.

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