TransGlobe: Branching out...back to roots

This week saw Canadian listed, Egyptian focussed TransGlobe ‎announce an acquisition of producing assets in Western Canada. The company will be paying USD80 million to Bellatrix Exploration for Cardium light oil and Mannville liquid-rich gas acreage in the Harmattan Area. The portfolio comes with 21mmboe of 2P reserves and 3,100boepd of production.

The acquisition is a shift away from the company's ‎historic strategy of being an Egyptian focussed player. However this had been pre-announced with TransGlobe stating earlier this year that it was seeking to diversify its asset base with more exposure to OECD. Although shareholders would have initially invested in TransGlobe for the attractive story at the time of low risk, onshore exploration and production in the Middle East, the company has failed to deliver that story for a variety of reasons and this acquisition appears to be a sensible first step in redefining the company.

Having lost its position in Yemen followed by a series of disappointments in Egypt, TransGlobe has fallen short of its aspirations which would have seen Egyptian production of c.20mbopd today instead of the current c.13mbopd. The Arab Spring which began at the end of 2010 coupled with the more recent spread of Islamic State has deterred investor interest from the Middle East. For TransGlobe specifically, the lack of a stable government in Egypt until the arrival of President Sisi and a ballooning budget deficit hampered TransGlobe's efforts to progress its portfolio in the country as well as being paid for its production by EGPC.

While production cash flow should help strengthen the company's financial position, the mix of Canadian and Egyptian cash flow presents an eclectic mix of assets and it will be interesting to see how TransGlobe will continue to transform over time.

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International Petroleum Investment Company: A fresh start

IPIC has been on a journey to rebuild its business following the extraordinary downfall of Khadem al-Qubaisi, the company’s managing director who was made to step down in April 2015. In the months that followed, there was a major shakeup across all levels of the organisation including in the portfolio companies, with many of the roles previously held by al-Qubaisi reassigned to new officers. At the time, IPIC did not release any statements around al-Qubaisi’s dismissal, but in the months that followed, there was increasing newsflow in the media around alleged embezzlement of funds from business dealings between IPIC and 1MDB, a Malaysian sovereign wealth fund. Al-Qubaisi was arrested in August 2016.

OGInsights spoke with representatives of IPIC to find out more about the restructuring within IPIC. Suhail Mohammed Faraj Al Mazroui, the UAE energy minister, now heads IPIC with the group split into two divisions: Upstream and Downstream & Diversified.

The Upstream division is headed by Alyazia Ali Al Kuwaiti and includes the holdings in CEPSA, OMV and Oil Search.

Downstream & Diversified is headed by Saeed Mohamed Al Mehairbi  and includes the holdings in Nova Chemicals and Borealis and various business interests previously held by Aabar (including real estate and private jet businesses).

The IPIC team also act as source deals for Qatar Abu Dhabi Investment Company (“QADIC”), which is a joint Qatar and Abu Dhabi fund. The fund has a size of USD2 billion and aims to target investments with a link to IPIC’s downstream holdings. However, IPIC and QADIC will be cautious with making new investments given the recent tumult and will have plenty to focus on managing its existing portfolio.

In the upstream space IPIC will continue to look for acquisitions, which will be routed through CEPSA or OMV. IPIC aims to maintain a balanced portfolio with existing or near-term production / cash flow and keen to avoid heavy capex commitments. Africa remains a keen focus area (excluding Nigeria) as is Latin America, which will neatly complement the CEPSA portfolio.

In the downstream space, North American chemicals and fertiliser businesses are of interest. In Europe, only specialty chemicals are seen as a good fit (i.e. with Borealis).

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Oda to Joy!

On 30^th November, Centrica announced that it had submitted the Plan for Development and Operation (PDO) for the Oda field to the Norwegian Ministry of Petroleum and Energy. Oda, previously called Butch, is owned by the following partners:

• Centrica (40% operator)
• Suncor (30%)
• Aker BP (15%)
• Faroe (15%)

Oda is an oil field, discovered in 2011 and lies in the Norwegian North Sea. The field will be developed as a subsea tie-back to the Ula patform, located c.13km away. The field will be developed with two production wells and one water injection well. Oil will be onward transported via the Norpipe system to the Teeside Terminal in the UK. The gas will be sold to Ula for injection to improve recovery in the Ula reservoir.

Ula is located in shallow water depths (66m) and is good quality reservoir with light oil. The development is planned to cost c.USD640 million, with first oil in 2019. The field has reserves of 42mmboe and plateau production is planned to reach 35mboepd.

Ula Area
Source: Faroe Petroleum September 2016 investor presentation

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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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