INEOS acquires DONG E&P portfolio

On 24^th May, INEOS announced the acquisition of DONG's E&P business for USD1.05bn with two further contingent payments:

• USD150 million relating to the Frederica stabilisation plant; and
• USD100 million subject to the development of Rosebank

As part of the transaction, DONG will retain all hedges that are currently in place (worth USD285 million) and cashflows from the oil & gas business (worth c.USD310 million). Ineos will adopt all decommissioning liabilities (c.USD1.1 billion).

The deal includes a portfolio of long life assets with 100mboepd production and 570mmboe of commercial reserves and contingent resources. The portfolio's corner stone assets are Ormen Lange (Norwegian gas) and Laggan-Tormore (new gas field in West of Shetlands).

All 440 DONG personnel will transfer to INEOS on completion, which is expected towards the end of 2017. The deal with propel INEOS into the top 10 league of North Sea players and enable the company to significantly expand its trading and shipping activities.

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Private equity backed Neptune Energy acquires Engie E&P

On 11^th May, Neptune Energy announced that it had agreed to acquire Engie's upstream portfolio, Engie E&P International ("EPI"). In 2011, Engie had sold 30% of EPI to China Investment Corporation ("CIC"), retaining a 70% interest in the business. As part of the transaction, Neptune Energy will pay USD3.9 billion for the 70% stake and also take over CIC's 30% stake, in return for CIC becoming a 49% shareholder in Neptune Energy. The Carlyle Group and CVC Capital Partners will together hold 51% in Neptune Energy.

The USD3.9 billion headline transaction value includes c.USD95 million of contingent payments linked to certain operational milestones. EPI will also retain the decommissioning liabilities associated with the portfolio (i.e. transferred to Neptune Energy), allowing Engie to deconsolidate c.USD1.2 billion of decommissioning liabilities from its balance sheet. The deal implies a transaction multiple of EV/2P of USD6.3/boe (based on transaction value of USD3.9 billion).

The EPI portfolio is focussed on North West Europe with additional operations in North Africa and South East Asia and includes a mix of exploration, development and production assets. However, Engie has agreed to retain the Algerian gas development as part of the deal. The portfolio will be gas weighted and is underpinned by a number of key long-term assets including Snøhvit and Njord in Norway, Cygnus in the UK, Römerberg in Germany and Jangkrik in Indonesia.

The acquisition will propel Neptune Energy into one of the largest international E&Ps with the deal expected to close at the beginning of 2018.

International E&P reserve rankings
Source: Company disclosure, OGInsights

International E&P 2016 production rankings
Source: Company disclosure, OGInsights

Neptune was established in 2015 by The Carlyle Group and CVC Capital Partners, targeting large oil & gas opportunities becoming available during the oil price downturn It is headed by industry veteran and former Centrica CEO Sam Laidlaw. Neptune intends to grow the portfolio organically and through bolt-on acquisitions, with ambitions to create a “large, independent E&P company” over the next five years.

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Yakaar - major gas discovery offshore Senegal

 Kosmos has made a substantial 15tcf gas discovery offshore Senegal. The Yakaar-1 well on the Cayar Offshore Profond licence intersected a gross hydrocarbon column of 120m and encountered 45m of net pay. The well confirmed the presence of thick, stacked, reservoir sands over a large area with very good porosity and permeability.

This discovery marks the continuation of Kosmos’ success in the Mauritania/Senegal river basin (Tortue, Ahmeyin, Marsouin and Teranga). Yakaar and Teranga together hold 20tcf (Pmean gas resource) and creates the opportunity for a second LNG hub in Senegal (in addition to the planned Greater Tortue Area).

Source: Kosmos Energy May 2017 company presentation

Kosmos has revised its exploration schedule since February 2017, introducing Hippocampe to the mix which has been prioritised ahead of Lamantin and Requin Tigre. Hippocampe is potentially a more valuable, liquid prone prospect and would likely be easier to commercialise in the case of success than the deepwater gas resources to date.

The drilling schedule over the next 12 months is now:

• Tortue-DST (imminent)
• Hippocampe-1 (Q3/4 2017)
• Lamantin-1 (Q4 2017)
• Requin Tigre-1 (Q4 2017/Q1 2018)

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DNO: Branching out

 

In a move as surprising as TransGlobe's entry into Canada, DNO has announced the acquisition or Origo Exploration, a UK and Norway focussed private explorer backed by GNRI, Riverstone and Temasek. As consideration, DNO will assume Origo's exploration commitments and licence obligations.

Origo has interests in 11 blocks offshore UK and Norway, with 20-30% non-operated interest in each block. This portfolio is expected to generate around three exploration drilling opportunties per year. The management team and staff will be reataiend as part of the acquisition as will its office in Stavanger.

DNO could use this platform to establish a North Sea base (organically and through acquisitions), and although the strategic logic of this acquisition is currently unclear, it presents a new region for DNO to replicate its past exploration and operational success. It also signals the fact that DNO may see limited attractive opportunities in Kurdistan to reinvest its growing cash base on a risk-reward basis.

Origo Portfolio
Source: Company information, NPD

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Major interest in Senegal

On 3rd May, Total announced that it had signed two agreements with Senegal:

• Acquisition of the RPO block (Total 90%, Petrosen 10%) which lies in deepwater immediately adjacent to the SNE and FAN discoveries (Cairn 40%, Woodside 35%, FAR 15%, Petrosen 10%)
• Agreement to perform studies to assess the exploration potential of Senegal’s ultra-deep offshore and become operator of an exploration block.

This activity follows the recent transaction by BP into Kosmos’ exploration and appraisal acreage in Mauritania and Senegal, and CNOOC Nexen’s strategic partnership with FAR in Senegal and The Gambia. In the latter, the partnership covers an initial two year period, providing for co-operation and potential joint bidding on farm-ins, acquisitions and open acreage. FAR and CNOOC Nexen will also share technical expertise and relationships.

While the tangible benefits of this relationship cannot currently be quantified, CNOOC Nexen will be a useful partner to have as SNE progresses towards FEED and may eventually acquire or help fund FAR post FID. CNOOC Nexen could also have an interest in FAR’s Gambian blocks that lie to the south of SNE.

CNOOC is an established player in Africa with development/production in Uganda and Nigeria and exploration interests in Equatorial Guinea, Gabon and the Republic of Congo.

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Saudi Arabia: Consolidating power and austerity tested

Earlier this week, Saudi Arabia announced two pieces of news that the oil markets will be keeping a close eye on. In this latest episode of palace intrigue, King Salman has taken further steps to consolidate power in the Salman branch of the royal family and reversed some of the austerity measures implemented in 2016, the latter signalling tears in the fabric of the social contract with the Saudi public.

King Salman’s sons, Abdulaziz bin Salman and Khaled bin Salman, will become Minister of State for Energy and Saudi Ambassador to the US respectively.

• Prince Abdulaziz has held a variety of senior positions in the oil ministry through the years and was a proponent of abandoning the market share strategy
• Prince Khaled has served as an advisor to the Saudi embassy in Washington – his placement will be to help strengthen ties between the US and Saudi, consistent with the messages since the Trump and Deputy Crown Prince meeting in March 2017

Prince Abdulaziz and Prince Khaled are half-brothers; Prince Khaled is a younger brother to the Deputy Crown Prince, Mohammed bin Salman.

The other key decision this week was the reversal of civil service salary and benefits cuts. The austerity measures have caused discontent with the public, of which c.70% work for the civil service, leading to cries demanding the reversal of salary cuts, reinstatement of benefits, scrapping the planned IPO of Saudi Aramco and a change of the ruling system from an absolute to a constitutional monarchy – the latter being a key concern and threat to the Salmans’ power. The reversal of the cuts were well received and although undermines the economic outlook of Saudi Arabia, is clearly much more desirable than public revolt.

The temporary austerity measures reduced the spending deficit from USD97 billion in 2015 to USD79 billion in 2016. The target for 2017 was set at an ambitious USD53 billion, but this now looks unachievable with the announced reversals. The reversals place the Deputy Crown Prince in an awkward position within the family’s diverging aspirations for the Kingdom with the potential undermining of his Vision 2030 which aimed to scale back the public sector wage bill and civil service, with diversification of the economy. The durability and longevity of other Saudi measures and now being put to the test.

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More innovative investment from Schlumberger for Sound Energy

Sound and Schlumberger have agreed to extend their partnership under the existing Field Management Agreement. In an era where more innovative financing arrangements are being seen, Schlumberger will be granted 27.5% interest in the Meridja and Tendrara Relinquished Areas in exchange for providing services.

Schlumberger will carry out the upcoming geophysical programme which will include:

• 2,600km of new 2D seismic covering the Paleozoic across the Tendrara and Meridja areas; and
• 24,000km² of gravity gradiometry

The programme has an estimated value of USD27.2 million and will be completed over the next 12 months in stages, with an updated prospect inventory produced at each stage.

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