SOCO terminates merger talks with Kuwait Energy

Soco has formally terminated merger talks with Kuwait Energy over valuation differences. Full press release from Soco below.

On 8 January 2018, SOCO International plc (“SOCO”) announced that it was in preliminary discussions with the newly-constituted Board of Directors of Kuwait Energy plc (“Kuwait Energy”) regarding a potential transaction.

SOCO confirms that it has terminated these discussions because it could not reach agreement with Kuwait Energy on the basis for an acceptable transaction.

SOCO’s Board remains committed to its strategy of shareholder value creation through sustainable cash returns to shareholders and growth of the business. The SOCO team, which has a track record of delivering shareholder value through asset acquisition and monetisation, delivering large scale developments, and returning capital to shareholders, evaluates M&A opportunities with reference to strict strategic, financial and operational criteria and only pursues transactions if they are determined by SOCO’s Board to be in the best interest of shareholders. SOCO’s Board continues to evaluate opportunities in accordance with these criteria.

Source: https://www.socointernational.com/statement-on-discussions-with-kuwait-energy-plc

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US Gulf Coast claims strategic trading hub title

The US Gulf Coast has inadvertently become a strategic trading hub for global oil flows in the rapidly evolving oil market marked by North American short cycle shale production. The region is blessed with access to premium upstream acreage linked by a strong network of infrastructure and ports which have been converted from import to import/export terminals following the lifting of the crude export ban two years ago.

Source: EIA

The PADD 3 region also houses close to 60 refiners with c.10 mbopd of complex refining capacity which can cater to a wide range of product slate demands. This has been increasing important as refining centres in Latin and South Americas have become challenged in recent years with the collapse in oil price leaving them financially imperilled. Mexican refineries are currently running at a utilisation rate of below 50% and Venezuela is on the verge of collapse.

The US has stepped up as the de-facto refiner – importing a range of blends from across the world and exporting refined products globally. Crude oil once destined for Europe for refining has also been making its way to the US with the closure of troubled refineries in Europe which started long before the recent oil price crash.

Over the last decade, the US has gone from a net refined products importer to the largest exported in the world. In this time period, the world has become more reliant on the US as the US itself has become more energy independent. At the moment, over half of refined product exports are destined for Latin America, displacing the lost refining capacity there. Asia is also a growing market for US crude and refined products with the Gulf Coast having easy access to Asia through the Panama Canal.

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Marathon fully exits Libyan operations to Total for USD450 million

Marathon announced this morning that it had sold its Libyan upstream operations to Total for USD450 million. Marathon had a 16.33% in the Waha licence area which covers a series of blocks in northern Libya and encapsulates a large number of fields and discoveries. Although Waha predominantly produces oil, there are significant undeveloped gas discoveries as well.

Waha licence acreage
Source: Wood Mackenzie

The divestment represents a full exit of Libya by Marathon as it makes a continued shift back to the US where it has a high margin, short cycle shale portfolio. The sale makes it the seventh country exit by Marathon since 2013 as part of its ongoing portfolio streamlining exercise.

Marathon has been lucky to find a buyer for its Libyan operations, with the country mired in civil war and competing factions fighting for power to rule. Waha and other Libyan production has been subject to halts in production for the past few years as conflict and destruction of infrastructure has heavily impacted the oil & gas industry. Libyan production has been recovering of late but risk of intermittent outages remain high.

Libyan oil production and exports
Source: Bloomberg

For Total, this deal shows its continued and relentless drive for growth as it looks to pick up assets near the bottom of the cycle, topping up a list of recent acquisitions including ENGIE’s LNG business for USD1.5 billion in November 2017 and Maersk’s E&P business for USD7.4 billion in August 2017. The geopolitical and above ground risk presented by Libya does not seem to have scared of Total.

The other partners in Waha are ConocoPhillips (16.33%), Hess (8.16%) and the state oil company NOC (59.18%)

Main oil & gas fields in Libya
Source: IEA

Related post: Waha resumes production - a brief history of the Waha fields

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Papua New Guinea LNG force majeure a week after expansion plans announced

ExxonMobil has declared force majeure on PNG LNG after Papua New Guinea was hit by a 7.5 magnitude earthquake on Monday. The partners in the plant, which exported 7.8 million tonnes last year, are ExxonMobil (33.2% operator), Oil Search (29%), State of Papua New Guinea (16.8%), Santos (13.5%), JX Nippon (4.7%) and Mineral Resources Development Company of Papua New Guinea (2.8%). Latest reports are that the pipeline and liquefaction plant sustained minimal damage, but could potentially be another six weeks before it can be restarted.

This comes a week after the announcement by the upstream partners in Papua New Guinea’s giant gas resources to more than double the country’s liquefaction capacity to 16mmtpa at a cost of USD13 billion. The partners are planning to help add a further three trains in the country – one to support growth at ExxonMobil’s P’nyang field, and two to service new gas from Total’s Elk-Antelope development. FEED is planned to start later this year, but will require agreement of terms with the PNG government first including domestic supply obligations.

Given this is a brownfield expansion, it is significantly cheaper than the original USD19.5 billion construction cost of the project. The partners were previously toying with the idea of having a separate facility for Elk-Antelope gas as Total and ExxonMobil could not reach agreement. ExxonMobil was pushing for the gas to go through PNG LNG supported by train expansions, while Total was considering a new plant (Papua LNG). While the details on the new three trains remain high level and could still see a separate Papua LNG project, this agreement thaws the development discussions which have been frozen for more than a year. The separate trains supporting the different upstream gas sources will also be conducive to structuring and financing of the proposed project – avoiding the complexity involved with unitisations and co-mingled gas marketing. The new LNG could come onstream by the early 2020s and would arrive in time for an emerging LNG supply gap that is foreseen by the industry.

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OVL and GeoPark announce strategic partnership across Latin America

ONGC Videsh, the international arm of Indian oil & gas giant ONGC, and GeoPark have entered into a long-term partnership to acquire and invest in upstream projects across Latin America. Both companies have an existing presence in the region and the partnership will help the two companies work together as a consolidator of assets to build a large scale business.

GeoPark has a sporadic portfolio throughout Latin America and has aspired to build a large portfolio. It has been semi-successful at doing so with recent growth underpinned by its Colombian position in LLA-34 (55% operator, with Parex 45%) and current production of c.30mboepd. In Chile, Argentina and Peru, GeoPark is also operator and one of the few Latin American focused E&Ps that has made an attempt at venturing beyond Colombia.

GeoPark acreage
Source: GeoPark

ONGC has a small presence in Latin America with production of c.34mboepd. It has built its position through a series of compact partnerships and assets dominated by heavy oil. ONGC aspires to build its international business noting that it announced its intention to spend USD10-12 billion in overseas acquisitions and partnerships back in 2015. It now appears to have found its niche in Latin America where it can build up a larger platform having tested the waters.

GeoPark and ONGC acreage
Source: Wood Mackenzie, OGInsights

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FAR goes further with another industry partner

On 26^th February, FAR announced that it had agreed to farm-out a 40% interest in Blocks A2 and A5 in The Gambia to Petronas. FAR will retain 40% and operatorship; the remaining 20% is held by Erin Energy – FAR farmed in to the blocks in March 2017 in return for upfront payment of USD5.2 million and FAR funding an exploration well (to be drilled in 2018) up to USD8 million.

Under the deal, Petronas will fund 80% of the Samo-1 exploration well up to USD45 million with the option to take on operatorship for the development. Petronas will also pay USD6 million on closing of the transaction, well back costs of USD6.4 million and non-well back costs of USD1.1 million. The well is planned to be drilled in late 2018 targeting unrisked prospective resources of 825mmbbl.

These are highly exciting blocks, lying to the south of the large SNE and FAN discoveries in Senegal and presents an opportunity to potentially capture the successful trend to date along the coast of West Africa. FAR has completed detailed geotechnical studies and from 3D seismic, FAR has identified large prospects similar to the fields that FAR has participated in in Senegal. FAR has mapped two drillable prospects, Samo and Mambo with further leads identified on the block.

The entry of Petronas comes a year after FAR attracted another major NOC into the basin – in March 2017, FAR and CNOOC entered into an Area of Mutual Interest (“AMI”) agreement with CNOOC with the two companies agreeing to partner in evaluation, bidding and negotiating farm-ins and licences across Senegal and The Gambia. The AMI lasts for a period of two years.

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Aker Energy buys Hess’ Ghana business

Aker Energy, a 50-50 JV between Aker and TRG, has acquired Hess’ 40% interest in Deepwater Tano Cape Three Points, offshore Ghana for USD100 million, with USD25 million payable at close and a further USD75 million payable on PDO approval.

The block lies south of the Jubilee and TEN blocks operated by Tullow and covers over c.2,100km² with a 2C resource estimate of ~550mmbbl. Aker will present a development plan for the block later this year with the first phase targeting c.400mmbbl using a FPSO with a subsea production system. First oil is anticipated in 2021.

The ultra-deepwater block (~2,000-2,500m depth) contains seven discoveries. Hess declared commerciality on four of the fields in March 2016 with Pecan identified as the development hub. However, with the fields straddling the Ghanaian / Cote d'Ivoire border and the ongoing dispute at the time, the partners were unable to apply for a development licence. With the border dispute now settled, the development can now go ahead.

Post transaction, the ownership of the block will be Aker Energy (40%), Lukoil (50%) and GNPC (10%) The development helps Ghana develop its hydrocarbon resources beyond TEN and Jubilee which currently produce c.200mboe/d.

Hess: Deepwater Tano Cape Three Points drilling results (2015)

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