Understanding Mozambique's fiscal regime (Part I)

Government take across countries in East Africa are generally below the Sub Saharan Africa average of 62%. This reflects the relative infancy of the E&P industry in the region with high exploration risk and uncertainties on the path to commericialising discovered resources. A lower fiscal take is required to attract investment.

Mozambique’s government take lies in the middle of its East African neighbours - lower than Uganda where significant oil reserves have been proved up, and Tanzania where fiscal terms are less attractive. Mozambique's fiscal take is uncompetitive relative to Kenya and Ethiopia, which are considered to be important E&P players in due course.

It is also important to note that Mozambique's resources are gas and hence deemed significantly less attractive than oil. Such large scale gas discoveries are expensive to monetise but clearly LNG is becoming an increasing focus by global IOCs and there has been enough momentum over the years to fianlly get Mozambique LNG off the ground.

Mozambique operates a standard PSC regime with an R-factor based on cumulative income/cumulative costs.

Read More

Gran Tierra's Grand Tour (into Ecuador)

Gran Tierra has won three blocks in Ecuador covering c.140,000 acres in the highly prospective Oriente-Putumayo Basin: Charapa, Chanangue and Iguana. The blocks are contiguous with Gran Tierra’s Putumayo position in Colombia and allows the company to extend its Colombian success on the trend across the border.

Gran Tierra will have 100% interest and operatorship on each block in exchange for a 14 well, four year work programme – management plans to commence the programme in 2020, to be fully funded from internal cash flow.  The contracts work on a sliding scale for contractor share of revenues, ranging from 87.5% at USD30/bbl to 40% at USD120/bbl.

The Charpara block sets Gran Tierra off to a good start with an existing field and historical production from the B-Limestone. As Gran Tierra matures its new acreage, there is scope to construct its own gathering infrastructure and use the export infrastructure in Ecuador. In due course, this could also be an export route for its Colombian production in the same way that Amerisur has built its own OBA pipeline from its Platanillo block to Ecuador (see Bienvenido Victor Hugo and Putumayo smart crude marketing).

The other side of the border into Ecuador has always been an exciting play. Whilst geologically the same trend, the Colombian side of the border has been underexplored due to historical above ground conflict and security issues. In contrast, Ecuador has been highly successful with many fields where nearly 6bnbbl of oil has already been produced.

Read More

Fighting the Kraken

Cairn has announced a reserves downgrade on Kraken by 6.8mmboe (net) or 19% to reflect ongoing production issues. The field has been hit by a myriad of problems since start-up in 2017 and its failure to be farmed-down by operator EnQuest in 2018 highlights the technical concerns on the field.

The field's output has been hit by poor FPSO uptime driven by system outages as well as higher water-cut than originally expected. There will be a planned shutdown later in 2019 to make improvements to the FPSO uptime.

Operator EnQuest maintains the level of 2P reserves and does not expect to recognise an impairment as it finalises its year end 2018 accounts.

The partners in Kraken are EnQuest (70.5% operator) and Cairn (29.5%).

Read More

ExxonMobil scores big this week

ExxonMobil has made two significant announcements this week: the sanction of the USD10+ billion Golden Pass LNG project and further exploration success in Guyana.

Golden Pass LNG
On Tuesday, ExxonMobil and Qatar Petroleum sanctioned the Golden Pass LNG project in Texas. It will have a cost of USD10+ billion and deliver capacity of 16mtpa from 2024. Golden Pass was originally a LNG import facility but will be converted over the next five years.

The JV between ExxonMobil and Qatar Petroleum cements the relationship between the two companies and builds upon the existing co-operation in the Qatargas LNG projects in Qatar. The sanctioning of this projects follows Qatar’s decision to pull out of OPEC from January 2019 as it said it would focus its efforts on gas. This may also have been necessary as US is considering cartel legislation which would have impacted Qatar’s ability to participate in US projects.

Guyana success
ExxonMobil announced on Wednesday the successful 11th and 12th discoveries offshore Guyana. This follows the 10th discovery, Pluma-1, made in December 2018.

Tilapia-1 encountered 93m of high quality reservoir  (oil) and lies in the Turbot Area of the Stabroek Block, which also contains the Turbot, Longtail and Pluma discoveries. The next well in plan is the Yellowtail-1 located 10km to the west.

Haimara-1 encountered 63m of high quality reservoir (gas/condensate) and could potentially open up a new area.

These discoveries will add to the recently resource estimate of 5+bnboe (from already increased from 4+bnboe following Pluma-1). With a further 15+ prospects to drill, the resource estimate could increase materially.

Phase 1 (Liza Phase 1) of the development is underway, and will include 17 wells connected to a FPSO with 120mbopd production expected in early-2020. Liza Phase 2 is planned to be sanctioned soon with a 220mbopd FPSO. Phase 3 (Payara) sanction is also expected in 2019 with startup in 2023. ExxonMobil sees at least five FPSOs on the Stabroek Block with production of >750mbopd by 2025.

Read More

Anadarko signs SPAs for Mozambique LNG

Anadarko has signed three gas Sale and Purchase Agreements (“SPAs”) with Tokyo Gas/Centrica (2.6mtpa), Shell (2mtpa) and CNOOC (1.5mtpa) for its Mozambique LNG Area 1 development. This total 6.1mtpa of the planned 12.88mtpa ahead of FID expected in mid-2019. The LNG development will challenge upcoming projects given its fortunate location in between the Asian and European markets and will compete with Australian, Middle Eastern and North American suppliers.

These SPAs are conversions of existing Heads to Terms and there could be more SPA announcements on the way. Anadarko has made clear that it expects to debt finance c.USD12 billion of the USD20 billion Phase 1 development and these SPAs will help to support that financing.

The owners of Mozambique LNG Area 1 are:

Separately, the Area 4 LNG JV between ExxonMobil and Eni is also on track for sanctioning later in 2019.

Read More

Cluff extends farm-out exclusivity in Southern North Sea to Major

Cluff Natural Resources press release
Further to its announcement on 28 November 2018, Cluff Natural Resources Plc, the AIM quoted natural resources investing company with a high impact exploration and appraisal portfolio focused on the Southern North Sea gas basin, provides an update regarding its exclusivity agreement with a major oil and gas company for its Southern North Sea Gas licence P2252.

As previously announced, the Company signed an exclusivity agreement (the "Agreement") on Licence P2252 with a major international oil and gas company (the "Counterparty"), whereby exclusivity was granted to the Counterparty subject to a definitive farm out agreement being entered into by 31 January 2019 (the "Exclusivity Period").

The Company announces that discussions with the Counterparty regarding a definitive farm out agreement are at an advanced stage, though have not yet concluded.  As a result, the Exclusivity Period has been extended by one week. Therefore, exclusivity continues to be granted to the Counterparty, subject to a definitive farm out agreement being entered into by 7 February 2019

Source: https://www.cluffnaturalresources.com/wp-content/uploads/2019/02/Extension-to-exclusivity1.2.19.pdf

Cluff Natural Resources licence map

Read More

UK North Sea gets shot in the arm with Glengorm

CNOOC, Total and Edison have made one of the biggest finds in the UK North Sea in recent years. The Glengorm discovery is estimated to contain recoverable resources of 250mmboe which is even bigger than Total’s recent success in the West of Shetlands at Glendronach which had 1tcf of gas (c.160mmboe). Glengorm sits on licence P2215 and in the vicinity of both the Culzean and Elgin & Franklin gas fields which could act as future hosts for Glengorm.

Glengorm is operated by CNOOC (50%) with Total (25%) and Edison (25%) as partners. The exploration well (22/21c-13) was spud on 26^th August 2018 with the Prospctor 5 jack-up rig targeting the Upper Jurrasic Fulmar and Heather formations. The HPHT prospect was challenging to drill but persistence has paid off. CNOOC tried to drill the prospect twice in 2017 but failed to do so following technical problems.

Maersk, Premier Oil and Centrica had relinquished the licence in which the field is contained back in 2014 when it was deemed too small and complex to commercialise. Glengorm has clearly exceeded all expectations with unrisked recoverable resources estimated at c.65mmboe back in 2014 (41mmbbl oil and 128bcf gas). The 2014 relinquishment report also highlights a number of prospects in the vicinity and CNOOC, Total and Edison have expectations of further prospectivity in the area for future growth.

Source: Maersk 2014 relinquishment report

Source: Maersk 2014 relinquishment report

Read More