Blackrock and GIC acquires critical North Sea gas infrastructure

Blackrock and GIC have announced the acquisition of Kellas Midstream from Antin. Antin was expected to launch an auction process for Kellas Midstream at the end of the year and it appears that Blackrock and GIC moved quickly and were able to agree a deal ahead of the formal auction. No sale price was disclosed but believed to be in the range of £1.4-2.0 billion.

There will be a number of disappointed parties out there who were lining themselves up for the process including the runners-up on the NSMP sale of last year - widely reported as KKR, Macquarie, Partners Group and numerous pension funds.

Kellas owns the CATS pipeline and terminal, a majority stake in the ETS pipeline and is building the new HGS pipeline that serves Premier Oil's Tolmount Area. All of this is critical infrastructure for UK North Sea gas production, without which, the country would be crippled from a shortage of gas. Some of the key hubs that the infrastructure serves include the Cygnus Area (the largest and newest gas field in the Southern North Sea), the Culzean Area (another critical new gas field in the Central North Sea) and the up and coming Tolmount Area.

Kellas systems
Source: Kellas Midstream

CATS system
Source: Kellas Midstream

In addition, the CATS pipeline appears to be a key contender for export from the massive Glengorm field that was discovered at the beginning of this year and will become an important source of gas for the UK in the decades to come (see UK North Sea gets shot in the arm with Glengorm).

The advisers to Blackrock and GIC were listed as:

- RBC Capital Markets and Scotiabank as financial advisers

- Herbert Smith Freehills as legal advisers

- Xodus as technical advisers

The full press release below:

Antin sells Kellas Midstream to BlackRock and GIC

Antin Infrastructure Partners, a private equity firm focused on infrastructure investments, announced today that it had signed an agreement to sell Kellas Midstream to BlackRock’s Global Energy & Power Infrastructure Funds (GEPIF III) and GIC, a leading global institutional investor, in a joint venture.

Kellas Midstream owns and operates key gas infrastructure in the UK Central and Southern North Sea. Kellas Midstream comprises: (1) the Central Area Transmission System (‘CATS’): a major gas transportation and processing system which takes gas from the Central North Sea to the CATS reception and processing terminal at Teesside in the North East of England; (2) the Esmond Transportation System (“ETS”): a key subsea pipeline in the Southern North Sea connecting four producing fields to the Bacton gas terminal on the North Sea coast; and (3) the Humber Gathering System (“HGS”): a first-of-its-kind greenfield project to build the infrastructure required for the development of the large Tolmount gas field in the Southern North Sea.

Antin initially acquired a 63% stake in CATS from BG (now Shell) in 2014, later acquiring a 36% stake from BP in 2015. Having fully carved out the business and established a standalone entity, Kellas Midstream grew substantially both via organic growth with connection to new major gas fields such as Stella, Caley & Shaw, Culzean and Vorlich, and by expansion in the UK Southern North Sea with the ETS acquisition and the HGS development. Throughout Antin’s period of ownership, it focused on achieving outstanding operational performance whilst maintaining a clear focus on Health & Safety. Kellas Midstream maintained a perfect safety record with zero Lost Time Incidents for 16 consecutive years. The transaction is expected to close in early 2020.

“We are proud of the significant growth and strategic transformation accomplished during Antin’s ownership over the past five years. We are also grateful for the strong partnership and outstanding performance of Kellas Midstream’s talented management team and dedicated employees. We wish them continued success with their new owners” said Mark Crosbie, Antin’s Managing Partner.

Andy Hessell, Kellas Midstream’s Managing Director, said: “We thank Antin for their significant support over the past five years. GIC and the BlackRock GEPIF team recognise the growth potential of the business we have built and share our strategy to continue to invest, grow and build our portfolio of midstream assets and serve all our customers in the North Sea. We look forward to working with our new partners.”

Mark Florian, Group Head of the Global Energy & Power Infrastructure Funds Team at BlackRock, added: “A growing number of institutional investors are seeking exposure to energy and power investments. Within the sector, energy from gas is viewed as a necessary component of the energy transition as we move towards a lower carbon economy. This investment in Kellas Midstream reflects the focus of GEPIF III on making strong equity investments in mid-market energy and power infrastructure and partnering with outstanding management teams.”

Ang Eng Seng, Chief Investment Officer of Infrastructure at GIC, said: “We are pleased to invest in Kellas, a leading provider of high-quality midstream infrastructure with a strong track record. As a long-term investor, we look forward to partnering with BlackRock and Kellas’ management to support the future growth of the company.”

Bank of America Securities and Citi acted as financial advisers to Antin, and Weil, Gotshal & Manges acted as its legal adviser. RBC Capital Markets and Scotiabank acted as financial advisers to BlackRock Real Assets and GIC, and Herbert Smith Freehills and Xodus acted as their legal and technical advisers respectively.

Source: https://www.gic.com.sg/news-and-resources/antin-sells-kellas-midstream-to-blackrock-and-gic/

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Is Busta a bust?

Exploration well on the Busta prospect on PL782S has been drilled in 127m of water in the Jotun-Balder area of the Norwegian North Sea. It appears to be a marginal discovery with preliminary resource estimates of 6-60mmboe (vs. pre-drill 50-200mmboe).

Two separate gas/condensate and oil-bearing intervals totaling ~25m were encountered -the primary target hitting the reservoir with the secondary target water bearing.

Busta is operated by ConocoPhillips (40%) with AkerBP, Dea and Equinor each with 20%.

The Leiv Eiriksson rig which drilled the well is now scheduled to relocate to the neighbouring block, PL917, to drill the Enniberg/ Hasselbaink prospect.

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SNE partners buy FPSO

Cairn and FAR have announced a material increase in the capex for the SNE development from USD2.2 billion to USD3.7 billion (plus USD500 million contingency) for Phase 1. This has been driven by the partners' decision to buy an FPSO rather than lease it. This does however bring the opex down, estimated form c.USD14/boe to c.USD11/boe.

FID is expected to be taken at the end of 2019 with first oil forecast for late 2022. The development will be phased with Phase 1 targeting 230mmbbl and production of 100mbopd. Phase 2 will target a further 253mmbbl oil.

This is a particularly tough week for Cairn having earlier announced a dry hole in Mexico at Alom-1 and the Indian arbitration award delayed into summer 2020, while now also being exposed to larger capex on SNE.

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European gas storage is full

European gas storage is full and Equinor has highlighted three potential catalysts that could provide short term relief for the current super low European gas prices

1. A delay to Nord Stream 2 due to sanctions
2. The lack of a transit agreement with Ukraine
3. A colder than expected winter

The Nord Stream 2 project was expected to come onstream on 1 January 2020. However with ongoing concerns that the EU's reliance on Russian gas continues to grow and Trump considering sanctions on the project, it is likely to be delayed.


Russia's agreement to transit gas through Ukraine also expires in January 2020 and there is current uncertainty on whether a new agreement can be reached between the two countries.


So upside to European gas prices to exist as we head into the winter in north west Europe.

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Cameron LNG Commences Commercial Operations For Train 1 Of Liquefaction-Export Project

• Cameron LNG to Start Recognizing Revenues from Train 1
• Sempra Energy's Share of Full-Year Run-Rate Earnings from the First Three Trains are Projected to be Between $400 Million and $450 Million Annually

Press release as follows:

Sempra LNG, a Sempra Energy subsidiary, today announced that Cameron LNG's first train of the liquefaction-export project in Hackberry, Loiusiana, has begun commercial operations under Cameron LNG's tolling agreements.

"This is an exciting moment for Cameron LNG and for Sempra Energy," said Carlos Ruiz Sacristan, chairman and CEO of Sempra North American Infrastructure. "Cameron LNG is exporting liquefied natural gas (LNG) to customers in the largest world markets, helping to support economic growth in the U.S. and abroad."

Sempra Energy's share of full-year run-rate earnings from the first three trains at Cameron LNG are projected to be between $400 million and $450 million annually when all three trains achieve commercial operations under Cameron LNG's tolling agreements.

"We are proud that Cameron LNG has realized this key milestone with an excellent safety record and zero lost-time incidents," said Lisa Glatch, chief operating officer of Sempra LNG and board chair for Cameron LNG. "We remain focused on safely achieving commercial operations of Train 2 and Train 3."

Train 1 is part of Phase 1 of the Cameron LNG liquefaction-export project which includes a projected export capacity of 12 million tonnes per annum (Mtpa) of LNG, or approximately 1.7 billion cubic feet per day of natural gas.

Cameron LNG is jointly owned by affiliates of Sempra LNG, Total, Mitsui & Co., Ltd., and Japan LNG Investment, LLC, a company jointly owned by Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha (NYK). Sempra Energy indirectly owns 50.2% of Cameron LNG. 

Cameron LNG Phase 1 is one of five LNG export projects Sempra Energy is developing in North America: Cameron LNG Phase 2, previously authorized by FERC, encompasses up to two additional liquefaction trains and up to two additional LNG storage tanks, Port Arthur LNG in Texas and Energía Costa Azul LNG Phase 1 and Phase 2 in Mexico.

Development of Sempra Energy's LNG export projects is contingent upon obtaining binding customer commitments, completing the required commercial agreements, securing all necessary permits, obtaining financing, other factors, and reaching final investment decisions. In addition, the ability to successfully complete construction projects, such as the Cameron LNG facility, is subject to a number of risks and uncertainties.

Sempra LNG develops, builds and invests in natural gas liquefaction facilities and is pursuing the development of five strategically located LNG projects in North America with a goal of delivering 45 Mtpa of clean natural gas to the largest world markets, which would make Sempra Energy one of North America's largest developers of LNG-export facilities.

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PNG seeks to renegotiate Papua LNG

The PNG Minister for Petroleum issues the below release on re-opening the Papua LNG terms for negotiation.


PRESS RELEASE


STATE TEAM HEADING OUT TO RE-NEGOTIATE WITH TOTAL


The National Executive Council has authorized a State Negotiating Team (SNT) lead by the Minister for Petroleum, Kerenga Kua, to head off to Singapore to seek to re-negotiate the terms of the Papua LNG Gas Agreement previously signed on 19 April 2019. The SNT left today 15 August for Singapore.


The Papua Gas Agreement was signed by the previous O'Neill led Government inside the period when serious moves were afoot to remove and replace that Government.
The Marape led Government on taking office on 30 May 2019, took the firm view that the Papua Gas Agreement was disadvantageous to the State and the people in certain respects and resolved to seek a renegotiation.


Mr Kua cautions that considering what's at stake, the peoples expectations must be guarded during this period. The negotiations could work out well or even disastrously, but either way, the people must be ready to accept whatever the outcome. As a Nation we have reserved all our rights in law as we move down this path.


Success in the discussions could lead to an early progress of the project. By the same token failure could have very serious ramifications. But failure must not be ruled out and must remain within our contemplation. This is a risk we take as we try to move in the direction of taking PNG back and making it wealthy. The final outcomes will be briefed to the Prime Minister James Marape and the National Executive Council, and the final decision will be taken by the National Executive Council.


Considering our Nations economic circumstances short and long term, no stone must be left unturned at such important junctures. Mr Kua said, it would be futile and worthless to say in the future we should have done this deal differently. That question must be asked and answered now. This is the only diligent approach given how we find ourselves in this spot. The SNT expects to return early next week and report back to the National Executive Council. But Mr Kua says the Prime Minister will be kept informed daily as the negotiations progressed.

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European TTF breaks through historical boundaries

S&P has highlighted in its recent webinar that the European TTF price has historically traded within a range but that recent gas pricing dynamics has seen it break out of this range.

TTF has historically been bound by the JKM price as a ceiling (spot LNG price in Asia) and the coal switching price as a floor.

• In a tight gas market, TTF traded closer to the JKM price to incentivise LNG supplies into Europe
• In a loose gas market, TTF traded closer to the coal switching price to incentivise more take uptake of LNG by the European power sector

However in H1 2019, there was a big collapse in both the JKM and TTF price. In fact, there has been a period when JKM fell faster than TTF, making it lose its traditional role as a price ceiling and trading below TTF for a brief period.

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