Wednesday, July 20, 2011

CNOOC to acquire OPTI Canada for $2.1 billion. Nexen gets a healthier and wealthier partner.


CNOOC has agreed to acquire OPTI Canada, for a consideration of approximately US$2.1 billion, subject to regulatory and shareholders approvals. Through this acquisition, CNOOC will own a 35% working interest, with Nexen holding the balance 65% in the four oil sands projects- Long Lake, Kinosis, Leismer, and Cottonwood, located in Alberta.
Source: CNOOC


Acquisition Highlights (OPTI’s interest):

  • 195 million barrels of proved reserves
  • 534 million barrels of probable reserves
  • 1,100 million barrels of contingent resources
  • 335 million barrels of prospective resources
  • ~10,000 bbl/d bitumen production at Long Lake
  • 90,944 net acres owned by OPTI
  • Existing Upgrader built and operating at the Long Lake site
  • Increases CNOOC’s reserves and production by 5.3% and 1%, respectively

Source: CNOOC


Deal Valuation
It is estimated that the value of Contingent Resources for Long Lake and Kinosis projects to be $415.20 million (at $0.60/BOE). The remaining deal value of $1,660.30 million is ascribed to Proved plus Probable Reserves of Long Lake project ($4.90/BOE or $158,124/Daily BOE).


Note: Although OPTI has reported probable reserves for Kinosis project, it is believed that as the project is not yet developed, the probable reserves are counted under the contingent resources. The contingent resources associated with Leismer and Cottonwood projects are not included for valuation as they are not planned to be developed in the medium term.

CNOOC- the healthier partner for Nexen
Last week, Opti Canada had filed for bankruptcy protection in Alberta as the company ran out of cash to fund its oil sands operations. In this regard, CNOOC’s proposal to acquire OPTI rescues not only OPTI but also Nexen as it has got a wealthier partner for its oil sands assets. Nexen has revealed that it will ramp up the drilling at its Long Lake oil sands project to use the processing plant more effectively.
Source: OPTI Canada
Canadian Oil Sands - resources and related deal activity
Alberta’s oil reserves are located in three main areas: Peace River, Cold Lake, and Athabasca. The Athabasca oil sands area, where OPTI and Nexen own substantial resources, is the richest of the three and has the most concentrated oil sands development.

Canada's oil sands are estimated to hold as much as 175 billion barrels of bitumen (Source: Energy Resources Conservation Board (ERCB)). ERCB reports that oil sands bitumen production is currently around 1.5 million barrels per day and expects the oil sands production to reach 2.7 million barrels per day by 2015. The oil sands projects are believed to have a steady production profile of up to 50 years with no decline.

Eighty percent of all bitumen resources in the Athabasca oil sands region are too deep to mine and hence these bitumen resources have to be recovered using in-situ techniques, such as SAGD. It is estimated that Canadian oil sands resources represent 13% of the world’s total crude oil reserves, ranking second only after Saudi Arabia (Source: Energy Information Administration).
Source: CNOOC


The deal activity with respect to oil sands was completely down since the beginning of 2011. The last major acquisition by the Chinese companies in the oil sands was in April 2010, when Sinopec acquired Syncrude project from ConocoPhillips for $4.65 billion.

The following table shows the oil sands deals since 2005.
Source: CNOOC

The Chinese companies were active in acquiring oil and gas assets past one year. The significant (greater than $1 billion) acquisitions include:
  • Sinopec acquiring 40% interest in Repsol's Brazilian business for $7.1 billion
  • Sinopec acquiring Syncrude project from ConocoPhillips for $4.65 billion
  • CNOOC and Bridas acquiring Pan American Energy from BP for $3.5 billion
  • CNOOC acquiring Niobrara shale assets from Chesapeake for $3.5 billion
  • Sinopec acquiring Argentina unit of Oxy for $2.45 billion
Petrochina failed to acquire Encana's Montney assets in a $5.4 billion bid made in February 2011. Notably, there were no acquisitions made by the Chinese companies since then.

Prior to this $2.1 billion oil sands deal, CNOOC clinched a back to back Niobrara JV with Chesapeake. The acquisition trend of CNOOC in North America discloses an interesting fact that, CNOOC is interested in acquiring oil assets unlike other Chinese or Asian companies who were/are interested in unconventional gas assets.

Mozambique: Oil & Gas Exploration in 2011 – 2012

Mozambique is a country in East Africa present between Tanzania on the north and South Africa in the south. A string of significant gas discoveries in the off shore north-east has substantially increased the prospectivity in the country and exploration activity looks set to pick up.

The country has two main sedimentary basins; the Rovuma Basin in the north east, where most of the discoveries have occurred, and the Mozambique basin further south. The Rovuma Basin is located close to the border between Tanzania and Mozambique, at the Rovuma delta, and measures 400 km in length and about 160 km in breadth. The area towards the south follows the Ibo horst trend and towards the north, it is featured as a tertiary Rovuma delta.

The Pande gas field, discovered by Gulf Oil, was the first field to be discovered in Mozambique, in 1961. This was followed by the Búzi (1962) and Temane (1967) gas fields. Exploration activity on the Pande/ Temane block by Sasol later led to the discovery of the Inhassoro gas field.

The consortium exploring the Offshore Area 1, led by Anadarko, has been the most successful so far with 4 significant gas discoveries. These are listed below:

Discovery Name
Net Pay (ft)
Gross Pay (ft)
Oil/ Gas
Total Depth
Date
Reservoir rock
Future Work
Windjammer
555
> 1200
Gas
16,930
Mar-2010
Oligocene + Paleocene
Coring program completed (part of appraisal work)
Collier
-
-
10,500
Apr-2010
-
Plugged and suspended following pore pressure issues. Did not evaluate the desired section.
Ironclad
124

Oil
17,402
Aug-2010
Cretaceous
Plugged and abandoned as sands had low porosity and permeability
Barquentine
416

Gas
16,880
Oct-2010
Oligocene + Paleocene
Appraisal
Lagosta
550

Gas
16,307
Nov-2010
Oligocene + Eocene
Coring program completed (part of appraisal work)
Tubarao
110

Gas
13,900
Feb-2011
Eocene
Appraisal
Table 1: Windjammer, Barquentine, Lagosta and Tubarao encountered substantial gas. The Ironclad well is significant because it encountered an oil column (although non-commercial), which was the first time oil was discovered in offshore Mozambique or in the deep offshore off East Africa.Source, Derrick Petroleum Services.

Source: Wentworth Resources

An overview of exploration activity planned in the country is provided in the table below, along with an account of recent exploration from Derrick Petroleum’s “Exploration Database” is provided below.

Block/ License Name
Operator
Onshore/Offshore
Hydrocarbon
Wells planned in 2011
Wells planned in 2012+
Offshore Area 1
Anadarko
Deep Offshore
Gas
1
6
Onshore Rovuma Block
Anadarko
Onshore
Not mentioned

1
Buzi Block
Energi Mega Persada
Onshore
Gas
1

Inhaminga
DNO International ASA (DNO)
Onshore
Not mentioned
1

Blocks 2 & 5
StatoilHydro
Deep Offshore
Not mentioned


Area 4
ENI
Deep Offshore

1

Table 1: Operators planning to drill exploration wells in Mozambique in 2011 and 2012+. Source, Derrick Petroleum ‘Planned Wells Exploration Database’

Offshore Area 1:
Anadarko is the operator of the 2.6-million-acre Offshore Area 1 with a 36.5% working interest. Co-owners in the area are Mitsui E&P (20 %), BPRL (10 %), Videocon Mozambique Rovuma 1 (10 %) and Cove Energy Mozambique Rovuma Offshore (8.5 %). Empresa Nacional de Hidrocarbonetos, E.P.'s 15- interest is carried through the exploration phase. An overview of the recent exploration activity in this area is given in Table 1, and the 4 discoveries can be seen in Map 1.

The consortium is planning to acquire 3D seismic over the Black Pearl prospect in Q1-Q2 2011, following which exploratory drilling would occur. In 2012, the consortium plans to drill the Atum-1, Golfinho-1, Linguado, Badejo-1, Camarao and Black Pearl prospects.

Onshore Rovuma Block:
Anadarko (37.5%) operates this block and the partners are Maurel & Prom (24%), Wentworth Resources Ltd (15.3%), Cove Energy Plc (10%) and ENH (15%). On October 11, 2009 the first exploration well on the block, Mecupa-1,was spudded. It had minor gas shows and was plugged and abandoned.

At present (July 2011), the partners have agreed to enter a 2nd exploration phase beginning in 2011. The work programme is expected to include additional seismic acquisition and at least one exploration well.

Buzi Block:
This onshore block is operated by Energi Mega Persada (75% WI) and partner is ENH (25%). The Buzi block is located onshore within the central part of the Mozambique Basin and covers approximately 10,300 km2 and lies immediately to the North of the Pande, Temane and Inhassoro Gas fields. The undeveloped Buzi gas discovery within the block, is only 27 km to the southwest of Beira. Initial plans included two exploration wells and possibly two appraisal probes, should gas be discovered. This is yet to be done.

The consortium was planning to spud its first well on the block in 2011 as announced in 2009. However, as on 30 June, 2011, no information about drilling has been released by either of the partners.

Inhaminga Block:
The Inhaminga Block lies onshore Mozambique. DNO International (34% WI) operates the block and partners are New Age Ltd (41%), Harmattan Uruguay S.A., and the Mozambique government (20%). DNO International has planned to carry out 2D seismic program on the block in H2 2009. The first prospect Chite was drilled on 19 November, 2010. However, the well was dry and was plugged and abandoned. The second well Inhaminga High-1 well was spudded in Feb 2011, and was also dry.

DNO says in its 2010 annual report that it plans to drill a well here in 2011. However, media reports mention that DNO will close down its operations in Mozambique after drilling unsuccessful wells.

Blocks 2&5:
Blocks 2 & 5 are located in the Rovuma basin offshore northern Mozambique, and operated by Statoil (90% WI) with partner ENH (10%). A 1,300 sq km 3D seismic survey was carried out between March & June 2010 and interpretation is ongoing as of March 2011. The decision to extend the license and commit to drilling an exploration well was supposed to have been made by 1 June 2011, but as on 1 July, this decision is still forthcoming. 

Area 4:
ENI operates the block with a 70% WI. Other partners are Galp Energia (10%), ENH (10%) and KOGAS (10%). Area 4 is located in deep water up to a depth of 2,600 metres in the Rovuma Basin and covers an area of 17,646 sq kms in a previously unexplored geological basin, and this operation is part of Eni's strategy to identify new areas with a high exploration potential.

The consortium is planning to drill a well in September 2011. 

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