Cove Energy attracts interest from Thai and Indian NOCs

PTT Exploration and Production Pcl (PTTEP) is reported to be considering to bid for Cove Energy Plc, a British oil and gas explorer, which has put itself up for sale. Continue reading..

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.

Chesapeake’s “25/25” plan for 2011-2012; Plan to increase hydrocarbon production by 25% and to reduce long-term debt by 25% over 2010

Chesapeake, currently the number two producer of natural gas in the US and number one natural gas driller with respect to activity also has made a major change to its business strategy. The company is planning a two-year (2011-12) hydrocarbon growth rate of 25%, net of asset sales (reduced from prior target of 30 - 40%). The company is planning to increase liquids production by ~190% and natural gas production by ~6%. Expected hydrocarbon production in 2011 is ~3.065 bcfepd and 2012 is ~3.560 bcfepd.

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Chesapeake deals in 2011 as part of implementing “25/25” plan:

Chesapeake and CNOOC formed a JV for the Niobrara Oil Shale, whereby CNOOC owned 33.3% undivided interest in Chesapeake’s 800,000 net oil and natural gas leasehold acres in the Denver-Julesburg (DJ) and Powder River Basins in northeast Colorado and southeast Wyoming.

Source: Derrick Petroleum E&P Transactions Database

Chesapeake sold all its interests in Fayetteville Shale, Central Arkansas to BHP, including $500 million for midstream interests for $4.75 billion.

Source: Derrick Petroleum E&P Transactions Database

Announced details of near-term asset monetization plans which might exceed pre-tax proceeds target of $5.0 billion

- Plan to monetize 25.8% equity investment in Frac Tech Holdings LLC

- Plan to monetize 20.0% equity investment in Chaparral Energy, Inc.

- Plan to use sale proceeds to retire $2.0 - $3.0 billion of senior notes and to also reduce bank credit facility borrowings

Source: Derrick Petroleum E&P Transactions Database

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Strategic breakthrough for Total and CNOOC - acquire one-third of Tullow Oil's Ugandan assets for $2.9 billion!!!!

Tullow Oil plc (Tullow) announced that it has signed a Sale and Purchase Agreements (SPAs) with CNOOC and Total in respect of the sale of a one third interest to each party of the interests Tullow holds in Exploration Areas 1, 2 and 3A in Uganda. Tullow will retain a one third interest. The terms of the transactions include a total cash consideration payable to Tullow of US$2.9 billion.

With the signing of these SPAs, a key condition of the Memorandum of Understanding (MoU) agreed between Tullow, the Government of Uganda (GoU) and the Uganda Revenue Authority (URA) on 15 March 2011, has been satisfied. The next step is for Tullow to make certain tax related payments to the GoU, on receipt of which all relevant consents become final and the other provisions of the MoU become effective.

Under the MoU, Tullow and its new Partners, CNOOC and Total, have been granted new licences over EA-1 and an onshore area of EA-3A and the partnership's rights to develop the Kingfisher discovery have been confirmed. A clear plan for the resolution of tax disputes on the various asset sales has been agreed by the GoU, the URA and Tullow.

Tullow and its Partners will now reactivate the significant programme of exploration and appraisal drilling and progress their development plans for the basin which they will jointly present to the Government of Uganda for approval

For more information on East Africa oil & gas operations

CNOOC reported 2010 Annual Results; Production up 44.4% over 2009; Plan to invest US $5.05 billion for Development projects in 2011

CNOOC’s 2010 net production reached 328.8 mmboe, reached 2010 production guidance of 327-329 mmboe. The production growth is mainly attributable to production from new fields brought on stream since 2009, outstanding performance of the producing fields and the production contribution from newly acquired projects. In 2010, the Company’s reserve replacement ratio amounted to 202%.

In 2010, the Company achieved 12 independent discoveries and successfully appraised 12 oil and gas structures by 18 appraisal wells in offshore China. In respect of exploration under production sharing contracts, besides the deepwater discovery of Liuhua 29-1, 3 oil and gas structures were successfully appraised by 5 appraisal wells.

CNOOC plan to invest US $8.77 billion in 2011, in which US$5.05 billion allocated for development projects.

CNOOC’s 2010 overseas acquisitions and JV’s:

Source: Derrick Petroleum E&P Transactions Database

The company projected 6-10% production growth for 2011-2015

Eagle Ford oil production to ramp up in 2011. Eagle Ford opportunities worth $3 billion are up for grab

Significant increase in deal activity

Activity in Eagle Ford has stepped up with more than $4 billion worth of assets on the market. Operators are looking to tie up with partners to develop the oil window, as the returns on investment expected from oil window is higher compared to gas window.  

Heading	Type	Value Range ($m)
SM Energy considers options for Eagle Ford acreage	Property	$500 - $1,000
El Paso seeks JV partner for Eagle Ford acreage	JV	$100 - $500
ConocoPhillips offers Eagle Ford/Austin Chalk acreage	Acreage	$100 - $500
Forest Oil seeks JV partner for  Eagle Ford acreage	JV	$100 - $500
Stonegate and TriTech offer Eagle Ford acreage	Acreage	$100 - $500
EOG Resources to sell certain Eagle Ford Shale acreage	Acreage	$100 - $500
Buffco Production seeks partner for Eagle Ford acreage	Acreage	$100 - $500
U.S. Enercorp and partners offer Eagle Ford acreage	Acreage	$25 - $100
Sanchez Oil & Gas offers Eagle Ford acreage	Acreage	$25 - $100
Petro-Hunt to divest Eagle Ford acreage	Acreage	$25 - $100
BlueStone Natural Resources offers Eagle Ford acreage	Acreage	$25 - $100
BTE Energy offers Eagle Ford acreage	Acreage	$25 - $100
Caiman Ranch offers Eagle Ford acreage	Acreage	$25 - $100
Denali Oil & Gas considers sale of certain Eagle Ford assets	Acreage	$25 - $100
Newfield Exploration to sell certain Eagle Ford assets	Property	$25 - $100
Texas HBP to sell certain Eagle Ford acreage	Acreage	$25 - $100
Touchwood Resources to divest 12.5% ORRI in Eagle Ford	Royalty	$10 - $25
Westover Energy offers Eagle Ford oil window acreage	Acreage	$10 - $25
SMSE offers Eagle Ford oil window acreage	Acreage	$10 - $25
Don Poe & Associates offers Eagle Ford acreage	Acreage	$10 - $25
Vander Ploeg offers Eagle Ford and Pearsall acreage	Acreage	$10 - $25
Bald Eagle Land offers Eagle Ford oil window acreage	Acreage	$1 - $5

Significant increase in the rig count in the region

Last year, U.S. operators expressed their intentions to step up drilling programs in the Eagle Ford Shale formation. Strong oil prices and favorable well economics, due to greater concentrations of natural gas liquids, made drilling in this part of Texas appealing. True to their word, the rig count in the Eagle Ford has nearly doubled to 154 rigs, versus 82 reported in March 2010.

EOG is the largest oil producer in the Eagle Ford at 23MM bopd and currently controls 595,000 net acres across the region. After drilling 96 net wells in 2010, EOG has plans for 250 net wells in 2011. Chesapeake Energy currently has the most active rigs in the region at 17 rigs where it holds 445,000 net acres through a partnership with CNOOC. In terms of concentration of resources, ConocoPhillips, with 14 rigs drilling across 254,000 acres held, has approximately half of its currently active U.S. rig fleet operating in the region.

The five largest drilling fleets in the Eagle Ford control 68% of the market.

Shift from gas to oil window

The shift occurring between drilling for natural gas or oil continues to move away from the natural gas. A year ago, the split was 91% gas and 9% oil rigs in the Eagle Ford. Today, the mix is 60% gas and 40% oil.

Operators in the region are responding to the huge return on investment gap that exists between drilling oil wells today versus drilling natural gas wells .On drilling a natural gas well operator gets around $4 per unit of production vis vi drill an oil well and receive around $15 per unit of production.

Drilling plans for the Eagle Ford operators

EOG Resources commented that the Eagle Ford would be the firm's largest component of year over year oil growth during 2011. EOG also expects that its well costs in the region were anticipated to fall from current levels of $6 million per well to approximately $5 million in 2012 due to frac optimization techniques.

ConocoPhillips has very aggressive development programs going on in the Eagle Ford where they plan to drill probably 140 to 150 wells this year.

BP Rosneft share Swap in problem – Rosneft may look for new Asian partners to develop the Arctic project

Share swap between BP and state-controlled Rosneft under which they agreed to jointly explore for offshore oil and gas in the areas of the Arctic is in problem after TNK BP won an injunction in a London court that froze the deal and is now seeking to be part of it. 

Rosneft and the Russian government have made clear such move was not welcome. On 2 March the TNK-BP management had proposed buying a $7.6 billion stake in BP and joining the offshore partnership with Rosneft. The deal with Rosneft gives BP more clout in Russia and effectively sidelines TNK BP.

Two months after Rosneft-BP strategic alliance announcement, Rosneft  is considering new partners

After 2 months of BP Rosneft deal, Rosneft is considering partnering with Chinese and Indian energy companies to work on Arctic projects.

Arctic Project Overview

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