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Friday, July 15, 2011

Uganda Oil and Gas Exploration in 2011 & 2012

Although the hunt for oil in Uganda dates back to the 1920’s, commercial discoveries have only been made in the last 5 years. The dominant player by far has been Tullow Oil which has had proven discoveries of a billion barrels with yet to be drilled (P50) estimates of another 1.5 billion barrels. The discovery of these significant reserves has ushered in a new chapter in Uganda’s development, and generated renewed interest in the petroleum potential in the country. Uganda has 10 exploration blocks that run from the Sudan border in the north through Lake Albert on the western border with Democratic Republic of Congo and south to Lake George.  However, only 5 blocks have been licensed. The other blocks are due to be licensed after the government completes a new regulatory framework over oil exploration. These blocks are Blocks 3B, 3C, 3D and 4A. The government has said it is planning a new licensing round later this year and is offering 5 blocks. 

Tullow initially planned to have first oil production by 2011, but tax disputes between the newly acquired Heritage Oil and the Ugandan government have led to a delay with first oil now expected to flow in 2012. The other 2 players who have been active are Tower Resources and Dominion Petroleum. However, these companies have so far been unsuccessful with limited drilling attempts.

The status of exploration activity in Uganda and exploration plans for 2011 and 2012 is looked at below. 
The following table is an extract from Derrick Petroleum Services “Exploration Database” which here shows limited information about exploration drilling in Uganda in 2011 and 2012. Further information on ownership and recent activity is provided below the table and map that follows. 

Block/ License Name
Operator
Status
Wells planned in 2011
Wells planned in 2012+
Date of last update
Block 3A
Tullow Oil
Announced

2
7/8/2011
Block 1
Tullow Oil
Announced
1
6/7/2011
Block 2
Tullow Oil
Ongoing
1

4/6/2011
Exploration Area 4B or EA4B
Dominion Petroleum Ltd
Ongoing

2
7/13/2011
Block EA5
Tower Resources Plc
Ongoing
1

5/18/2011
Source: Derrick Petroleum Services ‘Exploration Database’


Figure 1: Map of blocks and hydrocarbon fields in Uganda. Source: Heritage Oil & Gas. Note: All Heritage blocks in map have been acquired by Tullow Oil.

Block 3A
 Tullow Oil operates this block with 33.33% interest with partners CNOOC and Total also having 33.33% interest each. The Kingfisher-1 well was drilled in 2006 and subsequent appraisal has shown this to be a major field with the Kingfisher-3 well establishing 200 million barrels of recoverable reserves. 2 other prospects, the structurally attractive Pelican prospect and the large Crane prospect have been mapped on seismic and were announced to be drilled in 1H 2010. However, at the time of writing they are yet to be drilled, and pending further announcement it is likely that this will occur only in 2012.

Block 1/ Exploration Area 1 (EA1)
Tullow Oil also operates this block with 33.33% interest and with partners CNOOC and Total also having 33.33% interest each. Block 1 or Exploration Area 1 (EA1) is located at the northern end of Lake Albert, onshore Uganda and covers an area of 3659 sq kms. A successful 3 well drilling program (Warthog-1/Ngiri, Buffalo-1/Jobi-1 & Giraffe-1/Rii) was completed in 2008 unlocking a billion barrel potential in the Block. This was said to be the largest onshore oil discovery in Sub-Saharan Africa in over 20 years. This was followed by the drilling of the Ngiri-2 well in 2010. 2 wells were drilled in 2011, the Jobi-East-1 (to test the Jobi East prospect adjacent to the giant Jobi-Rii oil field )and Mpyo-3 appraisal well.

Jobi-East-1 discovered 20 metres of net hydrocarbon bearing reservoir.  Successful logging and sampling operations confirmed the presence of oil in two zones of high quality reservoir totalling 15 m of net pay. In addition, gas was also logged and sampled within sands totalling 5 m of net pay. The well was drilled by the OGEC RR600 and reached a total depth of 563 m. It has been suspended allowing for future re-entry to conduct production testing operations. An accelerated drilling campaign comprising up to four Jobi-East appraisal wells is planned for the second half of 2011 to assess the full extent of this important new oil accumulation.

The Mpyo-3 well intersected 21 m of oil bearing reservoir sands at a depth of 340 metres. The well was drilled 1.6 km southeast of Mpyo-1 in a down-dip location within a fault block adjacent to the Mpyo-1 discovery. Successful logging operations confirmed the sands to be of good quality and that they contained highly viscous oil similar to that encountered in Mpyo-1. The well was drilled by the OGEC IRI-750 to a total depth of 513 m and was suspended allowing for future re-entry to conduct production testing operations.
Pending further announcement, it is unlikely that any new exploration wells will be drilled on this block in 2H 2011. However upto 4 Jobi East appraisal wells are planned to be drilled in 2011.

Block 2/ Exploration Area 2 (EA2)
Tullow Oil also operates this block with 33.33% interest and with partners CNOOC and Total also having 33.33% interest each. Block 2 or Exploration Area 2 (EA 2) covers an area of about 3,900 sq km and is located on the eastern edge of Lake Albert of Butaiba region in Uganda. Tullow Oil has planned an eight-well program in Block 2 which commenced in March 2008. Out of the eight wells, two were drilled in 2008 and five were drilled from Q1-Q3 2009 with the last well expected to be drilled in late July 2009. Karuka-2 and Nsoga-1 exploration wells were drilled in Mar & May 2009 respectively. Nsoga-1 was a commercial discovery. Elsewhere in Block 2, Ngassa-2 was also drilled around the same time and in September 2009 it discovered oil. The well has been suspended as an oil producer. Kigogole-3 well was drilled in June 2009 and was suspended as a future producer. Wahrindi-1 was drilled in July 2009 and it encountered four meters of net oil pay. The last well, Ngara-1 was completed in August 2009 and was suspended as a future oil producer. According to Tullow, the Butiaba E&A prospect is scheduled to be drilled in 2011 on Blocks 1 and 2.

Block 5/ Exploration Area 5 (EA5)
Block EA5 is a 6,040 sq km license area situated at the northern end of the Albertine Graben in northern Uganda. The first exploration well, Iti-1 was completed in June 2009 and was found to be dry. The second well, Avivi-1 was spudded on February 13, 2010 and also failed to encounter hydrocarbons. Tower Resources operates the block with 100% interest although Global Petroleum, which funded most of the cost of Iti-1 and 25% of the cost of Avivi-1, has earned the option to take a 25% interest in the license. In May 2011, Tower Resources announced that a seismic survey is ready to begin so that a well can be drilled before the end of 2011.

Block 4B/ Exploration Area 4B (EA4B)
Exploration Area 4B or EA4B covers an area of 2,021 sq km in the Lake Edward and Lake George segment of the Albertine Graben. The adjacent basins, Southern and Northern Lake Albert and the Pakwach, have been the sites of several major oil discoveries, including those of the Kingfisher, Warthog and Buffalo-Giraffe (Jobi-Rii) fields. In November 2008, Dominion completed the acquisition of 371 kms of 2D seismic data onshore and 130 kms on Lake Edward. According to their July 2009 update, Dominion had identified four ready-to-drill prospects in this block which had an unrisked gross recoverable resource potential of 378 mmboe. The first exploration well Ngaji-1 was spudded on the block on June 21, 2010. However the well did not encounter any significant hydrocarbons in it. Dominion Petroleum operates the block with a 100% interest. As of July 2011, Dominion's current exploration efforts in this area are focused on two prospects: Prospect B, with 49.4 mmboe net prospective P50 resources; and the Izzy Prospect, with 83.7 mmboe net prospective P50 resources (management estimates). In 2011, Dominion intends to acquire 300-500 km of new 2D seismic in the Lake Edward Basin as well as carry out a surface geochemistry survey. It is assumed that the 2 prospects mentioned above will be drilled in 2012 after processing and interpretation of seismic and analysis of geochemistry data.



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1H-2011 Deal Watch. M&A deal flow reached $71 billion in 1H- 2011, down 20% compared to $88 billion in 1H-2010. Better results expected for full year 2011 with ~$50 billion worth of assets available for sale.

Quick Facts of 1H-2011 Vs 1H-2010
  • 1H-2011 global M&A deal flow settled at $70.554 bil lion with 758 transactions against the 1H-2010 M&A deal flow of $88.319 billion with 753 transactions.
  • Low M&A deal flow in 1H-2011 is attributed to the cancellation of the three significant deals worth $15 billion. The cancelled deals are- BP/Rosneft shares swap worth $7.8B; Novatek’s acquisition of 49% stake in Sibneftegaz for $1.3B; PetroChina/Encana Cutbank Ridge JV worth $5.5B
  • Split of Asset and Corporate transactions- 62%/38% against 2010 split of 68%/32%. Corporate transactions have relatively increased inspite of the cancellation of the two big corporate deals-BP/Rosneft and Novatek/Sibneftegaz
  • Conventional deal activity in US dropped to $9.5 billion (-113%) from 1H 2010 value of $20.3 billion, whereas unconventional activity remained the same with ~$17.5 billion.
  • Permian Basin and Eagle Ford Shale deals led the conventional and unconventional areas with 31% and 35%, respectively.

Top 10 deals of 1H-2011 (by deal value)



Active buyers of 2011

The study on the 2010 and 1H-2011 transactions says that Asian companies like CNOOC, PetroChina, Mitsui, KNOC and Marubeni are really keen on shelling out dollars on the North American shales. Looking ahead, Asian investors are expected to be the most active buyers in 2011, followed by the North American firms or other IOCs.

Deal activity by Country/Region in 1H-2011

United States:
United States has contributed the maximum or 39% of  the total deal volume. It is observed that many new comers including BHP made an entry into to the US Shale market. In addition, Eagle Ford acreage metric has reached a new benchmark level of $20,000-$24,000/acre.

Following are the significant deals in US in 1H-2011:
  • Chesapeake divests Fayetteville assets to BHP Billi ton for $4.8B
  • Marathon acquires additional Eagle Ford acreage from Hilcorp and KKR for $3.5B
  • KNOC and Anadarko form Eagle Ford JV ($1.6B)
  • Chesapeake and CNOOC form Niobrara JV ($1.3B)
  • SM Energy and Mitsui form Eagle Ford JV ($680M)
  • Marubeni acquires 30% interest in Marathon's Niobrara acreage for $270M
Quick look at the metrics in US

Canada:
Canada has contributed 10% of the total deal volume. It has been a busy year with respect to Montney shale formation. Much expected $5.4 billion deal of Petrochina acquiring 50% interest in Encana’s Cutbank Ridge assets was lapsed. However, Encana has again initiated a sale process regarding the same assets and few other unconventional assets in Canada.

Following are the significant deals in Canada in 1H-2011:
  • Petronas and Progress Energy form Montney JV for $1.1B
  • Talisman and Sasol expand Montney JV ($1B)
India
With very few deals, India has contributed 13% of the total deal volume. $7.2 billion alliance between BP and Reliance was the positive news for the entire E&P sector for India.

Following are the significant deals in India in 1H-2011:

  • BP acquires 30% interest in 23 blocks in India from Reliance for $7.2B
  • Petronas divests 14.9% stake in Cairn India to Vedanta and others for $2.1B

Africa:
Africa has contributed 12% of the total deal volume inspite of the political unrest that broke in the early 2011.

Following are the significant deals in Africa in 1H-2011:

  • IPIC acquires remaining 52.94% stake in Cepsa for $5B
  • Pioneer Natural Resources divests Tunisian assets to OMV for $866M
  • HRT O&G acquires UNX Energy for $726M
  • SPDC sells OML 30 to Conoil for $650M
  • SPDC sells 45% stake in OML 42 to Kulczyk Oil led consortium for $600M

2011 Outlook
Although, 1H-2011 deal volume is relatively low when compared to 1H-2010, it is expected that the 2H-2011 will make up the year with approximately $50 billion worth of assets available for sale. There are few significant packages available from Encana, ConocoPhillips, Chesapeake, Apache, Eni and Nexen. The following interactive chart shows the top ten Deals in Play.


Statistics of the upstream deals announced in 1H-2011
Click the table for enlarged view

Note: 1H-2011 M&A review is based on Derrick Petroleum Services’ Global E&P Transactions Database which includes information and analyses of all worldwide E&P transactions.

Thursday, July 14, 2011

Shell Canada Seeks JV Partner to Develop its Canadian Deep Basin Nikanassin Play in its Chinook Asset

Main Features
a.       Shell Canada is seeking a JV partner to develop its Nikanassin Play in its Chinook Asset and has engaged TD securities as its exclusive financial advisor.
b.      Offering 25 – 50% equity in its lands to JV partner.
c.       Seeking cash with a capital component.
d.      Level of carry is a function of term and working interest acquired.
e.      Term is anticipated to be 3-5 years.
Figure 1: Map location of the Chinook Asset. Source, TD Securities.

Chinook Asset Summary
a.       Located in Deep Basin of Western Canada (See Figure 1)
b.      Average Shell working interest is ~ 90%
c.       Area covers ~ 102,000 mostly undeveloped gross acres
d.      Resource potential is large with 12 Tcf OGIP with Shell estimated recoverable resource > 4Tcf
e.      Shell has invested in infrastructure and facilities  resulting in lower operating costs (as low as $0.55/Mcf)
f.        Currently producing ~ 35 MMcf/d with plans to ramp up to 150 MMcf/d by 2015 and possibly 250 MMcf/d or higher.

Nikanassin Formation Summary
a.       Present across the deep basin with gas trapped in stratigraphic and structural settings.
b.      Thick, stacked siltstone – sandstone reservoir sequence
c.       OGIP of 60 – 80 Bcf/ Section is higher than all other area formations 

Nikanassin compared to other North American shales by TD (Broker)



Figure 2: Comparison of various parameters between the Nikanassin and other similar unconventional plays. Source, TD Securities. 


Benefits for JV partner
a.       Shell is a major player with extensive capabilities and experience in unconventional plays.
b.      Reduced drilling costs by 50%
c.       50% reduction in drilling time
d.      40% reduction in completion costs
e.      Prior investment capital has already flowed into project.

Shells Current Activity at Chinook Asset
a.       Drilled three horizontal wells in Q4-2010, all tied in and initially producing > 5 mmcf/d
b.      Completed drilling first syncline well in Q1-2011 (Figure 3) which is awaiting completion and tie-in Q2-2011
c.       Plans to drill second syncline well and four development wells in remainder of 2011

Figure 3: Subdivision of the Nikanassin play according to Shell. Source, TD Securities. 


Recent activity by other operators
Source, TD Securities. 


Analyst Comments
Derrick estimates the value of this deal to be between $25 - $100 million assuming a 50% JV based on acreage metrics from the June 2011 activity land sales published by the Canadian government.


Wednesday, July 13, 2011

E&P Opportunities in West Africa & South-West Africa

West Africa is fast becoming a hotspot for the global oil and gas industry. A string of spectacular finds has shown this area to be a new petroleum province with multi billion barrel potential. The majors are there, and so are many smaller players. According to Derrick Petroleum’s “Deals in Play’ database, as of July 2011, there are 76 opportunities available and recorded in the whole of Africa . Out of this, 22 opportunities are in West and South-West Africa (Table 1).

Map: Opportunities are represented by the colored stars. Place cursor over stars for information. Subscribers can click the stars for detailed information from Derrick's "Deals in Play' database. 



There are >20 opportunities recorded in the Derrick “Deals in Play’ database. By far, most opportunities are for exploration activity, followed by opportunities related to developing discoveries. One big M&A opportunity is recorded and some producing assets are put up for sale.  Equatorial Guinea and Angola have the most opportunities (4 each). In Angola, ExxonMobil is looking to exit Block 31 and INA-Naftaplin has put its assets up for sale for which combined deal values exceed $2 Billion according to Derrick Petroleum estimates. 


The following figure is a breakdown of opportunities in Africa from Derrick's "Deals in Play' database. 



Thursday, July 7, 2011

Delta Petroleum Considers Strategic Alternatives, Including a Potential Sale

Delta Petroleum Corporation, the Denver, Colorado based independent energy company engaged in the exploration for, and the acquisition, development, and production of natural gas and crude oil in the Rocky Mountain region, USA has hired Macquarie Capital and Evercore Partners for advice on strategic alternatives, including a potential sale, the company said in an announcement. Delta's shares lost about 44% of its value since it started divesting its non-core assets about a year ago. On news of it considering strategic alternatives, its share price increased by up to 9% on Wednesday morning trading. Some facts on the company is provided below:

      1.       Market cap – $131.5 million

      2.      Debt - $287.4 million.

       3. A term loan of $25 million from Macquarie Bank is due in Jan 2012 and the company might have to re-purchase $115 senior convertible notes from holders on May 1, 2012, if they exercise their right to do so. Delta’s debt has come down from $531.3 million in Dec 2008 to $259.5 million at the close of Q1 - 2011, due mainly to its divestment of its non-core assets, mainly in Texas and the DJ Basin.

      4.      Assets –
a.      Delta Petroleum’s core assets are in the Vega area of the Piceance Basin, Western Colorado and constitute 22,375 contiguous net acres (86% HBP) including the Vega and Buzzard Creek federal units with 95-100% WI.
Source: Delta Petroleum April 2011 Presentation

b.      Delta’s other assets include non-operated holdings of
                                                              i.      5% in 153 producing wells in the southern region of the Piceance Basin
                                                            ii.      5% carried WI in 75 wells remaining to be drilled.
                                                          iii.      6.07% gross WI in the Point Arguello Unit and related facilities located offshore California in the Santa Barbara Channel.
                                                           iv.      6.25% WI in the development of the east half of OCS Block 451 in the Rocky Point Unit.
                                                             v.      66.1% WI in 17,599 net acres in the Paradox Basin in southwest Colorado and southeast Utah.
                                                           vi.      60.4% WI in approximately 100,000 net acres in Central Utah Hingeline.
                                                         vii.      Interests in approximately 184,000 net acres in the Columbia River Basin, all of which are undeveloped.

        5.      Reserves and production highlights:
a.      Proved Reserves: 134 Bcfe as on 31/10/2010
b.      Production: 45.9 MMcfe/d at year end 2010.
Source: Delta Petroleum 2010 Annual Report & April 2011 Presentation

The following table shows Delta Petroleum's past M&A activity captured in the Derrick Deals database. Hover over bars for additional detail. Data is sorted by year. 




        Analyst Comments
         Derrick estimates the enterprise value to be between $400 - $500 million. This is based on
1. Market cap, Debt, Working Capital Deficit: $131.7 million + $259.5 million (March 2011) + $63.2 million (March 2011). Adding this gives ~ $454 million
          
2. Production & Acreage metrics: Delta has net production of 7.65 MBOE/d with 91% gas. Using a rate of $35,000 - $40,000/ daily BOE gives a value range of $270 - $300 million. Considering Deltas's undeveloped acreage of 355,000 acres @ $200 - $300/ Acre gives the acreage a value of $75 - $100 million. Therefore, asset value is calculated to be in the range of $400 - $500 million.


Considering both the analysis, Derrick estimates Delta Petroleum's value to be in the range of $400 - $500 million.  






Wednesday, July 6, 2011

Nearly $1 Billion Worth of Bakken Shale Acreage For Sale in 2011

The Bakken shale is an oil rich shale, present mostly in the Williston Basin, and covers parts of North Dakota, South Dakota, Montana, Saskatchewan and Alberta. Production at the end of 2010 was estimated by Bentek Energy to be 458,000 BOE/d. Some operators (Eg., Continental Resources) estimate that output potential could be a huge 1.2 MMBOE/d by the end of 2016. Continental Resources also estimates that there is ~ 24 billion barrels of recoverable oil, which is a huge jump from USGS estimates of up to 4.38 billion barrels a couple of years ago, and a meagre 151 million barrels in 1995. Therefore, this shale is likely to be a major contributor to US oil production in the near future. The following table gives a list of the top 10 Bakken Shale acreage holders.

Opportunities in the Bakken Shale are presented in the following chart using data captured in the Derrick 'Deals in Play' Database.


Table 1: Bakken Play opportunites sorted by net undeveloped acres. Also shown is the deal value range as estimated by Derrick analysts. Hover over bars for additional information. Click on the bars to get details on individual deals. Source: Derrick ‘Deals in Play’ database.






The following table shows recent transactions involving the Bakken Shale for insight into its recent $/Acre.


Table 2: X axis shows Buyer-Seller. Y axis is deal value. $/acre is given above the bar's in the chart. Data is sorted by quarter. Only recent deals involving primarily acreage transactions are shown. Hover over bars for additional information. Click on the bars to get details on individual deals. *Multiple Sellers = Arkoma Bakken LLC; Long Properties Trust; Reynolds Drilling Co Inc. Source: Derrick Deals Database.  












   Analyst Comments
      a. Most of the opportunities involving the Bakken shale are in the US, with just 2 in Canada.
b. Mid and small cap, and private companies are looking to sell, possibly due to the higher prevailing oil prices at the moment.
c. The majors are holding on to their assets, possibly signaling that they believe they are high value and are worth keeping.
d.The oil rich Bakken Shale could present a low risk - high reward opportunity as oil prices are high.

e. With increasing technology, the potential to recover far more oil than was previously possible makes this acreage a potential gold mine; to acquire or hold onto.

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Shell divests 20% stake in BM-S-8 for $350 million. Looks to farm out or divest additional blocks in Brazil

Barra Energia agreed to acquire 10% stake in the largest block in pre-salt area, Block BMS-8, from Shell, which currently owns a 20% participation in the area. The chief executive of Barr Energia, Joao Carlos de Luca, said that the company acquired the stake for $175 million. The other 10% was acquired by Queiroz Galvao Exploration and Production, which paid the same amount for joining the consortium that operates the block.
The block is located offshore in the Santos Basin in water depth of approximately 2,100 m. Petrobras is the operator of the block with a 66% working interest while Galp holds a 14% working interest. BM-S-8 includes two discoveries Bem-te-vi and Abare W and four prospects. The expected gross capital expenditure in 2011 is US$250 million and in 2012 is US$200 million.

Trend of M&A activity in Brazil
South America is emerging as a growing player in the oil and gas industry. With discoveries of new reserves across the continent, Brazil, Venezuela, Colombia, Chile, Peru and Argentina all look set to prosper. South America accounted for 17% of the total deal value in 2010, whereas it was not exceeding 5% in the last four years. In terms of major discoveries, Brazil has become a leading country in world rankings with oil reserves estimated to be around 26.9 billion barrels. This figure includes the Brazilian pre-salt discoveries that are revolutionising the oil & gas market in South America currently, with a number of major offshore investments taking place.

The following graph shows the trend of M&A activity in Brazil since 2007.


Shell- Looks to restructure non-core Brazilian assets
Shell in the past one year was acquiring new assets across United States, Australia, China, Africa and none in Brazil or South America. Also, according to Shell's June 2011 presentation, the company’s investment plan in Brazil is only towards BC-10 which includes five fields Ostra, Abalone, Argonauta B-West, Argonauta O-North and Nautilus. It is observed that Shell is looking to restructure the other Brazilian assets.

Earlier in August 2010, Shell initiated a process to sell its stake in four offshore oil blocks in Brazil as part of their portfolio review. The blocks put up for sale included: BS-4, BM-S-8, BM-S-45 and BM-ES-28. In addition to Shell, Chevron, Petrobras, Petrogal and Vale also own stakes in these blocks. The sale remains pending with the remaining three blocks.

This sale represents an exciting opportunity to the interested companies to enter Brazil’s offshore oil frontier, where no new exploration and production concessions have been put up for bid by the government since the presalt oil discoveries were made in 2007.


The following map shows the acquisitions made by Shell in the past one year


Note: The data used for obtaining the above graph and the map is sourced from Derrick Petroleum Database.

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