Encana Reports Positive Operational Results for Q1 2011 results; Plan to ramp up Development and Exploration activities in its extensive 1.7 million acres!!!

Encana reported average production of 3.34 Bcfepd for Q1 2011, up 2% over first quarter 2010. The company is on-track to meet 2011 year-end production guidance of between 3.475 Bcfepd and 3.525 Bcfepd for 2011. The company has accelarated oil and NGLs production from its extensive liquids-rich lands – now covering more than 1.7 million acres in Canada and the U.S.

Encana redirected a portion of our capital investment to oil and natural gas liquids development and exploration to build facilities to extract more liquids from our high energy-content natural gas streams. The company is drilling liquids-prone targets on our existing lands, expanding developments into liquids-rich areas, exploring for oil, and acquiring large and significant positions in highly-prospective liquids-rich lands. “The capital investment associated with these multiple initiatives is expected to represent about $1 billion in 2011,” Eresman, President & CEO, Encana said.

Encana has assembled about 190,000 net acres in the Simonette and Kaybob areas of the Duvernay shale in Alberta, adding to its existing 380,000 net acres of liquids-rich lands in the Alberta Deep Basin and 495,000 net acres in the Montney in Alberta and British Columbia. In Colorado, Encana holds about 240,000 net acres in the Piceance and Denver-Julesburg (DJ) basins where the company has identified liquids potential in the Niobrara and Mancos shales. In Michigan this year, Encana plans to expand evaluation drilling on its 425,000 net acres in the Collingwood shale.

Encana offers Horn River and Greater Sierra JV and acquisition opportunities in northeast B.C.

Encana’s joint-venture investment strategy is aimed at accelerating value recognition of the company’s resource potential. This new joint venture initiative builds on previous announcements of a farm-out agreement with Kogas Canada Ltd., a subsidiary of Korea Gas Corporation, in the Horn River and Montney formations and a planned joint venture and acquisition by PetroChina of a 50% interest in Encana’s Cutbank Ridge business assets. RBC Capital Markets and Jefferies & Company, Inc. have been retained by Encana to conduct the potential joint venture and divestiture processes on the Horn River and Greater Sierra assets.

Source: Derrick Petroleum E&P Transactions Database

Vedanta acquires 10.4% stake in Cairn India from Petronas for $1.5 billion! Indian upstream sector - Magnetising the foreign players.

Vedanta Resources Plc announced the acquisition of a 10.4 % stake in Cairn India Limited by Sesa Goa (a subsidiary of Vedanta) from Petronas. Sesa Goa acquired 200 million shares amounting to a 10.4 % stake in Cairn India from Petronas at Rs 331 (US$7.48), a 1.6% discount to Cairn India's closing prices on Monday. Petronas sold its entire 14.9% stake in Cairn India with domestic and foreign institutions buying the rest.

Cairn India produces about 125,000 barrels a day of oil from the Mangala field in the Rajasthan block. Cairn India may start the Bhagyam field in Rajasthan in the second half of 2011 and reach peak output of 40,000 barrels a day by the end of the year.

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Vedanta keen on Cairn!!

Vedanta, in August 2010, had proposed to buy up to 51% stake in Cairn India from Cairn Energy for as much as ~$8.8 billion. As announced on 13 December 2010, Vedanta received shareholder approval for the purchase of a 51%-60% interest in Cairn India. The transaction is yet to receive the Indian government's approval, due to a dispute in royalty payments.

Subsequent to the deal to buy Cairn India at Rs 405 a share, Vedanta announced an open offer to buy an additional 20% stake at Rs 355 a piece. The Rs 405 a share price that Vedanta is paying to Cairn Energy, includes a Rs 50 per share non-compete fee, which is not being paid to minority shareholders.

Vedanta is now in quite comfortable position even if the response to the open offer is moderate.

Indian Upstream Sector- A Magnetiser!!

2011- A big year for Indian Upstream sector.. This year is marked with two significant transactions

- BG's $7.2 billion alliance with Reliance

- Vedanta's offer to acquire upto 51% stake in Cairn India for ~$8.8 billion.

These deals show the confidence of the foreign players in the Indian oil sector. Many more players to venture into India with the path set by these two deals.

The following slide shows the overview of the Vedanta-Cairn India deal

Source: Global E&P Transactions 2010 Review

Woodside’s Q1 2011 production drops by 19%. Woodside plans aggressive appraisal and development activities to achieve 2011 production target!!

Woodside reported production of 15.6 mboe for March 2011 quarter end, down 19% compared to the corresponding quarter due to tropical cyclone activity in the North West, the sale of Woodside’s interest in the Otway Gas Project in March 2010, planned outages at Vincent and NWS Oil and oil-field natural decline. However, this production fall was partially offset from increased volumes from the company’s Stybarrow fields. The company also announced it had abandoned plans to sell its Laminaria-Corallina assets, Darwin, after testing the market for a potential buyer.

The company projected its 2011 production between 63 to 66 MMboe – excluding its Pluto field, from which Woodside’s stake in production would be between 5 and 9 MMboe, the company said. Woodside has planned development, exploration and appraisal activities in Australia.

Development Activities:

Pluto LNG Foundation Project has transitioned to an operating site with the introduction of natural gas into the plant in early March 2011. Mitigation plans are in place to recover four weeks of weather related delays and retain our start-up target of August, with LNG one month later.

Pluto Expansion – progress continues with a gas discovery at Martin-1 in permit WA-404-P.

Browse LNG Project – Woodside’s Board approved Browse moving into FEED during the quarter, and has appointed FEED contractors who have now been mobilized.

Sunrise LNG – In accordance with international treaties, Woodside is continuing to advocate for the

approval of the proposed Floating LNG development with Australian and Timor-Leste governments.

NWS North Rankin Redevelopment Project – project remains on schedule and budget for 2013 completion.

NWS Oil Redevelopment Project – overall works are nearing completion with production shut-in on 7

March and resumption of production expected in late Q2 2011.

Exploration and Appraisal activities:

Source: Derrick Petroleum Planned Exploration Wells Database

Woodside has planned exploration and appraisal activities in Australia, Asia and America.
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Overstated oil estimate pulls down OGX stock

OGX, the Brazilian oil and gas company responsible for the largest private-sector exploratory campaign in Brazil, today disclosed the results of the reports prepared by petroleum consultants DeGolyer & MacNaughton ("D&M"), which estimate new volume of resources held by the Company in Brazil's Campos and Parnaiba basins and three basins in Colombia. These reports indicate net potential resources for OGX of 5.7 billion barrels of oil equivalent ("boe") in the Campos Basin, 1.0 billion boe in the Parnaíba Basin and 1.1 billion boe in Colombia. When combined with the estimates from the previous report for the Santos, Espírito Santo and Pará-Maranhão Basins (Sep/09), these new results present a total volume of net potential resources of 10.8 billion boe.

The report by oil-field auditors DeGolyer and MacNaughton released on Friday showed a nearly 60 percent jump in the company's potential oil resources, but the Deutsche researchers noted that the crude found in recent exploration activity carried a higher degree of risk.

Potential resources refer to estimates, often based on seismic and geological data, of the amount of oil in a given reservoir that could be recovered. The estimates are less certain than proven reserves.

Batista on Monday described the DeGolyer and MacNaughton report as overly conservative and insisted the company would demonstrate the reserves situation was in fact optimistic.

OGX is seeking $2 billion in financing to finance investments, Batista said, adding it could be through a bond issue or by receiving money upfront for future oil production.

Repeated discoveries in Campos basin pushed OGX stock up

The company throughout 2009 reported repeated discoveries in the shallow water Campos Basin that helped push its stock up more than four-fold between the start of that year and the end of 2010. Its valuation has at times rivaled that of mid-sized oil companies with significant production profiles such as Spain's Repsol and  Devon.

Though reserves are significantly overstated, investors likely to remain interested in OGX's shallow water offshore field

Local securities firm BTG Pactual also lowered their price target for the company. Gustavo Gattass, BTG's senior energy analyst, described the report as "more anticlimactic than bullish."

Frank McGann, an oil analyst with Bank of America Merrill Lynch, said in a report that "though the 10.8 billion boe (barrels of oil equivalent) headline figure did not disappoint, a closer look at the underlying data suggests that this number is significantly overstated."

However BTG, along with analysts from other banks, said investors will likely remain interested in OGX's portfolio of shallow water offshore fields that are cheaper to produce than those in the deep-water region known as the subsalt that is dominated by state-oil company Petrobras. 

EnCore Oil plans for exploration assets flotation under XEO Exploration

EnCore announces that it is planning for a subsidiary company, which will be assigned the Exploration Assets, to be floated on AIM. The new company will be known as XEO Exploration plc. Subject to regulatory approvals and a successful institutional placing, XEO is expected to be admitted to AIM around the end of May 2011. EnCore is in the process of transferring the Exploration Assets listed below into XEO, subject to receiving the necessary partner and regulatory approvals. The exact percentage shareholding of EnCore in XEO will depend upon the final amount of funds raised by XEO.

In addition to their indirect interest in XEO through EnCore’s remaining holding, the company plans to offer qualifying EnCore shareholders the opportunity to subscribe for shares in XEO directly at the institutional placing price. The offer to EnCore shareholders will be made around the time of XEO’s admission to AIM and close shortly following admission.

In addition to the licences above, XEO has the potential option to acquire a number of UK26^th Round licences, yet to be awarded by DECC, that are under further environmental review.

Rationale behind the flotation

The EnCore Board has considered a number of scenarios for progressing the exploration portfolio and has concluded that placing those assets into a separately quoted company is the most beneficial route forward for the following reasons:

• EnCore’s future focus is now to be directed towards its two main assets, Catcher and Cladhan, which are in the latter stages of appraisal and will soon be moving into the development stage of their lifecycles.
• A very significant proportion of the value of the company is in Catcher and Cladhan. Therefore, the Board did not wish to dilute shareholders’ exposure to these assets by an EnCore fundraising for a high-impact exploration programme covering the Exploration Assets with the attendant risks.
• Moving forward, EnCore’s existing and any future capital/debt can be targeted directly at the development assets.
• Existing EnCore shareholders will remain exposed to any success from the Exploration Assets through EnCore’s shareholding in XEO. However shareholders who wish to have increased exposure to a risked exploration programme will also be offered the opportunity to participate in the offer at the institutional placing price.

PDC announced $233 million Capital Program; Projected 19% year-over-year growth in production for 2011

PDC Energy expects production growth of 19% in 2011, as the company moves to accelerate development of oil and liquid assets in the onshore area of the United States. The company plan to spend $233 million in 2011 to develop its various properties in the United States. The company will put 75% of this capital into oil and liquid plays, including the Niobrara Shale and the Permian Basin.

PDC Energy expects to produce between 2.4 million and 2.5 million barrels of oil and other liquids in 2011, up 34% from 2010. The following map illustrates the company’s planned operational activities in 2011.

Niobrara Shale
PDC Energy has 74,100 net acres under lease in the Denver Julesburg Basin in Colorado, with much of this acreage in the Wattenberg Field.  The company plans to drill 14 horizontal wells into the Niobrara in 2011.

Permian Basin
PDC Energy has 12,800 net acres under lease in the Permian Basin, where the company is working in several different areas. In 2011, PDC Energy plans to drill 25 vertical wells there, and recomplete six others. 

The company is working on different formations, with a primary emphasis on the Clear Fork, Spraberry and Wolfberry zones.  Annual production from the Permian Basin is projected to double by the end of 2011, to approximately 75,000  boe.

Other Plays
Despite the emphasis in 2011 on oil and liquids, PDC Energy is not abandoning natural gas development. The company has 56,100 net acres under lease in the Appalachian Basin that is prospective for the Marcellus Shale. The company plans to drill nine wells into this formation on its acreage in West Virginia.  

PDC Energy also has 8,000 net acres under lease in the Piceance Basin in Colorado, and plans to drill 12 wells there in 2011. Other companies involved in the Piceance Basin include, which drilled 125 net wells there in 2010. Occidental Petroleum also operates in this area, and has 120,000 net acres under lease.

The company will leverage its onshore oil properties in the U.S., while still advancing its natural gas production. By targeting the Niobrara and Permian Basin formations, PDC hopes to increase its development of oil and other liquids by 19% in 2011.

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Oil resource plays- Causing a stir in the industry!! Back to back crown land sales in Canada hit ~C$110 million

Alberta- April 2011 sale

Alberta kicked off its first land sale of fiscal 2011/2012 on 6^th April, 2011 with a C$115.8 million land sale, fuelled once again by licences south of Grande Prairie and also several parcels near Lethbridge, which appears to be a continued chase for Exshaw/Alberta Bakken oil. The sale featured 233,431 hectares exchanging hands at an average of C$496.13 per hectare. Highlights included a sale high bonus bid of C$17.9 million by Scott Land & Lease Ltd for three tracts and several parcels at 61-24W5 and 60-24W5. The broker paid an average of C$8,735 per hectare (~C$3,500/acre) for the 2,048-hectare parcel, also a land sale high.

Saskatchewan- April 2011 sale
Heightened interest in the southwest's Shaunavon oil play has significantly boosted revenue from the latest sale of Crown petroleum and natural gas rights. The Shaunavon play accounted for more than half the total in April's sale, which brought in C$109 million in revenue for the province. Land sale revenues for the 2011 calendar year stand at C$152 million after two sales. The latest sale was the third best on record for an April sale. It also marked the seventh time in the last three years that a single land sale has topped C$100 million. The February-2011 sale of drilling and exploration rights raised C$43.4 million for the provincial coffers. 

The highest price for a single parcel was C$7.3 million, paid by Husky Oil Operations Ltd. for a 2,331-hectare exploration licence southwest of Estevan along the Canada-United States border. The highest price on a per-hectare basis was C$10,214 (~C$4,000/acre). Villanova Oil Corp bid C$320,000 for a 31-hectare lease parcel near Carnduff.

"This was a great sale, based on both the quantity and the quality of the bids we received," Energy and Resources Minister Bill Boyd said. "We had the usual strong interest in the Bakken play, but our rich oil resources in the southwest are obviously causing a stir in the industry.
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Unusually high acreage metrics in Canada!!

"Land sales are a key barometer of future activity in the industry, and based on what we've seen over the last 15 months from our sales, the forecast is very bright indeed for increased investment by the industry", said Bill Boyd. 

Land sale numbers tend to move higher in tandem with oil prices. These two recent crown land sales in Canada saw the acreage metrics running at C$3,500/acre and C$4,000/acre- relatively high for new land parcels! With the oil prices rising gradually, the oil resources plays like Bakken and Shaunavon are attracting flocks of companies. In particular, Saskatchewan is expecting Asians to invest in these oil rich plays. When Chinese were keen to make an entry into US shale plays in 2010, they wont' hesitate to venture into Canadian shales.

The following snapshot shows the 2010 M&A activity in Canada: 

Source: Derrick Petroleum- Global E&P Transactions 2010 Review