Australia Unconventional Boom – CBM and now Shale

The majors entered Australian unconventional assets, notably, starting 2008. British major BG made the first acquisition in QGC, on the same date exactly 4 years ago when it acquired 9.9% stake in QGC and 20% stake in its CSG assets. This deal was followed by Petronas acquiring 40% interest in Queensland LNG project from Santos for $2.5 billion. Supermajor ConocoPhillips joined the CBM party by acquiring 50% interest in Origin Energy’s CBM assets in Queensland for $8 billion-the largest and the most expensive deal in Australia CBM. Continue reading here..

Asian investors line up to acquire shale gas assets.. Petronas signs C$1.07 billion deal to develop Progress’ Montney shale.

Progress Energy Resources Corp has executed a binding framework agreement to create a strategic partnership with PETRONAS, to develop a portion of Progress' Montney shale assets in the Foothills of northeast British Columbia. Progress will sell 50% of its working interest in its Altares, Lily and Kahta properties (the North Montney Joint Venture) to PETRONAS for C$1.07 billion. The deal is PETRONAS’ first foray in Canada. BMO Capital Markets acted as exclusive financial advisor to Progress on this transaction. Bank of America Merrill Lynch is the exclusive financial advisor to PETRONAS on this transaction.

Under the terms of the framework agreement, PETRONAS will pay 25% of the total consideration (C$267.5 million) in cash at closing and 75% of the total consideration in the form of a capital carry whereby PETRONAS will pay 75% of Progress' share of future capital expenditures in the North Montney Joint Venture over the next five years to a total of C$802.5 million.

Source: BMO Capital Markets Website

Assets under JV

The North Montney Joint Venture comprises 149,910 working interest acres in which PETRONAS will acquire a 50% interest and Progress will be the operator. The North Montney Joint Venture lands represent approximately 20% of Progress' rights in its northeast British Columbia Foothills land holdings, which total approximately 700,000 net acres. Progress holds approximately 900,000 net acres of Montney rights over its entire British Columbia and Alberta land base, making it one of the largest Montney land rights holders. The joint venture properties include five wells with minimal production at this time. Petronas said the possible resources could be as high as 15 trillion cubic feet.

LNG options

In addition to the above Transaction, PETRONAS and Progress will establish an LNG export joint venture to be 80% and 20% owned, respectively. The LNG Export Joint Venture will launch a feasibility study to evaluate building and operating a new LNG export facility on the West Coast of British Columbia. PETRONAS would be the operator of this facility, and PETRONAS and Progress would jointly market the LNG utilizing PETRONAS' well-established and extensive network of customers in the largest LNG markets globally.

In connection with the LNG Export Joint Venture, PETRONAS will provide a standby equity financing commitment of up to $600 million, for Progress' capital requirements arising from the North Montney and LNG Export joint ventures from which Progress can draw down at the time of a successful LNG final investment decision.

Asian investors busy in American shale business

Recently, other Asian majors such as PetroChina, Korea Gas, Mitsui, Mitsubishi and Reliance had also ventured into North American shale gas plays. Since the last quarter of 2010, Asian companies have invested around $8 billion on Montney shale. PetroChina clinched the biggest deal (C$5.4 billion) in Montney with Encana in early 2011. Notably, Talisman and Sasol finalised two joint ventures in Montney shale.

The following table shows the list of significant Montney deals sourced from Derrick Petroleum E&P Transactions Database.

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

Cuba to Drill 5 New Oil Wells by 2013!!

Cuba announced plans to drill five deepwater oil wells in the Gulf of Mexico beginning this summer, expressing confidence that its efforts will be rewarded with major new energy finds. We're about to move to the drilling phase," said Manuel Marrero, an official with the government authority tasked with overseeing Cuba's oil sector. "We're all really hopeful that we will be able to discover large reserves of oil and gas," said Marrero, who added that the ventures would be undertaken with the help of unspecified foreign companies. He said the deepwater wells were to be drilled between 2011 and 2013, and would be in waters ranging in depth between 400 meters and 1,500 meters. He did not specify which countries would be among the foreign partners working with Havana on the project.


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Studies estimate Cuba has probable reserves of between 5 and 9 billion barrels of oil in its economic zone in the Gulf of Mexico. In 2010, Cuba produced 21 million barrels of oil, about the same as it had extracted the previous year, representing a little less than half of its annual energy needs. Cuba imports that rest of its oil -- about 100,000 barrels per day -- from Venezuela.

In November 2010, Gazprom Neft acquired 30% stake in four offshore Cuba blocks from Petronas. Following is the snap shot this deal.

Source: Derrick Petroleum E&P Transactions Database

East Africa - continent's new hotbed for oil & gas exploration!!

Traditionally, west and north Africa have been the continent’s hotspots of oil & gas E&P, but recent success in east Africa may change that.  North Africa has seen 20,000 wells sunk over the past few decades, while drillers have sunk 14,000 wells in and off West Africa. In East Africa, the total is about 500 wells.

Significant discoveries in the region, combined with a range of new opportunities through licensing rounds, are attracting new players to relatively underexplored countries on the eastern part of the African continent.

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The East African Region has a total of 28 prospective sedimentary basins with resource potential of about 2 billion barrels of oil in place and 3 tcf of natural gas.

Datamonitor forecasts total oil production in the region (excluding Sudan and South Africa) to reach approximately 210,000 barrels per day (bpd) in 2015, and nearly 389,000 bpd by 2020.

…. oil & gas hunters!

• Tullow Oil has already made significant discoveries in Uganda, and is targeting other exploration fields in the East African rift basins, mainly in Kenya and Ethiopia.
• Wildcatters and majors such as Italy's Eni, Petronas of Malaysia and China National Offshore Oil Corporation (CNOOC) have all moved on East Africa in the past few years, hoping to mimic Tullow Oil’s success in the region.
• Africa Oil Corp with its assets in Ethiopia and Somalia is yet to explore the region.
• In addition, Dominion Petroleum has invested nearly $40m in drilling activities in Tanzania and Uganda in recent years and will continue its efforts in the region, including some farm-out initiatives.
• Anadarko and Cove Energy also have plans to move into south-east Africa, and together intend to invest around $150m in drilling activities over the next two years.

Source: Derrick Petroleum Planned Exploration Wells Database

Datamonitor forecasts a total offshore capital expenditure (CAPEX) in the region (excluding Sudan and South Africa) of nearly $400m in 2010 ($312m on drilling and $77m on seismic activities). The total offshore CAPEX is forecast to grow by a compound annual growth rate of 20%, totaling nearly $994m in 2015.

Future holds bright for East Africa!

• Uganda Prime Minister Apollo Nsibambi said, “East African countries will jointly explore their “vast” oil and gas fields to foster development of their economies”. The cooperation will attract more investment capital and spur economic growth, Nsibambi told a petroleum conference in Kampala, the Ugandan capital, with giving details on how this will work.
• Uganda will issue more oil-exploration licenses later this year after a new industry law is formulated, Nsibambi said. It has five remaining oil blocks after suspending the awarding of concessions in 2006 pending the new law, he said.

Source: Derrick Petroleum E&P Transactions Database

• Kenya issued six exploration licenses between 2000 and 2002 and two more to CNOOC in the next four years. "Despite a long history of unsuccessful exploration, the oil companies are investing in Kenya," says Mwendia Nyaga, managing director of the National Oil Corporation of Kenya. "The question is not if any hydrocarbon deposits exist, but where they are."
• Other East African countries which are likely to hold significant resource potential are Somalia, Ethiopia and Mozambique. However, Somalia remains a no-go zone for investors due to its political unrest while Ethiopia’s eastern Ogaden region is beset by a violent rebel insurgency. Mozambique is still recovering from its civil war which broke out in 1992.

Every new frontier area for oil and gas exploration & production faces its difficulties and East Africa is no exception to that. The political hurdles in the region if addressed properly, this region will prove to be a boon not only to exploration and production companies, but also to other market participants in the oil and gas value chain, such as drilling companies, service providers, and equipment manufacturers.

Related :

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