Argentina- a tough place to do business!! Repsol dilutes maturing Argentina assets and concentrates on Brazilian pre-salt discoveries

Repsol has agreed to sell a 3.83% stake of YPF to Lazard Asset Management and other investment funds for $639 million ($42.4/share). YPF's shares were last traded for $48.3/share on 14^th Mar, 2011. In addition to this, Repsol announced a public offering of 24.27 million shares of YPF, in the form of American Depositary Shares, representing 6.17% of the company’s stock. Additionally, Repsol has granted the underwriters an option to purchase an additional 3.64 million shares, representing 0.93% of YPF.

At the end of last year, Repsol agreed the sale of 3.3% of YPF for $500 million to funds managed by Eton Park Capital Management, Capital Guardian Trust Company and Capital International Inc. Additionally, shares of YPF totalling 1.06% of the company have been sold on the stock markets in the last few months. Following the latest transactions, YPF’s shareholding structure is as follows: Repsol Group (75.9%), Petersen Group (15.46%) and 8.64% free float.

Repsol’s strategy- Dilute maturing assets in Argentina and focus more on Brazlian assets!

This deal is part of Repsol’s strategic aim to rebalance its global assets portfolio as laid out in the Horizon 2014 plan, allowing new shareholders into YPF. Repsol is seeking to reduce business in maturing fields in Argentina while investing in exploration in Brazil’s offshore Santos Basin. At the end of 2010, Sinopec signed agreement to invest $7.1 billion in Repsol’s Brazilian unit. Repsol forecasts annual production growth of as much as 4% through 2014 as projects in Brazil and Peru start. It plans to invest 28 billion euros from 2010 to 2014 on fields in Venezuela, Bolivia and Algeria. The company will invest about 6 billion euros this year and plans to drill 25 to 30 exploration and evaluation wells. Recently, Repsol signed agreement to invest at least $768 million in oil exploration and development on Alaska's North Slope.

Is doing business in Argentina tough??

Buying YPF could be a good business – Repsol in Argentina announced a large unconventional gas discovery in December 2010, which it is keen to explore with partners. But monetising that and any future discoveries of that type will take time, and the reality is that with its maturing markets and heavy regulation which discourages investment, Argentina is, for many energy companies, a tough place to do business.

Argentina has some of the lowest gas prices in the world, in large part because of governmental controls designed to curb inflation and bolster the competitive edge for manufacturers. Barclay Hambrook, CEO of Americas Petrogas, in an interview about Argentina's shale reserves potential said, “The Argentine government has to do a little more in terms of encouragement, especially in terms of higher prices, as the wells are deeper and require a lot of capital and expertise to complete. If there is some improvement in gas prices, then I think there could be a significant upturn in investment and exploration in the Neuquen Basin.”

To know more on shale gas projects in Argentina click here: http://docsearch.derrickpetroleum.com/research/q/%22argentina%20shale%20%22.html

Eni 2010-2014 business plan clouded by Africa unrest

Eni is planning to achieve 3% annual production growth by 2014, higher compared to the previous plan of 2.5%. About 80% of the production due to come on-stream over the plan period will be from giant projects, in particular from those in Venezuela, Russia, the Arctic region and Angola.

The company’s strategy of quickly developing oil and gas resources could work but depends a lot on Africa — this now looks challenged given the unrest in North Africa. ENI is one of the biggest foreign operators in Libya which gets more than half its oil and gas from Africa and which is one of the fattest dividend yields among European oil majors.

The production target is clearly at risk if the unrest goes on and if that happens, Eni have to cut the dividend. In any case the troubles remove potential upside to the 2011 dividend. Before the North Africa crisis erupted Eni had succeeded in renegotiating its gas supply contracts with Libya. But that is now on hold given the suspension of Libyan flows. Italy has increased Russian gas imports. Gazprom will now be strengthened in renegotiations with Eni as Italy, and Europe, once again relies on Russian gas.

ONGC misses the bus again “Will it be Chinese who will outbid ONGC”

ONGC has lost bid to buy US energy major Exxon Mobil's 25% stake in a deep-sea oil block in Angola. ONGC had last year bid around $2.1-2.2 billion for the 25% stake in Block 31 in Angola. It will be fair to guess that it might be a Chinese, Korean or even a Thai company which has bidded more than ONGC.

It is not that ONGC is out of the race. They have an option to hike their bid. But more importantly, if the company at the forefront is not liked by Angolan government, Exxon may be forced to go to other bidder.

ONGC failed to acquire Akpo in the past
ONGC had in 2004-05 lost out on acquiring 45% stake in the giant Akpo oilfield in Angola.
The government had rejected ONGC proposal due to Akpo's ownership issues. After Indian government disallowed ONGC to pursue the Akpo opportunity, China's CNOOC Ltd acquired the 45% stake for $2.268 billion.

Block 31 overview

Block 31 is expected to produce 1,50,000 barrels of crude oil per day (7.5 million tons a year) and output is expected to start in 2012. In all 19 oil discoveries have so far been made in the block. Sonangol is the concessionaire of Block 31. The other interest owners in Block 31 are BP (26.67% and operator), Sonangol P&P (20%), Statoil (13.33%), Marathon (10%) and Total (5%).

What is driving Chinese to venture in to international O&G markets - "Is it their incremental domestic demand" or "Ambition to dominate global O&G markets"

Chinese oil fields are aging, their reserves‐to‐production ratios (R/P ratio) are low, and domestic oil production is nearing its peak. As a result, the country is almost entirely dependent on the  international oil market to meet incremental oil demand. China became a net oil importer in 1993. For the past 17 years, China has experienced strong economic growth, and recently became the second‐largest economy in the world. Even during the recent financial and economic crisis, China managed to achieve 8.7% GDP growth in 2009, and 10.3% in 2010. It requires a great amount of energy‐intensive raw materials and infrastructure to satisfy China’s expanding consumer demand, as well as the rest of the world’s demand for Chinese manufactured goods. This has stimulated output from heavy industry, which also received a boost from China’s recent stimulus spending on energy‐intensive infrastructure and buildings.

Most of China’s projected oil imports will continue to come from a small number of countries. In 2009, the top ten crude oil suppliers to China (in order of import volumes) were Saudi Arabia,   Angola, Iran, Russia, Sudan, Oman, Iraq, Kuwait, Libya and Kazakhstan. As many other net oil importers, especially in Asia, China relies heavily on suppliers in the Middle East with 47% of its total imports in 2009 originating from there . That high degree of reliance is unlikely to change, even though China has been diversifying supply to Africa, Central Asia, Latin America and Russia, where NOCs are seeking to expand their upstream activities. 

China’s gas market is one of the fastest‐growing in the world, with a demand of 87.5 billion cubic meters (bcm) in 2009. It is expected to reach 200 bcm by 2015. China's natural gas production is reported to have reached 83 bcm in 2009. In the first half of 2010, China’s gas demand increased by 22% year‐on‐year, according to China’s National Development and Reform Commission (NDRC). The rest of the demand was satisfied through imports of LNG and the newly opened Central Asian pipeline that will eventually bring around 40 bcm of gas5 from Turkmenistan and possibly additional amounts from other countries. Reportedly, the draft Clean Energy Development Plan being prepared by the National Energy Administration (NEA) calls for the share of natural gas in China’s energy mix to rise sharply, from 4% currently to 8.3 % by 2015. CNPC estimates that gas demand could reach 230 by 2015, increasing to 250 bcm to 340 bcm by 2020. Even with vigorous exploitation of domestic onshore and offshore resources, including unconventional gas, much of the demand will be met by imports.

$72 billion Chinese acquisition in last 5 years has a interesting story to tell

Through acquisition Chinese have ensured they have assets supply to domestic markets as well as major international markets.  

Large Chinese acquisitions in the past

Heading	Deal Value ($MM)	Country	Year
Sinopec acquires Addax Petroleum for $8.5b	8,544.20	Nigeria	2009
Sinopec acquires 40% interest in Repsol Brazil	7,109	Brazil	2010
BP sells 60% in Pan American Energy to Bridas	7,060	Argentina	2010
PetroChina acquires 50% in Encana’s project	5,451.25	Canada	2011
ConocoPhillips sells interest in Syncrude to Sinopec	4,650	Canada	2010
Shell and PetroChina acquire Arrow Energy	3,448.11	Australia	2010
KMG and CNPC acquire Mangistaumunaigaz	3,300	Kazakhstan	2009
CNOOC forms JV with Bridas Energy	3,100	Argentina	2010
Sinochem acquires 40% in Statoil's Peregrino oil field	3,070	Brazil	2010
Cnooc & Total buy stake in Tullow's Ugandan assets	2,500	Uganda	2010
Sinopec acquires interest in Angola Block 18	2,457	Angola	2010
Sinopec acquires Argentina unit of Oxy	2,450	Argentina	2010
PetroChina acquires Singapore Petroleum	2,241.27	Indonesia	2009
CNOOC and Chesapeake form Eagle Ford JV	2,160	USA	2010
Sinopec acquires Tanganyika Oil	1,997.20	Syria	2008
PetroChina acquires 60% interest in oilsands projects	1,741.50	Canada	2009
Chesapeake and CNOOC form Niobrara JV	1,267	USA	2011
PetroChina acquires Turkmenistan gas project	1,186.50	Turkmenistan	2009

Eagle Ford Shale generated around $3 Billion in revenue in South Texas during 2010. A busy year expected for Eagle Ford Shale with $4.0 Billion worth opportunities up for grab!!!

In less than three years of development, the Eagle Ford Shale already accounts for over 6% of the Gross Regional Product for the 24-county South Texas area it encompasses, according to a study released by the Center for Community and Business Research at the University of Texas at San Antonio Institute for Economic Development. In 2010 alone, this newest of the Texas shale plays generated close to $2.9 billion in revenue and provided nearly $47.6 million in local government revenue.

In 2010 in the Eagle Ford, 1,018 drilling permits were issued through November, up from 94 the year before, and output of crude oil, condensate and other liquids nearly quadrupled to 3.9 million barrels, according to Texas Railroad Commission data. EOG, in 2010 averaged seven rigs in the Eagle Ford and drilled 110 wells. This year, it expects to have 14 rigs and drill 256 wells. Chesapeake, the largest leaseholder with 625,000 acres, also expects to double the dozen rigs it has working in the area. Petrohawk Energy also expects to spend more than twice as much as it did in the region in 2010. And ConocoPhillips, another major leaseholder, just leaped from seven to 11 rigs in the region.

How busy was Eagle Ford in 2010??

The oil and gas companies' interest towards Eagle Ford shale ramped up in 2010 with 43 deals worth $8.8 billion versus 7 deals worth $45 million in 2009. Several majors including Shell, BP, Statoil and CNOOC entered the Eagle Ford shale in 2010.

 $4.0 Billion worth Eagle Ford opportunities up for grab!!!

Recently, the oil and gas companies of all sizes are trying to shift resources to the hunt for oil while natural gas prices remain weak. Therefore, Eagle Ford's large quantities of valuable crude oil and natural gas liquids will attract more interest and dollars in 2011.

To know more on Eagle Ford Shale: http://docsearch.derrickpetroleum.com/research/q/eagle%20ford.html

Galp to sell $4.2bn stake - Opportunity for foreign oil companies looking to make inroads into Brazilian Presalt

Galp Energia is considering the sale of a 30% stake in its Brazilian assets to finance the company's investment plans. The sale of these assets could generate as much as 3 billion euros ($4.2 billion) for the company.

Galp Eenrgia’s Brazil operations overview:

-- Participation, in partnership with Petrobras, in 22 projects, 17 offshore and 5 onshore, totalling 36 blocks spread over seven basins covering area of 20,326 sq km

-- According to DGM 2010 year end reserves report, Galp’s net entitled Proved + Probable reserves - 397 MMBOE; Proved + Probable + Possible reserves - 574 MMBOE (Brazil's Lula and Cernambi fields responsible for over 90% of total reserves)

-- Santos Basin: Block BM-S-11 (10%), Block BM-S-8 (14%), Block BM-S-2 (20%), Block BM-S-24 (20%); BM-S-11 contains Lula and Cernambi fields (formerly Tupi and Iracema) with total recoverable volume of 8.3 billion BOE; 9 FPSOs sanctioned for the Lula and Cernambi development; FLNG FEEDs already concluded with final investment decision expected in 2011; In 4Q-2010, the field’s pilot net entitled production was 2,170 BO/d.

-- Espirito Santo Basin: Block ES-M-592 (20%) covering 722 sq km in the water depths of 2,000-2,200 metres.

-- Potiguar Basin: BM-POT-16 contract (20%) includes Blocks POT-M-663 and POT-M-760 covering 1,535 sq km in the water depths of 50-2,000 metres; BM-POT-17 contract (20%) includes Blocks POT-M-665, POT-M-853 and POT-M-855 covering 2,302 sq km in the water depths of 50-2,000 metres; In onshore, Galp has 14 blocks with eight appraisal wells drilled in 2009, which confirmed to light oil discoveries.

-- Campos Basin: Block C-M-593 (15%) covering 85 sq km in the water depths of 100-400 metres.

-- Pernambuco Basin: PEP B-M-783, PEP B-M-839 and PEP B-M-837 with 20% interest covering 1,713 sq km in the water depths of 1,000-2,000 metres; A 3D seismic programme was performed in 2009.

-- Sergipe Alagoas Basin: Blocks 412 and 429 with 50% interest covering 91 sq km; In 2009 four exploration wells were drilled, which led to two discoveries, and one appraisal well.

-- Amazonas Basin: Blocks AM-T-84, AM-T-85 and AM-T-62 with 40% interest covering 5,718 sq km.

Stake sales to generate intense interest from foreign oil companies

Galp, a smaller company focused mainly on refining for its domestic market, faces difficulties in raising the cash needed to finance its share of development and exploration costs for the Brazilian assets. The possible stake sale would generate intense interest from foreign oil companies looking to make inroads into Brazil, where a recent overhaul of the country's oil laws now places the pre-salt region under a production-sharing regime.

For more on Brazilian Presalt  http://docsearch.derrickpetroleum.com/research/q/presalt%20basin.html

Jordan to reduce its reliance on neighbours for oil & gas imports. Jordan, being explored by majors like BP, Shell, Total and Petrobras, signs $1.8 billion oil shale deal with Karak International.

An oil shale surface retort concession agreement in Al-Lajjun area (35 sq km) in the southern governorate of Karak was signed between the Jordanian Government and Karak International Oil which is wholly owned by the British Company Jordan Energy and Mining Ltd. Over a period of 5-7 years the production is planned to reach 15,000 bpd after which it may be increased to 60,000 bpd in phased expansions.

The Al Lajjun Oil Shale Deposit was discovered in the late 1960’s by a joint Jordanian-German geological study. In the decades following discovery intermittent exploration activity at Al Lajjun has resulted in 198 drill holes totaling in excess of 11 km of drilling. Recent estimates for the entire Al Lajjun deposit have identified approximately 1 billion tonnes of oil shale resources.

The deal defines a major non-conventional oil venture to be completed in the Al- Lajjun area with a capital investment of $1.8 billion and will put Jordan on track for self sufficiency in liquid hydrocarbons. On completion of the project and with oil prices remaining high the government will receive more than 65% of net operating profits and if oil prices reach the very high levels of 2008 (>$120/bbl) the Government will receive some $10 billion of revenues over the projected 30 year project life.

Jordan, a new pie to taste!!

Exploration in Jordan has already been initiated by majors like BP, Shell, Total and Petrobras in the yesteryears. According to the Natural Resources Authority data, the Jordan Kingdom has more than 40 billion tons of oil shale; this quantity is capable, if were exploited using cutting-edge technology, to meet the oil needs of the Kingdom estimated at 110,000 bpd and even may allow export of additional quantities over a span of hundreds of years.

"This major new oil shale venture with Karak will make a significant contribution to the Government declared Energy Strategy to increase energy from indigenous oil shale resources from 0 to 14% of the country’s energy requirements by 2020; and thereby reducing our reliance on imported oil and gas products from our neighbours", said Touqan, Minister of Energy and Mineral Resources.

With the signature of this agreement, Jordan follows the European countries like Poland, France, etc., to reduce relying on foreign countries for oil & gas imports, having robust belief on their shale resources.