BUSINESS, MERGERS AND ACQUISITIONS

Ineos buys Dong Energy’s upstream business for $1.05 billion

Dong Energy has divested its upstream business, DONG E&P, to Ineos for $1.05 billion. Ineos’ acquisition follows another significant purchase in April, when it agreed to pay $250 million for BP’s entire stake in the Forties pipeline system—a key part of oil infrastructure in the UK North Sea. “We see the opportunity to do in oil and gas what we did in chemicals 20 years ago,” said Tom Crotty, a director at Ineos.

Marathon Oil closes acquisition of Delaware basin acreage

Marathon Oil Corp. announced that it has closed the acquisition of approximately 21,000 net acres in the northern Delaware basin of New Mexico. The acreage was acquired from Black Mountain Oil & Gas for $700 million. In addition, the company has announced the sale of its subsidiary, Canadian Natural Resources Limited, to Shell for about $1.75 billion. The sale reportedly include’s Marathon’s 20% non-operated interest in the Athabasca Oil Sands Project.

Ensco acquires Atwood Oceanics, strengthening its position as a leading offshore driller

Under a definitive merger agreement, offshore driller Ensco will acquire rival company Atwood Oceanics, Inc. The acquisition is expected to strengthen Ensco’s position as a top offshore driller, with involvement in deep- and shallow-water markets traversing six continents. Under terms of the agreement, Atwood shareholders will receive 1.60 shares of Ensco for each share of Atwood common stock for a total value of $10.72 per Atwood share. This reportedly is based on Ensco’s closing share price of $6.70 on May 26, 2017. It was reported that upon closing, Ensco and Atwood shareholders will own about 69% and 31%, respectively, of the outstanding shares of Ensco. The acquisition will add six ultra-deepwater floaters and five high-specification jackups to Ensco’s fleet. The combined company reportedly will have a fleet of 63 rigs, containing ultra-deepwater drillships, multi-purpose deep- and mid-water semisubmersibles and shallow-water jackups. These are in addition to a diverse customer base of 27 NOCs, supermajors and independents. According to Ensco, the company’s jackup fleet will be the largest in the world, with 37 rigs. The company will continue to be headquartered in the UK, and senior executives will be based in London and Houston. Photo: Atwood Oceanics, Inc.

Shell completes divestment of interests in Canadian oil sands

Royal Dutch Shell has completed two previously announced agreements by Shell Canada Energy, Shell Canada Limited and Shell Canada Resources for the sale of its in-situ and undeveloped oil sands interests in Canada. The divestiture will reduce the company’s share in the Athabasca Oil Sands Project (AOSP) from 60% to 10%. Under the first agreement, Shell has completed the sale of its entire 60% interest in AOSP, its 100% interest in the Peace River Complex in-situ assets (which include Carmon Creek), and a number of undeveloped oil sands leases in Alberta to a subsidiary of Canadian Natural Resources Limited. The assets were sold for a consideration of approximately $8.2 billion. Under the second agreement, Shell and Canadian Natural Resources have completed a joint acquisition. Each company will equally own Marathon Oil Canada Corp., which holds a 20% interest in AOSP, having bought it from an affiliate of Marathon Oil Corp. for $1.25 billion, each. Shell reportedly will continue to operate its upstream shale assets in the Duvernay and Montney formations.

GOVERNMENTAL/REGULATORY

Some oil execs disfavor Trump’s decision to withdraw from Paris climate accord

Prior to President Trump’s official decision to withdraw the U.S. from the Paris climate accord on June 1, oil executives were weighing in on the implications that the decision could have on the oil and gas industry. Unlikely advocates of the 2015 global agreement—which includes almost 200 nations, worldwide—to cut greenhouse gas pollution, in an effort to combat climate change, included Exxon Mobil, BP and ConocoPhillips. Daren Beaudo, a spokesman for ConocoPhillips, said that participation in the agreement is key, because “It gives the U.S. the ability to participate in future climate discussions, to safeguard its economic and environmental best interests.” Others, including BP CEO Darren Woods, agreed. “We’ve got to transition the world to lower-carbon forms of energy,” Woods told Bloomberg. “We need to be really clear—rather than just walking away from it—what you put in place in the United States.” Trump argued that the U.S.’s participation in the agreement was crippling American businesses, making it difficult to compete in global markets. According to a White House press release, the Paris climate accord has cost the U.S. economy nearly $3 trillion in reduced output, over 6 million industrial jobs and over 3 million manufacturing jobs. Many believe that the country’s withdrawal from the agreement bodes well for miners, oil drillers and gas producers, as investors are expected to be more inclined to bet on hydrocarbons.

OPEC and non-OPEC countries agree to extend production cuts, but market remains skeptical

During the OPEC meeting in Vienna on May 25, it was decided that it will be necessary to prolong production cuts for an additional nine months, beginning July 1 . Following review of the oil market outlook for the remainder of the year, OPEC members and non-OPEC members—including Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Sudan and Russia—“recognized the need for continuing cooperation among oil exporting countries, in order to achieve a lasting stability in the oil market.” Several countries have exceeded their commitments; however, many are skeptical of the deal’s ability to surmount the U.S. shale boom. Giovanni Staunovo, an analyst at UBS Group AG, told Bloomberg, “These sources of incremental supply could reduce the effectiveness of a further extension.” A Rosneft director has already expressed concern over the deal. “This cartel agreement should exist,” Oleg Vyugin said during the St. Petersburg International Economic Forum. “One year—I see that as the horizon for this agreement, maybe even earlier.” Later, during an interview, Vyugin explained, “Right now, there is a great fear that if we just say we won’t limit anymore, then oil will again plunge, and that fear is so strong that everyone is ready to agree.” The agreement also has raised concerns about the producers’ exit strategy in March 2018, when the extension ends. “The agreement has created this sort of situation where it is hard to exit it without a temporary fall in oil prices,” Vyugin explained.

DISCOVERIES/DEVELOPMENTS

Shell starts deepwater production at FPSO P-66 in Brazil’s Santos basin

Royal Dutch Shell, with its consortium partners in Lula South, announced in late May that deepwater production had begun at FPSO P-66, in the Brazilian pre-salt of the Santos basin. According to the company, the P-66 is positioned in nearly 7,054 ft of water and can process up to 150,000 bopd and 6 MMcmgd. It was reported that the unit is the first in a series of standardized vessels, which are operated by Petrobras, to begin production within the BM-S-11 Block consortium. Additionally, it is the seventh to produce within the consortium, overall. “Achieving production at Lula South is an important accomplishment in the Santos basin, and we recognize Petrobras’ delivery of this critical milestone,” said Andy Brown, Shell’s upstream director. “The consortium has additional FPSOs in this series planned over the next three years. Across Shell’s deepwater business in Brazil, we’re investing in projects with competitive break-even prices, and our presence as Brazil’s second largest oil producer continues to grow.” Shell has a 25% stake in the consortium, while Petrobras operates Lula field with a 65% interest. Galp holds the remaining 10%. Photo: Petrobras.

BP, Kosmos Energy report major gas find offshore Senegal

BP, with JV partner Kosmos Energy, announced that the Yakaar-1 exploration well has encountered natural gas offshore Senegal. The well, which is in the Cayar Offshore Profond Block, was drilled to a TD of nearly 15,420 ft, in more than 8,366 ft of water. It was drilled by the Atwood Achiever drillship. According to Kosmos, it is the first well in a series of four independent tests of the basin floor fan fairways, outboard of the proven slope channel trend opened with the Tortue-1 discovery. It intersected a gross hydrocarbon column of 394 ft in three pools within the primary Lower Cenomanian objective, and encountered 148 ft of net pay. Kosmos says that the well discovered an estimated gross Pmean gas resource of about 15 Tcf. “Yakaar-1 follows the earlier exploration success that led to the Tortue discovery and further confirms our belief that offshore Senegal and Mauritania is a world-class hydrocarbon basin,” said Bernard Looney, upstream CEO at BP.

Petro River Oil Corp. announces new oil field discovery in Oklahoma

Petro River Oil Corp., an independent operator, discovered a new oil field in its 106,500-acre concession in Osage County, Okla. The discovery was hit through the successful drilling of the Chat 2-11 exploration well, which was targeting the Mississippian-aged Chat formation. The well was drilled to a TD of 2,800 ft. Initial results reportedly indicated up to 20 ft of oil-productive formation. Following flow and fracing tests, the company says it plans to confirm IP rates. Additional wells are being planned to further evaluate the size of the new field. “This discovery confirms that our exploration technique, utilizing 3D seismic is working,” said Stephen Brunner, Petro River president. “We plan to spud two other wells, the Channel 1-3, based on the data from logs of the Channel 1-11, which found approximately 45 ft of tight, non-productive Red Fork sand, and the Chat 1-30, a separate Chat structure test. Also, we plan to shoot more seismic along the southern part of our concession later this year.”

Tullow Oil, Africa Oil Corp. report oil discovery in northern Kenya

Africa Oil Corp. reported an oil discovery in northern Kenya last month. The Emekuya-1 well in Block 13T, which is situated approximately 1.5 mi north of Etom-2, reportedly encountered about 246 ft of net oil pay in two zones. The well was drilled by the PR Marriott Rig-46 to a TD of nearly 4,449 ft and entered reservoir-quality Miocene sandstones, which compared to those seen in the successful Etom-2 well. The company reported that the well’s downhole pressure measurements and fluid samples suggest that the main oil reservoir is on the same static pressure gradient as Etom-2. This demonstrates that a major part of the Greater Etom structure is saturated with oil. Africa Oil Corp. CEO Keith Hill said, “We are very pleased to continue our 100% success rate in the current program, as we continue to build resources to enhance our ongoing development program. The four additional wells planned, as well as the water flood pilot project, will further allow us to better define the size and scope of the development.” Block 13T is operated by Tullow Oil, with 50% equity. Photo: Tullow Oil.