DISCOVERIES/DEVELOPMENTS

Pemex commits $10 billion to field development 

Pemex received approval from Mexico’s National Hydrocarbon Commission (CNH) for a $10-billion, 25-year investment commitment to develop onshore and offshore exploration opportunities. Pemex will develop 22 new offshore fields in 2019, which 18 are in shallow GOM waters. Onshore, the commission’s approval extends to Ixachi field, Pemex’s most significant land discovery of the past 25 years. Pemex also will invest $330 million for development and extraction operations in its 1,121-km² Octli field. This project includes drilling and completion of five development wells in 2019 and 2020. The Octli field has recoverable reserves of 31.3 MMboe and 39.76 Bcfg in lower Pliocene and upper Miocene strata. If successful, the Octli development will add 232,000 bopd and 790 MMcfg to the company’s annual production tally. 

Petronas signs Gabon’s first exploration permits in five years  

Petronas has signed an agreement with Gabon for two offshore exploration permits after the African country enacted a new oil law last month. The Malaysian NOC is the first company to sign an exploration contract in the country in five years. The deal follows the enactment of a revised code last month, which is more fiscally attractive than the previous one. Gabon relies heavily on oil revenue, and despite a slump in production, the country sees potential for offshore output. 

Talos strikes oil at two deepwater GOM exploratory wells 

Talos Energy reported two wildcat strikes in its Bulleit and Orlov prospects in Green Canyon, deepwater Gulf of Mexico. The Bulleit prospect encountered 140 ft of net TVD oil sand in its shallow target and 110 ft of net TVD oil pay in the deeper MP sand. The well will be completed in the first half of 2020 and then tied back to the Talos-owned and operated Green Canyon facility, 10 mi west of Bulleit. Talos also reported its Orlov prospect initially encountered 100 ft of net oil pay in the main target sand, as well as additional pay sands in shallower zones along the same trap. Initial production from Orlov is expected in the first quarter of 2020 and will be tied back to the Fieldwood-operated Bullwinkle facility. 

Tullow makes oil discovery offshore Guyana 

Tullow Oil has made its first discovery in its Orinduik license offshore Guyana. The Jethro-1 wellbore was constructed by the Stena Forth drillship to a TD of 4,400 m in 1,350 m of water. Evaluation of logging data confirms that the Jethro-1 well contains high-quality oil-bearing sandstone reservoirs of Lower Tertiary age. The well encountered 55 m of net oil pay which supports a recoverable oil resource estimate of 100 MMbo, subject to appraisal. Tullow will now evaluate data from the discovery and determine appropriate appraisal activity. This discovery increases credibility of other Tertiary prospects on the Orinduik license, including the shallower Upper Tertiary Joe prospect. The non-operated Carapa 1 well will be drilled later this year, on the adjacent Kanuku license to test a Cretaceous oil play. Tullow Guyana is the operator of the Orinduik Block with a 60% stake. 

PRODUCTION

DOE authorizes LNG exports at Mississippi liquefaction project 

The U.S. Department of Energy’s Office of Fossil Energy issued an order to Gulf LNG Liquefaction Company (GLLC), approving exports of domestically produced LNG from the company’s liquefaction project, which will be in Jackson County, Miss., near the city of Pascagoula.  The LNG project, owned 50% by Kinder Morgan’s Southern Gulf LNG Co., will be built at the site of the existing Gulf LNG Terminal. Under the order, GLLC will have authority to export up to 1.53 Bcfd of natural gas as LNG from the proposed liquefaction project.  

Australia to become world’s largest LNG exporter 

Australia is on track to surpass Qatar as the world’s largest LNG exporter, according to Australia’s Department of Industry, Innovation, and Science (DIIS). Australia already surpasses Qatar in LNG export capacity and exported more LNG than Qatar in November 2018 and April 2019. Within the next year, as Australia’s newly commissioned projects ramp up and operate at full capacity, the U.S. Energy Information Administration expects Australia to consistently export more LNG than Qatar. Australia’s LNG export capacity increased from 2.6 Bcfd in 2011 to more than 11.4 Bcfd in 2019. The DIIS forecasts that Australian LNG exports will grow to 10.8 Bcfd by 2020–21, once the recently commissioned Wheatstone, Ichthys, and Prelude FLNG operations ramp-up to full production. All three projects use natural gas from coalbed methane, as a feedstock to produce LNG.

U.S. oil production continues to set records 

U.S. crude oil production, in each of the first five months of 2019, showed increases over the 2018 levels, with May 2019 establishing a new monthly record of 12.24 MMbopd. Production grew the most in the Permian region and in the GOM. The EIA initially expected the decline in crude oil prices, between October and December 2018, to slow U.S. production growth for the first half of 2019. However, several unexpected factors contributed to increases in U.S. production. First, crude prices began rising in early 2019, partially offsetting the price drop seen at the end of 2018. In addition, crude oil prices in Midland, Texas, rose faster than WTI, which is priced in Cushing, Okla. As a result, the price spread between Midland and Cushing narrowed, allowing producers in the Permian region to receive relatively better prices. Finally, several projects also came online in the GOM this year, boosting production. EIA forecasts U.S. production will grow through 2020, but anticipates growth will slow in 2020, as oil prices flatten.  

BUSINESS

BP sells Alaska business to Hilcorp for $5.6 billion 

BP has agreed to sell its entire business in Alaska to Hilcorp Alaska. Under the terms of the agreement, Hilcorp will purchase all of BP’s interests in the state for a total consideration of $5.6 billion. The sale will include BP’s upstream and midstream business in the state, including BP Exploration (Alaska), which owns all of BP’s upstream oil and gas interests in Alaska, and BP Pipelines’ interest in the Trans Alaska Pipeline System. Under terms of the agreement, Hilcorp will pay BP $4.0 billion near-term and $1.6 billion through an earnout thereafter. The transaction is expected to be completed in 2020. Hilcorp has been operating in Alaska since 2012 and is the largest private oil and gas operator in the state, with 75,000 boed of gross production. 

Oxy and Ecopetrol form Permian JV 

Occidental and Ecopetrol have formed a JV to develop 97,000 net acres of Occidental’s properties in the Midland basin. Ecopetrol will pay $750 million in cash at closing and $750 million of carried capital in exchange for a 49% interest in the new venture. Oxy will own a 51% interest and operate the JV, which will enable the company to accelerate its development plans in the Midland basin region, where it currently has minimal activity. Oxy will retain production and cash flow from its existing operations in the Midland basin. This transaction is expected to close in the fourth quarter of 2019. During the carry period, Ecopetrol will pay 75% of Oxy’s share of capital expenditures. “Our strategic partnership with Ecopetrol is a further example of our commitment to enhancing our value proposition,” said Oxy President and Chief Executive Officer Vicki Hollub.

PDC and SRC combine in $1.7 billion all-stock transaction

PDC Energy and SRC Energy announced that PDC will acquire SRC in an all-stock transaction valued at $1.7 billion, including SRC’s net debt of $685 million.  Under terms of the agreement, SRC shareholders will receive 0.158 PDC shares for each share of SRC common stock, representing an implied value of $3.99 per share.  The deal is expected to close in the fourth quarter of 2019. The transaction increases PDC’s Wattenberg leasehold position of 182,000 net acres, located entirely in Weld County and pro forma second-quarter 2019 total production of nearly 200,000 boed (166,000 boed in the Wattenberg). On a pro forma basis, the combined company is the second-largest producer in the DJ basin. Coupled with its 36,000-net-acre Delaware basin position, the combined company will have core assets in two of the premier U.S. onshore basins. The new company will be a low-cost mid-cap producer with anticipated G&A of $2.00/boe in 2020.  

Equinor strengthens relationship with YPF, offshore Argentina

Equinor and YPF have signed an agreement to jointly explore the CAN 100 offshore block (15,000 km²), in the North Argentinian basin. The preliminary agreement sets the core terms and conditions for YPF’s transfer of 50% of its share in the offshore block, and will enable both companies to expand their alliance and move forward with the exploration process in the Argentinian offshore. The two companies are partners in two offshore blocks in the same area and are jointly exploring onshore opportunities in the Vaca Muerta in Neuquen province. “Through this agreement, Equinor strengthens its position offshore Argentina, in line with our exploration strategy to access basins with high impact potential,” said Equinor V.P. Tim Dodson. “This new agreement deepens our bond with Equinor and allows us to learn from their experience in offshore projects worldwide,” said YPF´s CEO Daniel González.

Continental loses $15 billion in market capitalization 

Continental Resources has lost $15 billion of market capitalization since October. It’s now valued at less than $12 billion. Shares of shale producers have taken a beating in recent months, as investors grow increasingly impatient with the shale sector’s track record of burning cash without producing enough returns. The S&P index of independent explorers has tumbled 51% since early October. In three months, Harold Hamm, founder and CEO, saw his net worth shrink by $3 billion, to $9.4 billion. But Hamm said the latest share buyback program by his Oklahoma City-based company isn’t aimed at going private. Rather, the goal is to purchase stock that’s undervalued.

About the Authors

Craig Fleming

World Oil

Craig Fleming Craig.Fleming@WorldOil.com