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Oando Shells Out $0.625 Billion On A Huge Bet

After  a bid in which two of China’s largest oil firms participated and failed, a small, ambitious Nigerian independent won Shell Nigeria’s 49.8%stake in two deepwater leases.

For the Anglo Dutch oil major, who had been forced by militants to shut in close to 500,000barrels of oil (gross production) every day for much of the last two years, it was money sorely needed.

What was not immediately clear was whether the minnow who paid the cheque was getting a good deal for the investment. PetroChina aborted its bid for the two acreages: Oil Mining Leases (OMLs) 125 and 134, a few months after offshore specialist CNOOC withdrew its bid for the blocks. Both companies were told that their offers, at around $300 million to $400 million, were too low. Then Oando, a Nigerian energy company, stepped up to the plate, offering $625Million. There was jubilation on national television as the company, a ranking member of the Nigerian Stock Exchange, announced its winning. With a net ownership of 9,000 barrels of oil per day (BOPD) of Agip operated Abo field in OML 125, it is clear that this acquisition marks a significant entry into the Upstream sector for Oando, which has succeeded in venturing into almost everything except crude oil production, in the last five years. Oando has run a petroleum marketing enterprise, acquired rigs, distributed natural gas, won a non producing prospecting lease, holds a partnership in an undeveloped discovery and gotten a foothold in oilfield services, but all of these pale into insignificance, in the minds of its management, if the company doesn’t have a drop of oil to its name. The question is: Is a 9,000BOPD from a declining oil field and a mining lease with no established oil production enough value for $625 million? Part of the answer came by way of Anne Pickard, Shell’s Executive Vice-President, Africa, commenting on the divestment on the week of the sale “We have a maturing asset, which is operated by Eni (Agip), which is offshore. When things get mature, we tend to sell them.” But the answer only breeds more questions. Such as: Is Oando shelling out money far in excess of half a billion dollars to buy an asset that Shell considers maturing? Does the word “maturing” merely refer to the Abo field, or does it also refer to the so called upside potentials in OML 125 and the undeveloped prospects in OML 134? The answer lies in looking at the portfolio. The leases OML 125 and 134 were carved out from OPLs 316 and 211, which Agip won in the 1993 bid round. The company established production in 2003, a clear seven years after discovering Abo (1996) in OPL 316 and converted the producing half of the lease into OML 125.  Abo production peaked at 30,000BOPD and started falling, reaching 19,000 BOPD last year.  Initial drilling in OPL 211 (Udoro, Engule) were unsuccessfiul. In 2003 however, Agip drilled a well in a prospect located in the south east of the lease. Uberan- 1 encountered commercial footage of oil. In anticipation of development of this field, Agip sought permission to convert half of the oil prospecting lease (OPL) 211 into a mining lease OML and got the name OML 134. Geoscientists in Shell and Agip are both excited about the potentials of Uberan, which they consider the real juice in the two blocks. Even though the discovery well was not tested, company sources say the field could be at least 200MMBO. An $80million appraisal well, to be drilled (tested, cored, etc) later in 2008, will confirm the field potentials.

Nor is Abo field a low vaklue asset. Agip plans to increase production here to 25,000BOPD by drilling and hooking up two wells later in 2008. These wells are targeting deeper reservoirs. There are some other prospects around Abo, which are quite small, but can be hooked up relatively cheaply. One of these prospects will be probed by a well later this year. While the divestment of Shell interests in OMLs 125 and 134 is clearly for reasons of cash flow, Oando’s enthusiastic buying may be justified in the near term. But the real challenge is not in the finances. It is how Oando utilizes this entry to build capacity. Oando already has a corps of technically honed petroleum engineers and earth scientists, who develop its burgeoning oil services business, manage its upstream joint ventures and help to evaluate assets. But with the cash it is able to play with it can afford to build a sizeable pool of technical professionals, paid competitive wages, who take on projects from geologic leads through prospects to drilling and production. Nigerian companies don’t get the opportunity to be equal partners with experienced majors in acreages. When they hold the assets, they rarely have the cash and more often, a technical operator is also the financier. Oando is an equal partner with Agip. It must get everything it can from this partnership.


White Nile Wins Ethiopian Lease

WHITE NILE LTD HAS SIGNED A Production Sharing Agreement (PSA) with the government of Ethiopia for a 29,000 sq km block in the Southern Rift Basin in southwestern Ethiopia. Under the terms of the PSA, the UK operator has received sole rights for the exploration, development and production of petroleum in the contract area in return for satisfying various development commitments. The PSA follows a two year Joint Study Agreement (JSA) with the Ethiopian government’s Petroleum Operations Department of the Ministry of Mines over the prospective East African rift system in the southwest region of the country. Geophysical and geological work, primarily in the Omo River area to the north of Lake Turkana, has confirmed the presence of deep potential hydrocarbon-bearing sedimentary basins within the JSA area. The prognosis by White Nile and its advisors is that the contract area is sited at an intersection between a southeast extension of the petroliferous Cretaceous and early Tertiary basins of southern Sudan, in particular the Muglad rift system and the younger East African rift system, which is proving petroliferous in Uganda as underlined by Tullow Oil Plc’s recent progress.

Under the PSA, the Government of Ethiopia has granted the sole right to White Nile to explore, develop and produce petroleum in the contract area, There is an initial exploration period of four years from the date of execution, and a development period and production period of 25 years from the date of adoption of the development plan. During the initial exploration period, White Nile is required to make a minimum expenditure of $6 million for seismic operations and a minimum expenditure of $8 million for drilling operations. White Nile plans to begin seismic operations in Q4 2008, prior to which it will conduct extensive geological field work and preparation for the geophysical programme.

“Following the highly successful JSA with the Petroleum Operations Department of the Ministry of Mines, I am very excited that this PSA has been signed to develop the Southern Rift Basin area,” White Nile Chairman Phil Edmonds said. “We have been encouraged by early work, especially with the identification of deep basins, potentially containing sedimentary sections similar to that of the petroliferous Muglad and Melut Basins of southern Sudan and also those in Uganda.

“The agreement in Ethiopia is part of White Nile’s strategy of building a regional oil company, which I believe we have the ability to achieve. The geology seems to connect Uganda, Ethiopia and southern Sudan so our land positions are in ideal locations to take advantage of this situation.”


Vegas Tries Out In Western Desert

VEGAS OIL & GAS SA WAS ON COURSE to suspending the new field wildcat Al Magd 1 (Hh 31-2) as a discovery as of March 15, 2008. The well is located in the Alam El Shawish West block (Block I). The Total Depth as of mid March was 3,200metres, but the prognosed Total Depth PTD was 3,487metres. Vegas officials say that the main objective of the well were the Abu Roash “C”, “E” and “G” units and the Bahariya Formation. The rig is L/R “Nafla-2.


Tullow Gives Up A Bird in the Hand

The Irish Operator Sells Off A Producing Asset In Congo In Favour Of Development of Spectacular Discoveries In Ghana and Uganda

WHEN TULLOW OIL ANNOUNCED it was selling off its interest in a 46,500BOPD field(2007 average) onshore Congo, some analysts wondered whether that wasn’t a lot to give up for a mid sized independent, especially in an era of high oil prices. The ostensible reason for selling was to raise cash to spend on the promising discoveries in deepwater Ghana and onshore Uganda.

Is that not losing a bird in the hand for two in the bush?

Afterall, deepwater development, at 1,200 metre water depth anywhere, is quite expensive and the Ugandan discoveries, which are over 1,200 km from the nearest seaport, don’t look, on paper at least, like an immediate cash cow.

The questions stopped when it was realized that the Irish operator was getting $435 million from the Korea National Oil Company for giving up about 5,000BOPD of the Mauriel et Prom operated M’boundi field. This is 11% stake. Tullow outrightly sold its subsidiary company – Tullow Congo Limited- to the Koreans. Mboundi is undergoing an injection of 1 0,000Barrels Of Water Per Day (BWPD) which will increase to 40,000BWPD by the end of 2008. Is this the evidence that the reservoirs are difficult to manage? “M’Boundi is now entering a new phase in its development at a time when Tullow is also looking to reallocate capital resources to projects where it has more material participation and influence”, Tullow said in a release.

Tullow’s cash flow comes mainly from Gabon, Equatorial Guinea and Cote Dlvoire, where assets are delivering over 35,000BOPD on a net basis. Tullow is going to be leveraging on the cash generated from fields in these countries as well as money from the Mboundi disposal to advance its appraisal and development programmes in Ghana and Uganda and to continue business development elsewhere.

For some reason, Tullow has been looking to get out of Congo. Two years ago, there was a buzz all over that the Irish owned operator would sell its 4%interests in the Moho-Bilondo, N’Kossa and N’ Soko exploitation permits offshore Congo to TOTAL for $72MM.

Tullow has also divested its 15% in Block 24, located in an unremarkable site off Angola. The acreage is in Benguela sub basin, where oil majors have endured a spate of dry holes. Tullow, however is keen on its 50% participation in Block 1/06, containing three undeveloped oil fields located in the prolific Lower Congo Basin. Tullow is equally bullish on Cote Dlvoire, where it has interest in the 27,000BOPD East and West Espoir fields with 3,000BOEPD of associated gas. Upgrading the processing facilities will increase the liquid handling capacity from 50,000 to 70,000 BFPD by early 2010. This upgrade could also facilitate a further infill drilling programme on East Espoir and the earlier tie-back of potential satellite fields. This is another reason to raise cash.

There are challenges here and there, of course.  Tullow is having a hard time convincing the Namibian authorities to move forward on the 1 .3tcfKudu gas project. The latest report is that Namcor, the state power utility, has dropped down Kudu Gas-to-Power project on the list of its priority power projects, describing it as marginal and a non- commercially viable standalone project, “as it is characterized by a high US dollar-denominated gas price, meaning that the foreign exchange and hedging cost will translate into high electricity tariffs.”

Tullow and its partners have commenced field development studies to ensure earliest first production of the deepwater Jubilee field(formerly known as Mahogany and Hyedua) off Ghana. Two rigs have been contracted to drill up to seven exploration and appraisal wells. In Uganda the Ngassa well was progressing as of the time of writing this report and the Butiaba multi-well programme was scheduled to commence in March on the Taitai prospect.

Tullow has been bullish on Uganda, but the uncertainties of the region cannot be dismissed out of hand. Operators here could easily find themselves in the crossfire between troops loyal to President Yoweri Museveni of Uganda and those who back Joseph Kabila of the Democratic Republic of Congo. The low intensity war in the Great lakes region can blow up in anyone’s face.


Total Confirms Mostarda Discovery

ANGOLA

FRENCH MAJOR TOTAL HAS SUCCESSFULLY appraised its 2005 discovery Mostarda-1. The appraisal well Mostarda 2G1, was suspended at a Total Depth of 5,150metres subsea, but TOTAL did not provide details of the hydrocarbon find. Mostarda 1 was drilled in the Ultra deepwater Block 32 in late 2005 and flowed 5,347 BOPD of 30 degree API oil.


The lvoriens Buy Into Congo

SNPC, THE STATE HYDROCARBON company of Congo-Brazzavile, has farmed out a 30% interest in the 128-sq km MengoKundji-Bindi permit to Côte d’Ivoire state Petroci. It’s the first time Petroci takes on a working interest in any lease outside its home bastion. Mengo-Kundji-Bindi is a marginal field block carved-out from Le Kouilou (A) permit. SNPC is operator with 40%, Prevail En30%, Petroci 30%.


StatoilHydro Set To Plunge Into The Indian Ocean

NORWEIGIAN OPERATOR, STATOILHYDRO has mapped out plans for a large two dimensional 2D seismic coverage of the 11,099- sq km deepwater block 2, frontier acreage of the Indian Ocean in the course of 2008. A first well is still far in the distance, but state hydrocarbon company Tanzanian Petroleum Development Corporation TPDC has a 10% back-in right in the event of a commercial find..


SOCO farms out Marine XI block interest

 CONGO

SOCO Exploration and Production Congo S.A. has agreed to farm-out 8.5% of its interest in the Marine XI block, offshore the Republic of Congo, to Petrovietnam Exploration Production. The deal is subject to government approval. SOCO EPC will remain the operator with a 29% working interest in the block. The remaining interests are held by Lundin Marine SARL (18.75%), Raffia Oil SARL (18.75%), the national oil company Société Nationale des Pétroles du Congo (15%), and Africa Oil & Gas (10%). The Marine XI block is in water depths ranging up to 110 metres and covers approximately 1,400 sq km. A multi-well drilling programme is scheduled for the second half of 2008.


Sipetrol Targets Bahariya

SIPETROL IS TARGETING THE BAHARIYA and Kharita Formations in the new field wildcat Shahd SE 1, located in East Ras Qattara block, North Egypt basin. The proposed total depth is 2,970m. The well was spudded on the last day of February 2008 and was drilling as of the time we were going to press.


Shell Gets Som More Off Gabon

GABON

Shell has been granted offshore blocks BC 9 (5,279 sq km) and BCD 10(8,435 sq km) in Gabon. The licences are adjacent and mainly located in deepwaters, south of Perenco’s Arouwe permit and west of Forest Oil’s Gryphon Mann permit. The permit date is September 13, 2007.

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