BHP Billiton approves investment in Mad Dog Phase 2 project
BHP Billiton has approved expenditure of US$2.2 billion for its share of the development of the Mad Dog Phase 2 project in the Gulf of Mexico.
BHP Billiton holds a 23.9% participating interest in the Mad Dog field. BP, the operator, holds a 60.5% participating interest, and Union Oil Company of California, an affiliate of Chevron USA Inc., holds the remaining 15.6% participating interest. During the fourth quarter of 2016, BP sanctioned the Mad Dog Phase 2 project.
Mad Dog Phase 2, located in the Green Canyon area in the Deepwater Gulf of Mexico, is a southern and southwestern extension of the existing Mad Dog field. The project includes a new floating production facility with the capacity to produce up to 140,000 gross barrels of crude oil per day from up to 14 production wells. Production is expected to begin in the 2022 financial year.
Ithaca Energy starts production at Stella field
Ithaca Energy Inc., an oil and gas operator focused on North Sea production, saw production start-up from the Stella field located in the Central Graben area of the UK continental Shelf. Oil export to the adjacent shuttle tanker has commenced. The production ramp-up phase will begin when the ongoing commissioning of the gas processing and compression facilities is complete.
W1 Energy Secures $1b for Upstream Acquisitions in Europe and US
W1 Energy has secured $1 billion of acquisition finance from multiple sources to acquire upstream oil & gas assets in Europe and North America.
W1 Energy is a start-up energy company based in London, UK. W1 is focused on acquiring portfolios of proven reserves with production and near-term development opportunities.
When is a final investment decision (FId) not a FID? When it's an internal FID
Readul Islam, Senior Analyst, Rystad Energy
Large upstream projects are more often delivered by a group of partners rather than a single 100% owner. This spreads project risks and can also make it possible to finance megaprojects, which could be beyond the capacity of any single player. When time comes to approve a project with multiple partners, it must be "all-in": each partner must commit to paying its share in accordance to its equity stake in the project.
After project sanctioning, major contract awards normally roll out within weeks or the first few months following the FID (large projects might need to order long lead items pre-FID). But in the interesting times we're living in, a project sanction announcement doesn't necessarily mean contract awards are imminent. Here we look closer at a trio of projects with reported sanction activity within the past three months.
The highest profile of the trio is arguably Mad Dog Phase 2, where operator BP announced its sanction of this Gulf of Mexico project on December 1, 2016. BP's press release made clear it was an internal sanction, stating "While BP has reached a final investment decision (FID) on Mad Dog Phase 2, BHP Billiton and Chevron… are expected to make a final investment decision in the future." During Chevron's 4Q16 earnings call on January 27, 2017, CEO John Watson commented "We have not yet taken FID but I expect that we will" when queried on the project. News broke February 9, 2017 of the endorsement from BHP's board.
At the Coral FLNG project off Mozambique, Eni announced on November 18, 2016 its go ahead. Eni also clarified "… approval of this investment by Eni's Board… is another fundamental step towards the Final Investment Decision on the project, which will turn effective once all Area 4 partners have approved it."
The Coral FLNG project lies within the Area 4 license in the offshore Rovuma Basin, with operator Eni partnered by CNPC, Mozambique's oil company ENH, Galp Energia and Kogas. Early December, comments from ENH's chief executive Omar Mitha indicated the state player had voted in. Just before Christmas news arrived that Portuguese Galp had given its nod. And early February 2017 the Mozambique Minister of Energy confirmed a thumbs-up from South Korean Kogas. Thus, at the time of writing, FID of the Coral FLNG project is pending approval from the board of the Chinese state player CNPC.
While with both these projects the operators announced their internal sanction first, the Leviathan Phase 1 project has a different script. Operator Noble Energy had been hoping to sanction the LNG project in Eastern Mediterranean waters off Israel by the end of 2016. During 2016, the consortium of Noble, Delek Group & Ratio Oil revised the plan of development, progressed several gas sales agreements and overcame legislative hurdles that had threatened its investment in the project.
It was however minority partner Delek Group that announced its board had authorized project sanction around mid-December 2016. Local Israeli reporting at this time indicated Ratio Oil had also given its approval. To date, Noble Energy hasn't announced project sanction; some analyst speculation exists currently that the operator will announce the FID prior to stating its 4Q16 results, which is scheduled February 14, 2017.
Megaproject sanction announcements tend to be a single united announcement made by the operator on behalf of its partners - this approach still is being followed: e.g. with the mid-2016 sanction of the Tengiz FGP/WPMP project. However, at least with the 3 projects we've looked into here, perhaps the price plunge since 2H14 has stressed the upstream project sanctioning process and given observers a peek into the inner workings of these FIDs. Operators and partners have either reported their internal project approvals, or media has given a running commentary as various partners signed off. Perhaps the players wish to demonstrate project advancement, signify that they've done their job and the ball is with their partners. Or perhaps… it's the industry that needs to see evidence of this forward momentum; it is us who need positive signs of progress in these challenging times.
*Rystad Energy UCube estimates the Coral FLNG, Leviathan Phase 1 & Mad Dog Phase 2 projects will sanction approximately 3,5 billion oil equivalent barrels of liquids and gas reserves for a combined spend of 19,5BUSD from FID to first hydrocarbon production, with the projects plateauing at about 370 thousand barrels of oil equivalent per day by the middle of the next decade.
upstream thoughts from EY global oil and gas transactions review
In 2016, global deal value increased 16% year over year, but volumes fell 27%, according to an annual global oil and gas transactions review from EY. As part of the report, EY leaders commented on activity in the upstream sector.
"Upstream deal value fell 14% to US$130 billion in 2016 compared to US$153 billion in 2015," but upstream transaction activity improved in 2016 if you exclude Royal Dutch Shell's $82 billion megadeal purchase of BG Group in 2015, the report detailed.
Upstream transactions were up in North America-US$76 billion compared to the US$43 billion in seen in 2015. The Permian Basin saw record numbers in terms of deal volumes.
While North American transactions progressed, deal activity "remained muted in other geographies as buyers and sellers struggled to bridge the valuation gap," EY said, but expect upstream deal activity in higher-cost geographies, like South America, Africa and parts of the Middle East and Asia, "as portfolio optimization continues and national oil companies (NOCs) experience pressure from cutbacks."
Lundin discovers oil and gas in Barents Sea
Lundin Norway AS made an oil and gas discovery in the Barents Sea, the Norwegian Petroleum Directorate noted in late February. Lundin, operator of production licence 533, completed the drilling of wildcat well 7219/12-1 and appraisal well 7219/12-1 A.
The primary and secondary exploration targets for wildcat well 7219/12-1 were to prove petroleum in two Early Jurassic and Late/Middle Triassic reservoir levels (Tubåen and Fruholmen formations). The primary exploration target for appraisal well 7219/12-1 A was to collect geological data in Early Jurassic/Late Triassic sandstone rocks (Nordmela and Tubåen formations).
Well 7219/12-1 proved a total oil column of about 60 meters and an overlying total gas column of about 60 meters, of which 55 meters and 45 meters, respectively, were in sandstone with good reservoir properties in the Tubåen formation. Well 7219/12-1 A confirmed a mostly equivalent gas and oil column in the Nordmela and Tubåen formations with good reservoir properties.
Preliminary estimations of the size of the discovery are between 5.5 and 16 million standard cubic meters of recoverable oil equivalents. Further delineation and production testing of the discovery will be assessed. The wells were not production tested, but extensive data acquisition and sampling have been carried out.
Well 7219/12-1 was drilled to a vertical depth of 2475 meters below the sea surface and was terminated in the Snadd formation in Late Triassic. Well 7219/12-1 A was drilled to a vertical depth of 1800 meters below the sea surface and terminated in the Fruholmen formation in Late Triassic. Water depth is 323 meters.
The wells will now be temporarily plugged and abandoned.
EIA: US shale oil production to jump in march
For the third month in a row, the EIA expects US shale oil production will grow. In a drilling production report dated February 13, the agency said it expects production from seven major regions to rise by a total of 80,000 barrels a day to 4.87 million barrels a day in March.
