E&P Notes (July 2020)
Authors: Flowers Lynnmarie P. 
Published: August 2020

Price-Plunge Fallout: Let’s Make a Deal

Lynnmarie P. Flowers, Technology Editor

In efforts to preserve cash and repair busted balance sheets in reaction to depressed prices, companies are continuing to withdraw capital and curtail investments worldwide.

Oil and gas companies are selling off assets with recoverable reserves of more than 5 billion bbl of liquids and 7.5 billion BOED of natural gas, Rystad Energy estimates. While some divestments were announced before the COVID-19 crash, more were added in its aftermath.

The research and consultancy group examined divestment opportunities announced since the fourth quarter of 2019 that exclude unconventional and US onshore assets.

ONGC Awards 49 Marginal Fields to 7 Companies

The Oil & Natural Gas Corporation (ONGC) has invited bids for partnership to raise production from 64 marginal fields that were given to the company by the government without bidding. As they are small in size, these fields are uneconomical for a larger company.

The 49 marginal producing oil and gas fields, spread across 13 onshore contract areas, were awarded to seven companies. The deals were made under a government plan to raise production from these acreages that are not economical for the state-run flagship explorer.

Revenue will be shared on incremental production over and above the baseline production under business as usual. The selected contractors will not be required to reimburse any expenditure on the fields already incurred by ONGC.

These contracts will be for a period of 15 years, with an option to extend by 5 years.

Neptune Exits Deal With Energean for North Sea Assets

Neptune Energy will terminate its agreement to acquire Edison E&P’s UK and Norwegian subsidiaries from Mediterranean-focused Energean Oil and Gas.

Neptune would have paid about $250 million for the North Sea producing, development, and exploration assets and now has to pay Energean $5 million for cancelling the deal.

Energean said it is in talks with Edison E&P to further amend its agreement to exclude the Norwegian subsidiary of Edison from the deal.

The acquisition had been contingent on the closing of Energean’s acquisition of Edison, which has not yet happened.

Lower Natural Gas Production Predicted for 2020

In its May 2020 Short-Term Energy Out-look, the US Energy Information Administration (EIA) forecast US-marketed natural gas production to decrease by 5% in 2020. Production is expected to average 94.3 Bcf/D in 2020, down from 99.2 Bcf/D in 2019.

Before the economic downturn, the agency expected natural gas production would flatten in 2020 as natural gas production growth outpaced demand growth. The US set annual natural gas production records in 2018 and 2019, largely because of the increase in drilling in shale and tight-oil formations. This increase in production led to higher volumes of natural gas in storage and a decrease in natural gas prices.

Petrobras Books $11.2-Billion Impairment

Petrobras has taken a 65.3-billion Brazilian real ($11.2-billion) impairment on its exploration and production (E&P) assets, warning investors that changes in consumer behavior resulting from the coronavirus pandemic would likely be permanent.

The impairment led the firm to book a first-quarter net loss of 48.5 billion reais. The company wrote off the entire value of its shallow-water assets and said it did not expect to resume production at six high-cost production assets currently for sale.

Total impairments came to 57.6 billion reais for its deepwater assets, including the massive Marlim Sul oil field, and 6.6 billion reais at its shallow-water fields. Other unspecified assets comprised the remaining 1.1 billion reais of writedowns.

Qatar Petroleum To Acquire Two Exploration Blocks in Côte d’Ivoire

Qatar Petroleum entered into a farm-in agreement with Total E&P to acquire a 45% participating interest in two blocks located in the Ivorian-Tano basin, offshore the Republic of Côte d’Ivoire.

The two blocks, covering some 3,200 km2, present multitarget hydrocarbon prospects in water depths ranging from 1000 to 2000 m, 35 km from shore and about 100 km from nearby Foxtrot, Espoir, and Baobab fields.

The farm-in agreement is subject to customary approvals by the Côte d’Ivoire government.

Total Puts the Brakes on Oil Deal With Occidental

Total has called off a deal to acquire Occidental Petroleum’s assets in Ghana after it was not able to acquire Occidental’s assets in Algeria in May.

The French oil company was to buy a package of assets from Houston oil producer Occidental Petroleum, which acquired Anadarko Petroleum in August 2019 for $38 billion. Total had agreed to spend $8.8 billion to pick up Anadarko’s stakes in Algeria, Ghana, Mozambique, and South Africa.

That deal fell through when the global demand for fuel went bust.

NOCs To Slash Over a Quarter of Exploration Budgets

National oil companies (NOCs) globally are estimated to cut exploration budgets by over a quarter on average in 2020, said Wood Mackenzie.

The analysis is based on announcements and well plans for 11 top-spending NOC explorers, including three Chinese NOCs, PTTEP, Petronas, ONGC, Qatar Petroleum, Rosneft, Gazprom, Petrobras, and Pemex. Their combined original budgets may be reduced by about 26% or $5 billion, to around $14 billion this year.

Wood Mackenzie Senior Analyst Huong Tra Ho said, “Most NOCs consistently spent between 12% and 35% of their upstream budgets on exploration, an average of about 17% over the 2015-2019 period. This is significantly higher than the majors’ average spend of 8% of upstream budgets on exploration.”