IHS: Consolidation of Small E&P Cos Could Increase

- IHS: Consolidation of Small E&P Cos Could Increase

Monday, August 29, 2011
IHS CERA

The uncertainty of future oil prices, combined with falling share prices on both London's Alternative Investment Market (AIM) Index and the Standard and Poor's (S&P) Index in the U.S., has made close to 100 small exploration and production (E&P) companies in the U.K. and two dozen large U.S. producers, prime targets for consolidation in order to achieve future funding, reports IHS in its IHS Herold Oil and Gas Perspectives Report.

"There are nearly 100 E&P companies listed on London's AIM, and while a number of these are small companies, numerous others have participated in apparently significant discoveries around the world that may turn into important oil and gas fields," said Robert Gillon, director of energy company research at IHS, and author of the weekly IHS Herold Oil and Gas Perspectives. "However, almost none of these AIM-listed E&Ps have reached the production stage, which means they are not yet generating revenue. Without revenue, they are dependent on future funding to continue operations. That funding can be accomplished either through additional share sales or a farm-out of an interest in their exploration licenses."

In addition to the AIM-listed companies, Gillon said there are about two dozen large (market cap $0.5 billion to $3.0 billion) U.S. oil and gas producers that could be ripe for consolidation as well. "Some of these U.S. companies are also reliant on external financing to fund their capital budgets, but all of them have developed reserves that could be sold in the very liquid transaction market."

Gillon said it is probably "not a coincidence" that the AIM-listed stocks peaked at about the same time as the Greek financial crisis, while the U.S. companies started to slide after oil prices topped out in April. On August 4, both indices took a serious hit, with the London group down 9.6 percent, while the S&P index shed 7.8 percent, and both have suffered further losses since then.

The AIM index is now down by 40 percent from its recent peak, which means the average company would need to sell almost 70 percent more new shares to raise the same amount of money as it did a few months ago. Meanwhile, optimism about future oil prices is more subdued, and the potential farm-in partners recognize that. As a result, they will demand more favorable terms on the deal. But commitments to the host government must be honored to hold the license.

"We believe there could be a wave of consolidation in the exploration sector," said Gillon. "Selling out will become the most attractive alternative."

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Small Oil Cos Survive GOM's Deep Waters

Small Oil Cos Survive GOM's Deep Waters

Thursday, April 21, 2011
Dow Jones Newswires
by Ryan Dezember

When the staggering costs of BP's deep-water Gulf of Mexico oil spill became clear, investors feared that small, independent oil and natural-gas producers would have to leave the area.

These companies, relatively small by energy-industry standards, didn't have pockets as deep as those of the big oil companies--a necessity in the event of another spill.

But, surprisingly, few companies have abandoned their offshore positions a year after the deadly Deepwater Horizon blast, which killed 11 and unleashed the largest marine oil spill in U.S. history.

Not only will they remain, some small producers vow, but they intend to double down on their bets on deep-water drilling in the U.S. Gulf.

"We're staying," said Al Reese Jr., chief financial officer of ATP Oil & Gas, in an interview.

The Houston-based company, which has a market capitalization of less than $1 billion, last year saw its shares plummet due to its presence in the Gulf's deep water.

But on March 18, when the government announced it had approved a deep-water drilling permit for ATP, shares jumped, ending the day 4.6% higher.

Fellow oil company W&T Offshore bought deep-water properties from Shell and Total after the spill. Plains Exploration & Production Co. (PXP) recently decided to keep its deep-water assets, which it had sought to sell after the spill.

"The Gulf is going to get stronger," W&T Chief Executive Tracy Krohn said in a recent meeting with investors.

Throughout the history of the U.S. Gulf of Mexico's energy industry, small companies have played a big role in making the basin one of the world's most productive oil and natural-gas basins. In the 1990s, as production declined in the Gulf's heavily explored shallow waters, scrappy independent companies were among the first to venture out to the outer continental shelf and prove that there were big reserves in depths greater than 1,000 feet.

But the Deepwater Horizon disaster, for which BP expects to pay about $40 billion, raised what were already high stakes.

Only giants with global empires such as BP, ExxonMobil and Chevron could absorb such a hit. Indeed, many independent companies couldn't afford spill bills such as the ones for billions of dollars that BP has tried to make its partners Anadarko and Mitsui Oil Exploration pay for the Deepwater Horizon clean-up. According to Deloitte, only 10 of the roughly 300 companies operating in the Gulf have a market capitalization of more than $30 billion and about 40% are worth less than $5 billion.

Tudor Pickering Holt & Co. analyst David Pursell said that, while there has been no broad exodus of independent producers, their future in the Gulf's deep waters remains unclear. "The questions are kind of still unanswered," Pursell said. "Can these guys get access to [spill] containment equipment? Can they get access to enough insurance?"

Producers said it has been challenging, but they have found affordable insurance, mainly because BP was self-insured and didn't roil the market with massive claims. And the industry has developed a pair of spill-containment cooperatives that have allowed producers to show regulators they can control a runaway well.

One lingering fear: lawmakers setting prohibitively high liability limits. After the Deepwater Horizon disaster, there was talk in Congress about raising oil companies' liability cap under the Oil Pollution Act from $75 million to billions of dollars. That change never happened--but it doesn't mean it never could.

"It's possible to write legislation that effectively keeps all the little independents out of the Gulf," said Bob Zahradnik, director of the Southern Ute tribe's Growth Fund, which owns oil and gas explorer Red Willow Production Co.

Red Willow, formed by the tribe in 1992 to buy back natural-gas leases on its Colorado reservation, dove into the Gulf's deep water in 2006. It now has interests in 21 deep-water leases.

Typically Red Willow, which joins with Houston Energy to locate offshore prospects, bids on production blocks at government auctions and then brings in larger partners to help it to develop the reservoirs.

"There's a niche for people like us," said Zahradnik, formerly of Exxon Mobil, adding that the company looks for 50-million to 100-million barrel oilfields, which Big Oil considers small fry but which are big game for independents. "I mean, 50 million barrels is $5 billion."

In late February, U.S. regulators approved the first deep-water drilling permit since BP's spill, allowing independent oil company Noble Energy to drill what began as a Red Willow prospect in about 6,500 feet of water.

Though its interest has been reduced to 20.25% after selling larger stakes to Noble and BP, Red Willow expects the well, on which work began last week, to produce a "flash of cash" that it can reinvest in longer-lasting, less-risky onshore ventures, said Rob Voorhees, Red Willow's president and chief operating officer.

"You spend a lot of money and get a little in return onshore," Voorhees said. In deep water, however, "we have one well that's going to swing the nature of our business."

EnQuest Seeks Tax Allowances to Develop Small Oilfields

EnQuest Seeks Tax Allowances to Develop Small Oilfields

Tuesday, April 05, 2011
Dow Jones Newswires

by  Iain Packham

EnQuest will look into developing small, so far commercially unviable, oil and gas fields in the North Sea if the U.K. government offers incentives to offset the U.K. tax hike on oil production, Chief Executive Amjad Bseisu said Tuesday.

Bseisu told journalists on a conference call that the firm is discussing the matter with the government, but didn't go into further detail.

EnQuest will continue to study options outside of the U.K. if the tax regime here isn't palatable, he said.

Bseisu said that one positive effect from the tax hike is that other companies are looking to sell their U.K. North Sea assets. Prices--especially where large amounts of capital are required for development --have fallen in the last few weeks, he noted.

"We will continue to look at acquisitions in the U.K. and I think we will be able to succeed in acquiring either assets or companies," the CEO said. EnQuest doesn't have any specific targets as yet, but is examining opportunities and has a lot of firepower, he added.
Bseisu said the firm has "cash flow of several hundred million and credit lines of several hundred million," and so could manage an acquisition in the half billion-to-billion dollar range quite easily.

The group's 2010 pretax profit soared to $55.8 million, from $11.0 million in 2009 and revenue rose to $583.5 million from $234.0 million, as oil and gas prices and oil and gas production levels rose significantly.

The company has raised its 2011 production target by 26% to 26,500 barrels of oil equivalent a day, after 2010 pro forma average production increased 55% to 21,074 BOE/D. Bseisu said he is confident of meeting the 2011 target organically.

EnQuest's proven-plus-probable reserves rose around 10% to 88.5 million barrels of oil equivalent.

The company has earmarked around $300 million for capital expenditure in 2011, with $250 million to go on development drilling and facilities and $50 million on exploration and appraisal. In 2010, capital expenditure was around $196.3 million on a pro forma basis.
At the end of 2010, the company had net cash of $41.4 million, after repaying $88.8 million of net debt.

Analysis: Potential Exists for Small Scale LNG Production in Southeast Asia

Analysis: Potential Exists for Small Scale LNG Production in Southeast Asia

Thursday, March 24, 2011

Rigzone Staff

by  Karen Boman

Investments in infrastructure for small scale liquefied natural gas (LNG) power production might be justified when the total demand for electric power exceeds 500 MW within a 120,000 square kilometers island region with no pipeline connection, according to a joint industry project (JIP) on the future small scale LNG value-chain in Southeast Asia.

Classification society Det Norske Veritas (DNV) reported that the study, which examined two areas of future LNG use in Southeast Asia, also identified noteworthy potential for LNG as a fuel for ships in regional trade, and predicts a future market for LNG bunkering in Singapore.

"Substantial market opportunities will evolve throughout the small scale LNG value-chain in Southeast Asia in the next decade," said managing director Bjorn Tore Markussen of DNV's Clean Technology Centre in Singapore, who has also headed up the JIP. "The companies who seize the opportunities early in these evolving markets will be well positioned for interesting growth if entry risks are managed properly."

The study identified multiple island regions in Southeast Asia outside any pipeline grid where total demand for electrical power exceeds 500 MW. Based on a number of underlying parameters and assumptions, various financially feasible scenarios were modeled. For example, Eastern Indonesia might have a demand for up to 70 small scale 50 MW power plants by 2020. Equally, Southern Philippines could require up to 45 plants, while the estimated demand for Northern Vietnam might be seven small power plants.

The distribution of LNG to these power plants would require close to 60 small scale LNG carriers by 2020 if this number of plants is built. As the price of crude oil is rising faster than the price of natural gas, the financial incentives for using LNG for power generation are equally increasing with considerable environmental benefits to be gained from such a fuel switch.

Shipping is a vital part of the future LNG supply chains in Southeast Asia, DNV noted. The study forecasts that container feeders might be the first ship segment to adopt LNG for propulsion regionally. About 20 % of the regional container feeders are up for renewal by 2020. Local and regional ferries are also well suited to use LNG for propulsion in the longer term.
Singapore is identified as the regionally preferred site for future LNG bunkering, due to large shipping volumes, calm seas for bunkering operations and the fact that infrastructure for LNG bunkering is already under construction. With stricter requirements for environmental performance, and an increasingly competitive expected price for LNG as fuel for ships, a shift to LNG propulsion may have an exciting impact on Singapore as a bunkering hub.

Lam Yi Young, chief executive of the Maritime and Port Authority of Singapore (MPA), said, "With the push towards cleaner fuel for ships, the results of this Joint Industry Project are timely in evaluating the potential for LNG bunkering services in Singapore. LNG's lower carbon dioxide emissions, minimal sulfur and nitrogen content as well as the abundant availability, allows it to be a viable alternative fuel source for ships, which is also in line with MPA's commitment to promoting environmentally-friendly shipping."
"The consortium is eager to use the findings from the LNG study to build business for the participants and to inform regional stakeholders about the opportunities that lie ahead," said Markussen, "DNV as a company has already decided to invest into a next phase of the JIP. We are now inviting old and new members to join the consortium and one or more of the many project streams that will be kicked off in April and May."

The JIP, which was initiated by DNV during Singapore Maritime Week in 2010, included a consortium of 16 participants from all parts of the LNG value chain, including Gazprom, Rolls-Royce, Wartsila, Hanjin Shipping, I.M. Skaugen, Keppel, The Linde Group, Trans LNG, DNV, BW group, BBG, the Maritime and Port Authority of Singapore, and the two Singapore universities NUS and NTU. The JIP is also supported by Innovation Norway and The Norwegian Embassy in Singapore.

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