UPSTREAM NEWS
May crude oil production trends
Crude oil production is expected to contract by approximately 56,673 b/d in May 2015 over April 2015, noted Global Hunter Securities analysts following a data pull from seven major plays in April. "When we ran a second set of observations upon the month-over-month trend, then it was indicated that all major basins were showing either outright contractions in monthly growth rates, or were contracting on an absolute, MoM basis. The only major basin with oil production growth is now the Permian," the analysts noted.
Wood Mackenzie: Lower 48 oil economics still robust
Wood Mackenzie's breakeven analysis of more than 800 individual assets in the Lower 48 reveals dramatic variations in the viability of company asset bases and sub-plays. While the majority of production is not at risk in the long term, cash flow and funding limitations could impact activity.
"Experts have repeatedly underestimated unconventionals," said Cody Rice, senior research analyst Lower 48 upstream research for Wood Mackenzie. "While low prices certainly hurt project economics, reports of the demise of unconventionals have been greatly exaggerated."
Oil and condensate production in the Lower 48 is expected to grow through 2016, but the pace of growth will slow considerably starting in the second half of 2015 according to Wood Mackenzie. Tight oil production grew by 1.2 million barrels a day in 2014 and is expected to grow 673,000 barrels a day (kb/d) in 2015 and 425kb/d in 2016.
"We forecast tight oil production will reach 7.5 million barrels a day in 2020, but the growth rate has clearly decelerated," Rice said.
There are three distinct areas (sub-plays), Springer (Mid-Con), Karnes Trough (Eagle Ford) and Nesson Anticline (Bakken) that generate at least a 10% Internal Rate Of Return (IRR) at a US$50 per barrel flat real WTI price. The 35 remaining top oil-weighted sub-plays need an average drilling and completion (D&C) cost reduction of 30% to be economic at US$50 per barrel WTI. Wood Mackenzie believes reductions of this magnitude are achievable as some companies have already announced them. However, the most prolific sub-plays, including the Parshall Sanish (Bakken) and SCOOP Woodford (Mid-Con), require >a 5% cost reduction.
In the Lower 48, North American Independents have 20% more of their liquids production breakeven under US$60 per barrel than majors and NOCs. However, flowing production - important for cash flow - accounts for 75% of the majors' oil production and 83% of their gas production in 2015. In the three marquee oil plays (the Bakken, Eagle Ford and Wolfcamp), independents dominate remaining resources with 12 billion barrels identified on an entitlement basis.
Wood Mackenzie expects the Lower 48 M&A market to remain depressed until participants reach consensus on oil price and appropriate financial metrics. Deal activity has declined dramatically, with associated spend in the first quarter of 2015 85% lower than the fourth quarter of 2014. The firm expects activity to pick up in the second half of 2015, but, says "bargain hunting" will be difficult.
Total completes $1B of onshore Nigeria divestments
Total has completed the divestment of its stake in onshore Oil Mining Lease (OML) 29 to Aiteo Eastern E&P, a Nigerian company, for $569 million. Together with the recently completed divestments of OML 24 and OML 18, Total's share of sale proceeds from these three onshore Nigerian blocks amounts to over $1 billion.
"These transactions also reduce our exposure to non-operated blocks onshore Nigeria, and allow us to focus on our core, operated developments, such as the Egina project," said Patrick de La Chevardière, Total's CFO.
Total holds a 10% stake in several onshore blocks in Nigeria via the Shell Petroleum Development Company (SPDC) Joint Venture alongside the Nigerian National Petroleum Corp. (55%), SPDC (30%, operator) and Nigerian Agip Oil Company Limited (5%). Since 2010, Total has divested its interests in eleven onshore blocks to Nigerian companies, in line with the Federal Government of Nigeria's aim of developing Nigerian companies in the sector.
Samson Resources considering bankruptcy protection
The drop in oil and natural gas prices has forced Samson Resources Corp. to consider Chapter 11 bankruptcy protection. The Tulsa, OK-based oil and gas producer, acquired by a group of investors in 2011 spearheaded by private equity firm KKR, said in a filing Tuesday that, while it is considering asset sales and securing additional debt, a bankruptcy filing may offer "the most expeditious manner in which to effect a capital structure solution."
The company's debt has grown from $3.9 billion on December 31 to $4.2 billion at the end of February and a net loss of $1.6 billion was recorded for its third fiscal quarter in 2014. Cash on hand at February's end was reported as $220.7 million. To improve financials, the company, active across the Rockies, Mid-Continent and East Texas, has employed a variety of measures, including divestitures and various budget cuts.
Arkoma basin assets were monetized for $48 million, but the marketing of certain Bakken, Wamsutter, San Juan, Permian Minerals and non-core Mid-Continent assets did not result in sales.
The company has also cut its workforce. Thirty percent of the company's employees were laid off in March. Headcount in Tulsa was reduced by 196 employees last week, and according to the filing, a field operations personnel evaluation is currently being conducted and additional reductions are expected in the coming weeks.
Following the filing, Standard & Poor's Ratings Services lowered its corporate credit rating on Samson Resources Corp. to 'CCC-' from 'CCC+'. The outlook is negative. S&P also lowered its rating on subsidiary Samson Investment Co.'s unsecured notes to 'C' from 'CCC-'. Samson Investment Co. ranked No.2 in the January OGFJ100P listing of top privately-held companies in terms of production. S&P noted the recovery rating on the unsecured notes remains '6', indicating an expectation of negligible (0% to 10%) recovery in case of a payment default.
"The downgrade on Samson reflects that we believe that the company could restructure its debt, reorganize under Chapter 11 of the Bankruptcy Code, or miss an interest payment without unanticipated significantly favorable changes in the company's circumstances," said Standard & Poor's credit analyst Stephen Scovotti.
ExxonMobil begins production at Hadrian South
Exxon Mobil Corp. has started production in the deepwater Gulf of Mexico at Hadrian South with facilities tied back to the nearby Lucius project, reducing additional infrastructure requirements.
Daily gross production from Hadrian South, ExxonMobil's deepest subsea tie-back in nearly a mile and a half of water, is expected to reach approximately 300 million cubic feet of gas and 3,000 barrels of liquids from two wells.
Hadrian South is a subsea production system with flowlines connected to the Anadarko-operated Lucius truss spar, which started production in January. With the startup of Hadrian South and Lucius, ExxonMobil's total Gulf of Mexico net production capacity has increased by more than 45,000 oil-equivalent barrels per day. ExxonMobil holds a 46.7% interest in Hadrian South and a 23.3% interest in Lucius.
"Cooperating closely with Lucius operator, Anadarko, has facilitated the development of a deepwater resource that may not have been possible using a standalone approach," said Neil W. Duffin, president of ExxonMobil Development Company.
Hadrian South is located approximately 230 miles offshore in the Keathley Canyon area of the Gulf of Mexico in about 7,650 feet of water. The discovery well, Hadrian-2, was drilled in 2008 and the appraisal well, the Hadrian-4 sidetrack, was completed in 2009.
ExxonMobil operates Hadrian South; co-venturers Petrobras and Eni hold 23.3% and 30%, respectively.
DW: Deepwater spend to reach $210B from 2015-2019
Despite imminent delays, spending on deepwater projects is expected to increase by 69%, compared to the preceding five-year period, totaling $210 billion from 2015 to 2019, according to Douglas-Westwood. As production from mature basins onshore and in shallow water declines, development of deepwater reserves has become increasingly vital, particularly to the world's oil majors, DW noted in the 13th edition of its world deepwater market forecast. The recent oil price drop has put pressure on operators' budgets, thus putting pressure on numerous operators to defer sanctioning of capital intensive developments.
DW anticipates Africa, Latin America and North America to continue to dominate deepwater Capex, with $173 billion set to be spent over the next five years with Africa forecast to experience the greatest growth. The development of East African natural gas basins has not been aided by the plunge in Asian gas prices; however, the development of these gas basins is inevitable, DW said. The expected recovery of oil prices will spark a revival in LNG-related activities in the region towards the end of the forecast period. Latin America will, however, remain the largest market and North America is expected to experience the least growth.
In addition to the low oil price environment, building oversupply and the lack of rig demand will impact Capex growth over the forecast period. In recent years, record deepwater rig demand has resulted in unprecedented levels of rig orders.
Douglas-Westwood (DW) has identified a trough in global expenditure in 2015 and 2016 primarily driven by delays to delivery of FPS units in Latin America.
Israel's Energy Minister Grants Zion License Annexation
The State of Israel's Minister of Infrastructure, Energy and Water Resources approved the annexation of 67,950 dunam (approximately 16,791 acres) into Zion Oil & Gas Inc.'s existing Megiddo-Jezreel Petroleum Exploration License No. 401. The additional acreage is derived from the southern portion of Zion's former Jordan Valley License. An approximate equal amount of acreage was relinquished from Zion's Megiddo-Jezreel License so that the overall total area of the license remains at approximately 400,000 dunam (400 square kilometers or 98,842 acres), the maximum size authorized under Israeli law. The approval, granted in late March 2015, comes almost one year after Zion filed its application to Israel's Petroleum Commissioner in April 2014.