UPSTREAM NEWS
NGL MARKETS CALL
In an early February markets call hosted by Deutsche Bank, Tony Scott, partner and managing director at research consultancy BTU Analytics, offered thoughts on the outlook for natural gas and NGL pricing and production. Scott noted the growing spread between the Northeast - where he sees continued growth in 2016 - and other plays where volumes will likely roll over further. In his view, gross lower-48 production will drop -3 bcf/d (-4%) from 82 bcf/d in 2015 to roughly 79 bcf/d in 2016, driven by lower associated gas (in the Permian and Eagle Ford in particular) and E&Ps cutting capex entirely in marginal gas plays (like SWN in the Fayetteville). This decline may come despite a +2.5 bcf/d gain expected out of the Marcellus and Utica (+14% from 2015 levels of 18-19 bcf/d), spurred by increase in pipeline takeaway capacity. The drop in production should help pricing in the Northeast. His target for 2016 is $2.50/MMbtu, increasing to average $3.20/MMbtu in 2017. However, he said, if Henry Hub goes to $4/MMbtu, where does the incremental dollar earned and invested by E&Ps go? With wet gas challenged, he argued it would move to crude plays instead, meaning that prices may not drive production as strongly as expected.
CHEVRON BEGINS NATURAL GAS PRODUCTION FROM CHUANDONGBEI
Chevron Corp. subsidiary Unocal East China Sea Ltd. began natural gas production from the first stage of the Chuandongbei Project in southwest China. Chuandongbei is one of the largest onshore gas projects developed by an international oil company and a national oil company in China.
"First gas for the Chuandongbei Project represents a significant milestone and highlights Chevron's leadership in the development of sour gas resources," said Jay Johnson, executive vice president, Upstream. "The project will be an important supplier of clean and affordable energy to the rapidly growing economy in southwest China."
The Chuandongbei Project covers over 800 square kilometers in Sichuan Province and the Chongqing Municipality. Unocal East China Sea Ltd. holds a 49% participating interest as the operator and China National Petroleum Corporation holds a 51% participating interest.
The start-up of the first train commences stage one of the project. Production is planned to ramp up over coming months as all three trains come on line. The three trains have a combined design outlet capacity of 258 million cubic feet of natural gas per day. The Chuandongbei Project is estimated to contain potentially recoverable natural gas resources of 3 trillion cubic feet.
Melody Meyer, president, Chevron Asia Pacific Exploration and Production Company stated, "First gas at Chuandongbei represents the next step in our energy partnership with China. Chevron has worked closely with China National Petroleum Corporation and the Chinese government at all levels to develop the project safely and reliably. The project has provided jobs and business opportunities for the local community, and will continue to contribute to the regional economy for decades."
QATAR PETROLEUM, CHEVRON PEN AGREEMENT TO EXPLORE DEEPWATER OFFSHORE BLOCKS IN MOROCCO
Qatar Petroleum has reached an agreement with Chevron Morocco Exploration Ltd., a subsidiary of Chevron Corp., to acquire a 30% participating interest from Chevron's 75% share in three deep-water offshore leases in the Kingdom of Morocco.
Under the agreement, which was approved by the Moroccan government, Qatar Petroleum will acquire the 30% interest in the deep-water leases, while Chevron will retain a 45% interest and remains the operator and Morocco's Office National Des Hydrocarbures Et Des Mines will continue to have a 25% interest.
The three offshore areas are Cap Rhir Deep, Cap Cantin Deep and Cap Walidia Deep, located between 100-200 kilometers west and northwest of the Morocco city of Agadir. They encompass approximately 29,200 sq. kms with average water depths ranging from 100 meters to 4,500 meters.
KOSMOS ENERGY MAKES GAS DISCOVERY OFFSHORE SENEGAL
Kosmos Energy's Guembeul-1 exploration well, located in the northern part of the St. Louis Offshore Profond license area in Senegal, has encountered gas.
Located approximately five kilometers south of the basin-opening Tortue-1 gas discovery (renamed Ahmeyim) in approximately 2,700 meters of water, Guembeul-1 was drilled to a total depth of 5,245 meters. The well encountered 101 meters (331 feet) of net gas pay in two excellent quality reservoirs, including 56 meters (184 feet) in the Lower Cenomanian and 45 meters (148 feet) in the underlying Albian, with no water encountered. Guembeul-1 has demonstrated reservoir continuity as well as static pressure communication with the Tortue-1 well in the Lower Cenomanian, suggesting a single, large gas accumulation. Moreover, the well has significantly de-risked adjacent prospectivity, including proving the existence of quality reservoirs in the Albian.
Based on the integration of the Guembeul-1 well results, Kosmos has increased its Pmean gross resource estimate for the Tortue West structure to 11 tcf from 8 tcf as a result of greater reservoir (net to gross) confidence in the Cenomanian, as well as the inclusion of volumes in the Albian. Accordingly, the Pmean gross resource estimate for the Greater Tortue Complex has increased to 17 Tcf from 14 Tcf.
Kosmos has also entered into a Memorandum of Understanding (MOU) signed by Pétroles du Sénégal (Petrosen) and Société Mauritanienne Des Hydrocarbures et de Patrimoine Minier (SMHPM), the national oil companies of Senegal and Mauritania, respectively, which sets out the principles for an intergovernmental cooperation agreement for the development of the cross-border Greater Tortue resource. The MOU enables Kosmos and the two governments to work together toward early development of the field.
Protection Group International Ltd. offered thoughts on the discovery off Senegal and Mauritania. While the announcement marks the biggest gas discovery in West Africa, the potential for delay to production is significant as Mauritania and Senegal will need to negotiate ownership of the resource, said Protection Group, a privately-owned UK business offering integrated, intelligence-led risk management solutions. Uncertainties surrounding oil and gas regulations in both countries may act as further impediments to development.
SUMMARY OF EIA ESTIMATES FROM SEAPORT GLOBAL SECURITIES
The EIA is estimating US shale gas production (gross natural gas) from the seven major plays will hit 44.26 bcf/d in March, indicating a decline of 450.8 MMcf/d over the estimate for February 2016, said Seaport Global Securities in a summary of the EIA report. "Its March estimate seems pretty aggressive to the downside, in our opinion, since the EIA's estimate for Feb. 2016 came in at 44.71 bcf/d. Overall, shale gas production at the major plays is trending lower, led by a very large decline at the Eagle Ford and a moderate decline once again at the Marcellus. The EIA's rig productivity estimates continued to edge higher for February and March, explaining some of the resilience of US oil and gas production, despite plunging rig counts and capex."
Further, tight oil production at same plays came in at slightly below 5 MMb/d in the March 2016 estimate, "the first dip below 5 MMb/d since the Sept. 2014 historical print," said the analysts. "Growth leadership from the Permian continues, but at a slower pace than in the past. Utica condensates continued to grow, indicating Utica super light production at 78.5 Mb/d, an increase of 27% on a YoY basis. Permian YoY growth, however, dims to only 8.4% YoY based on the EIA forward estimates."
BOEM: US TO OFFER 45M ACRES IN GOM FOR OIL AND GAS DEVELOPMENT
Bureau of Ocean Energy Management will offer approximately 45 million acres for oil and gas exploration and development in the Gulf of Mexico in two March lease sales.
Central Planning Area Lease Sale 241 and Eastern Planning Area Lease Sale 226 will be held consecutively in New Orleans, Louisiana, on March 23. The sales will be the ninth and tenth offshore auctions under the Administration's Outer Continental Shelf Oil and Gas Leasing Program for 2012-2017 (Five-Year Program), which makes available areas with the highest-known resource potential for oil and gas leasing. These lease sales build on the first eight sales in the Five-Year Program that offered more than 60 million acres for development and garnered $3 billion in high bids.
Sale 241 encompasses about 8,349 unleased blocks, covering 44.3 million acres, located from three to 230 nautical miles offshore Louisiana, Mississippi, and Alabama, in water depths ranging from 9 feet to more than 11,115 feet.
Sale 226 is the second of two lease sales proposed for the Eastern Planning Area under the current Five-Year Program. The sale encompasses 162 whole or partial unleased blocks covering about 595,475 acres in the Eastern Planning Area. The blocks are located at least 125 statute miles offshore in water depths ranging from 2,657 feet to 10,213 feet. The area is south of eastern Alabama and western Florida; the nearest point of land is 125 miles northwest in Louisiana.
Most of the Gulf of Mexico Eastern Planning Area (EPA) cannot be offered for lease until 2022 as part of the Gulf of Mexico Energy Security Act of 2006.
CNOOC STEPS UP PRODUCTION IN SOUTH CHINA SEA
CNOOC has started production from two new oil field developments in the Beibu Gulf Basin in the South China Sea.
The Weizhou 12-2 project, in an average water depth of 118 ft, takes in the Weizhou 12-2 and Weizhou 12-1 West oil fields and the northern part of the Weizhou 11-2 oil field.
Main production facilities include three wellhead platforms and 18 wells, all of which are in production, providing total output of around 16,000 b/d.
The Weizhou 11-4 North oil field Phase II project is in water depths averaging 131 ft. Two wellhead platforms and 15 producer wells are linked to existing adjacent facilities.
Currently, one well is on production, producing around 500 b/d of crude. Later this year, output should build to the designed peak of around 8,000 b/d.
NAVIGATING 2016
How will the global upstream sector navigate through another volatile, uncertain, complex and ambiguous year? Wood Mackenzie's upstream teams addressed this question via a collective report looking at the key items to watch for in 2016.
Capital budgets will be further cut and only the most robust, or strategically important, new projects will get the green light. As companies re-shape their portfolios for the lower oil price environment, exploration spend will be hit hard, to less than half of the 2014 peak.
Aging, high-cost fields and a lack of new investment combine to challenge operators and governments alike. But opportunities will still exist despite the tough environment.
Iran and Mexico both offer new potential and M&A activity is expected to increase as the more financially sound players make counter-cyclical moves.