UPSTREAM NEWS

W&T MAKES EWING BANKS DISCOVERY

W&T Offshore has made a discovery at Ewing Banks. Production from the Ewing Banks 954 A-8 exploratory well (anticipated at a restrained gross rate of nearly 2.3 Mboe/d) is slated for the first quarter of 2016. Success at the 954 A-8 exploratory well "should further help WTI navigate 2016 across a backdrop of suppressed commodity prices," said Seaport Global Securities analysts after the announcement. "On Q3's call, management spoke of potential plans to run a free cash flow neutral program which greatly benefits from recent large offshore projects coming online. Additional production from the 954 A-8 well should further aid these efforts," the analysts said.

BDO: ENERGY INDUSTRY EXPECTS STORMY 2016

Sixty percent of energy CFOs expect changes in oil and gas prices to be the single most important factor dictating whether the industry recovers in the coming year-more than double the number expressing similar sentiments last year, according to results released from BDO USA LLP's 2016 Energy Outlook Survey. Though 2015 got off to a tumultuous start for the sector, CFOs seemed cautiously optimistic in last year's study that the oil price slump would be short-lived. However, the anticipated recovery has yet to materialize, and CFOs now expect the pain to continue well into 2016.

Low oil prices have forced a number of upstream energy companies to reassess their current portfolios and make strategic cuts in an effort to save. With oil giants like Shell and Statoil announcing plans to abandon major drilling projects, it comes as little surprise that more than half of the CFOs surveyed (53%) say they have experienced project terminations or delays in the past year. This is up from 27% in last year's study and is the highest proportion reporting cancellations since the last industry downturn. Of those respondents experiencing project disruptions, an overwhelming majority (96%) cite poor project economics as the leading cause.

"2015 was a difficult year for the US energy sector as we exited the boom period and entered a bust phase," says Charles Dewhurst, leader of the Natural Resources practice at BDO. "Though the industry has historically been able to bounce back fairly quickly, the duration of the current price decline is forcing companies to step back and identify ways to survive with fewer resources at their disposal and no clear end in sight."

Aggravating the tenuous industry environment is continued uncertainty about the economy and whether low prices will help move the oil demand curve in the coming year. Fifty-six percent of CFOs say they feel worse about the US economy and its impact on demand for oil and gas products, in contrast to last year, when nearly two-thirds felt better about economic conditions. CFOs are similarly pessimistic that demand will grow substantially in 2016, with only 28% and 38% expecting global and domestic oil demand to increase, respectively. This aligns with recent projections from the International Energy Agency, which estimates global demand reaching just 900,000 barrels per day through 2020.

These findings are from the BDO 2016 Energy Outlook Survey, which examines the opinions of 100 chief financial officers at US oil and gas exploration and production companies. The nationwide survey was conducted from September through November 2015.

Additional findings

• Managing supply will be critical to industry rightsizing. With global oversupply continuing to hold prices down, the CFOs surveyed expect to see supply cuts in the year ahead. Forty-three percent believe the domestic supply of oil will decrease-a nearly threefold increase over the number expecting declines in 2015-and 17% plan to decrease their own exploration activities in an effort to improve profitability. And as OPEC continues its game of oil price brinksmanship by flooding the market with supply, 41% of CFOs say the organization's actions will be the foremost influencer of commodity price volatility in the next year.
• Pricing and supply pressures extend to natural gas. While the crash of the oil market remains top of mind for the industry, CFOs are also carefully watching natural gas inventory and prices. Oversupply and lower prices are squeezing natural gas producers, with December delivery prices on the New York Mercantile Exchange hovering around $2 per million British thermal units. As a result, only 40% of CFOs expect the domestic supply of natural gas to increase in the coming year-a decrease of 38% from last year's survey (64%). Nevertheless, CFOs are somewhat optimistic that demand will remain robust: Forty-six percent believe global demand for natural gas will increase in the next year, and more than half (54%) say domestic demand will grow, as well.
• The looming general election highlights lingering regulatory concerns. When asked about their leading political concerns in 2016, nearly one-third of CFOs said that the upcoming general election worries them most, approximately double the number expressing this concern last year. Meanwhile, 29% cite more restrictive government regulations, down from 38% last year.

"Though concerns surrounding the regulatory environment nominally declined this year, the uptick in anxiety around the general election highlights continued uncertainty throughout the industry," says Clark Sackschewsky, partner with BDO's Natural Resources practice. "The Obama administration has put numerous stakes in the ground on energy policy, from incentivizing alternative energy production to rejecting the Keystone XL pipeline, but it remains unknown which policies and regulations the next administration will affirm, reject or introduce."

CHEVRON CONFIRMS FIRST PRODUCTION FROM MOHO BILONDO PHASE 1B OFFSHORE THE REPUBLIC OF CONGO

Chevron Corp. subsidiary, Chevron Overseas (Congo) Ltd., and partners have started production from the deepwater development Moho Bilondo Phase 1b offshore the Republic of Congo.

Located approximately 46 miles off the coast of Pointe-Noire in water depths ranging from 2,400 to 4,000 feet, Moho Bilondo Phase 1b is part of the Moho Nord joint development project, the largest-ever oil and gas project undertaken in the Republic of Congo. The Moho Bilondo Phase 1b project includes 11 wells tied back to an existing floating production unit and is expected to produce a total of 40,000 barrels of oil per day.

The Phase 1b development targeted reserves in the southern portion of the Moho Bilondo permit area. The Moho Nord subsea development, which will be the second phase of the Moho Nord joint development project, is in the northern part of the area.

The Moho Nord development project involves a tension-leg platform, a floating production unit with a processing capacity of 100,000 barrels of oil per day, and a 50-mile pipeline to the onshore Djeno Terminal.

Chevron Overseas (Congo) Ltd. has a 31.5% working interest in the Moho Bilondo permit area, along with Total E&P Congo (53.5% working interest and operator) and the national oil company, Société Nationale des Pétroles du Congo (15% working interest).

CNOOC SIGNS PSC WITH HUSKY

CNOOC Ltd.'s parent company, China National Offshore Oil Corporation (CNOOC), has signed production sharing contract (PSC) with Husky Oil Operations (China) Ltd. for Block 15/33 in the South China Sea.

Block 15/33 is located in the Pearl River Mouth Basin of the South China Sea. The block covers a total area of 155 square kilometers with a water depth of 80-100 meters.

According to the terms of the PSC, Husky shall act as the operator during the exploration period and conduct exploration activities in the block mentioned above, in which all expenditures incurred will be borne by Husky. Once entering the development phase, CNOOC has the right to participate in up to 51% of the working interest in any commercial discoveries of the block. After signing the above-mentioned PSC, except for those relating to CNOOC's administrative functions, CNOOC will assign all of its rights and obligations under PSC to CNOOC China Limited, a subsidiary of CNOOC Ltd.

ANADARKO REACHES MOZAMBIQUE LNG MILESTONES

Along with the concessionaires of Offshore Area 1 and Offshore Area 4, Anadarko Petroleum has signed a unitization and unit operating agreement (UUOA) for the development of the natural gas resources that straddle the two blocks.

Under the terms of the UUOA and previously announced Decree Law, the Prosperidade and Mamba straddling natural gas reservoirs, which comprise the unit, will be developed in a separate but coordinated manner by the two operators until 24 tcf of natural gas reserves (12 tcf from each area) have been developed. Subsequent development will be pursued jointly by the Area 1 and Area 4 concessionaires through a JV operator (50/50 Anadarko and Eni). The UUOA is subject to approval by the Government of Mozambique.

In addition, Anadarko reached a memorandum of understanding (MOU) with the Government of Mozambique to provide natural gas from its Mozambique LNG development for domestic use. Under the terms of the MOU, Offshore Area 1 will provide initial volumes close to 50 MMcf/d per train (100 MMcf/d) for domestic use in Mozambique. An additional 300 MMcf/d may be sold in future years.

Anadarko is the operator of the Offshore Area 1 Block with a 26.5% WI. Co-venturers include the National Oil Company Empresa Nacional de Hidrocarbonetos (15%), Mitsui E&P Mozambique Area 1 (20%), Beas Rovuma Energy Mozambique (10%), BPRL Ventures Mozambique (10%), ONGC Videsh (10%), and PTTEP Mozambique Area 1(8.5%). Eni operates Area 4 with a 50% indirect interest owned through Eni East Africa, which holds 70% of Area 4. Other partners are Galp Rovuma (10%), KOGAS Mozambique (10%), and ENH (10%). CNODC owns a 20% indirect participation in Area 4 through Eni East Africa.

BP US LOWER 48 ONSHORE BUYS DEVON'S SAN JUAN ASSETS

BP is expanding its operations in the San Juan basin, acquiring all assets in the region from Devon Energy, through its US Lower 48 Onshore business. Following government agency approvals, BP plans to take over operation of the assets, located mostly in the Northeast Blanco Unit, a plot of federal lands in New Mexico. The unit, in San Juan and Rio Arriba counties, holds 480 wells spread across 33,000 gross acres. The transaction is expected to close in the first quarter of 2016.