ExxonMobil's Guyana Oil: A Trillion-Dollar Opportunity?

By David Messler - Aug 30, 2024,

ExxonMobil's Guyana oil production is rapidly expanding, with the potential to reach 2 million barrels per day by the early 2030s.

• The company's Permian Basin assets are also poised for growth, with production expected to reach 2 million barrels of oil equivalent per day by 2027.

• ExxonMobil is involved in a high-stakes dispute with Chevron over the latter's proposed acquisition of Hess, which could have significant implications for ExxonMobil's Guyana operations.

There are two main drivers for ExxonMobil, (XOM), in the face of crude’s relatively tight pricing band-low $70’s to low $80’s, for the most the past year. The first is the Guyana, Stabroek production ramp, and the related kerfuffle with Chevron, (CVX) over the nature of their proposed acquisition of Hess, (NYSE: HES). The second is the ongoing digestion of Pioneer assets and acceleration of Permian output toward 1.2 mm BOEPD.

XOM is a huge company with a lot of irons in the fire-LNG, chemicals, carbon capture, refining, biofuels, and heck, they’re even dabbling in lithium. None of these really matter to the stock in the near term. XOM moves with higher or lower oil and gas prices and is likely to perform in lockstep with these commodities well into the future. Darren Woods, CEO let loose with a pithy comment in the Q-2 call that reveals the firm priorities of this company, regardless of what other “ponds” into which, they dip their oars-

“Later this month, we'll publish our global outlook, which projects global energy demand 15% higher in 2050 than it is today. We see oil demand holding steady at around 100 million barrels per day in 2050, while demand for renewables and natural gas grows considerably.”

Let’s give Mr. Woods his due. As the CEO of a company producing ~4.3 mm BOPD of crude oil, it is fair and reasonable for us to assign a solid probability of his being right. In this article we will cover a tight focus on what we believe to be the key needle-movers for the company.

Guyana

As was noted in the early August, Bloomberg piece by Kevin Crowley the 2015 Liza discovery well almost didn’t happen. Guyana’s waters were a minefield of 40+ dry holes accumulated over the years and XOM management wasn’t convinced that this prospect met their capital allocation criteria. Even more critical was the fact that XOM’s concession was about to expire, if they were going to do it, it had to be then. Read Crowley’s piece for more of the back story, but the success of Liza changed the company and the country. Quoting Crowley from the article-

“Today, Liza is the world’s biggest oil discovery in a generation. Exxon controls a block that holds 11 billion barrels of recoverable oil, worth nearly $1 trillion at current prices. The find has transformed Guyana from one of South America’s poorest countries into one that will pump more crude per person than Saudi Arabia or Kuwait by 2027. Guyana is on track to overtake Venezuela as South America’s second-largest oil producer, after Brazil.”

Now with more than 30 discovery wells, 6-sanctioned projects, current daily production of ~650K BOPD rising to 750K in 2025 with the commissioning of Yellowtail, 1mm+ BOPD in 2027 with the commissioning of Whiptail, and up to 1.5 mm BOPD with the startup of the 7th project- Hammerhead, the company is growing Guyana production at a rate of about 20% annually. The “Guyana Effect” shows up in total return comparisons with key competitors and the overall S&P 500 index, as noted in the Crowley article.

Guyana appears to have a long ramp for future development in Stabroek, as reporting indicates that another two fields, Fangtooth-now under delineation drilling, and the  Haimara discovery-new appraisal wells planned for later this year, could take reserves well beyond the 11 bn BOIP now booked.

If the company can continue the pace of announcing a new project for Guyana every eighteen months or so, it’s not hard to imagine daily production hitting the 2.0 mm BOPD level in the XOM graph below in the early 2030’s.

As a final point on Guyana, low cost of supply is everything in long-term oil production. With supply costs of less than $35 per barrel, Stabroek fits nicely in the low-cost category assuring profitable production at any likely Brent prices.

The XOM, CVX, Hess kerfuffle

Chevron-CVX has lagged Exxon in reserves replacement over the last few years, as this OilNow article points out. Although down from 2018’s peak of ~24 bn bbls, XOM is comfortably ahead of Chevron with 16.9 bn bbls compared with 11.1 bn for CVX. Chevron’s motivation for its takeout offer for Hess, (HES) is pretty clear. With HES’ 30% stake in Stabroek, CVX saw an easy way to tack on several bn barrels on reserves with its $53 bn offer for HES. Shareholders for both companies approved the deal, but roadblocks began to crop up.

In late December of 2023, the FTC filed a request for more information on the deal but delayed any action pending the outcome of ExxonMobil’s objection to the merger. With the three-judge panel only recently confirmed recent reporting has a timeline well into 2025 for any resolution.

The core of the dispute lies in the interpretation of the Joint Operating Agreement-JOA, which contains a section on the Right of First Refusal-ROFR that governs the disposition of assets run by the consortium. XOM feels that the HES share should be offered to it under the ROFR language in the JOA. Chevron disagrees, and took pains in setting up the deal to provide for HES’ survival as an entity, effectively eliminating the “change of control” provisions of the JOA. Analysts feel the outcome will come down to the arbitration panel’s interpretation of the “intent” of the CVX/HES agreement as regards the asset. M&A expert, James English at law firm Clark Hill Law was quoted as saying-

"The crux here is whether a change of control even occurred. The three-person arbitration panel that will make the call must decide in part whether to focus on the language in the contract or to delve into Chevron's intent. “A plain language approach would be very favorable to Chevron, while if you go with the intent, Exxon may have a case," English said.”

There is no downside for XOM in this process, in my view. The valuation of the stake held by HES is a closely guarded secret, but we can make some assumptions and arrive at an estimate. 

A trillion dollar valuation has been put on the 11 billion worth of reserves already booked, implying a Brent price of $90-not out of line, but aspirational from current levels. That would put HES’ 30% share at ~$335 bn or so, 6X+ above the $53 bn takeout price. Depending on which estimate you use for the percentage ascribed to HES’ 30% as part of the CVX bid -60-80% according to experts cited in the Reuters article, it’s not hard to imagine a significant payday for XOM.

ExxonMobil is in the catbird’s seat in this scenario. They could make a counter offer for the HES stake, bid for a fraction of it, or take compensation from Chevron, if they prevail in arbitration. If it gets too pricey CVX would just walk away, accepting a $1.72 bn break-up fee from HES.

There’s no way to handicap the outcome of this dispute. As I noted there is no downside for XOM. A lot will come down to how the single word-intent, is interpreted.

The Permian

As the first full quarter of Pioneer assets operating under XOM’s umbrella approaches as Q-3 wraps we will get a peek at how efficiently this merger is being implemented. The company has put a big number on the bulletin board-$2 bn, in cost savings that will accrue from the merger annually. In a Bloomberg article, CEO Darren Woods noted that these savings will come from improved technology and extraction-fracking and cube development techniques, as well as the logistics advantages the merger provided in terms of lateral lengths and materials sourcing. XOM projects costs of supply at $35 per barrel from the Permian.

For full year 2024, XOM projects daily Permian production of 1.2 mm BOEPD across their 1.4 mm acre position in the basin. The company has a target of increasing Permian production to 2.0 mm BOEPD by 2027, implying a growth rate of 20% a year.

Your takeaway

XOM is trading at some fairly rich multiples at current prices. The EV/EBITDA is 7.65X, and the flowing barrel stat is $116K per barrel. Analysts rate the stock as Overweight with price targets ranging from $110-157.00 per share. The median is $130.00.

For those looking for well-covered shareholder returns, XOM is generating free cash of about $26.5 bn annually on a TTM basis. The company distributed $8.1 bn in dividends and repurchased $16.3 bn in stock for a modest free cash yield of ~5%. The company beat EPS estimates by ~5% in Q-2, and estimates have been raised for Q-3 to $2.14 per share. If they come in with a beat we could certainly see a move higher toward the midpoint of estimates. The inverse is also true.

XOM should be a part of every long-term energy investor’s portfolio for growth and income. Currently, it is trading near the top of its one-year range-$97-$123.00. Recent weakness in oil and gas prices would certainly argue for a judicious entry point that might come when Q-3 earnings are released in November.

By David Messler for Oilprice.com 

 

German Chancellor Visits Meyer Werft Signaling Support for Bailout

Scholz spoke with shipyard employees and media promising government support for the shipbuilder (Meyer Werft)

Published Aug 22, 2024 2:10 PM by The Maritime Executive

 

 

Financially troubled German shipyard Meyer Werft received assurances of a government-supported bailout during a town hall meeting for employees with German Chancellor Olaf Scholz and Lower Saxony’s Minister President Stephan Weil. While cautioning that the deal is not yet done, the government officials emphasized the importance of the jobs and their commitment to the company and its employees.

“The way has now been paved for the start of the restructuring and securing the future of the shipyard,” CEO Bernd Elkens and restructuring expert Ralf Schmitz told employees after meeting with the chancellor and local government officials. They said they would be following the roadmap from Deloitte’s recently presented restructuring report and would be clarifying details of the agreement with the commercial banks.

Government officials however emphasized that the final deal also requires the support of the budget committee of the Bundestag (the German federal parliament) as well as the Lower Saxony state parliament. The deal must also be structured in a form that will be approved by the European Union.

Meyer Werft’s problems are not a shortage of orders, but a financial shortfall and inability to finance future constructions. The company has 10 large cruise ship orders, including five new orders for Disney and its Japanese affiliate as well as two recent orders for Carnival Cruise Line, as well as work on a research vessel and four offshore converter platforms for the offshore wind energy industry. Media reports are saying the company booked approximately $12.3 billion in recent orders due for delivery till 2029.

The cruise lines reportedly pay 20 percent of the cost of the contract upfront and make the bulk of the payments when the ships are delivered several years later. The company took a loss on some of its recent projects due to increased labor and material costs after the pandemic and due to the war in Ukraine. Banks have been unwilling to finance the new construction without loan guarantees and are also calling for increased capital to help offset the recent financial losses.

 

Schulz told employees he understood the pressures created by the financial uncertainties while saying the government stands with the shipyard (Meyer Werft)

 

Meyer Werft in Papenburg is a major employer with Scholz emphasizing the critical importance of the maritime industry to Germany. He called the shipbuilder the “crown jewel,” for Germany in the industry. Around 3,300 people currently work at the Papenburg yard with Meyer employing as many as 7,000 with its other shipyards in Rostock (Meyer Neptun) and Finland (Meyer Turku). As many as 18,000 jobs are also associated with the yard from suppliers and contractors.

The terms remain to be set but Meyer is reportedly looking for as much as $2.5 billion in loan guarantees to finance the construction projects. In addition, the banks are reportedly demanding as much as approximately $450 million in new equity. German media is reporting the proposed terms call for the federal government and the Lower Saxony state to each provide approximately $1 billion in loan guarantees as well as making the capital infusion. In exchange, the government would receive a majority ownership stake possibly as high as 80 to 90 percent of the Meyer.

Members of the federal parliament are already saying the deal must be structured with a clear exit path for the government as well as a timeline. Some reports suggest the guarantees would only carry the company to 2027 but give the Meyer family the first option to reacquire the company. Commentators point out that a similar deal was created during the pandemic for Lufthansa and the government made a profit selling the shares. 

Meyer has previously said it faces a mid-September deadline to resolve its current financial crisis. In July, it reached terms with the unions to establish a works council and supervisory board, the standard structure for German companies. Meyer Werft had moved its corporate headquarters to Luxemburg but agreed to bring them back to Germany. In exchange, the unions agreed to a plan to reduce headcount by 300 employees first through voluntary efforts or in 2025 through layoffs.

Meyer remains one of the leading shipyards in the world for building large cruise ships and the pioneer in LNG-fueled cruise ships. For the mega-ships only Fincantieri and Chantiers de l’Atlantique have been traditional competitors but China is also working to enter the market after having built its first domestic cruise ship and currently enhancing processes as it builds its second cruise ship. 

 

Venture Global Received First Vessel at New Plaquemines LNG Plant

First vessel arrived at Plaquemines to start the cooldown before production (Venture Global)

Published Aug 26, 2024 5:34 PM by The Maritime Executive

 

 

The new Plaquemines LNG export plant in Louisiana appears to have entered its final stage of ramp-up as the first LNG vessel arrived over the weekend expected to begin the cooldown phase of the first train as the plant prepares for production. Venture Global which is developing the facility which will become the second largest export terminal in the U.S. only posted a cryptic message with a photo of the vessel and the caption Plaquemines.

The first vessel, the Malta-registered Qogir (174,000 cbm) had departed Equinor’s Hammerfest LNG terminal in Norway and according to Kpler is carrying LNG under a Department of Energy re-export license. The vessel had been holding since last week in the Southwest Pass Anchorage before DOE on Friday granted the license. Reuters reports a second vessel is also proceeding toward the facility.

Venture Global in its applications to DOE said as many as three vessels could be required during the cooldown phase of the facility. The company had received DOE permission to deploy nitrogen into the facility which is used during the purging and testing of an LNG facility. Reuters reports the plant in June and July had begun to take in gas as a step before beginning LNG production.

Venture Global had previously said it expected to begin production at Plaquemines before the end of this year. The first train will have a capacity of 1.8 billion cubic feet per day and a second train with 1.2 billion capacity is expected to go online between 2025 and 2026. When fully operational, Plaquemines will have a capacity of 20 million metric tons per annum.

The facility becomes the next major facility for Venture Global which also began its Calcasieu Pass facility in January 2022. The company hailed the approval from the Federal Energy Regulatory Commission at the end of June approving its third facility CP2 LNG. It will be located on an approximately 546-acre site in Cameron Parish, Louisiana.

In the next phase of its expansion, Venture Global in March 2024 announced that it would be the first U.S. producer to buy and operate a fleet of LNG carriers. The company revealed that it has purchased nine vessels, including three of the largest carriers, with delivery of the vessels due to start later this year.

The expansion of the operations comes as the United States is currently the world’s largest exporter of LNG. The U.S. surpassed Qatar and Australia in volumes although Qatar is currently gearing up to complete its massive North Field which will again make it the largest exporter coming at a time when global demand for LNG continues to rise.

World's 1st Machine Room Safety Accreditation for Ammonia Gas Carrier

Realizing safe operation of ammonia-fueled ships through the highest safety measures

Published Aug 27, 2024 12:36 PM by The Maritime Executive


[By: NYK Line]

The world’s first accreditation* for “Machinery Room Safety for Ammonia” (MRS) will be granted by ClassNK for the ammonia-fueled medium gas carrier (AFMGC) currently being developed by a consortium that includes Nippon Yusen Kabushiki Kaisha (NYK) and Nihon Shipyard Co., Ltd. (NSY). MRS is Class notation demonstrating a ship is equipped with excellent ammonia safety measures for the machinery room. MRS also confirms the vessel meets the highest safety measures under the guidelines for ammonia-fueled ships.

Background

The consortium to which NYK and NSY belong is aiming for AFMGC delivery by the end of November 2026. The vessel development is under the Green Innovation Fund Project*** by Japan’s New Energy and Industrial Technology Development Organization (NEDO). One of the biggest challenges in the ship’s development is to overcome toxicity in the machinery room. It is essential to have measures to keep the crew safe, such as a design to avoid ammonia leakage from piping and tanks. To overcome toxicity, the consortium has conducted a risk assessment reviewed by ClassNK, risk assessments and safety measures from a user’s point of view led by NYK’s engineers, and a study of the ship’s specifications to realize the world’s highest level of safety.

Overview of MRS Notation

The minimum design requirements for using ammonia safely on board are regulated in the ammonia-fueled ship guidelines issued by ClassNK. To receive an MRS notation, it is necessary to satisfy the optional functional requirement to minimize personal exposure to leaking ammonia in the machinery room. This notation shall be granted only to ships that meet the functional requirement and secure the highest level of safety.

Future Developments

The consortium continues vessel development, the creation of operation manuals for actual operations, etc., aiming for delivery by November 2026. Moreover, we aim to further improve safety for ammonia-fueled ships through technical know-how and achievements, including MRS accreditation, with the collaboration of consortium members.

The products and services herein described in this press release are not endorsed by The Maritime Executive.

Eidesvik, Equinor and Wärtsilä Pl Retrofit for First Ammonia-Powere OSV

Viking Energy is slated for conversion to ammonia in 2026 (Eidesvik Offshore)

Published Aug 26, 2024 4:05 PM by The Maritime Executive

 

 

In a pioneering project, Eidesvik Offshore as the vessel owner, Equinor as the charterer, and Wärtsilä will proceed with the conversion of an offshore supply vessel (OSV) to operate as an ammonia-fueled vessel. The companies believe it will become the first ammonia-powered OSV in the world when Viking Energy returns to service after the 2026 conversion.

Plans for the conversion were first announced in 2020 and were expected to proceed by late 2023. It is part of the Apollo Project funded by the EU’s Horizon Europe program designed to accelerate the transition toward a climate-neutral Europe by 2050. The companies report that in addition to the vessel conversion, the project will contribute to the preparation of regulations related to ammonia as a maritime fuel, as well as to establishing a value chain for ammonia bunkering.

The Eidesvik, Equinor and Wärtsilä Proceed with Retrofit for First Ammonia-Powered OSV was delivered in 2003 as the first LNG-fueled supply ship and has operated since its introduction for Equinor supporting its operations on the Norwegian continental shelf. The vessel is 6,000 dwt and approximately 95 meters (312 feet) in length. The vessel was fitted with a Wärtsilä battery system and in early 2026 they plan to begin the ammonia conversion. The conversion is projected to reduce emissions by at least 70 percent.

 In addition to the Wärtsilä 25 Ammonia engine, Wärtsilä will supply the complete ammonia solution, including its AmmoniaPac Fuel Gas Supply System, the Wärtsilä Ammonia Release Mitigation System (WARMS), and a selective catalytic reduction (SCR) system designed for ammonia. A service agreement, covering maintenance, is also included in the contract.

"The offshore fleet on the Norwegian continental shelf is aging and needs renewal,” said Ørjan Kvelvane, Equinor's senior vice president for joint operations support. “Investing in new technology is expensive, and there are many uncertainties. At the same time, scaling up the use of operational technology to enable the necessary transformation is urgent.”

Equinor will contribute to the funding for the conversion to ammonia operation as part of its goal to halve maritime emissions associated with its Norwegian operations by 2030. The company also extended its charter for Viking Energy to run from April 2025 to 2030, with options for further extensions.

The project is at the forefront of the efforts to introduce ammonia as an alternative fuel for maritime operations. The companies highlight that the Norwegian government has announced that it will establish requirements for low-emission solutions from 2025, and zero emissions from new supply vessels from 2029.

The Apollo project aims to demonstrate the first full-scale ammonia engine operating in an in-service environment on board Viking Energy. Fortescue recently completed the first ammonia conversion on an offshore supply vessel and has been undergoing certification and demonstration testing in Singapore where the first bunkering was also completed. Last week, NYK announced the completion of the first retrofit of a tugboat previously operating on LNG to full-time ammonia operations. It will begin operating demonstrations in Tokyo Bay. Other vessels have been ordered to be ammonia-ready as the technology is perfected and introduced.

 

Port Strikes: German Union Rejects Deal, India Settles, US Seeks Mediation

Union plan a strike in Hamburg over the proposed sale to MSC as port unrest continues around the world (Hamburg file photo)

Published Aug 27, 2024 4:03 PM by The Maritime Executive

 

 

Labor unrest continues at ports around the world during the newest rounds of contract talks and the first in many cases after the pandemic, surge in port volumes, and global inflation. Strikes or looming actions are impacting ports ranging from Germany where the union held day-long stoppages at the major ports, to Fremantle, Australia where pilot boat operators and traffic control personnel walked off the job for 48 hours and threatened more actions, and a nationwide strike was due to start tomorrow in India.

Indian officials are reporting it went down to the wire in a marathon meeting after more than three years of negotiations. The Shipping Ministry set up a Bipartite Wage Negotiations Committee in March 2021 but the country’s 12 major ports were on the verge of an “indefinite action” by around 18,000 employees affiliated with multiple unions.

Six Indian unions were demanding pay and benefit improvements backdated to January 1, 2022, and the expiration of the prior contract. Reports in the Indian media indicate an MoU was reached with an 8.5 percent basic pay increase and a 30 percent consideration for holidays. Also, there is a monthly special allowance covering the period between 2022 and the end of 2026.

The same basic issues of pay, benefits, and work rules are cropping up in the negotiations in all parts of the world. Germany’s Ver.di union reports that voting on two options presented by the Central Association of German Seaport Companies (ZDS) was rejected as “completely inadequate” by its 11,500 members. At the fourth round of negotiations in July, ZDS put forward its final offers which included a 12-month option or a 16-month variant.

The union said voting concluded on August 23 and the offers were rejected. Officially they are calling for ZDS to return to the negotiating table and improve the offers. Ver.di had staged rolling strikes between Hamburg, Bremerhaven, Bremen, Wilhelmshaven, Brake, and Emden coinciding with the prior rounds of negotiations. No strikes have yet been scheduled for the contract, but Ver.di did announce plans for an August 31 action in Hamburg ahead of the scheduled vote to approve MSC’s deal to acquire half of Hamburg container terminal operator HHLA. 

The deal for the port is bad for Hamburg says the union and in addition the wage offer they said has fallen short of members’ expectations. They note members have for two years worked hard maintaining the supply chain in Germany. 

Vessel traffic personnel and the operators of pilot and other small boats in Fremantle, Australia however reported successful negotiations. They had paralyzed the port with their first walkout, and planned to stage a second 48-hour stoppage on August 25-26 but canceled it. Terms of the agreement were not announced but officials hailed the success of the negotiations and said there would be no further disruptions in Australia’s key western port.

Looming though is still the unsettled dispute for the U.S. East and Gulf Coast ports which has the greatest potential to disrupt global supply chains. A local issue over automation stalled the efforts to proceed with master contract negotiations. There is little more than a month till the September 30 deadline with the International Longshoremen’s Association saying it will not extend past the deadline. Last week, the ILA and the U.S. Maritime Alliance (USMX) each filed with the Federal Mediation & Conciliation Service (FMCS). The ILA has refused talks for the master contract as part of its stance against port automation. USMX says it is ready to resume talks.

National Longshore Strike May Hit All of India's Major Ports on Wednesday

Container terminals at Jawaharlal Nehru Port (file image)

Published Aug 26, 2024 8:29 PM by The Maritime Executive

 

After nearly three years of wage negotiations, India's longshore unions are on the verge of a strike, and they could stage a walkout as early as 0600 hours Wednesday morning if last-ditch talks fail to produce a compromise. 

On Tuesday, the Centre of Indian Trade Unions will meet with the state-run India Ports Association for a final round of discussions. If the talks do not work out, strikes could hit all 12 major Indian seaports, including Kandla, Jawaharlal Nehru, Kochi, Kolkata, Visakhapatnam, Tuticorin and Mumbai. 

The walkouts will cover about 20,000 longshoremen and harbor tug operators, the union consortium said. The participation of tug crews in the strike means that even privately-operated, non-union terminals in the 12 affected ports may not be able to dock and undock vessels.

A full-scale strike would shut down about 2.3 million tonnes of cargo movement every day, Water Transport Workers' Federation leader T. Narendra Rao told Hindu Business Line. Rao called the ports association's approach to talks "lethargic and cruel," and said that 32 months was too long to wait for a new contract. "We are not begging for anyone's generosity or for alms, but struggling to keep our rights and privileges upright," Rao said. 

Indian shipping interests have expressed dismay at the prospect of a major port shutdown, especially since the disruption in the Red Sea has already affected the shipping routes to and from the subcontinent. However, ships' agency GAC advised that the strike might not be quite as severe as forecast. The agency believes that tanker and LNG terminals will probably not be affected, and it says that only four ports - Tuticorin, Chennai, Ennore and Vizag - have actually been served with  strike notices so far. 

"[The strike] will lead to severe delays and congestion, extended turnaround time for vessels. Prolonged disruption will also result in higher operational costs like demurrage, detention, and re-routing expenses," GAC advised. 

Eni receives approval for Geng North and Gehem gas projects in Indonesia

These approvals pave the way for the establishment of a new production hub, known as the Northern Hub, in the Kutei Basin

Staff Writer 26th Aug 2024

Indonesian authorities approve Eni’s POD for Geng North and Gehem gas projects. (Credit: QR9iudjz0 on Freeimages.com)

Eni has received approval from Indonesian authorities for the plan of development (POD) for its Geng North (North Ganal PSC) and Gehem (Rapak PSC) fields, as well as the Gendalo and Gandang fields (Ganal PSC).

These approvals pave the way for the establishment of a new production hub, known as the Northern Hub, in the Kutei Basin. Additionally, Eni has been granted a 20-year extension for the Indonesia deepwater development (IDD) licences covering the Ganal and Rapak blocks.

With these approvals, Eni is set to significantly enhance its production capabilities in the East Kalimantan region, targeting approximately two billion cubic feet per day (bcf/d) of gas and 80,000 barrels per day (bopd) of condensates.

This production will supply both domestic and international markets, leveraging existing infrastructure in the region, including the Bontang LNG plant and the Jangkrik floating production unit (FPU).

Eni CEO Claudio Descalzi said: “The approval of the Northern Hub and Gendalo & Gandang Plans of Development by the Indonesian authorities marks a crucial milestone towards the final investment decision (FID) for both gas projects, aligning with our decarbonisation and energy security strategy.

“The establishment of a new production hub in the Kutei Basin represents a significant shift for Eni in Indonesia. This outcome is the result of a consistent strategy that combines our exploration expertise with the acquisition of IDD and Neptune assets, providing us with a strong leadership position in a world-class basin, close to existing facilities and major markets.”

The Northern Hub POD includes the development of five trillion cubic feet (TCF) of gas and 400 million barrels of condensates from the Geng North discovery, which Eni announced in October 2023.

The project also involves the development of the 1.6 TCF Gehem discovery through subsea wells, flowlines, and a newly constructed floating production, storage, and offloading (FPSO) unit.

This FPSO will have the capacity to process approximately one billion cubic feet per day (bcf/d) of gas and 80,000 barrels of condensates per day, with storage for one million barrels. Gas processed on the FPSO will be transported via pipelines to onshore facilities at Santan terminal and integrated into the East Kalimantan pipeline network.

Part of the gas will be liquefied at the Bontang LNG facility, with the remainder supplied to the domestic market. The FPSO will also stabilise and store condensates for evacuation via shuttle tankers.

In addition, the approved Gendalo and Gandang POD will develop two TCF of gas reserves in the Ganal PSC using subsea wells connected to the Jangkrik FPU. This development is expected to extend the Jangkrik gas production plateau, currently at approximately 750 million standard cubic feet per day (mmscf/d), by at least 15 years.

These developments result from Eni’s partnership with SKK Migas and are anticipated to have a substantial impact on local content. They will also increase the utilisation of the Bontang LNG plant’s capacity, ensuring a consistent supply of gas for domestic consumption.

Eni plans to undertake a drilling campaign over the next four to five years to explore the near-field potential within its operated blocks in the Kutei Basin. The area is estimated to hold over 30TCF of gas, with risks significantly mitigated following the Geng North discovery.

The Italian oil and gas firm operates the North Ganal Block – Geng North field with an 83.3% participating interest, while Agra Energi holds the remaining 16.7%. In the Ganal and Rapak blocks, Eni holds an 82% participating interest, with Tip Top as a partner holding the remaining 18%.

Last week, Eni closed the previously announced $783m sale of Nigerian Agip Oil Company (NAOC) to Oando, a Nigeria-based energy solutions provider.

Canada's LNG Energy Group Creates Oilfield Services Division in Colombia

by Rocky Teodoro
|Rigzone Staff
| Monday, August 26, 2024 

|
'LEC is a one-of-a-kind operator with the equipment, personnel and expertise to offer turnkey drilling and workover solutions'.
Image by Igor Borisenko via iStock

LNG Energy Group Corp. has created a new oilfield services division at its wholly owned subsidiary in Colombia, Lewis Energy Colombia Inc. (LEC).

LEC owns and operates two drilling rigs and one workover rig that are capable of executing a wide range of well services, including new exploration and development wells, LNG Energy Group said in a news release.

“LEC is a one-of-a-kind operator with the equipment, personnel and expertise to offer turnkey drilling and workover solutions,” LNG Energy Group Chairman and CEO Pablo Navarro said. “Through the creation and deployment of the Oilfield Services Division, LEC will not only generate another revenue stream, but further strengthen its position as an integral part of the energy landscape in Colombia”.

The oilfield services division will be led by Matthew O’Neill, head of LEC’s Completion and Well Intervention Services. O’Neill has worked in the oil and gas industry for 27 years and has been with the company since 2015. He has held various roles in the industry, from a wireline field engineer up to senior management, and has worked across Europe, the Middle East, West Africa, North America and Latin America. Prior to LEC, O’Neill worked for the global oilfield services company Schlumberger, according to the release.

LNG Energy Group said it looks to mobilize its equipment and personnel in the fourth quarter.

LEC has three rigs on the ground in its Sinú-San Jacinto Norte-1 Block near Barranquilla, Colombia. They include one 1,600-HP top-drive drilling rig, one 1,000-HP top-drive drilling rig and one 550-HP workover rig. These rigs come complete with generators, pumps, blowout preventers (BOPs), mud systems, tanks and other equipment needed to fully execute drilling and workover operations, LNG Energy Group said. Together, the rigs and associated equipment have an estimated value of approximately $10 million.

According to LNG Energy Group, the Colombian natural gas market is facing a supply-demand imbalance, which was further exacerbated in 2024 by the El Niño phenomenon leading to lower rainfall, subsequent reduced hydroelectric power generation, and further reliance on natural gas fired power plants. The country can meet its growing domestic natural gas demand through additional exploration and development of natural gas fields, which should “translate into an increase in demand for efficient and effective drilling services along with experienced service providers,” the company noted.

Since LEC’s entry into Colombia in 2008, it has drilled 70 exploration and production wells and completed numerous workovers using internal equipment. The company has had a wildcat success rate nearly double the industry average, according to the release. The efforts have been led by an expert in-house team that collectively has drilled more than 3,000 wells between the Eagle Ford and Austin Chalk Shales in south Texas and in Latin America.

Toronto, Ontario-based LNG Energy Group describes itself as focused on the acquisition and development of oil and gas exploration and production assets in Latin America.

 

$1 Trillion LNG Infrastructure Boom Threatens Climate Goals

By Felicity Bradstock - Aug 23, 2024

• A report by Earth Insight warns that the planned $1 trillion expansion of LNG infrastructure could harm ecosystems and hinder climate progress.
• 
  
• Wealthy Western nations, despite advocating for a green transition, are leading this expansion and issuing the majority of new oil and gas licenses.
• 
  
• Climate activists criticize this as hypocritical and call for greater investment in renewable energy, especially in developing countries.

There is a massive natural gas project pipeline for the next decade, as several world powers have increased their gas production in line with the rise in demand. Much of this production increase will come from wealthy Western countries, with several states using gas as a transition fuel in the shift away from more polluting coal and oil. However, this is leading climate activists to point out the hypocrisy of these states calling for a green transition while also contributing heavily to the rise in global gas production. 

The demand for natural gas has been rising, as several countries decrease their dependence on coal and opt for gas as a transition fuel in pursuit of a shift to green. The Russian invasion of Ukraine in 2022, and subsequent sanctions on Russian energy, also led several gas powers to increase their output to fill the gap and ensure that countries that were heavily dependent on Russian gas could maintain their supply. This has created a mid-term rise in demand that is expected to level out as countries increase their renewable energy capacity.

A recent report by the Sacramento-based NGO Earth Insight suggests that the project pipeline for new LNG infrastructure, which totals over $1 trillion, will contribute to environmental degradation and the deceleration of net-zero progress. Earth Insight warns that greater LNG output could threaten fisheries, human health, ecosystems, and the global climate. It will also make it extremely difficult to achieve the 1.5-degree warming limit set in the 2015 Paris Agreement. 

Tyson Miller, the Executive Director at Earth Insight, stated, “Investing in LNG infrastructure – especially in some of the world’s most important nurseries of marine life – just doesn’t make any sense. At this point in the energy transition and nature crisis, it’s a one-way ticket to stranded assets and won’t help us solve the climate crisis.” 

Yet, most of the countries contributing to the massive LNG expansion pipeline are those also calling for a global green transition. Certain oil-rich states, such as Russia, Saudi Arabia, and Qatar, have been repeatedly criticised for doing little to reduce their fossil fuel production and reduce greenhouse gas emissions in recent years, in response to pressure from organisations such as the International Energy Agency (IEA) to transition to green. However, green transition champions, including the UK, the US, Canada, Norway and Australia, are increasingly being seen as “the other petrostates”, due to their continued pursuit of fossil fuels. 

These five countries contributed over two-thirds (67 percent) of all new oil and gas licences issued worldwide since 2020. One of the main criticisms of this heavy contribution to global oil and gas output is the fact that these countries have the economic capacity to fund a green transition, with little need for long-term fossil fuel production to meet their domestic demand. Olivier Bois von Kursk, the co-author of the report, stated, “It is deeply concerning that exploration activity has not just continued since the COP28 agreement but increased. Rich countries with relatively low dependence on fossil fuel revenues should be the first to stop issuing licences. We’re not seeing that in the data.” 

Harjeet Singh, the global engagement director for the Fossil Fuel Non-Proliferation Treaty Initiative, highlighted, “The hypocrisy of wealthy nations, historically responsible for the climate crisis, is staggering as they continue to invest heavily in fossil fuels – putting the world on track for unimaginable climate catastrophe while claiming to be climate leaders.” Singh added, “Despite having the economic means to transition away from fossil fuels, these nations are petrostates choosing profit over the planet, undermining global efforts to avert the climate emergency.”

So far this year, around three dozen high-capacity, low-dependency countries, including the U.S., the U.K. and Norway, have awarded 121 new licenses, which is more than the rest of the world combined. As much as 11.9 billion tonnes of greenhouse gas emissions could be released during the lifetime of all existing and upcoming oil and gas fields expected to be licensed by the end of the year. Many of these projects will be established in developing countries, which do not have the economic means to invest in a green transition. 

Several developing states have called for greater funding from high-income countries to support a green transition in the developing world during the COP climate summits in recent years. India’s Prime Minister, Narendra Modi, has repeatedly called for greater support from some of the world’s richest countries to achieve India’s green transition. In 2021, Modi called on developed countries to set a target of contributing at least 1 percent of their GDP to green projects in the developing world. Although new schemes for funding have been developed, there is a severe underinvestment in the increase of renewable energy capacity in the developing world, with most financing continuing to go to oil and gas operations. 

By Felicity Bradstock for Oilprice.com