"Mixed Bag" Outlook for Offshore Energy

While renewables stagnate, it’s full speed ahead for offshore oil and gas.

PUBLISHED MAY 24, 2024 11:32 AM BY SEAN HOGUE

 

(Article originally published in Mar/Apr 2024 edition.)

The “energy transition." You know the term, but where did it come from? While interest in alternative energy sources can be traced back to the oil crisis of the 1970s, it was during the 2015 Paris Agreement that the first hard goals were placed toward limiting global warming to below 2oC compared to pre-industrial levels. 

“Energy transition” refers to a shift from fossil fuels — including oil, natural gas and coal — to renewable energy sources like wind and solar as well as power storage driven by lithium-ion technology. The push for electrification and improvements in energy storage are all key facilitators of the transition.

In the marine space, a sector notably excluded from the Paris Agreement though responsible for approximately three percent of total greenhouse gasses globally, most of the recent attention has been on IMO 2050 — the International Maritime Organization’s Greenhouse Gas Strategy, which sets a target of net-zero emissions by 2050.

These goals — net-zero emissions, less than 2oC — impact investment strategy, operating procedures and equipment selection. Ultimately, they provide a lens through which the entire offshore energy sector can be viewed as investors and regulators prioritize environmental, social and governance (ESG) factors.

State of Renewables

Offshore wind has long been touted as a viable solution, yet 2023 found the sector battling stormy seas.

On the U.S. East Coast, 2023 saw major projects cancelled due to macroeconomic factors such as skyrocketing inflation, increasing interest rates and supply chain issues that impacted the entire industry. Moving forward means more favorable terms are needed for developers, but those terms will come with higher energy costs to the already squeezed consumer.

On a potentially positive note, previous windfarm partnerships were dissolved earlier this year with Equinor and bp splitting their joint ventures. Equinor will take full ownership of the Empire Wind 1 and 2 projects while bp assumes full ownership of the Beacon Wind project. Likewise, Ørsted is vying for full ownership of Sunrise Wind, working to acquire Eversource’s 50 percent stake in the project.

Sole control over these projects should allow developers to make better business decisions while gaining negotiating leverage over regulators. Because despite the noble intentions of the transition, “If it don’t make dollars, it won’t make sense.”

M&A Market

While companies are moving apart in the renewables space, they’re consolidating upstream.

Both Exxon and Chevron have made massive investments of around $60 billion each, acquiring Pioneer and Hess, respectively. Chevron’s purchase of Hess looks to future inventories, specifically the Stabroek Block in Guyana, which is core to Chevron’s future production plans.

Talos Energy recently completed its acquisition of QuarterNorth, adding production of approximately 30 thousand barrels of oil equivalent per day (Mboe/d).

In the natural gas space, Chesapeake Energy and Southwestern Energy announced a $7.4 billion all-stock merger at the start of the year that will create the largest natural gas producer in the U.S. “This powerful combination redefines the natural gas producer,” stated Chesapeake President & CEO Nick Dell’Osso, “forming the first U.S.-based independent that can truly compete on an international scale.” Dell’Osso will head the combined company. 

Investing in 2024

The energy industry is off to a strong start, largely thanks to high oil prices, which will allow the upstream industry to maintain its 2023 hydrocarbon investment level of about $580 billion and generate over $800 billion in free cash flow in 2024. These investments are driven by expected stable oil prices from 2023 with WTI crude expected to average $78.84 per barrel.

This isn’t all positive for renewables, though.

A 2023 Deloitte survey of O&G executives found that investment in low-carbon projects would be made if returns on those projects exceeded 12 to 15 percent. Yet 2022 returns on major renewable electricity projects ranged from six to eight percent. This means the 2024 focus is more likely to be on (1) addressing operational efficiency and reducing direct emissions, and (2) alternative, low-carbon fuels such as natural gas, biofuels and hydrogen.

But if investment in renewable projects is sitting this inning out, there were major upstream projects greenlighted in 2023 that will bolster the industry in 2024.

In the U.A.E., ADNOC group awarded contracts for development of the Hail and Ghasha offshore gas fields. This is an interesting project as it’s the world’s largest offshore sour gas development, and it aims to operate with net-zero CO2 emissions. The design aims to capture 1.5 million tons of CO2 per year by transporting it onshore and storing it underground – a truly integrated solution.

In the U.K., both Equinor and Ithaca confirmed investment decisions for the controversial Rosebank Field, finally approved by the North Sea Transition Authority. The project targets an estimated 300 million barrels of oil and will tie back subsea wells to a redeployed FPSO. Production is expected to begin in 2026 or 2027.

The Gulf of Mexico saw multiple projects getting the green light including Woodside Energy’s Trion project in the Perdido Basin. The project will use a floating production unit (FPU) connected to a floating storage and offloading (FSO) vessel. Shell made the decision to move forward with the Dover project in the Mississippi Canyon block, tying back to the Appomattox production hub. It also greenlit the Sparta project, which includes eight production wells tied back to a semisubmersible FPU.

And in Guyana the Stabroek Block continues to heat up with ExxonMobil sanctioning its fifth development project – Uaru. It includes up to ten drill centers and 44 production and injection wells.

FPSO Development

Increased production and investments in field developments are relying heavily on Floating Production Storage and Offloading (FPSO) units with many of them planned for Guyana.

The FPSO Errea Wittu, which means “abundance,” will be deployed approximately 200 kilometers offshore Guyana at a water depth of 1,690 meters and storage capacity of two million barrels of crude. It will be “one of the most sustainable FPSOs in the world, using an energy production system with a combined cycle turbine on board.” 

The mooring preinstallation contract has been awarded to Jumbo Offshore Installation Contractors by MODEC Guyana. The FPSO mooring system consists of nineteen legs with suction anchors, 8,800 meters of chain sections and 43,168 meters of polyester rope. Jumbo’s heavy lift vessel Fairplayer is uniquely designed with large amounts of cargo space to perform the transport and installation with a minimal number of voyages.

Igor Rijnberg, Head of Sales & Business Development Subsea at Jumbo Offshore, said, “The Jumbo Offshore team is very grateful to MODEC for this opportunity. We will use the extensive deep-water mooring installation experience gained over the last years to deliver a reliable, smart and efficient project execution.”

OSV Market

Growing EPC (engineering, procurement and construction) spend and increasing scarcity of premium vessel supply (less than 15 years old) could see OSV utilization rates reach 83 percent by the end of 2024, says Westwood Global Energy Group.

The active global OSV fleet totaled 3,077 vessels in 2023 with around 250 premium vessels still laid up. These will continue to be brought out of layup as the year progresses. Vessel day rates have also become more attractive with increases of nearly 70 percent since the recovery began in 2021. 

Despite this, however, rates still don’t justify newbuilds due to the increased costs of vessel construction. An analysis by Tidewater suggests rates need to increase to $38,000/day with utilization at 90 percent to justify ordering a $65 million newbuild to achieve its cost of capital over a 20-year life.

No newbuilds, rising demand and limited supply mean both vessel costs and day rates will continue to climb.

Limited vessel supply also means that those on the market need to operate more efficiently with full visibility for ESG requirements, and ABS has been working with operators such as Edison Chouest Offshore (ECO), which operates a fleet of nearly 300 vessels, on its decarbonization journey with greenhouse gas inventory and sustainability reporting services.

Carbon accounting, also known as a greenhouse gas (GHG) inventory, is the process by which organizations quantify their GHG emissions. Quantifying emissions provides insights to organizations so they can understand their climate impact and set goals to limit emissions. This helps manage carbon compliance risks, meets the requirement for emissions reporting and addresses stakeholder expectations.

“It’s ECO and ABS’s collective commitment to transparency and environmental and social stewardship that led us to collaborate with ABS on sustainability reports that set a new standard in corporate responsibility,” stated Bryan Rousse, ECO’s Sustainability Coordinator.

2024 and Beyond

While renewables are working through a rough patch, overall the offshore energy industry is looking strong into 2024 and beyond. Future investment in infrastructure and storage technologies will play a key role in accelerating the transition while continued investment offshore will keep the home fires burning.

The energy mix, still driven primarily by oil and gas, is benefiting from operational efficiencies and the smart use of assets. GHG planning helps offshore assets operate more cleanly and efficiently than any other time in history.

The future is looking bright.

 

Sean Hogue is Senior Vice President of Operations for Baker Energy Solutions.

 

Exxon, Shell said to mull bids for stake in Galp’s Namibia field

Dinesh Nair and Kevin Crowley, Bloomberg News

Delegates meet at the Exxon Mobil booth during the LNG2023 conference, in Vancouver on July 11, 2023. , THE CANADIAN PRESS/Darryl Dyck

Exxon Mobil Corp. and Shell Plc are among energy giants evaluating bids for a stake in Galp Energia SGPS SA’s major oil field offshore Namibia, according to people familiar with the matter. 

TotalEnergies SE and Equinor ASA are also among those considering acquiring the 40 per cent stake Galp is seeking to sell in the Mopane discovery, said the people, asking not to be identified as the matter is private.

Based on Galp’s recent “in place” estimates for 10 billion barrels of oil equivalent in the Mopane complex, the entire discovery could be worth around US$20 billion, or potentially more, some of the people said. The Portuguese firm said in an April filing that the oil estimate is before drilling additional exploration and appraisal wells.

Galp, which is working with a financial adviser to sell half of its 80 per cent holding in the asset, has called for first round bids in mid-June, according to the people. Shares of Galp were up 2.8 per cent at 3:14 p.m. Tuesday in Lisbon, putting it on track for the biggest daily gain in about a month and giving the company a market value of €15.2 billion ($16.5 billion). 

Deliberations are in the early stages and other bidders could emerge, while the Lisbon-based company could also decide to retain the stake if it cannot reach a final agreement with any of the parties, the people said.

Representatives for Galp, Shell, Exxon, Equinor and TotalEnergies declined to comment.

Galp shares jumped 21 per cent after the company said in April that a well test “potentially” indicated Mopane could be an important commercial find in Namibia following the completion of the first phase of its exploration. The “in place” estimates for 10 billion barrels of oil equivalent are the first in a series of tests to determine how much oil the discovery contains and is recoverable.

Galp’s oil finds have added to discoveries drilled off the southwest African nation, with Shell and TotalEnergies also finding oil in the area in the past two years. The finds are helping to turn the sparsely populated country into a hotspot for exploration. While no fields have yet been given the green light for development, hopes are high in the country that an economic boom similar to that seen in Guyana could follow.

Officials from Namibia’s Ministry of Mines and Energy and state oil company Namcor visited Guyana late last year seeking advice about oil developments, while Patrick Pouyanne, chief executive officer of TotalEnergies, recently drew parallels between the two countries.

Read: Africa’s Newest Oil Jackpot Comes With a Corruption Curse

Galp is the operator of the Mopane license area with an 80 per cent stake. Namcor, or National Petroleum Corp. of Namibia, and Custos each hold 10 per cent stakes.

--With assistance from Laura Hurst, Joao Lima and Francois de Beaupuy.

Exxon Pleads Not Guilty in Guyana to Misstating Equipment Value

Denis Chabrol
Fri, May 10, 2024



(Bloomberg) -- Exxon Mobil Corp. and one of its suppliers pleaded not guilty in a Guyana court Friday to charges related to overstating the value of oil-well equipment on a customs declaration by 200 times to about $12 billion.

The oil company’s local unit, Exxon Mobil Guyana Limited, is accused of making and subscribing to a false declaration. The supplier, Trinidad-based Ramps Logistics, is charged with making an untrue declaration. A magistrate adjourned the case until June 28.

Exxon and Ramps have said the issue stemmed from a clerical error by the contractor in late 2023 that denoted the value of equipment in US dollars instead of Guyanese dollars. A Guyana dollar is worth about one-half of a US cent.

In a statement, Exxon’s Guyana office said the mistake did not lead to any loss in revenue to the nation or its tax agency. The information on the customs declaration is not used to calculate any cost recovery or taxes, according to the statement. Exxon says it’s cooperating with the investigation and has provided the Guyana Revenue Authority with the corrected value.

“We are dedicated to ethical practices,” Exxon said in its statement. “Mistakes are promptly corrected when uncovered.”

The prosecutor in the case, Guyana Revenue Authority Deputy Commissioner Jason Moore, said the investigation is ongoing

©2024 Bloomberg L.P.

 

Exxon to move tech centre to Houston, shut New Jersey and Sarnia campuses

Kevin Crowley, Bloomberg News

The ExxonMobil Guyana offices at 86 Duke Street in Georgetown, Guyana, on Tuesday, Jan. 23, 2024. Photographer: Jose A. Alvardo Jr./Bloomberg

Exxon Mobil Corp. plans to establish a single North American research and technology hub at its Houston headquarters, resulting in the closure of campuses in Clinton, New Jersey, and Sarnia in Ontario. 

The closures will affect about 700 employees, with the majority being offered roles in Houston, said Exxon spokeswoman Emily Mir. The moves will be done in phases and will be fully enacted by 2028. 

“We’re excited for our North American technology organizations to be located with our business lines to more effectively develop and commercialize industry-leading technology,” Mir said. “This move will expand our research capabilities and set a foundation for growth well into the future.”

Exxon has spent the last four years streamlining a multitude of business divisions, shedding assets and reducing its workforce as part of a plan to cut US$15 billion of costs by 2027 compared with 2019. It’s currently two-thirds of the way toward reaching that target. 

The company’s Clinton campus used to house the Exxon Mobil Research and Engineering division, which was responsible for much of the oil giant’s patented products over several decades. It also played a leading role in climate research in the 1970s and 1980s.

Deepwater Exploration Is Booming Again

The majors are investing more in deepwater exploration as they are doubling down on their pledge to continue delivering oil and gas to meet global demand. The high offshore drilling activity is already showing in the rising profits and backlogs of the world's top oilfield services providers and rig charterers.  

The oil and gas majors—ExxonMobil, Chevron, Shell, BP, TotalEnergies, and Eni—are winning more acreage in frontier basins for deepwater drilling in the Atlantic Margin, the Eastern Mediterranean, and Asia, with Namibia and South America standing out, according to estimates by consultancy Rystad Energy.

Next year, capital expenditure (capex) on new deepwater drilling is set to jump to the highest level in 12 years in 2025, Rystad Energy reckons. At the same time, capex on all-new and existing deepwater fields could surge by 30% in 2027 compared to 2023, to $130.7 billion, per the consultancy's estimates cited by Reuters.

here have been some major recent exploration successes in offshore areas. These include Guyana's Stabroek block, where Exxon and partners have already made discoveries estimated at a total of 11 billion barrels of oil equivalent in place, as well as Namibia, where Shell, TotalEnergies, and Portugal's Galp have announced major oil discoveries in the past two years, including one giant find just last month.

At the end of April, Galp Energia said that the first phase of its exploration in the Mopane field offshore Namibia could contain at least 10 billion barrels of oil.

Namibia is a key exploration target for Shell, TotalEnergies, and Portugal-based Galp.

TotalEnergies and Shell have already made large discoveries offshore Namibia, kicking off the Namibian oil rush in 2022.

TotalEnergies made a significant discovery of light oil with associated gas on the Venus prospect in the Orange Basin in early 2022. Venus in Namibia could be a "giant oil and gas discovery," the French supermajor said in an investor presentation in September 2022.

Over the past two years, Shell has made four oil and gas discoveries in the Orange Basin offshore Namibia.

TotalEnergies and QatarEnergy are also expanding their efforts to explore for oil and gas in the Orange Basin offshore Namibia by acquiring a nearby license in the basin in South African waters. 

"Following the Venus success in Namibia, TotalEnergies is continuing to progress its Exploration effort in the Orange Basin, by entering this promising exploration license in South Africa," Kevin McLachlan, Senior Vice-President Exploration of TotalEnergies, said in March.

Just last week, a BP-Eni joint venture, Azule Energy, announced an agreement to take 42.5% in an offshore block in Namibia, which Azule Energy CEO Adriano Mongini described as a "highly prospective hydrocarbon region."

Despite still uncertain development designs, timing, and production levels, Wood Mackenzie estimates that Namibia's oil economics could be robust, with net present value (NPV) remaining positive even at oil prices as low as $40 per barrel.

Namibia and other deepwater offshore drilling hotspots are pushing demand for offshore rigs and drilling services, as evidenced by the most recent financial results of major service providers.

A rebound in offshore drilling and continued demand for oil and gas helped SLB, the world's largest oilfield services provider, boost first-quarter earnings and offset a weaker North American market.

Valaris, a top offshore rig provider, raised its total contract backlog to more than $4.0 billion as of April 30, 2024—the sixth consecutive quarter of backlog growth and a 43% increase from twelve months ago.

"We see strong customer demand for work that is expected to commence in 2025 and 2026, highlighting the longevity of this upcycle," Valaris's president and CEO Anton Dibowitz said.

By Tsvetana Paraskova for Oilprice.com

MONOPOLY CAPITALI$M
Exxon's $60 Billion Pioneer Deal Set to Create Energy Supergiant

ZeroHedge - May 02, 2024

• 
  
• The Biden FTC's approval of the Exxon-Pioneer deal comes amidst scrutiny from lawmakers concerned about energy price increases.
• 
  
• Exxon pledges to lower production costs and achieve net-zero emissions from Pioneer operations by 2035.
• 
  
• Approval of the merger is seen as easing tensions between the Biden administration and the oil industry amidst rising domestic crude prices and Middle East tensions.
• 
  

Having adversely intervened in virtually every other M&A deal in the past 3 years, the Biden FTC will reportedly allow Exxon's $60 billion purchase of Pioneer to go through after the companies agreed to minor concessions, Bloomberg reported citing people familiar with the matter. The announcement of the deal will likely come any moment, and the resulting deal will make Exxon - a company which Biden once said makes money money than god - far and away the biggest oil and natural gas producer in the Permian Basin, North America’s largest US oil field, and also the biggest energy company in the US.

Pioneer shares that had been down more than 2% on the day reversed those losses and were trading up as much as 0.9% on the news. Hess Corp, the target of a takeover bid by Chevron, also climbed 0.9% although the probability of that deal passing is far lower especially in light of the ongoing arbitration with Exxon over Guyana.  Chevron, Occidental and Chesapeake are among companies with large pending takeovers that are undergoing in-depth reviews before the FTC.

The Pioneer deal will combine two fast-growing Permian operations, lifting Exxon’s production in the basin to the equivalent of about 2 million barrels a day by 2027, up from about 600,000 last year.

More than 50 lawmakers - obviously mostly communists, pardon, democrats - urged the FTC in March to increase scrutiny on concerns a $230 billion wave of consolidation in would increase energy prices for consumers, squeeze suppliers and suppress wages. In short: enforce more Soviet-style central planning and crush conventional capitalism. As a result, investors had feared the agency, which has become more a ruthless enforcer of authoritarian anti-capitalism under Democrat admin puppet Lina Khan, would stand in the way of several large deals, especially in an election year when the Biden administration is seeking to prove its climate credentials and contain gasoline prices at all cost.

In response to the ruling communists, oil executives have claimed the deals will benefit shareholders, consumers and the environment. Exxon CEO Darren Woods said the Pioneer deal would lower its cost of production, making US barrels more competitive in the global market, and provide a strong platform for growth, which would ultimately benefit consumers. Exxon also pledged to reduce climate-warming emissions from Pioneer operations to net zero by 2035, accelerating the prior target by 15 years.

The Biden administration has constantly been at odds with the oil industry, but easing through what many executives see as necessary consolidation is likely to improve relations. With domestic crude prices up roughly 14% this year and tensions rising the Middle East, the administration is vulnerable to Republican attacks on measures that hurt the oil industry and raise fuel prices.

By Zerohedge.com

Why Shell Has Soured on The London Stock Exchange

By Alex Kimani - Apr 21, 2024

• British multinational oil & gas giant, Shell Plc has threatened to delist from the London Stock Exchange and list on the New York Stock Exchange.
• 
  
• Sawan has also expressed deep frustration by investors' under-appreciation of the financial performance of the company.
• 
  
• Shell still invested around 20% of its cash capital spending on low-carbon assets, compared to just 2% of cash that Exxon spent on low-carbon solutions.

A couple of days ago, we reported that scores of beleaguered solar companies in Europe are fleeing the continent amid intense competition from China and setting up shop in the U.S., thanks to the latter’s favorable solar and clean energy policies. Notably, Swiss solar module maker Meyer Burger has announced plans to wind up panel production in Germany and move to the United States after failing to garner support from the German federal government. Similarly, battery company Freyr has stopped work at a half-finished plant near the Arctic Circle and plans to relocate to the U.S. These companies hope to benefit from the 45X production tax credit (PTC) under the Inflation Reduction Act (IRA).

The exodus of European companies seeking greener pastures in America is, however, not confined to the solar sector. British multinational oil & gas giant, Shell Plc (NYSE:SHEL) has threatened to delist from the London Stock Exchange (LSE) and list on the New York Stock Exchange (NYSE). Shell CEO Wael Sawan has told Bloomberg that the company is grossly undervalued in London due to shareholder apathy to the oil and gas sector. 

Sawan has also expressed deep frustration by investors' under-appreciation of the financial performance of the company, as well as the British government’s over-taxation of its profits. Sawan has vowed to “look at all options”, including switching the group's listing to New York in a bid to close the valuation gap with American Big Oil companies Exxon Mobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX). The company’s share price is now close to a record high at £28.51, thanks in part due to geopolitical upheavals of recent years that have supported higher gas and oil prices. Still, Sawan believes the shares are undervalued.

Sawan is not the first Shell executive to adopt this line of thinking. Former Shell CEO Van Beurden has revealed that back in 2021, the company had considered listing in the U.S. when it dropped its dual Anglo-Dutch listing and moved its headquarters to London. However, it decided that leaving Europe was “a bridge too far”.

To be fair, European energy companies, including Shell, have traditionally traded at a discount to their American peers. However, the gap has been widening in recent years. For instance, in 2018, Shell’s value including debt was around 6x EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) while Exxon was valued at 7x EBITDA. Valuations for fossil fuel companies have gone south over the past years thanks to the clean energy transition. Still, Europe’s energy giants have seen their valuations deteriorate faster than their American counterparts: Shell is now valued at 4x EBITDA compared to 6x EBITDA for Exxon. 

Different business strategies could also explain the widening valuation gaps. In 2021, former CEO Van Beurden declared that oil prices would remain low forever, and aimed for an expected reduction in oil production of around 1% to 2% each year until 2030. Whereas his successor ditched that goal last year, Shell’s total oil and gas production in 2030 is expected to be roughly the same as in 2022. In contrast, Exxon’s oil output alone is set to grow at a 7% compound rate thanks to investments in Guyana as well as its recent $60 billion takeover of Pioneer Natural Resources. 

Meanwhile, Shell and its European peers continue investing heavily in renewable energy compared to America’s Big Oil companies. Despite Sawan’s efforts to scale back on green investments, Shell still invested around 20% of its cash capital spending on low-carbon assets, compared to just 2% of cash that Exxon spent on low-carbon solutions that primarily focused on capturing and storing carbon emissions. A big part of that is due to higher levels of climate activism in Europe. For instance,  earlier this year, green activists staged a protest outside Shell’s London headquarters after the company announced annual profit of more than $28bn (£22bn) for 2023, one of its most profitable years on record.

Coming To America

Shell is not alone. American bourses are increasingly proving attractive to European companies. The past couple of years has seen several European heavyweights, including plumbing and heating products company UK-based Ferguson Plc (NYSE:FERG), German chemicals company Linde Plc. (NASDAQ:LIN), Irish building and construction company CRH Plc (NYSE:CRH) and British betting company Flutter Entertainment (NYSE:FLUT), are moving to American exchanges while office co-working solutions group IWG is reportedly heading stateside, too.

More worryingly for the UK and Europe, fewer companies are joining their capital markets. Last year, LSE recorded just 23 IPOs, down from 74 in 2022. In contrast, the Americas saw a 155% surge in total IPO proceeds in 2023, with about 132 deals taking place across U.S. exchanges.

Whereas factors such as investor preferences, onerous policies and regulations in European markets and higher executive salaries have all been playing a part in this shift, NYSE’s vice chair John Tuttle says the biggest reason is simply because the U.S. stock exchange is the most attractive in the world.

“No matter how you look at the data, the United States has the deepest pool of liquidity and capital in the world, which has the broadest investor base. It has a lot of analysts and investors that are focused on growth, not just dividends and value,” Tuttle said at the World Economic Forum (WEF) in Davos.

Tuttle has also pointed out that companies that list in the US are eligible to be included in many indices that they would otherwise not access if listed in other markets, helping to bring in more capital, and a more stable shareholder base and ultimately increase their valuations.

By Alex Kimani for Oilprice.com

Namibia Racks Up Another Major Offshore Oil Discovery

By Alex Kimani - Apr 22, 2024,

• Galp saw its share price pop 20% on Monday.
• 
  
• Galp says it conducted testing operations at the Mopane-1X well in January and the Mopane-2X well in March, with, "significant light oil columns discovered in high-quality reservoir sands.".
• 
  
• The company announced that the first phase of its exploration in the Mopane field in offshore Namibia could contain at least 10 billion barrels of oil.

Shares of Portuguese integrated energy operator Galp Energia (OTCPK:GLPEF) (OTCPK:GLPEY) have popped more than 20% in Monday’s early trading session after the company announced that the first phase of its exploration in the Mopane field in offshore Namibia could contain at least 10B barrels of oil. Galp says it conducted testing operations at the Mopane-1X well in January and the Mopane-2X well in March, with, "significant light oil columns discovered in high-quality reservoir sands." The Mopane field is located in the Orange Basin, where Shell Plc (NYSE:SHEL) and TotalEnergies SE (NYSE:TTE) have made several oil and gas discoveries. Galp produced an average of just over 122,000 barrels of oil-equivalent per day in 2023.

According to Galp, flows achieved during the tests reached the maximum allowed limit of 14K bbl/day, "potentially positioning Mopane as an important commercial discovery." Citi is bullish on Galp’s discovery, saying the test results are close to a best-case scenario, and has labeled the discovery as "totally transformational" to the company.

From some perspective, Galp’s discovery is comparable to the more than 11 billion barrels of recoverable oil and gas contained in Guyana’s Stabroek block, an 6.6 million acre (26,800 square kilometers) area owned by U.S. oil majors Exxon Mobil Corp.(NYSE:XOM) and Hess Corp. (NYSE:HES), as well as China’s CNOOC Ltd (OTCPK:CEOHF). However, Chevron Corp.(NYSE:CVX) could end up partaking in Guyana’s prized asset if it succeeds in its planned $53 billion merger with Hess. Exxon is the main operator of the block with a 45% stake while Hess and CNOOC own 30% and 25%, respectively.Related: Saudi Aramco Eyes Stake in Chinese Petrochemical Firm

Galp has launched the sale of half of its 80% stake in Petroleum Exploration Licence 83 (PEL 83), which covers almost 10,000 square kilometers in the Orange Basin. Namibia’s national oil company NAMCOR and independent exploration group Custos each holding a 10% stake apiece. 

Galp plans to cede control of the development of the project to the potential buyer, likely to be a major international energy company with a strong track record in project management. Galp has hired Bank of America to run the sale process, with proceeds likely to be in the billions of dollars.

The Mopane discovery--one the largest made in the nascent basin following successful exploration campaigns by rivals TotalEnergies and Shell--could help kickstart the southern African country’s oil industry. In recent years, Namibia has attracted huge interest from international oil companies seeking to grow their production as demand. 

Despite the ongoing clean energy transition, most energy analysts have predicted that oil demand will continue growing for years, if not decades. The U.S. Energy Information Administration (EIA) is the most bullish on long-term oil demand, and has predicted a demand peak will not come before 2050, while the OPEC Secretariat sees it coming in 2045. 

Meanwhile, Standard Chartered has predicted global oil demand will hit 110.2 mb/d in 2030 and increase further to 113.5 mb/d in 2035. 

According to StanChart, a structural long-term peak is very unlikely within 10 years despite a high probability of cyclical downturns over the period. StanChart has argued that the current gulf between demand views creates significant investment uncertainty which that’s likely to force longer-term prices higher.

The oil price rally has continued losing momentum, with crude oil futures posting a second straight weekly loss, marked by big swings with geopolitical risk perception rising and falling in the Middle East. Tradition Energy's Gary Cunningham has told MarketWatch that the oil rally has stalled because there "hasn't been any increased risk to high production countries in the region" with Saudi Arabia, United Arab Emirates and Iraq staying out of the conflict. "Really, only Iran's barrels are at risk, and that would only be if wider hostilities broke out," he added.

Bank of America has tapped Targa Resources Corp. (NYSE:TRGP) and Marathon Oil Corp. (NYSE:MRO) as some of the stocks most sensitive to oil price swings. Meanwhile, Goldman Sachs has picked Targa Resources and Chevron as attractive dividend-paying energy stocks with good prospects for dividend growth. 

With a current dividend yield of 7% and a 51% payout ratio, GS has predicted that Targa will grow its dividend by 30% CAGR through 2025. On the other hand, the analysts have forecast that Chevron, with a current yield 4.0% and 49% payout ratio, will grow its dividend by 6% CAGR through 2025

By Alex Kimani for Oilprice.com

Guyana gas-to-power project to shave weeks off oil output, hit revenue

Fruit vendor organizes produce at a stand in Georgetown

Mon, Apr 8, 2024
By Sabrina Valle

GEORGETOWN (Reuters) - Guyana’s efforts to use its natural gas resources to fuel a power plant that would slash the South American nation's energy costs have snagged on construction delays and threaten to curtail the rising oil hotspot's revenue this year by about $1 billion.

The $1.9 billion gas-to-power project, Guyana's biggest effort to capitalize on its energy bounty, is embroiled in legal fights and risks cost overruns. The first phase of a 300-megawatt (MW) power plant is running six months behind schedule and full operation is not expected until the fourth quarter of 2025, officials have said.


Exxon Mobil, which operates all the oil and gas production in Guyana, is building a 140-mile (225-km) gas pipeline from its offshore Stabroek block to supply the government's project onshore: a power plant, a related natural gas processing facility and transmission lines.

The U.S. oil major's part of the project, the about $1 billion pipeline, will be ready by year-end as promised to Guyana, said Exxon Guyana country manager Alistair Routledge. That is despite having nothing to connect it to onshore because of delays on the works managed by the government.

The Stabroek block, site of the country's first commercial oil and gas discovery in 2015, currently produces crude - about 645,000 barrels per day (bpd). The new power plant will be the first to use the associated gas produced from the oil field that to date has been re-injected underground.

The gas pipeline completion will require Exxon to pause production in the third quarter at two oil production vessels to connect them to the undersea pipeline, Routledge said.

If the tie-in lasts four weeks, Exxon and its consortium partners Hess and China's CNOOC would have to halt up to 12 million barrels of oil output from two platforms that produce 400,000 bpd at peak levels.

Based on Guyana's recent sale at $85 per barrel, that could mean over $1 billion in deferred oil revenue.

An Exxon spokesperson last week declined to specify how long the production halt will last. Routledge had said the pipeline connection and maintenance works would take "weeks, not months."

The executive said Exxon is not worried about having to shut production this year for a project that will not be ready to accept the gas at least until sometime in 2025.

When the gas-fired power plant is ready is "a question of timing," said Routledge.

"It's hard to have all the facilities ready at the same time." As soon as the onshore facilities are ready, "the whole thing will start up and all those benefits will flow to the country," he said.

Guyana will miss the chance to slash its power costs this year because of the project delay. It imports expensive fuel oil for an aged and often faulty power facility. When fully running on natural gas, the new plant will reduce the nation's power costs by 50%, officials have said.

"Of course we are doing the best we can, but we have to be realistic," Winston Brassington, who coordinates the power project as a consultant for Guyana's Ministry of Natural Resources, said in an interview in February.

While it is not uncommon for major projects to run behind schedule, Guyana's government faces a presidential and parliamentary election next year and is keen to deliver tangible benefits to the nation's 750,000 residents.

"There is more pavement in the city," says fruit vendor Michael Bharrat, 23, when asked about the most visible signs of development brought by the nation's oil boom. "The government could be doing more to help poor people," he said.

Government officials are anxious to fulfill a 2020 election promise to cut residents' energy costs and want to use the gas for industries that can create jobs or for exports as liquefied natural gas.

The government has been pressing Exxon and its partners, which prior to this project have focused on oil, to develop the country's gas resources.

"There is a window of opportunity between now and the end of the decade to monetize and maximize the value of Guyana's natural gas resources," President Mohamed Irfaan Ali told oil executives during a conference in Georgetown in February. "We need to develop our gas now."

UNANSWERED QUESTIONS

Critics of the project say there are a lot of decisions yet to be made and little clarity over the next steps, including who will operate the power plant and market the gas-liquids such as propane produced by the related gas-processing facility.

Meanwhile, two contractors hired by the government for the project have filed for arbitration over costs overruns of $90 million and residents have filed lawsuits claiming unfair compensation for land taken to build the project.

“What rate will Guyana be paying for the unusable or unused gas? Is the gas sales agreement completed?" asked Elizabeth Hughes, a land owner whose family land was expropriated for the project. "There are so many questions unanswered, there is no transparency at all.”

Bharrat Jagdeo, Guyana's vice president, told Reuters in February the project is following its new schedule and will stay within its original budget.

"We believe this is nothing to worry about," Jagdeo said. "It is a two-year project, will take a few more months, but not a year" to complete.

Wally David, 66, a retired trolling boat mechanic, smiles when asked if the government he voted for in 2020 will deliver on its promise to build the gas-to-power project as promised.

"I think it will get done someday," he says from his home in Georgetown, where he complains a road construction project outside his house run by the government is behind schedule.

"Maybe in three, four years, just not now."

(Reporting by Sabrina Valle; Editing by Marguerita Choy)

 

Exxon Is Sure It Has Right Of First Refusal In Spat Over Guyana Oil Assets

By Julianne Geiger - Mar 22, 2024

Exxon has “strong feelings” that it is right in its view of the right-of-first-refusal provision in its spat over oil assets in Guyana, Exxon Senior Vice President Jack Williams told Bloomberg on Friday—in part because it wrote the contract governing the project.

Exxon has accused Chevron of trying to get around the right of first refusal provision by merging with Hess Corp—a deal that would hand Chevron Hess’s 30% stake. Chevron has argued that the right of first refusal doesn’t apply to mergers.

Hess and Exxon—and China’s CNOOC, which has also moved to arbitrate the deal against Chevron—have a joint operating agreement that dictates the terms for all consortium members.

Exxon said the dispute will make for an “interesting arbitration”, but pointed out that since they wrote the provision themselves, they’re pretty sure they know the intent behind it.

Exxon balked after Chevron announced it would merge with Hess, arguing that it was owed a chance to purchase its JV partner’s mouthwatering stake in the Guyana deepwater oil block known as Stabroek. Exxon did say, however, that it was not interested in purchasing Hess as a whole—just that it wanted to establish rights over Hess’s assets in Guyana specifically.

Exxon currently operates and owns 45% of the block.

The arbitration case against Chevron could last as many as 6 months. “We have built into that contract a remedy, which is to take it to an arbitration, so we’re just going to exercise that remedy, and let an impartial panel decide who’s right, whose interpretation is right. And so we’ll just let that play out,” Williams said.

Hess, Exxon, and CNOOC announced yet another oil discovery last Friday, known as Bluefin, adding even more to the attraction of Hess’s Guyana assets.