Global Impact of North American Shale Gas Boom Forces Qatar to Shift Focus

The global impact of the U.S. shale gas boom was in further evidence this week as Qatar Petroleum, along with its MOU partner, Centrica, made its first move into the North American exploration and production (E&P) market in a $1 billion acquisition of Canadian assets from Suncor Energy. North America had been earmarked by Qatar as a guaranteed market to sell its copious Liquefied Natural Gas (LNG) export capacity in, but the U.S. Shale boom has turned this idea on its head, as the middle-eastern NOC becomes the latest foreign power to move into the North American E&P arena. The assets being acquired (to be 40% owned by Qatar Petroleum) are well spread over the country in 3 provinces, and the British Columbia set of the assets will no doubt form a potential export opportunity as Kitimat becomes Canada’s LNG exporting center in the coming years.

A look at Qatar Petroleum’s world-standing will shed light on just how significant a move this is, and just how big an impact the shale boom is having on world energy markets. Qatar is the world’s largest LNG exporter by a significant distance with around 78 million tonnes per year (mtpa) of export capacity, and Qatar Petroleum is the operator of all of it. Its nearest rivals, including Indonesia (34 mtpa), Malaysia (24 mtpa) and Australia (23 mtpa), are dwarfed in comparison. Efforts to catch up with Qatar have been led by the Australians, with plans in place to expand the industry in that country significantly by 2020. But these plans are beginning to fall into ruin, as many projects are being cancelled or delayed for various reasons, chiefly a lack of skilled labor and extreme rises in projected costs  – Chevron’s Gorgon LNG project is now projected to cost $50 billion, for example. Plans in new regions of potential LNG exports, such as Mozambique/East Africa, are likely to be a long way off into the future, so Qatar, on the face of it, looks to be in an extremely strong position as the global leader of gas exports. Yet it still moved into this new market.

Recent years have seen Indian, Chinese and other far-eastern NOC’s moving into the North American market following the U.S. shale gas boom, countries without strong domestic markets, but this is arguably the first time a reasonably stable world gas power has felt the need, or has been forced, to join the party. Even as recently as the company’s 2011 Annual Report, Qatar Petroleum lists North America as the target market for its LNG Production “mega-trains” 6 & 7 at its Ras Laffan complex. Whilst the company also listed more ensured markets of Asia and the Middle East as destinations, these “mega-trains” have a total capacity of 15.2 mtpa, and the potential income from exporting this amount of gas to the U.S. had to be replaced, as the LNG import terminals on the American east coast became obsolete and began to sit idle after shale gas began to quickly flood the domestic market.

In the company’s first move to combat the potential harm caused by the shale gas boom, Qatar Petroleum, along with partner ExxonMobil, submitted plans to the relevant authorities to convert its 15.6 mtpa import facility at Sabine Pass, Texas, into an export terminal of the same capacity, in a clear effort to recoup some of the shortfall back by profiting on U.S. exports in the future. However, this follow-up move into Canadian E&P provides a more immediate solution to Qatar’s problem, with net 2P reserves of around 390 bcfe (90% gas) and net production of 100,000 mcfe/d. In fact, this move is not really any different to what Woodside Petroleum are planning, the company is reportedly in talks over acquiring Canadian gas assets, and Woodside is a company who recently shelved an LNG project in Australia to look for a cheaper option, standing it in stark comparison to the world leader in LNG exports.

Widescale exports of U.S./North American shale gas may be as far as 3 to 5, even 10 years into the future, so for the time being, shale gas will remain trapped within those borders. But now the world leading gas exporter has got involved, the global impact of the U.S. shale boom is extremely hard to deny, no matter how trapped the physical quantities of gas may well be.

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Hess Divests Asian Assets to Focus on Exploration, Production Portfolio

Hess Corp. announced Monday it is further whittling its operations as it aims to turn itself into a pure exploration and production company. But the move failed to quell a rebellious shareholder seeking to break the company up even further and put its own slate of board nominees in place.

Hess said in a letter to shareholders that it is exploring options for its entire downstream business and pruning its Asian portfolio, while also unveiling a share-buyback program of up to $4 billion and more than doubling its quarterly dividend. It also proposed new board members, addressing concerns that the company's board is too close to top management and not experienced enough in the energy sector.

The moves come as Hess continues to battle with hedge fund Elliott Management, which seeks to replace much of the board and argues that Hess could be worth more as two slimmer companies focused respectively on North American and international operations. But Hess Chief Executive John Hess said Monday morning that the changes announced have been in the works for months, and were not prompted by the challenge from the activist shareholder.

"This is not something that just happened overnight," Mr. Hess said Monday in a conference call with analysts. "Elliott got on the train after it left the station," Mr. Hess said.

Shares rose 3.5% Monday morning after the announcement. In a statement Monday, Elliott said the changes did not go far enough, and questioned how long Hess has taken to restructure itself and whether the company will be able to execute the new strategy.

"For a company that has hidden, for 17 years, behind an entrenched board, unfocused strategy, opaque disclosure, and flagrant disregard for its obligations to shareholders, today's promises are neither credible nor sufficient," the fund said in a statement.

Hess said it would divest its Indonesia and Thailand assets, look for a way to monetize its Bakken midstream assets by 2015, and fully exit its retail, energy-marketing and energy-trading businesses. Earlier this year, Hess closed its last remaining refinery in Port Reading, N.J., and said it would sell its network of terminals.

Some of the changes Hess announced Monday are in line with demands made by Elliott, but Hess described the hedge fund's central thesis, that Hess should divorce its holdings in the fast-growing Bakken oil formation in North Dakota from costly international assets, as "little more than financial engineering based on flawed assumptions."

The company said in its letter that Elliott's proposals are shortsighted efforts to run up the value of the stock that ignore long term potential for growth. Elliott didn't immediately respond to requests for comment.

Hess said it expects to increase production by 5% to 8% annually, driven by the Bakken. But it needs cash generated by other assets in the portfolio, which includes operations in the Gulf of Mexico, Malaysia, and Ghana, to fund work in the Bakken and in Ohio's Utica formation. Without that funding, the U.S. shale assets would likely be sold off, the company said.

But Elliott disagreed with Hess's description of its funding model, arguing that the company squandered the income from conventional assets and that it would still have access to credit markets as a more streamlined company.

"Hess's conventional portfolio did not fund the development of the Bakken, rather it funded $4.5 billion of exploration failure and over $4 billion of acquisitions of conventional assets and downstream investments," the fund wrote.

Argus research analyst Phil Weiss said he thinks becoming a pure-play exploration and production company makes sense for Hess.

"When I looked at the Elliott presentation [in January], absent this whole thing about splitting U.S. and international, I thought they made really salient points," Mr. Weiss said.

But questions remain about Hess's cost structure, which Mr. Weiss said is higher than its peers, and how quickly Hess will be able to bring that down. Hess has said its exploration and capital spending will both be lower this year, with more cuts to come in 2014.

Still, Mr. Weiss said, "it feels like they're executing really slowly."

Hess is raising its quarterly common dividend 150% to $1 a share on an annual basis, beginning in the third quarter of this year.

Two slates of board nominees will go head to head at Hess's annual meeting this spring: one group nominated by Hess, and another group nominated by Elliott.

Hess's slate of nominees includes the chief executive of General Electric Co.'s energy business, John Krenicki Jr., and ConocoPhillips's former senior vice president of exploration and production for the Americas, Kevin Meyers. Hess also appointed former Deloitte chief executive, James Quigley, who will stand for election in 2014.

Elliott's nominees to Hess's 14-member board include Rodney Chase, former deputy chief executive at BP Plc, Karl Kurz, former chief operating officer at Anadarko Petroleum Corp., and Harvey Golub, former chief executive officer at American Express Co.

Daniel Gilbert contributed to this article.

Copyright (c) 2012 Dow Jones & Company, Inc.

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Amsterdam Conference to Focus on HR Strategies for the Energy Industry

One of the top concerns in the Energy industry is the demographic factor, and consequential the shortage of skilled resources, especially in regards to the operational staff.

The upcoming Marcus Evans conference on HR Strategies for the Energy Industry addresses the current issues and invites managers and leaders to take part in the discussion.

Taking place in Amsterdam from June 10-12, leading industry experts will come together to discuss new strategies to address the technical talent shortage as well as to understand the global impact on day to day operations.

For more information on the agenda, please send an email to conferences-emea@marcusevansuk.com or click here.

This marcus evans conference will take an in depth look at the resourcing strategies the industry is implementing to address this skills shortage and highlight the profound impact this has on day to day operations. For a 10-percent early bird discount on delegate seats, use discount code: RZ13

Click here to visit the event website

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North America Oil, Gas Resources Main Focus of 2012 M&A Activity

Upstream oil and gas assets remained the focus of merger and acquisition (M&A) activity in 2012, with the total value of energy deals done last year rising to $321.5 billion from $300.6 billion in 2011, according to Deloitte's year-end 2012 report on M&A activity in the oil and gas sector.

Rosneft's $61.6 billion acquisition of BP-TNK drove buyers' focus on upstream assets, but excluding this deal, North American unconventional and deepwater oil and gas plays remained the focus of M&A activity in 2012. A few major transactions near the end of 2012 bumped total M&A deal value higher, but the number of overall deals completed declined from 698 to 576 in most segments except downstream.

National oil companies and other larger international buyers remained active in North America and other markets as they continue to expand their resource base, said John England, leader of Deloitte's U.S. Oil & Gas and vice chairman of Deloitte LLP, in the report. These companies found the North American market attractive in 2012 due to:

North America's political stability and mature investment environmentInvestment opportunities in well-known North American resource plays with predictive resultsAccess to technology and workforce expertise which has driven the exploration and production boom in unconventional and deepwater resources in North AmericaPotential continued growth that could to an export market for North American resources

Global upstream oil and gas activity grew 50 percent to $253.4 billion last year, compared with $167.9 billion in 2011, while the number of deals grew 11 percent from 518 to 461. The hunt by international companies for North and South American properties should continue as countries such as China and India address their growing energy demands and diversify their portfolios. Large integrated companies should also be active buyers as they look to the market for new properties to offset production declines that have been prevalent among the majority of supermajors.

While M&A activity in the upstream sector remained brisk last year, the oilfield services sector was quiet, partly due to the steadily declining U.S. rig count during 2012. M&A transactions totaled $17.9 billion, a 54 percent decline from 2011, and the number of deals also declined from 97 in 2011 to 57 in 2012.

Softening demand in the second half of the year also put pressure on margins and on public company stock prices, making companies less capable or interested in doing transactions. The shift by producers from dry gas to liquids also forced oilfield companies to relocate resources and services, creating inefficiencies and overcapacity in some areas and a struggle to reposition resources and labor to emerging liquids areas.

However, "2013 may be a year when M&A activity rebounds in the onshore oilfield services sector, as sellers become more realistic about pricing and consolidation," England commented.

Midstream M&A also slowed from the rapid 2011 pace, but activity remained at historically high levels, and continued to focus on transactions that will facilitate serving of the North American shale plays. Midstream M&A total value reached $35.6 billion in 2012, down from $84.5 billion in 2011.

"Growth in the midstream pipeline and processing infrastructure has not kept pace with growth in the unconventional resource plays, providing many opportunities for capital investment that we expect to lead to more midstream deal activity in 2013," England noted, adding that Deloitte believes that some bigger players could enter the market, some consolidation to take place, or a combination of both, if the midstream segment is going to continue supporting shale and tight oil activity in the United States.

Downstream M&A activity held steady, with the value of deals rising to $14.6 billion for 2012 from $11 billion in 2011. The downstream sector has been through a major reshuffling in the past two years, with the spinoff of downstream businesses of two large integrated oil companies and two significant refinery dispositions by BP. Independent companies now mainly dominate North America's refining industry after once being controlled by large integrated firms.

"U.S. refiners in general have seen their underlying business fundamentals greatly improve over the last two years, as a result of fundamental prospects and valuations being highly dependent upon geographic location and access to cheap crude and pipeline capacity," England noted.

Crude oil prices, which have settled into a stable range, set the stage for greater confidence around upstream oil investments. U.S. natural gas prices, which have traded at historic lows thanks to the U.S. shale gas exploration boom which has significantly increased supply, are not expected to rebound significantly in 2013, but deal activity may grow in the exploration and production and service areas.

"At some point the valuations in the natural gas area become so attractive that buyers with a long-term strategy could make a good deal of money," said Roger Ihne, principal with Deloitte Consulting LLP, in the report.

Thanks to technological advancements in drilling and production, the number of completions in North American fields has risen, and Deloitte expects to see improvements not only in cost effectiveness but in safety as well.

However, industry executives and other deal market participants should keep an eye on regulatory direction in the upcoming second term of the Obama administration, England noted. The oil and gas industry has been targeted by some groups in Washington looking for sources of new tax revenues, and whether they achieve the desired results could affect activity in the coming year.

"As the U.S. oil and gas industry and its activities become larger and more publicly visible across the multiple shale and tight oil basins, it is incumbent upon companies to be particularly diligent in following the evolving regulations and be sensitive to environmental concerns as these new plays are developed," England commented.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

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North America Oil, Gas Resources Main Focus of 2012 M&A Activity

Upstream oil and gas assets remained the focus of merger and acquisition (M&A) activity in 2012, with the total value of energy deals done last year rising to $321.5 billion from $300.6 billion in 2011, according to Deloitte's year-end 2012 report on M&A activity in the oil and gas sector.

Rosneft's $61.6 billion acquisition of BP-TNK drove buyers' focus on upstream assets, but excluding this deal, North American unconventional and deepwater oil and gas plays remained the focus of M&A activity in 2012. A few major transactions near the end of 2012 bumped total M&A deal value higher, but the number of overall deals completed declined from 698 to 576 in most segments except downstream.

National oil companies and other larger international buyers remained active in North America and other markets as they continue to expand their resource base, said John England, leader of Deloitte's U.S. Oil & Gas and vice chairman of Deloitte LLP, in the report. These companies found the North American market attractive in 2012 due to:

North America's political stability and mature investment environmentInvestment opportunities in well-known North American resource plays with predictive resultsAccess to technology and workforce expertise which has driven the exploration and production boom in unconventional and deepwater resources in North AmericaPotential continued growth that could to an export market for North American resources

Global upstream oil and gas activity grew 50 percent to $253.4 billion last year, compared with $167.9 billion in 2011, while the number of deals grew 11 percent from 518 to 461. The hunt by international companies for North and South American properties should continue as countries such as China and India address their growing energy demands and diversify their portfolios. Large integrated companies should also be active buyers as they look to the market for new properties to offset production declines that have been prevalent among the majority of supermajors.

While M&A activity in the upstream sector remained brisk last year, the oilfield services sector was quiet, partly due to the steadily declining U.S. rig count during 2012. M&A transactions totaled $17.9 billion, a 54 percent decline from 2011, and the number of deals also declined from 97 in 2011 to 57 in 2012.

Softening demand in the second half of the year also put pressure on margins and on public company stock prices, making companies less capable or interested in doing transactions. The shift by producers from dry gas to liquids also forced oilfield companies to relocate resources and services, creating inefficiencies and overcapacity in some areas and a struggle to reposition resources and labor to emerging liquids areas.

However, "2013 may be a year when M&A activity rebounds in the onshore oilfield services sector, as sellers become more realistic about pricing and consolidation," England commented.

Midstream M&A also slowed from the rapid 2011 pace, but activity remained at historically high levels, and continued to focus on transactions that will facilitate serving of the North American shale plays. Midstream M&A total value reached $35.6 billion in 2012, down from $84.5 billion in 2011.

"Growth in the midstream pipeline and processing infrastructure has not kept pace with growth in the unconventional resource plays, providing many opportunities for capital investment that we expect to lead to more midstream deal activity in 2013," England noted, adding that Deloitte believes that some bigger players could enter the market, some consolidation to take place, or a combination of both, if the midstream segment is going to continue supporting shale and tight oil activity in the United States.

Downstream M&A activity held steady, with the value of deals rising to $14.6 billion for 2012 from $11 billion in 2011. The downstream sector has been through a major reshuffling in the past two years, with the spinoff of downstream businesses of two large integrated oil companies and two significant refinery dispositions by BP. Independent companies now mainly dominate North America's refining industry after once being controlled by large integrated firms.

"U.S. refiners in general have seen their underlying business fundamentals greatly improve over the last two years, as a result of fundamental prospects and valuations being highly dependent upon geographic location and access to cheap crude and pipeline capacity," England noted.

Crude oil prices, which have settled into a stable range, set the stage for greater confidence around upstream oil investments. U.S. natural gas prices, which have traded at historic lows thanks to the U.S. shale gas exploration boom which has significantly increased supply, are not expected to rebound significantly in 2013, but deal activity may grow in the exploration and production and service areas.

"At some point the valuations in the natural gas area become so attractive that buyers with a long-term strategy could make a good deal of money," said Roger Ihne, principal with Deloitte Consulting LLP, in the report.

Thanks to technological advancements in drilling and production, the number of completions in North American fields has risen, and Deloitte expects to see improvements not only in cost effectiveness but in safety as well.

However, industry executives and other deal market participants should keep an eye on regulatory direction in the upcoming second term of the Obama administration, England noted. The oil and gas industry has been targeted by some groups in Washington looking for sources of new tax revenues, and whether they achieve the desired results could affect activity in the coming year.

"As the U.S. oil and gas industry and its activities become larger and more publicly visible across the multiple shale and tight oil basins, it is incumbent upon companies to be particularly diligent in following the evolving regulations and be sensitive to environmental concerns as these new plays are developed," England commented.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

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Offshore Ghana Focus of Kosmos 2013 Spending

Kosmos Energy's development plans for 2013 focus primarily offshore Ghana, approximately 55 percent of the total anticipated amount, with the remaining 45 percent allocated for exploration and appraisal activities across Kosmos' global exploration portfolio, the company said in a statement.

Kosmos expects for Jubilee's field production to average between 105,000 and 115,000 barrels of oil per day in 2013, with the midpoint of the range representing an increase of greater than 50 percent from last year’s average. This estimate includes the operator's plans for a two-week shut-down of Jubilee's FPSO for regular maintenance.

"Our plans for the year include advancing the development of the world-class Jubilee field, as well as further progress our other discoveries offshore Ghana," stated Brian F. Maxted, Chief Executive Officer. "Jubilee continues to demonstrate outstanding performance, with current field deliverability substantially above the FPSO capacity."

Kosmos plans to further develop the Jubilee field, with majority of the focus on the ongoing implementation of Phase 1A at the field. It estimates finalizing the drilling and completion of all Jubilee Phase 1A production and water injection wells by the middle part of the year.

The company is also allocating funds for the initiation of development at TEN (Tweneboa, Enyenra, and Ntomme), as well as additional appraisal activities and development studies for Mahogany, Teak and Akasa. The TEN plan of development, which represents Kosmos’ second major project development, has been submitted to the government of Ghana and is awaiting approval.

Furthermore, the operator plans to participate in two near-term exploration wells – the Sapele prospect and the Sipo-1 prospect. The Sapele prospect is currently being drilled on the Deepwater Tano Block offshore Ghana with results expected by the end of February 2013. Sipo-1, which is located onshore Cameroon on the Ndian River Block is expected for spudding in early February. Results from this well are anticipated around the end of the first quarter 2013.

Kosmos’ planned capital program provides for additional geologic studies, as well as further processing and interpreting of 3D data already acquired on the Agadir Basin Blocks offshore Morocco. Included in the 2013 capital program are funds for the completion of the company’s acquisition of an additional 37.5 percent interest in the Essaouira Block, which was previously announced. First drilling offshore Morocco is targeted to commence as early as late 2013.

In Mauritania, Kosmos anticipates commencing a large 2D seismic survey in the first half of this year, to be followed by a 3D seismic program later in 2013. Offshore Suriname, the company anticipates additional spending related to the processing and interpreting of a 3D seismic survey which was acquired in late 2012.

With more than 10 years of journalism experience, Robin Dupre specializes in the offshore sector of the oil and gas industry. Email Robin at rdupre@rigzone.com.

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