Friday, September 27, 2013

China’s CNOOC Wins $2bn Uganda Oil Contract– Zodiac Exploration a Lot Cheaper!

Friday, September 27, 2013 · Posted in Oil & Gas, OIL & Gas Companies · by Peter Epstein
The following press release about China’s giant E&P company CNOOC is quite telling. What are the Majors willing to do? What do they feel forced to do? CNOOC is paying $2 billion to develop an oil field offshore of Uganda!!. Who knows if Uganda will change its mind 5-10 years from now and try to renegotiate this deal? How many billions of dollars will be required before a single drop of oil is produced? How many billions of dollars and years before CNOOC fully recovers its capital investment?
This is why Zodiac Exploration is so exciting. Without trying to make financial comparisons between Zodiac’s ~71,000 (net) onshore acres in the Monterey Shale of southern California, suffice it to say that CNOOC is taking on very substantial risk, to the tune of billions of dollars and many years of uncertainty.
Not many companies in the world can make a $2 billion investment like this. Dozens of companies are much more inclined and able to make a meaningful investment in a company like Zodiac. Make no mistake, Zodiac entails risks and uncertainties as well. However, a prospective partner or acquirer of Zodiac can get access to a potentially huge number of barrels of oil for tens or hundreds of millions of dollars. And, instead of Uganda, we’re talking about California.
This post may appear to be a stretch, i.e. a connection between CNOOC and Zodiac, but the key takeaway is simple. The Majors are desperate to replace barrels from naturally depleting oil fields. Large new discoveries of conventional oil have been in decline for decades. Unconventional exploration and development is certainly promising, but very time consuming and expensive. The Majors are clearly pursuing any and all leads to maintain production rates. The Monterey Shale is no riskier than many other leads that oil companies will have to follow.
The Majors are not thinking about this year or next year, they are looking decades into the future. Compared to ever deeper offshore drilling in increasingly dangerous regions of the world, the Monterey Shale is hardly an opportunity that the Majors will fear! Billion$ in Uganda or a tiny fraction of that in California, which would you choose?
China’s CNOOC Wins $2bn Uganda Oil Field Contract
China’s energy demand has risen sharply over the past few years as its economy has expanded
China’s state-owned oil firm China National Offshore Oil Corporation (CNOOC) has won a $2bn deal to develop an oil field in Uganda. The Kingfisher field is estimated to hold 635 million barrels of oil, of which 196 million are recoverable.
It is the latest in a series of investments by Chinese firms in overseas Oil and Gas resources. Chinese firms have been looking to secure energy resources to meet growing domestic demand. CNOOC will develop the Kingfisher oil field over a period of four years.
According to Peter Lokeris, Uganda’s junior energy minister, the field will have an initial capacity to produce between 30,000 to 40,000 barrels of oil per day.
Other Deals
China’s rapid economic expansion and urbanisation in recent years has led to increasing demand for fuel, making it one of the biggest consumers of oil in the world. That demand is expected to rise even further as its economy continues to grow. But China relies heavily on imports to meet that demand.
As a result, Chinese firms have been looking to invest in oil and gas resources in an attempt to secure supplies. Last year, CNOOC agreed to pay $15.1bn to acquire Canadian firm Nexen, making it China’s largest foreign business takeover.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.