The Permian once again reaffirmed its status as the star shale play in the United States after
Diamondback announced it had inked a merger deal worth $9.2 billion with peer Energen. This is the second Permian deal for Diamondback within a week, after it announced the acquisition of Ajax Resources for $1.2 billion.
The Energen deal—all-stock—was prompted by an activist investor, Corvex Management, which has been vocally unhappy about the company’s weak shareholder returns. This aspect of the deal highlights an ongoing trend in the star shale play: despite its coveted status, not all Permian acreage and not all Permian players are created equal. Those with the means to produce oil more cheaply are now buying those that are finding it hard to keep up.
It looks like a good year to sell. Earlier in 2018, Concho Resources bought Permian sector player RSP Permian for $8 billion. Supermajor BP also entered the Permian this year with the $10.5-billion acquisition of BHP Billiton’s shale oil assets that include considerable Permian acreage. The fact that this was BP’s biggest deal in nearly two years highlights the still high appetite of drillers in this part of Texas.
Meanwhile, production forecasts for the Permian remain robust. A recent one from IHS Markit saw Permian crude oil output rising to 5.4 million barrels daily by 2023 from about 3.4 million bpd now. This would certainly increase the United States’ weight in global oil but the forecast may be too robust: the EIA forecasts peak oil production in the Permian at 4 million bpd. This is still a considerable portion of the world’s total, guaranteeing that ‘Permania’ will continue in the observable future.
Deals, Mergers & Acquisitions
- Cenovus has struck a deal with oil junior NuVista to sell it its Pipestone assets in northern Alberta for $476 million as part of its efforts to reduce its $7.24-billion debt pile. The assets produce some 9,600 barrels of oil daily. NuVista will fund the purchase with a combination of debt and new equity. Meanwhile, Cenovus is looking for buyers of its other assets in the Deep Basin region in northern Alberta.
- Occidental Petroleum will divest from non-core infrastructure assets in Texas and New Mexico for $2.6 billion to ramp up its capex for core operations with a focus on the Permian. The assets, to be sold to Moda Midstream and Lotus Midstream, include a pipeline and storage facilities in the two states. Oxy will retain long-term shipping rights for the Centurion pipeline and the bulk of export capacity at the Ingleside Energy Center storage hub.
- APA Group has accepted a $9.45-billion takeover bid from Hong Kong-based SK Infrastructure, which will see the Chinese company greatly expand its footprint in the Australian gas distribution industry. To secure the approval of regulators, SK Infrastructure will sell all of APA’s assets in Western Australia. Some observes believe, however, it will have to sell more than that for the deal to get the green light from the Australian competition authorities.
Tenders, Auctions & Contracts
- The National Iranian Oil Company’s contract with French Total and Chinese CNPC for the development of Phase 11 at the South Pars gas field is still in force, a senior Iranian oil official told media this week, despite Total’s apparent pull-out of the contract in anticipation of U.S. sanctions. The new information suggests total may still have hopes to secure a waiver from the sanctions to avoid CNOC taking over its part of the project at the largest gas field in the world.
- Petrofac has inked a $370-million contract to expand the central processing facility in the southern Majnoon field. The deal involves building two trains with a combined capacity of 200,000 barrels of crude daily. Majnoon has reserves estimated at 38 billion barrels of crude and produces around 230,000 bpd. The new facility will boost this to 450,000 bpd.
- Egypt has granted Eni a new offshore exploration license for a block in the East Nile Delta Basin. The Italian major will begin drilling in the area, dubbed Nour, by the end of the year. Nour is located about 50 km offshore and spans depths between 50 and 400 meters.
- Iranian Sepahan Oil Company has signed a contract with German ADL for the transfer of oil and gas technology despite looming U.S. sanctions that saw European oil companies put any possible plans for re-entering Iran on hold. Focused on technology transfer in the field of lubricants, the deal will also involve Austrian and Swiss companies.
Discovery & Development
- UK-based NewAge LNG, a unit of African Global Energy, has partnered with Chinese companies on the design and lease of small floating LNG vessels, eyeing several development opportunities in Africa. Hopes are that African Global Energy will reach the final investment decision on at least two small-scale FLNG projects in Africa with the long-term goal of expanding to three or more, all small-scale, following the post-crisis approach of focusing on small, quicker-turnaround, lower-cost, and higher-return projects in both oil and gas.
- PetroChina is considering reducing the amount of U.S. LNG it imports during the winter months in a bid to avoid having to pay a 25% import tariff on the cargoes after Beijing added LNG to a list of $16 billion worth of U.S. goods, on which it will impose the 25% tariff. Instead, PetroChina will buy more LNG from Australia and Qatar, or swap already purchased U.S. cargoes with other consumers in Southeast Asia.
- Savannah Petroleum, a UK-based, Africa-focused explorer, has announced its fourth discovery in a row in Niger. Although tests are still ongoing and the company is not making any estimates yet, the first three discoveries in the Kunama prospect in Niger have yielded unrisked recoverable reserves of 35 million barrels so far.
- Algeria’s state oil firm Sonatrach has changed its management as the government grapples with a talent drain that is putting the future of Algeria’s oil and gas industry under threat. Algeria is the biggest African supplier of natural gas to Europe and has ambitious plans to grow its oil output as well.
Politics, Geopolitics & Conflict
- Starting next Monday, Venezuela will begin conducting its oil trade in the local cryptocurrency, the petro, as part of a sweeping reform that will see the petro used alongside the national currency for everything.
- Qatar has offered Turkey $15 billion in investments amid a deepening row between Ankara and Washington sparked by Ankara’s refusal to release an American pastor, who is standing trial in Turkey on charges of terrorism.
- The head of Egypt’s intelligence services has reportedly visited Israel for talks about a truce between Tel Aviv and Gaza. Afterwards, General Abbas Kamel will meet with the Palestinian Authority’s President, Mahmoud Abbas to present the conditions agreed with Tel Aviv.