Weekly Update: Shell and ENI gamble on Nigeria whilst Total plays it safe in North Sea

There were three large deals by super majors this week as Total played it safe by acquiring a producing North Sea asset whilst Royal Dutch Shell and ENI opted for a high risk but high reward asset in Nigeria. The North Sea acquisition concerns a 10.4% interest in the Elgin & Franklin fields previously owned by GDF SUEZ and mirrors a previous divestiture by GDF SUEZ of an identical interest and purchase price in September 2011 to ENI. Total will pay €590 million ($830 million) for 14,500 barrels of oil equivalent per day of production weighted evenly between oil and gas.

Meanwhile in Nigeria, Royal Dutch Shell and ENI teamed up for equal stakes in the deep-water block, OPL 245, with ENI acting as the operator. The purchase price was undisclosed but is thought to be in the region of $1 billion for an asset that could potentially hold 9 billion barrels of oil. Both companies have a history in the troubled region so they will know the abundant high quality oil reserves that can be found within the Niger Delta region.

However, they will also know the operational difficulties emanating from pipeline attacks and the threat of personnel being taken hostage. There is also a new risk from the effects a new, yet to be finalised, Nigerian Petroleum Industry Bill may have and how much it will hamper the profitability of foreign companies operating in the region.

EnCana announced two deals to surpass its planned divestiture programme for 2011 this week, with the sale of the Hythe/Steeprock gas complex for $930 million to Veresen and a C$58 million divestiture of liquids weighted assets in Alberta, Canada to Centrica. The divestiture brings EnCana’s net divestitures to $2.7 billion and goes some way to compensate for the ultimately failed $5.5 billion farm in by PetroChina for the company’s Cutbank Ridge assets in June 2011.

The midstream divestiture follows on from sales of similar assets by the company in Colorado and British Columbia with the funds received earmarked for development of upstream opportunities, particularly within liquids rich shale assets in both the United States and Canada.

There were two shale resources deals for the week, the largest coming from Comstock Resources’ acquisition of 44,000 acres of land prospective for the Bone Spring and Wolfcamp shale plays in Texas. The consideration amounted to $333 million for an asset that Comstock management hopes may yield 178 million barrels of oil equivalent from 900 identified drilling locations. The second shale deal came from Brazil in the Reconcavo basin with Canadian Fortress Energy acquiring private Brazilian company Alvorada Petroleo for $37 million.

Historically operations in the basin have focused on developing resources that have migrated from the source shale rock, leading to cumulative production of $1.5 billion barrels so far. The wording of Fortress’ press release suggests that, similar to the Duvernay shale, Fortress believes the resources can now be extracted directly from the source rock using horizontal drilling and fracturing technology.

Looking for previous deals? Check out the Weekly Updates page for archives.

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