After the extremely busy start to 2012 last week, M&A activity slowed down considerably this week, with only a few deals breaking $100 million.
Three major companies joined forces in one of the most significant deals of the week, as Chevron, Repsol and Statoil continued their Newfoundland partnership in the Orphan Basin exploration block EL 1074R. ExxonMobil and Shell had been partnered with Chevron for the first two wells drilled on the block, one of which came up dry, and decided against participating in a third. Repsol and Statoil will take 20% and 15% interests respectively, in return for funding part of the new deepwater well, giving the European companies what Statoil describes as “early entrance” to the basin. Any predicted costs involved have not been disclosed, but the nature of the block suggests any reward will not come cheaply.
The three partners were also successful in bidding for two deepwater exploration parcels in the Flemish Pass Basin offshore Newfoundland. The Newfoundland area has 4 producing fields (currently producing at around 263,000 bbl/d), the latest one coming onstream at the beginning of 2010, but the production from the area has been in constant decline since its peak in mid-2007 at around 430,000 bbl/d. These deals may prove the springboard for a revival in Newfoundland. Statoil also farmed-in to a Beaufort Sea 3D seismic programme operated by Chevron in the Canadian Arctic, taking a 40% interest. The seismic programme has been tentatively scheduled for the summer.
Teck Resources Ltd signed the deal for the largest reported sum this week, announcing the $402 million acquisition of SilverBirch Energy Corp. Teck, one of Canada’s largest diversified mining companies, with interests in steelmaking coal, copper and zinc, is furthering its move into the Canadian Oilsands industry by acquiring its 50% partner in the Frontier project.
Teck will assume full control of the project that is predicted to produce 277,000 bbl/d by 2030, with lifetime production expected to reach 2.8 billion barrels. In consideration, Teck will pay $8.50 per share in SilverBirch, and one share of a new company, SilverWillow Energy Corp. SilverBirch’s in situ assets will be held by this new company. This deal should speed up the development of Frontier, with SilverBirch having not been expected to be able to afford the substantial costs involved and Teck saying it will now look into opportunities for new partnerships and other alternatives to develop the project.
In the only significant US deal this week, Denbury Resources made a sale for a similar price this week, as Petro Harvester Oil & Gas agreed to buy Denbury’s non-core assets in Mississippi and Southern Louisiana for $155 million. The assets are 100% proved developed, and the 6.2 million barrels of reserves are 93% oil, which may go some way to explaining the relatively high cost per boe/d of production of around $111,000. Denbury is looking at a $1.35 billion capital investment plan for 2012, and this deal will allow the company to fund it without getting into substantial debt.
Outside of North America, Royal Dutch Shell acquired Ivanhoe Energy’s 90% interest in the Zitong tight gas block in Sichuan province, China, for $160 million. Ivanhoe chose to monetize the asset, despite the potential of the block on which two wells made gas discoveries, and focus its resources on its Tamarack In Situ project in Canada, and the development of its other assets around the world, in Ecuador, Mongolia and China. For Shell, this represents a further move into the Chinese market, where it currently holds 2 shale gas exploration blocks with state-owned CNPC, and 3 offshore producing fields in partnership with CNOOC and ConocoPhillips. Mitsubishi Corp is the minority partner on the Zitong project, holding a 10% interest.
A third deal of the week at around $150 million was signed, this time in Egypt, with Sea Dragon Energy Inc agreeing to acquire NPC Egypt from Citadel Capital for $147.5 million. The main assets acquired here are 100% interests in the East Kheir, the North El Maghara and the South Abou Zeneima exploration concessions, and an extra 650 barrels/day of oil production, upping Sea Dragon’s Egyptian output by 65%.
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