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Tuesday, October 19, 2010

Daily Energy & Resources Digest 10/19/2010

Anadarko Petroleum (APC) today announced that its Barquentine (APC operated 36.5% WI) prospect, its fourth exploration well to-date offshore Mozambique, encountered 416 net feet of natural gas across multiple pay zones (308 ft Oligocene + 108 ft Paleocene). Barquentine is located about 2 miles northeast of its earlier Windjammer gas find which hit 480 net feet of gas back in February (later revised up to 555 ft after reaching a deeper target). However, Windjammer was subsequently followed by two disappointing wells; a difficult well at Collier and a non-commercial oil find at Ironclad. Today’s discovery likely revitalizes interest in this play and its commercial potential.

APC noted that the deeper 108 ft Paleocene pay appears to be part of the same accumulation as the deeper 75 ft zone Windjammer encountered, thus potentially indicating a large contiguous reservoir. Further appraisals are required to fully delineate the extent, but initial indications point to approximately 6 Tcf potential across the area. Given the absence of a domestic gas market, the most likely commercial option is an LNG facility probably sized around 600 MMcf/d. APC’s preliminary estimate for first gas export is around 2017, although partner BPRL previously indicated a potentially quicker timeline. Within APC’s expansive 2.6 million acreRovuma Basin position, the Belford Dolphin drillship will next spud Lagosta (located 16 miles south), another gas prospect followed by the potentially “oilier” Tuburao further southwest. This six-well program will complete all Mozambique license commitments. Given its exploration success, the company now expects to keep the drillship within the country in order to conduct further exploration and appraisal drilling in 2011.

Elsewhere in APC's portfolio, I expect offshore well results soon from Onyina (APC non-op 18% WI) in Ghana, Badik (APC 35% WI) in Indonesia followed by Itauna (APC 50% WI) in Brazil and Mercury (APC 40% WI) in Sierra Leone. The Jubilee oil project (APC non-op 23.5%) offshore Ghana remains on-track for first production by year-end adding ~28 MBbl/d net (~4-5% of APC’s current output) by mid-2011.Bottom line: APC once again proves why it is a premier exploration company. Anadarko will report Q3 results after the market close on November 1st.

Massey Energy (MEE) exploring options including possible sale: According to a report in The Wall Street Journal, the directors of Massey Energy are exploring strategic alternatives, including a possible sale of the company. The article notes that Massey could "be in detailed due diligence with one of the multiple options," by mid-November. Possible buyers of Massey include a sale to another coal producer or a private equity firm, an acquisition of another company or Massey could remain independent. Bottom line: A sale of the 98-year-old company and largest Central Appalachian coal producer would dramatically alter the coal sector.

Comstock (CRK) provides an update on its drilling program in Northern Louisiana: co expects to drill 10 more wells in Q4, plans to release one of 6 rigs. With six operated rigs drilling in the Haynesville and Bossier shale, Comstock expects to drill another ten wells in the fourth quarter giving the Company an estimated 22 wells to carry over into 2011 for completion. In response to the weak natural gas prices, Comstock plans to release one of the six rigs in November and is considering moving an additional rig to South Texas to be utilized in its Eagle Ford shale drilling program in 2011. Comstock also announced today that co has entered into an agreement with a major service provider to provide co with a dedicated frac crew for its North Louisiana operations in early 2011. The dedicated crew will allow co to complete its backlog of Haynesville and Bossier shale wells during 2011 as well as keep current with CRK's 2011 anticipated drilling activity. In addition, Comstock is in the process of finalizing agreements for completion services services for its 2010 and anticipated 2011 Eagle Ford shale drilling program in South Texas.

Teekay Offshore Partners (TOO) completes acquisition of FPSO and three newbuild Aframax shuttle tankers. Recall in September, the partnership received an offer from its parent, Teekay Corp (TK), to acquire the three Aframax shuttles and the Rio das Ostras, a floating production and storage offloading (FPSO) vessel. Teekay Offshore will take ownership of the FPSO and the Amundsen Spirit (shuttle tanker) immediately and will purchase the remaining two shuttle tankers, the Nansen Spirit and the Peary Spirit, upon commencement of their time-charters in January 2011 and July 2011. The purchase price for the FPSO and the three shuttle tankers will total ~$550 million. The partnership has financed the acquisition of the FPSO and Amundsen Spirit tanker through the assumption of $187 million of debt and additional borrowings on its credit facilities. Bottom line: entire purchase (including the three tankers) is expected to increase Teekay Offshore's annual distributable cash flow by ~$20 million.

Weatherford (WFT) Beats on North American Strength. Weatherford reported 3Q10 EPS of $0.19, or a "clean comp" of $0.18 net of non-recurring items and just above Street consensus of $0.17. Increased domestic land activity drove strong North American revenue and margin growth (+$0.05), which was partially offset by weakness in the Eastern Hemisphere (-$0.04) due to project delays, start-up costs, and general activity declines. The company has issued EPS guidance of $1.30 for 2011, well above the current Street consensus of $1.18. Bottom Line: Weatherford's historically small North American exposure has driven performance in recent quarters. Considering that Weatherford is not a player in the red hot pressure pumping market, this may suggests that service companies are beginning to see more significant pricing improvements in other product lines.

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