Tullow forced to abandon dry well in Norway

Oil and gas producer Tullow Oil Plc said it had plugged and abandoned a well in the Norwegian North Sea after it failed to find any hydrocarbons. The company said it did not encounter hydrocarbons in the Lupus exploration well, located 35 kilometres southeast of the Oseberg South field in the North Sea.

It was the first well in production licence PL 507, Tullow said. Tullow reported a $415 million pretax write-off in net exploration in the first half of 2014 due to dry holes drilled in Mauritania, Ethiopia and Norway over the past 6 months and various licence cancellations.

Tullow’s partner Det norske said in late May that the company had drilled a dry well in the Gotama prospect in the Norwegian sector of the North Sea, where Tullow has an 80 percent stake.

Tullow is now counting on new drilling projects planned in Kenya and Ethiopia for this year and next to improve its exploration performance. Shares in Tullow fell as much as 0.9 percent in early trading following the announcement.

Shell’s divestment plans delayed due to polls in Nigeria

Shell’s divestment plan in Nigeria may take longer than expected, with an election in February likely to complicate the sales process and cause delay of up to a year.

With plans to divest 30 per cent of the four blocks it holds in Nigeria’s Niger Delta area – a location that holds about 37 billion barrels Nigeria’s oil reserves – the oil giant expects a revenue of US$15bn in global assets disposals in 2014 and 2015.

“What is slightly more challenging and difficult to predict is how we can get the overall approvals across the whole of the stakeholder environment including the government, because in previous transactions that has taken … up to a year,” Reuters quoted Simon Henry, Shell CFO, as saying.

He said that a February election could tell on the sale process, adding however that potential buyers have shown strong interest in its Nigerian assets, with over 20 “serious bidders” already. Shell is divesting 30 per cent of the four blocks, along with the sale of 10 per cent from Total and five per cent from Eni.

In the over 70 years that Shell has operated in Africa’s largest oil-producing country, it has faced serious problems on the Delta with oil theft, environmental damage, political protests and attacks on its facilities.

Tullow Oil shares slide as Uganda hits firm with $407 million tax bill

The government of Uganda has hit Tullow Oil with a tax bill of $407m (£237m), after its appeal against the charge was rejected. CEO Aidan Heavey has vowed to consider all options in challenging the ruling.

Following the completion of a farm-down of 66% of its assets in Uganda to China National Offshore Oil Corporation (CNOOC) and Total in 2012, Tullow was issued with a CGT assessment by the Uganda Revenue Authority (URA) of roughly $472 million. In order to launch the appeal, Tullow had already paid 30% of the Capital Gains Tax (CGT) assessment, equivalent to around $142m. Tullow will now also have to pay the balance plus the interest accrued.

The Tax Appeals Tribunal (TAT) ruling will require significant further legal evaluation, said Tullow, due to its complexity, but the FTSE 100 company stressed that it had not been ruled against on the “key issue” of the express tax exemption contained in a Production Sharing Agreement for Exploration Area 2.

Following the news’ publication, shares in Tullow quickly slid 1.77% to 776p.

US sanctions will slow Rosneft’s dollar debt, not its oil deals

 

President Barack Obama aimed a direct blow at Russia’s economic heart on Wednesday with sanctions on Rosneft, the flagship oil giant that generates more than 4 percent of the world’s crude and over 8 percent of the country’s GDP.

But in a change of tack from previous similar efforts, the measures were narrowly tailored to slowly starve the state-run energy firm of U.S. dollar funding, not bar it from doing business with oil buyers such as BP or stymie multibillion-dollar ventures with firms like ExxonMobil, experts say. The sanctions against key parts of the Russian energy and financial industry were intended to serve notice to Moscow that its refusal to curb violence in eastern Ukraine has consequences.

In announcing the sanctions, which also hit No. 2 natural gas producer Novatek as well as two banks and eight defence firms, the Treasury Department said U.S. companies were only prohibited from engaging in any “new debt of longer than 90 days maturity or new equity” with the energy firms and banks.

The measures would not freeze the Russian firms’ assets “nor prohibit transactions with them beyond these specific restrictions,” the Treasury Department said. That marked a change from many earlier measures that effectively shut down a sanctioned firm’s ability to do any business with U.S. entities.

The result is likely to be an increase in the cost of financing for Rosneft, which has grown increasingly reliant on pre-financing oil supply deals with firms including Glencore and BP. It may need to seek out new banks for loans, and could eventually slow investment in new projects.

But it will not “directly affect or limit Russia’s oil exports the way that sanctions on Iran were designed to do,” said Gary Hufbauer, expert on economic sanctions at the Peterson Institute for International Economics in Washington, DC.

Washington has long barred U.S. companies from investing in Iran, and more recently has imposed sanctions that have halved its oil exports over Tehran’s nuclear programme. “The U.S. is scaling its sanctions to have a slow increase in pressure on Russia,” Hufbauer said.

To be sure, Wednesday’s sanctions will intensify the tension between the West and Moscow over Russia’s role in Ukraine, and therefore add to broad geopolitical unease across the oil sector. The impact on a deal to buy Morgan Stanley’s physical oil trading business, which is now pending before the U.S. foreign investment approval committee, is not clear.

Yet the immediate effect may be less dramatic than in March, when Obama’s first major sanctions sparked a brief wave of panic among energy traders who feared they may be cut off from key counterparties such as global commodity merchant Gunvor, whose founder and then co-owner Gennady Timchenko was targeted.

Washington added Rosneft’s chief executive Igor Sechin to the sanctions list a month later. The latest sanctions “could have been a lot worse,” Douglas Jacobson, an attorney at Jacobson Burton in Washington and sanctions expert. “The sectoral sanctions list is extremely narrow in terms of parties and what it prohibits.”

Obama told reporters the measures were “significant” but also “designed to have the maximum impact on Russia while limiting any spillover effects on American companies or those of our allies”. Thus far, Washington’s sanctions have had only a limited impact on the Russian energy industry, a cornerstone of the country’s $2-trillion (£1.17 trillion) economy, resulting mostly in higher borrowing costs for domestic companies.

Even as the pressure has mounted over recent months, executives from Total, BP, Statoil and ExxonMobil have all visited Russia, underlining the importance they attach to business with the world’s leading oil producer with current output of around 10.5 million barrels per day (bpd). Rosneft alone pumps about 40 percent of that.

Experts said that Rosneft’s business partners would not likely be in danger of falling foul of the sanctions. The latest effort “will limit the sources from which Rosneft can get financing and thus raise the cost of capital for the firm,” according to Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a senior White House energy adviser until late 2012.

“It does not prohibit U.S. firms from doing business with Rosneft or bar Russian energy supplies from flowing into the global market.” Sechin, speaking at a BRICs meeting in Brasilia, said the sanctions would not affect Rosneft’s current project with ExxonMobil, but would damage the shareholders of U.S. companies cooperating with Rosneft.

 

Exxon has a $10 billion joint venture with Rosneft off the Pacific island of Sakhalin producing over 100,000 bpd. A spokesman for the company declined to comment. A spokesman for BP, which has a 20 percent stake in Rosneft and a number of large joint exploration projects, said the company was considering implications of the new sanctions, but had no additional comment at this point.

A spokesperson for Schlumberger NV, which drills with Rosneft on the Russian island of Sakhalin, was not immediately available to comment.

Chevron has a stake in a Russian pipeline and last fall inked a $10 billion deal to develop Ukrainian shale. “We are reviewing the sanctions to ensure strict compliance with the law and we continue to monitor events,” Chevron spokesman Kent Robertson said.

A larger question may be Rosneft’s more than $15 billion worth of oil-related finance arrangements known as pre-payment deals, in which loans are repaid through future oil supplies.

Such deals have raised billions of dollars for Rosneft, which borrowed $30 billion in two separate loans in 2012 and 2013 to help finance last year’s $55 billion acquisition of TNK-BP. In addition to BP and Glencore, Rosneft has done deals with big global traders Vitol and Trafigura as well.

With pressure over Ukraine mounting, however, some energy companies had already begun discussing a possible switch to using other currencies to settle the transactions. While oil is typically priced in U.S. dollars, in theory deals can be settled in any currency the counterparties agree on.

Some firms had also begun to back away from dealing with Rosneft. Part state-owned lender Lloyds Bank pulled out of a $2-billion prepayment facility with Rosneft announced last month to avoid embarrassing the UK government, bankers had said.

“I think the Obama Administration is trying to squeeze Rosneft against continuing to go to the Exxons and BPs and asking for loans,” said Amy Jaffe, international energy policy expert at University of California, Davis. “Eventually, everything that limits a big state oil company’s access to financing would have an effect on production, just not right away.”

Tullow Oil reports $415 million pre-tax write off after disappointing results globally

Tullow Oil has reported a €306m ($415m) pre-tax write-off in net exploration in the first half of 2014 after disappointing results in Mauritania, Ethiopia and Norway.

The oil and gas producer attributed the loss to recent disappointing results in basins in Mauritania, Ethiopia and Norway. Tullow is now focusing on drilling in new exploration sites in Kenya and Ethiopia this and next year and continuing steady production from its flagship Jubilee oil field in Ghana.

“With potential basin-opening wells across the portfolio coming up in the second half of the year and strong revenue and cash flow, Tullow is in a strong position for the remainder of this year and into 2015,” said Chief Executive Aidan Heavey. He also said its asset disposal programme was making steady progress, with further deals expected to divest its remaining UK and Dutch North Sea portfolio.

Despite this optimism, the company’s shares slipped 5p to 850p the following week, while analysts at Oriel Securities said, “Given that the company had its capital markets day recently, there was not much new on the operational front. Overall however we see the update slightly on the negative side, largely due to production being below the full year 2014 guidance range, suggesting to us that the full year production is likely to be towards the low end of guidance.”

Nigeria’s Economy slows to 6.21% in Q1, oil sector continues negative trend

The Nigerian economy slowed by 0.56 percentage points to 6.21 percent in first quarter of the year, from 6.77 percent recorded in the fourth quarter of 2013. But growth was higher than 4.55 percent in the corresponding quarter of 2013, the National Bureau of Statistics (NBS) said yesterday.

The Bureau estimates Nominal Gross Domestic Product (GDP) for the quarter at N20,169,778.04 million, or N15,438,679.50 million in real terms. But in the corresponding quarter of 2013, nominal GDP was estimated N18,295, 631.91 or N14,535,420.95 million in real terms.

In a report yesterday, the NBS noted that the services sector grew the most at 7.20 percent  during the first quarter of the year, followed by Agriculture at 5.53 percent and then Industry at 4.84 percent.

Oil sector, in real terms recorded a negative growth of was -6.60 percent, however, a better performance than the -11.40 percent growth recorded in the corresponding 2013 quarter and the -9.36 percent growth recorded in the fourth quarter of 2013.

On nominal basis, oil GDP for the quarter stayed around N2,612,066.21 million, compared to N2,756,313.26 recorded in the corresponding quarter of 2013.

According to the NBS, average daily crude oil production in the first quarter stood at 2.26mbpd, down from the 2.29mbpd recorded in the corresponding quarter of 2013.

Non-oil sector grew by 8.21 percent, slowing marginally by 0.57 percent points from the fourth quarter of 2013, but a 0.76 percent points increase from the 7.44 percent growth recorded in the corresponding quarter of 2013.

The data office noted that the Services sector accounted for the largest share of real GDP in the quarter, amounting to N8,181,239.94 million or 52.99 percent.

Industry ranked second with a contribution of N4,223,469.13 million or 27.36 percent, whilst Agriculture constituted the smallest sector in the first quarter, representing N3,033,970.43 million or 19.65 percent of GDP, the Bureau stated.

Figures showed that Trade was the largest contributor to real GDP in the first quarter at N2,678,514.71 million or 17.35 percent of real GDP in the first quarter of 2014, marginally higher than the 17.34 percent contribution to GDP recorded in the corresponding quarter of 2013.

The sector saw strong growth of 6.28 percent in the opening quarter of 2014, marginally higher than the record for the corresponding quarter of 2013, on account of higher agricultural output, a key input for traders.

Crop production came the second highest contributor to real GDP with N2,643,112.08 million or 17.12 percent of total real GDP, roughly unchanged from first quarter 2013 figure.

The NBS further noted that the first Quarter 2014 growth was recorded at 5.42 percent an increase from 1.78 percent recorded during the first quarter of 2013.

“This was as a result of increased farming activity in combination with high yield seedlings during the dry season,” the bureau stated.

Real estate represented 6.82 percent of real GDP in the first quarter, indicating a 1.55 percent point decline from the 8.37 percent in the preceding quarter, but only a marginal 0.20 percent point decline from that of the corresponding quarter of 2013.

Despite a positive growth rate of 3.17 percent, this was 6.96 percent points lower than the 10.13 percent growth recorded in quarter 4 of 2013, and according to the NBS, this was the sharpest decline in growth in the sector since 2011.

Tullow Oil fails to find commercial oil in Ethiopia

Tullow Oil has announced that the Gardim-1 exploration well, drilled on the eastern flank of Chew Bahir Basin in Ethiopia, has failed to find commercial levels of oil.

The well intersected lacustrine and volcanic formations, similar to those found in the Shimela-1 well on the north-western flank of the basin. The explorer said it has reached a total depth of 2,468 metres in basement, without encountering commercial oil.

“We have now drilled two independent wildcat wells in the Chew Bahir Basin, neither of which encountered commercial oil,” exploration director Angus McCoss said.

“Whilst our analysis continues, initial indications suggest that the targeted seismic anomalies related to lavas that flowed into a lake basin,” he added.

As a result, the well will now have to be plugged and abandoned. Tullow recently discovered high quality oil in the Ngamia-2 well in Kenya, which it has been drilling with its partners on the project, Africa Oil.

The Irish listed exploration group also announced that the Hanssen wildcat well in the Barents Sea, offshore Norway, had encountered a 20-25 metre oil bearing sandstone with good reservoir properties in the main target.