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African drilling powers FAR, Pancontinental Oil


The Australian , October 04, 2014 12:00AM

OIL stocks focused on Africa provided excitement on the stock exchange this week, with both Melbourne-based FAR and Perth-based Pancontinental Oil issued speeding tickets and asked to explain price gains.

FAR has generated a lot of *interest in the past two months, courtesy of hoped-for progress on a confidential well that British explorer Cairn Energy is drilling off Senegal.

FAR says it is not being told exactly what the well is turning up and no announcement will be made until it is finished.

But the fact Cairn has left an expensive rig over its target for so long ”” with no news of any problems ”” has seen FAR’s share price nearly triple in the past two months, giving it a market value near $300 million.

Early on in the drilling some oil was recovered to the surface from a secondary target, boding well for the deeper target shareholders are waiting on.

FAR managing director Cath Norman yesterday told the ASX speculation about the Senegal well, known as FAN-1, was probably driving the price higher.

“The well has been declared a ‘tight hole’ by Cairn and, as such, no information related to depth or formation will be provided during well operations beyond what is required to meet ASX continuous disclosure obligations,” Ms Norman said.

“FAR is reliant on the operator to provide information on the status of the well and ... we are awaiting further information.”

The stock finished 0.1c higher yesterday at a record 10c. This gives the company a $270m market value and caps a 20 per cent rise since Ms Norman told the FAR story to the Resources Rising Stars conference on the Gold Coast earlier this week. “Rest assured we’re getting close to the end of the first hole (FAN-1),” she told the conference.

FAN-1 is designed to test a structure with a pre-drill estimate of 900 million barrels on an unrisked, prospective resource basis. The joint venture plans to follow FAN-1 with the SNE-1 well, which has a pre-drill estimate of 600 million barrels.

The gain in Pancontinental yesterday was more spectacular. The stock ended 1.1c, or 32 per cent, higher at a six-month high of 4.5c, giving a market value of $50m. Pancontinental, which shares some offshore Kenya acreage with FAR, had no real explanation for the jump.

It said the Sunbird oil and gas discovery off Kenya (in acreage FAR does not have a stake in) had provided strong interest from potential farm-in partners.

http://www.theaustralian.com.au/bus...ncontinental-oil/story-e6frg9df-1227079559408
 
Australian firm blames Kenya for poor results

Thursday, October 2, 2014 - 00:00 -- BY JAMES WAITHAKA

Pancontinental Oil and Gas, an Australian explorer, has attributed its poor performance to the zero value of an exploration licence in Kenya on offshore Block L8, which expired early this year. Financial statements filed with the Australian Securities Exchange for the year ended June 30 show it piled a loss per share of 1.66 Australian dollars (Sh128.82), a six-year low for the company.

Its loss per share was 0.06 dollars. It made a net loss of $19.07 million (Sh1.48 billion) in the period, higher than the previous year’s $662,822 (Sh51.44 million). The share price stood at $0.023 (Sh1.79) a piece as at June 30.

The licence for the block is yet to be renewed and the firm said it is engaging the Ministry of Energy and Petroleum over the possibility of a new licence. “The company is in continued discussions with the Kenyan ministry for the issue of a new licence,” it said. Its shareholders primarily rely on returns through share price appreciation as the firm is in an exploration phase.

Pancontinental has a 18.75 per cent interest on Block L10A, on which the first-ever offshore oil column – 14 metres thick – was discovered on Sunbird-1 well drilled this year. It cites “commercially confidential Sunbird-1 oil data” as opening a significant opportunity to find commercial oil in offshore areas that it holds interest.

The firm has a 40 per cent interest on Block L6 offshore and 16 per cent onshore of the same block. It said a farm out was secured with Milio International for the onshore portion and it will be free-carried for drilling of an exploration well.

It increased stake on Block L10B this year to 25 per cent, with London-listed BG Group, which operates the block’s licence, holding a 75 per cent interest. It said a 12-month extension of the licence was granted to enable further exploration and assessment of adjacent Sunbird results.

- See more at:

http://www.the-star.co.ke/news/arti...lames-kenya-poor-results#sthash.2CuL8Kae.dpuf
 
PCL up over 100 % within a week

What is going on ?
No news yet just ASX speeding tickets,
so hang on to your seats,

Is it just a play, or do people really want in now ? I guess time will tell.

PCL Price Chart 06th. of October 2015.jpg
 
Congratulations to FAR holders , yes dreams sometimes do come true. Hang in there PCL holders, we may get our turn as well one of these days.

Explorer FAR's shares soar after Senegal offshore oil discovery

Date October 8, 2014 - 5:37PM - Angela Macdonald-Smith

FAR's oil discovery off the coast of Senegal may be the biggest since the Jubilee find off Ghana in 2007, some experts say.

Investors in junior oil explorer FAR have welcomed a 45 per cent surge in the value of their company thanks to an oil discovery off Senegal that has triggered comparisons with the billion-barrel-plus Jubilee find off Ghana.

The discovery by the FAN-1 well, revealed by venture operator Cairn Energy in London, was described as "transformational" for FAR by managing director Cathy Norman, who spent much of Tuesday afternoon at a celebration lunch in Melbourne.

London-listed Cairn has given potential oil-in-place numbers at FAN-1 as 250 million barrels in the 90 per cent case and 2.5 billion barrels in the 10 per cent case, with the most likely number 950 million barrels.

Estimates of potential recoverable volumes range from 15 to 18 per cent of that from more cautious analysts to 30 to 40 per cent by others.

Ms Norman signalled FAR was assuming the upper end of that range, given positive results so far.

Melbourne-based UBS oil and gas banker Gordon Ramsay, a petroleum geophysicist by training, drew a comparison between the find made by the FAN-1 well and the Jubilee oil discovery made by Tullow Oil and *Kosmos Energy off Ghana in 2007 – the largest oil find off west Africa.

"Jubilee looks like a very interesting analogy to this," Mr Ramsay said. "It is highly likely this is a multi-hundred-million-barrel oil discovery."

Ms Norman said the comparison with Jubilee was "fair, maybe not in terms of size because we haven't proven that, but certainly in terms of significance".

"It's probably going to open up a whole new area for exploration – that's the significance more than anything," she said.

Ms Norman said the find would open up exploration in the Senegal, Guinea-Bissau and Guinea area just as Jubilee did around the Ghana, Sierra Leone and Liberia part of west Africa.

FAR shares jumped as much as 60 per cent before closing at 14.5 ¢, adding $120 million to the junior's market cap.

Some believe it has much further to go, with NSW silk Timothy Robertson's family company Farjoy buying another 53 million shares in FAR on Wednesday morning at an average of 14.13 ¢.

Mr Robertson, whose company now owns 10 per cent of FAR, took to the day trader website HotCopper to explain his confidence in the Senegal play, describing it as "the best prospect off the upper west coast" of Africa.

He pointed to several other "fan system" structures that could also be filled with oil from the same "source kitchen".

Many risks still remain, however.

US energy consultant Tudor, Pickering, Holt & Co said it was "good to see a play-opening oil discovery", but raised questions over whether the discovery could be* *commercially developed.

The quality of the reservoir would be key, as that has caused a number of finds on the west African margin to be non-commercial, the consultant said.

Ms Norman said stating commerciality of the find now would be "foolish".

But she said at a conservative estimate of 350 million barrels of oil, the find cleared the hurdle to be commercial, which was 150 million to 200 million barrels.

"It's clear that what we've got at the moment could be a stand-alone development, which is fantastic news," she said. "And we're only just scratching the surface, there is still a lot more to come."

US major ConocoPhillips, which owns a 35 per cent stake in the find, said preliminary results from the drilling were "encouraging" but noted further evaluation was needed "in order to determine commerciality".

Cairn owns 40 per cent, while Senegal's national oil *company Petrosen owns the remaining 10 per cent.

http://www.theage.com.au/business/m...l-offshore-oil-discovery-20141008-10rpyq.html
 
Pancontinental Oil & Gas NL Earns “Buy” Rating from Hartley’s Research (PCL)

October 8th, 2014

Pancontinental Oil & Gas NL logoPancontinental Oil & Gas NL (ASX:pCL)‘s stock had its “buy” rating restated by investment analysts at Hartley’s Research in a note issued to investors on Tuesday.

Shares of Pancontinental Oil & Gas NL (ASX:pCL) opened at 0.047 on Tuesday. Pancontinental Oil & Gas NL has a 1-year low of A$0.021 and a 1-year high of A$0.073. The stock has a 50-day moving average of A$0.03 and a 200-day moving average of A$0.02. The company’s market cap is A$54.1 million.

Pancontinental Oil & Gas NL is an oil and gas exploration company. The Company has key assets in Australia, Kenya and Namibia

http://www.intercooleronline.com/st...-buy-rating-from-hartleys-research-pcl/98549/
 
How Kenya plans to get more money from oil, gas

By KENNEDY SENELWA
Posted Saturday, October 25 2014 at 10:11

Kenya is reviewing how revenues from oil and natural gas sales will be shared in a bid to maximise the benefits to the government, communities and counties while safeguarding the interests of investors.

A production contract now under discussion by government officials proposes a model of sharing that is not based on volumes of oil brought to the surface but is calculated on profitability, known as “R-factor” in industry-speak.

“With a progressive R-factor, if a discovery is not made, the investor’s loss is limited to costs incurred during exploration phase,” said Hunton & William’s lead consultant John Beardworth.

Hunton & Williams of the US and Challenge Energy Ltd of Britain were contracted by the Kenyan government and the World Bank to advise on how the revenues should be shared.

The R-factor is the ratio of revenue earned from oil divided by the costs of bringing the oil to the market. The smaller the ratio, the less the profit realised, with a ratio of less than one indicating a loss-making operation.

In the proposed formula, the government would earn more from production as the profitability rises, starting with sharing of the losses equally with the operator when the R is less than one.

The government’s share will increase to 65 per cent of the profit where R is between one and 2.5 and 75 per cent when it is 2.5 per cent or above. The three bands were proposed by the International Monetary Fund (IMF) in the draft Extractive Industries Fiscal Regimes report.

However, a consultant report seen by The EastAfrican recommends that the middle band be split into three so that, for R of between one and 1.5, the government’s share would be 55 per cent, 60 per cent for between 1.5 and 2.0 and 65 per cent for2.0-2.5.

“This would maintain the higher flexibility afforded by a five-band R-factor framework while providing returns for contractors that are still competitive with Mozambique,” the report said.

As an alternative, the consultant recommended a sliding rate such as that used in Cyprus and Kurdistan, where the tax rate is calculated for a given R factor.

“This provides much more granularity when fewer bands are used,” the report said.

Energy Principal Secretary Joseph Njoroge said the model production sharing agreement (PSA) would be used to negotiate agreements with contractors ”” including those involved in natural gas exploration, who were not covered in previous documents.

Currently, the profit will be shared based on daily output in four bands ”” the first 20,000 barrels, the next 30,000 barrels; the next 50,000 barrels and above 100,000 barrels. The accruing percentages were kept strictly under wraps in line with confidentiality clauses that make the extraction industry one of the most opaque in the world.

http://www.theeastafrican.co.ke/new...498760/-/format/xhtml/-/15rjmqhz/-/index.html
 
Ministry to create new oil and gas blocks

By IMMACULATE KARAMBU
More by this Author

The Energy ministry is planning to create at least eight new exploration blocks from the ones that have been surrendered by locally operating companies as the search for oil and gas gathers steam.

This will add to seven others that were carved out of existing blocks last year, but which the Cabinet secretary for Energy and Petroleum Davis Chirchir is yet to gazette to pave the way for licensing to exploration companies.

“Since the first oil discovery in 2012, we have seen very high interest in applications for blocks. We are currently doing the third revision and we expect that the total number of blocks will be about 61 by the end of this year,” commissioner for petroleum at the ministry of Energy, Mr Martin Heya, said. He was speaking yesterday at the third East Africa upstream summit organised by the Petroleum Institute of East Africa.

At the moment, the total number of gazetted blocks stands at 46, having increased from 25 which existed before the first revision was conducted in 2006. Of the gazetted blocks, 41 have already been licensed to 21 international oil and gas exploration firms.

The targeted blocks during this year’s revision will be constituted from block 10A that was given up by Tullow Oil Plc and blocks L15 and L8 surrendered by Dominion and Apache respectively, among others.

Kenya has struck commercially viable quantities of oil in the northern part of the country. Government records put the recoverable oil reserves at 600 million barrels while the total crude reserves in Lokichar basin, where the oil finds have taken place, are estimated to be about one billion barrels.

REVENUE
The Energy ministry has since last year put on hold licensing for new blocks as it awaits a review of the current Petroleum (Exploration & Production) Act which it says would secure more revenue for the government from the blocks.

However, in June, Mr Chirchir said that the government is mulling issuance of oil and gas exploration blocks under the current law to meet growing demand from international oil and gas companies as enactment of a new law seem to delay.

http://www.nation.co.ke/business/Mi...s-blocks/-/996/2498188/-/fceni7z/-/index.html
 
Proposed Kenyan oil gas Bill, meets most expectations of the stakeholders

Posted on 12 November 2014.

Proposed oil, gas Bill meets most expectations of the stakeholders
I have browsed through the recently released final drafts of Petroleum Exploration, Development and Production Bill 2014, the Model Production-Sharing Contract, and the Local Content Regulations 2014.

According to me these documents are excellent pieces of legal drafting which cover the critical areas of oil and gas in good detail. There is evidence that the drafts have taken in most of stakeholders’ and experts’ opinions and concerns.

The investors, who are a key party in these documents, will of course microscopically scrutinise the details of the draft law for direct and indirect implications on their investments.

It also needs to be appreciated that the drafting was done in a fairly short time of six months from the time it was agreed that upstream laws should stand alone from the combined energy laws.

Good laws and regulations are a key initial step in de-risking the upstream oil and gas sector. They offer assurances and security to investors while detailing government and public expectations from investors.

The draft law has the Upstream Petroleum Regulatory Authority as the institution which will be in charge of implementing the upstream legal and regulatory systems. The inter-ministerial National Upstream Advisory Committee shall advise the Cabinet Secretary on matters pertaining to upstream petroleum operations.

The draft Local Content regulations are a sterling text that mostly meets our expectations. Local content is a subject that has received a lot of attention and interest from various quarters in Kenya.

The timing of these regulations is apt, since they can be launched as soon as the anchor Bill is signed into law. These regulations closely mirror the detailed Nigerian Local Content law, whose detailed and prescriptive structure has impressed many of us here in Kenya.

The Local Content laws have covered all relevant areas including materials, support services, employment, training, financial, banking. insurance and legal services. They also tabulate what percentage of local content that must be incrementally implemented by investors by year one, year five and year 10.

Through these regulations, the cabinet secretary has sufficient discretion to adjudicate on local content implementation issues. This is quite important to prevent stalemates in procurement issues that are grinding upstream operations to a halt. There will be a Local Content Unit domiciled in the Authority to monitor local content implementation.

But Kenyans should be well aware that quality of goods, services and skills will be critical in local content participation. Capacity-building for various areas of local content participation is therefore the next most urgent task for Kenyan enterprises.

In respect of oil and gas revenue allocation, the draft law has 75 per cent 20 per cent and five per cent of allocation to the national government, counties and local communities respectively.

This revenue allocation formula differs from the recently passed 70 per cent, 20 per cent and 10 per cent for mining, implying that we may expect some reactions from oil and gas prospective counties.

As we allocate resource cash to counties and local communities, let as carefully think through their capacity to absorb these allocations without destabilising socio-economic systems in those counties. A high value resource bonanza has the potential to set counties in a direction of “county resource curse”.

Yes, we need to economically empower resource counties, but there is also a looming danger of highly imbalanced development among counties, especially neighbouring ones.

Although this draft Bill attempts to limit revenue allocations based on CRA system, we need to think through the entire chain of possible scenarios and impacts in deciding modalities for capping resource allocations.

The model Production Sharing Contract (PSC) now has a “return” criterion for sharing of oil production. The government share of profit oil (total oil less cost oil) shall increase from 50 per cent to 75 per cent depending on the ratio (R-Factor) of investor cumulative cash inflows (revenues) to investor cumulative cash outflows (costs). This formula hedges the investor in situations and times of overwhelming costs.

It is important that the government has sufficient and effective capacity to account for all investor allowable costs from the day the contract is signed.

Correctness of oil accounts ensures that the country receives accurate amounts of revenues. It is understood that the government has already started creating this capacity through overseas training.

There have been calls from investors that upstream laws should have sufficient provisions for “natural gas” discoveries. Whereas the draft law touches on “associated natural gas” I am not quite sure that there is sufficiency in this draft law in respect of natural gas-prone blocks. We need to listen to investors on this subject.

In respect of taxation, although the draft law lists capital gains among other tax obligations for investors, it should be appreciated that capital gains is a subject of another law, the Finance Bill.

Having in place an effective upstream regulatory framework is a major achievement that must now be followed up with effective and fair implementation.

Mr Wachira is director, Petroleum Focus Consultants.

Source: businessdailyafrica.com

http://oilinkenya.co.ke/proposed-oil-gas-bill-meets-most-expectations-of-the-stakeholders/
 
Tullow Oil cuts on offshore exploration to focus on East Africa acreage as crude oil price drop

November 12, 2014 by Samuel Kamau Mbote

Following the drop in global crude oil prices Tullow Oil says I will be reducing on exploration cost as well as focus on high margin oil and its major basin-opening potential.

“In light of current oil and gas sector challenges including the commodity price environment, we are reviewing our capital expenditure and our cost base to ensure that Tullow is well-positioned for future success,” Tullow Oil Chief Executive Officer Aidan Heavey says in the latest interim statement

The reduction in exploration expenditure according to the company will impact more on offshore drilling where there is reduced commercial success and also faces the lack of asset transactions while returns from drilling complex, deepwater wells are currently less attractive.

As a result Tullow says it will now focus the majority of its exploration and appraisal expenditure on its operated onshore East Africa portfolio where significant value can be created by adding further resources and appraising existing discoveries to progress development in both Uganda and Kenya.

“Our overall exploration spend will be significantly reduced and will focus primarily on East Africa where we have major basin-opening potential. Tullow remains exploration-led and will continue to add further high quality frontier acreage so that, as conditions allow, we can return to drilling the types of prospects that have given us the development portfolio we have today,” Aidan says.

Tullow Oil has 6 licenses in Kenya (10BA, 10BB, 10A, 12A, 13T and L8) of which the last is offshore where the company holds a 15% equity position with a 5% additional equity option and is likely to be affected by the latest decision by the company.

The company adds that it will also continue focus on the Jubilee production and the non-operated West Africa portfolio where it expects to generate significant value and cash flow in 2015.

“In 2015, we will be focusing our capital spend on producing and development assets, particularly in West Africa where, by 2017, the Group expects to be producing, net to Tullow, over 100,000 bpd of high quality, high margin oil,” adds Aidan.

Tullow says it will continue to seek new low cost and highly prospective exploration acreage in its core areas of Africa and the Atlantic Margins to ensure that the business continues to have an industry-leading exploration position

http://oilnewskenya.com/2014/11/12/...-east-africa-acreage-as-crude-oil-price-drop/
 
Shell positions for oil revival

Friday, 14 November 2014 08:24

Senior Shell officials welcomed the the Minister of Mines and Energy, Hon Isak Katali and other government dignataries to the opening of Shell’s new Windhoek offices on Tuesday this week. The Shell high brass expressed their excitement about working in Namibia’s emerging offshore oil and gas industry.

“Earlier in 2014, Shell Namibia Upstream BV (Shell) acquired a 90% controlling interest in Petroleum Exploration License 39 (PEL 39) located offshore Namibia. The license area covers blocks 2913A and 2914B on the Namibian / South African border and measures some 12,000km ²” said Dennis Zekveld, Shell Namibia’s Country Chairman.

Flaunting their green credentials, the Shell delegation said the planning of the seismic survey took into account fishing activities and the presence of marine animals and Shell has been constructive in cooperating with the fishing industry on a data gathering exercise.

“Once we receive the seismic data and get an understanding of the geological subsurface, we can interpret this data and make a decision on drilling an exploration well,” said Alastair Milne, Shell’s Vice President for Sub-Saharan Africa.

Giving an update on offshore Namibia, Milne said that the Shell blocks has large potential for oil and gas prospects. Shell is in the early stages of exploration in Namibia. Experience teaches that it can take a number of years to determine if there are sufficient reserves to progress to an oil and gas production stage.

“Opening an office in Windhoek provides us with an opportunity to work more closely with the people of Namibia and make a real sustainable impact to the country,’ says Dennis Zekveld who has relocated from the US to Namibia to head up the Shell operation.

Shell said it aims to contribute to socio-economic development in Namibia. According to the Country Chairman, Shell collaborates with Namibian partners on skills development, road safety, and educational projects.

“Should commercially viable amounts of oil or gas be found offshore, Namibia could significantly benefit in terms of a stable energy supply, economic growth and job creation.” This is Shell’s second attempt at oil exploration in Namibian territorial waters.

http://www.economist.com.na/headlines/6555-shell-positions-for-oil-revival
 
Well time did tell, and yes, the Shorters Win again.

All the gains of last month wiped off the board.

Hope you managed to Sell High and Buy back Low. Its all part of the game.

All the gains lost.jpg
 
Trembling Hand said:
% of issued capital sold short PCL 0.01% :confused:
Click to expand...


http://www.asx.com.au/data/shortsell.txt

Daily Gross Short Sales reported for 17-Nov-2014, ASX Limited (ASX) & Chi-X Australia (CHI-X)


I'm sorry, I didn't just mean yesterday, It's has taken a few weeks to come back down from the last little run.
There have been a lot of other factors as well, I know, and we will continue to cycle in the future, I'm
counting on it.

PCL PANCONTINENTAL OIL & GAS NL FPO Reported Short Today 184,000 / 1,150,994,096 .01%

Take Care and good luck...
 
Local Policies Set Back East Africa Oil And Gas Projects

By Kevin Mwanza Published: November 18, 2014, 06:26am

East Africa is set to emerge as a global supplier of oil and gas within the next decade due to the recent major oil and gas discoveries in Mozambique, Tanzania, Kenya and Uganda. Uganda and Kenya alone are estimated to hold 4 billion barrels of crude oil while Tanzania and Mozambique claim 200 trillion cubic feet of natural gas. With the promise of unprecedented petro-revenues possible, host governments are working on bold, detailed, and comprehensive local content policies as they eye the next phase: production.

These policies, though intended to boost the economic well-being of the local population and indigenous enterprises, may bear unexpected costs. In an environment characterized by lack of skilled labor and poor infrastructure, the timing of local content policies may negatively impact the project costs, quality of work and schedule.

Current local content legislation in East Africa

Mozambique’s current local content legislation requires foreign contractors to contract local companies in procurement of goods and services, but there is no clarity as to what extent and percentage of jobs would be allocated to the citizenry. In Tanzania, local content policies are entrenched in the 2013 Production Sharing Agreement Model (PSAM) but are yet to be adopted into any effective petroleum contract.

Kenya plans to enact an ambitious local content policy in the next energy bill which is now expected to be completed by Q2 2015. With Kenyan current upstream hydrocarbons sector presently governed under the 1986 Petroleum Act (Cap 308), local content programs in the current oil and gas economic environment are limited in their effectiveness by the outdated legislation.

New efforts to create local content policy

It seems that East African governments are gradually devolving power to lower levels of governments to allow the control of natural resources to shift to the local population and companies. Central governments and international oil companies (IOCs) alike are facing increasing pressure to adopt and design upstream development and corporate social responsibility projects that are tailored to specific local communities.

In theory, this should ensure that labor, goods and services used in oil and gas operations are sourced locally. In reality, this has not gone smoothly due to the poor infrastructure and absence of the required skilled workforce, forcing IOCs to spend more time training local populations and building infrastructures to handle logistical issues.

In October Last year, Tullow Oil suspended drilling operations across blocks 10BB and 13T in Northern Kenya citing security concerns for their employees after local population protested asking for more jobs and better benefits. Tullow Oil eventually held meetings with local leaders, reaching an agreement to build a local office to handle the communities’ concerns. With similar incidents having been witnessed in Uganda’s Albertine and Tanzania’s Mtwara regions, these types of events highlight some of the roadblocks oil and gas companies encounter in managing local expectations in frontier regions.

Content Policy in long-term produces

Until now, East African countries new to the oil and gas markets have shown themselves as unready for implementation of comprehensive local content policies due to lack of skilled labor, poor infrastructure and inadequate capital. Yet even long-time oil producer Nigeria, producing oil and gas since the late 1950s, waited until 2010 when they enacted more complete local content programs. Now after half a century of oil revenues and productions, Nigeria has finally managed to develop better infrastructure and skilled labor relevant to the industry to give it the ability to withstand most of the challenges that followed generated policies.

While Nigeria is held up as a success story, another long time producer proves that time in the market does not necessarily equate with successful local content policy. Angola, a country with one of the most controversial local content policies in Africa, has been characterized by high operational costs, project development delays and some cases low quality work. The USD 10 billion Angola LNG plant project has experienced a string of setbacks that forced the plant to shut down. Some the problems facing the Angola LNG plant may be connected to local content policy.

Ghana which started producing crude oil in 2010, set up progressive local content policy in its draft bill initially beginning at 10% with target of 90% by 2020 but this is likely to be changed.

Recent oil and gas discoveries could provide an opportunity to stimulate economic advancement and social development in East Africa, if local content policies can address the needs of local communities. Only then can exploration and production (E&P) companies begin production and expect a reasonable return on investment.

Written by John Sisa, a Sub Saharan Africa expert and consultant on Energy and Mining.

http://afkinsider.com/78877/local-policies-set-back-east-africa-oil-gas-projects/
 
Oil industry risks trillions of 'stranded assets' on US-China climate deal

Petrobas' hopes of becoming the world's first trillion dollar company have deflated brutally

By Ambrose Evans-Pritchard
9:52PM GMT 19 Nov 2014

Brazil's Petrobras is the most indebted company in the world, a perfect barometer of the crisis enveloping the global oil and fossil nexus on multiple fronts at once.

PwC has refused to sign off on the books of this state-controlled behemoth, now under sweeping police probes for alleged graft, and rapidly crashing from hero to zero in the Brazilian press. The state oil company says funding from the capital markets has dried up, at least until auditors send a "comfort letter".

The stock price has dropped 87pc from the peak. Hopes of becoming the world's first trillion dollar company have deflated brutally. What it still has is the debt.

Moody's has cut its credit rating to Baa1. This is still above junk but not by much. Debt has jumped by $25bn in less than a year to $170bn, reaching 5.3 times earnings (EBITDA). Roughly $52bn of this has been raised on the global bond markets over the last five years from the likes of Fidelity, Pimco, and BlackRock.

Part of the debt is a gamble on ultra-deepwater projects so far out into the Atlantic that helicopters supplying the rigs must be refuelled in flight. The wells drill seven thousand feet through layers of salt, blind to seismic imaging.

The Carbon Tracker Initiative says the break-even price for these fields is likely to be $120 a barrel. It is much the same story - for different reasons - in the Arctic 'High North', off-shore West Africa, and the Alberta tar sands. The major oil companies are committing $1.1 trillion to projects that require prices of at least $95 to make a profit.

The International Energy Agency (IEA) says fossil fuel companies have spent $7.6 trillion on exploration and production since 2005, yet output from conventional oil fields has nevertheless fallen. No big project has come on stream over the last three years with a break-even cost below $80 a barrel.

"The oil majors could not even generate free cash flow when oil prices were averaging $100 ," said Mark Lewis from Kepler Cheuvreux. They have picked the low-hanging fruit. New fields are ever less hospitable. Upstream costs have tripled since 2000.

"They have been able to disguise this by drawing down legacy barrels, but they won't be able to get away with this over the next five years. We think the break-even price for the whole industry is now over $100," he said.

A study by the US Energy Department found that the world’s leading oil and gas companies were sinking into a debt-trap even before the latest crash in oil prices. They increased net debt by $106bn in the year to March - and sold off a net $73bn of assets - to cover surging production costs.

The annual shortfall between cash earnings and spending has widened from $18bn to $110bn over the last three years. Yet these companies are still paying normal dividends, raiding the family silver to save face.

This edifice of leverage - all too like the pre-Lehman subprime bubble - will surely be tested after the 30pc plunge in Brent crude prices to $78 since June.

Prices could of course spike back up at any moment. Data from the US Commodity Futures Trading Commission show that speculators have taken out big bets on crude oil futures. NYMEX net long contracts have reached 276,000. This is a wager that the OPEC cartel will soon cut output.

Yet there is little sign so far that the Saudis are ready to do so on a big enough scale to make a difference. JP Morgan expects US crude to slide to $65 over the next two months, a level that could lead to a "cumulative default rate" of 40pc for the low-grade energy bonds that have financed much of the fracking boom, if it drags on for two years.

Gordon Kwan from Nomura says OPEC (or at least the Saudi-led part) is "engaged in a price war with US shale producers" and will not rest until it has inflicted serious damage. He thinks Saudi Arabia will deflate US crude prices to $70 and hold them there for three to six months, targeting high-cost shale plays in the Bakken and Eagle Ford fields.

OPEC has a clear motive to do this. The US has slashed its net oil imports by 8.7m barrels a day (b/d) since 2005, equal to the combined exports of Saudi Arabia and Nigeria. Yet this game of chicken could be dangerous. There will be collateral damage along the way.

Deutsche Bank says the oil price needed to balance the budget is $162 for Venezuela, $136 for Bahrain, $126 for Nigeria, and over $100 for Russia. Algeria is extremely high, and already sliding into political crisis. Any one of these countries could fly out of control.

Nor is it certain that $70 oil prices will in fact stop the US juggernaut. Shale wildcatters have hedged much of their production by selling forward into 2015 and 2016. They can withstand a short hit. Citigroup's Edwin Morse says shale critics are "wildly underestimating" the resilience of key US fields.

Yet the greater question is whether any of the world's oil projects in high-cost regions make sense as China and the US agree to slash carbon emissions. The accord signed between President Barack Obama and China's Xi Jinping last week - if ratified by the US Congress - has devastating implications. Oil companies have booked vast assets that can never be burned.

These are the world's G2 superpowers, the two biggest economies and biggest polluters. Their deal marks the end of a bitter stand-off between the rich nations and the emerging economies that has dogged climate talks for years. It isolates the dwindling band of hold-outs, and greatly increases the likelihood of a binding global accord in Paris next year.

The IEA says that two-thirds of all fossil fuel reserves are rendered null and void if there is a deal to limit CO2 levels to 450 particles per million (ppm), the target level agreed by scientists to stop the planet rising more than two degrees centigrade above pre-industrial levels.

Chevreux's Mr Lewis said the fossil fuel industry would lose $28 trillion of gross revenues over the next two decades under a two degree climate deal, compared with business as usual. The oil companies would face "stranded assets" of $19 trillion.

The Obama-Xi deal does not in itself secure the two degree goal but it does commit China to peak CO2 emissions by 2030 for the first time. China will raise the share of renewable energy by 2020 from 15pc to 20pc, a remarkable target that can only be achieved by breakneck expansion of solar power.

China is already shutting down its coal-fired plants in Beijing. It has imposed a ban on new coal plants in key regions after a wave of anti-smog protests. Deutsche Bank and Sanford Bernstein both expect China's coal use to peak as soon as 2016, a market earthquake given that the country currently consumes half the world's coal supply.

The US in turn has agreed to cut emissions by 26-28pc below 2005 levels by 2025, doubling the rate of CO2 emission cuts to around 2.6pc each year in the 2020s.

Whether or not you agree with the hypothesis of man-made global warming, the political reality is that the US, China, and Europe are all coming into broad alignment. Coal faces slow extinction by clean air controls, while oil faces a future of carbon pricing that must curb demand growth far below what was once expected and below what is still priced into the business models of the oil industry.

This is happening just as solar costs fall far enough to compete toe-to-toe with diesel across much of Asia, and to reach "socket parity" for private homes in much of Europe and America. The technological advantage is moving only in one direction only as scientists learn how to capture ever more of the sun's energy, and how to store the electricity cheaply for release during the night. The cross-over point is already in sight by the mid-2020s.

Mr Lewis said shareholders of the big oil companies are starting to ask why their boards are ignoring so much political and technological risk, investing their money in projects that are so likely to prove ruinous, and doing so mechanically as if nothing had changed.

"Alarm bells are ringing. Investors can see that this is unsustainable. They are starting to ask whether it wouldn't be better to return cash to shareholders, and wind down the companies," he said.

Great fortunes were made in 18th Century in the British canal boom. The network of waterways halved coal prices and drove the first leg of the Industrial Revolution. Yet you had to know when the game was up.

The canal industry was on borrowed time even before the Liverpool and Manchester Railway first opened in 1830, unleashing the railway mania that entirely changed the character of Britain.

These historic turning points are hard to call when you are living through them but much of today's the fossil fuel industry has a distinct whiff of the 19th Century canals, a pre-modern relic in a world that his moving on very fast.

http://www.telegraph.co.uk/finance/...stranded-assets-on-US-China-climate-deal.html
 
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