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China National Offshore Oil Corp (CNOOC) is assumed to have
completed its highly anticipated exploration drilling campaign
offshore Gabon, as the rig has moved from Gabon and was on route to
Canada. At the time of writing, CNOOC had not released any results
for either of the wells. Should CNOOC announce positive results for
either of the wells, it would de-risk significant tracts of
deep-water acreage. The post-salt Seal prospect, defined as a large
three-ways structure closer in stacked Albian carbonates, was the
second test in this two well program. The prospect, estimated to
hold around 320 million barrels (MMbbls) of recoverable oil
resources, is located within the offshore Block BCD10, operated by
CNOOC with 100% interest.
The undeveloped Leopard field was the first discovery made within
the block back in 2014. The Leopard-1 well encountered a
substantial gas-bearing column of around 200 m net gas pay in a
pre-salt reservoir. However, the Seal well was targeting a
post-salt oil reservoir within the Madiela Group expected to be
intersected at a depth of approximately 2,200 m. The well was
spudded around the 19th of February by the Stena "Ice Max"
drillship at a water depth of roughly 400 m. The rig completed
drilling operation on the 11th of March. If it turns out that the
well was successful, the possible development of the field would
involve a floating production, storage and offloading (FPSO) vessel
with offshore loading onto shuttle tankers to export the crude oil
to market.
According to the analysis in the case of a positive probe, at a
Brent oil price scenario of $83/bbl CNOOC would require a discovery
estimated to be in the region of 60 MMbbls recoverable to break
even, while a discovery of 350 MMbbls would have a net present
value (NPV) of over USD 3.8 billion with a break-even price (BEP)
below 50$/bbl. At a more conservative Brent oil price scenario of
$58/bbl, CNOOC would have to discover at least 120 MMbbls
recoverable to break even, while a discovery of 350 MMbbls would be
worth at least USD 1.4 billion with rate of return (IRR) of 15% and
a government take of around 50%. The fiscal regime in the region
suggests that with a break-even price below 60$/bbl CNOOC is likely
targeting a discovery equal to at least 150 MMbbls, below which the
BEP increases dramatically (Figure 1).
Figure 1: Seal 1 prospect valuation
The contract for Block BCD10 was awarded in 2007, providing more
attractive terms than subsequent fiscal regimes. Under the Gabon
Production Sharing Agreement (PSA) of 2007, the limits imposed on
royalty, cost recovery and profit share vary by production rates
and water depth. As the water depth and production increase the
profit share decreases. For deep water projects like Seal, the
profit share decreases in tranches of 10% and depending on the
production rate will range between 50-60%. Consequently, at the
Brent oil price scenario of $58/bbl the calculated NPV from a
comparative analysis shows approximately 60% higher values under
the 2007 PSA compared to the 2019 terms. However, the differences
decrease for the discoveries below around 200 MMbbls recoverable,
due to minimum parameters terms for Royalty, production bonuses and
Profit Share being triggered, as the three fiscal terms are linked
to production, resulting in almost equally rates being applied in
both 2007 and 2019 terms.
It is worth highlighting that BEP improves around 15% under fiscal
regime of PSA 2007 compared to the PSA 2019 terms. Contractual
islands (contracts that are more favorable when compared to
surrounding contracts or the model contract currently available to
explorers) represent opportunities for explorers to gain access to
the same geology under potentially far better fiscal terms (Figure
2).
Should Seal 1 ultimately be announced as successful, CNOOC would
have capitalized on attractive terms and de-risked significant post
salt acerage.
Figure 2: Gabon contractual islands
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
