International geographic
  from: Offshore Engineer
  by: Darius Snieckus
  Tuesday, April 29, 2008

Last year’s merger between Statoil and Hydro created a combine with an acreage portfolio ranged across 40 countries and gave fresh impetus to the campaign of internationalisation that had been afoot at the larger Norwegian oil company since its partial privatisation in 2000. As the operator further strengthens its Brazilian and US Gulf positions with a $1.8 billion asset acquisition, Darius Snieckus reports on how international E&P is helping StatoilHydro in ‘responding to the growth challenge’.

The world’s largest offshore operator is on the march. After an energetic year which saw StatoilHydro sign on for phase one of the long-awaited Shtokman development in the Barents Sea, take over Canada’s North American Oil Sands Corporation, and start-up its first operatorship in the US Gulf of Mexico, the Norwegian combine last month set the seal on the $1.8 billion asset acquisition to assume 100% working interest and operatorship of the 500 million barrel heavy oil Peregrino project off Brazil from development partner Anadarko, along with a 25% stake in the highly-prospective deepwater US Gulf Kaskida discovery. All this while bedding in a merger that is creating an operator with a market capitalisation of more than NKr500 billion, proven reserves in excess of 6 billion boe, and production of 1.7 million boe/d.

Internationalisation has, by design, been in the ascendancy at the oil and gas company since its IPO eight years ago. Between 2001 and 2007, StatoilHydro succeeded in driving up its international entitlement production 25%, to 323,000boe/d, on the back of assets now spread across nearly 40 countries, including Angola, the US, Venezuela, Canada, Algeria, the UK and Azerbaijan. Underpinned by a ‘non-NCS (Norwegian continental shelf)’ resource base climbing toward the 3.5 billion boe mark, the plan is to move from ‘delivering’ a new resource base to ‘developing’ it, ‘moving the barrels,’ as StatoilHydro International E&P chief financial officer Anders Hatteland puts it, ‘down the chain’.

‘We have our aspirations, not to be among the supermajors really, but something of a similar size,’ he states. ‘The way we work is perhaps somewhat different in terms of how we cooperate but it has been a healthy way for us to grow and we will continue with it as a business model.’

By 2012, Hatteland says, the operator aims to take its international equity output from current levels of 500,000boe/d up to 650,000boe/d, boosted by output from its share of ‘world-class’ developments such as ACG in the Caspian Sea, Agbami off Nigeria, and Tahiti in the US Gulf of Mexico. Another key source of international production growth, starting in 2010, will be the Peregrino development in Brazil’s Campos Basin, a field that, last month, StatoilHydro took over lock, stock and barrel from US independent Anadarko.

Under the terms of the transaction, StatoilHydro acquired a second 50% stake in the project, which it had been developing 50:50 with Anadarko, for some $1.8 billion plus a maximum payment of $300 million, ‘conditional on future oil prices above pre-defined threshold levels’ through to 2020. The acquisition is seen as fortifying the company’s presence in Brazil by adding ‘an important new legacy operatorship‘ to its international portfolio, while also keeping to its strategic focus on heavy oil, which Peregrino – foreseen to be flowing around 100,000boe/d via an FPSO-centred development concept at plateau – very much is. North, in the US Gulf, Kaskida, standing in 2000m of water, matches neatly with StatoilHydro’s strategic nous for deepwater.

For StatoilHydro, the Anadarko deal is perceived as ‘an excellent fit both in Brazil and in the Gulf of Mexico where [it] will utilise [its] increased oil recovery experience together with [its] project management skills for large offshore developments’ while bolstering the company’s medium- and long-term production growth targets by adding large volume reserves with ‘identified upsides’. Peregrino has the potential for an incremental increase on the current 20% recovery factor, according to the operator, along with tieback of additional resources outside the field’s main development area. BP-operated Kaskida, meanwhile, is ‘one of the largest deepwater discoveries in the US Gulf of Mexico in recent years’, and located on Keathley Canyon near ‘several other blocks’ licensed to StatoilHydro.

Brazil is a ‘cornerstone of our future international development’, states Hatteland.

The Norwegian company has also underscored its ‘long-term commitment’ to the region – and its main player, Petrobras – with the signing of a memorandum of understanding last September for a longterm strategic collaboration deal with the Brazilian operator covering exploration and production and biofuels. The MoU builds on several cooperation agreements within E&P in Brazil, Angola, Nigeria and the US Gulf of Mexico, as well as a technology partnership inked in 2003 that encompasses drilling, exploration and subsea operations.

Chalking up Q

With deepwater sharing top table with heavy oil in StatoilHydro’s executive dining room, the US Gulf is rarely far from the company’s thoughts.

Last year was an historic one in the region for the company, which has spent more than $6 billion building a regional portfolio on the back of the $2 billion fellswoop acquisition of EnCana’s deepwater assets in 2005. Its first operatorship, Q, came into production last October, and with Anadarko the company recently made a breakthrough discovery with West Tonga, a prospect acquired through the EnCana purchase that is reckoned to be further fruit from an ‘exciting Miocene play’ in an area of Green Canyon that is neighboured by fields including Tahiti, Caesar, and Tonga itself.

Q, a natural gas field developed as a subsea tieback to the Independence Hub facility in the eastern Gulf, is seen as a step toward StatoilHydro becoming ‘a major player’ in the US Gulf as it is its ‘first operated deepwater field there’.With output from Q, StatoilHydro’s gas production in the region – one that to the company already represents participation in some 15 discoveries – is expected to grow ’considerably in the years to come’.

If there were any lingering doubts as to StatoilHydro’s long-distance ambitions in the US Gulf they would have been dispelled last December by the company’s play for acreage in the Western Gulf of Mexico lease sale 204, where the operator put in high bids on 35 leases, including a $37.6 million offer on deepwater Alaminos Canyon block 810. As OE went to press, StatoilHydro had just extended its regional E&P coverage with high bids on 16 leases in central Gulf of Mexico lease sale 206. As StatoilHydro understates it: ‘We are preparing for intensive drilling activity in the years to come.’

Intensive production too, hopefully, with Tahiti and Thunder Hawk, together totting up some 42,000boe/d for StatoilHydro, both expected onstream next year, and Jack and St Malo on a timeline to startup in 2013.

Though by no means of a comparable scale, StatoilHydro continues to plough other furrows in the Americas. Off Venezuela, for one, helping to hone its heavy oil skills, the company recently wrapped up a three-year exploration campaign that has seen the spudding of three wells – Cocuina, Ballena and Orca – on block 4, Plataforma Delta, and is now negotiating terms with the Venezuelan ministry of energy & petroleum to retain acreage around the first of these wells in order to assess commerciality.

Travelling north

To the North, off eastern Canada, an E&P province ‘becoming a significant contributor’ to StatoilHydro’s international portfolio, the company is primed to get the drillbit turning too, with the recent announcement of plans to spud its first offshore prospect as operator. The Mizzen prospect, located in 1100m of water in the Flemish Pass off Newfoundland and Labrador, is to be drilled in the fourth quarter by Transocean’s Henry Goodrich semisubmersible drilling unit, following the signing of a rig-share deal with PetroCanada and Husky to explore a basin considered ‘a new and almost unexplored area on Canada’s east coast’, states Hatteland.

StatoilHydro has working interests in two producing offshore fields in the province, PetroCanada’s Terra Nova and the Hibernia Management & Development Company’s Hibernia field, along with a small share of the Chevron-operated Hebron Ben Nevis development.

Considering the relative immaturity of eastern Canada’s offshore oil and gas region, that the country as a whole is viewed as one of four core areas supporting StatoilHydro’s long-term growth is explained by last year’s $2 billion takeover of North American Oil Sands, and its 257,200 acres of oil sands leases located in the Athabasca region of Alberta along with it. Whomever’s reserves estimates you believe, the area’s hydrocarbon resource is vast, but StatoilHydro’s first orders of business are to move ahead with the recently-approved Leismer pilot production scheme that aims to flow 10,000b/d of produced bitumen sometime after first production in 2010, and progress development at Kai Kos Dehseh, where production of around 100,000b/d is foreseen by the ‘middle of the next decade’.

Overlapping with the deepwater and heavy oil foci at StatoilHydro is something arguably deeper in its DNA: Arctic water – and the technology to work in it. Bringing on the Snøhvit subsea-to-beach development in the Norwegian Barents Sea last year was exhibit A. Exhibit B came in the same month as first shipments of LNG from the field, in the signing with Gazprom of a frame agreement to become partner, alongside Total, in the phase one of the Russian Barents Sea Shtokman development. The agreement gives StatoilHydro a 24% equity interest in the Shtokman Development Company – responsible for planning, financing and constructing the infrastructure necessary for the first phase of the development and owner of the infrastructure for 25 years from start-up.

The partnership was said by Gazprom chair Alexei Miller to be ‘the keystone of our success in the Arctic’ – and said by StatoilHydro chief Helge Lund to be ‘a strong demonstration of the joint capabilities of the merged company StatoilHydro’ – and the leverage afforded it due to its ‘technology, industrial experience and expertise from large offshore developments’.

Holder of the title ‘world’s largest undeveloped offshore gas field’, Shtokman is thought to have gas initially in place of around 3.7tcm, and annual LNG and piped gas production estimated at 23.7bcm for the first phase.

Involvement in Shtokman is not occurring in isolation for the company in Russia. Gazprom Neft and StatoilHydro last April inked an MoU with a view to setting up a joint working group to look at possible joint E&P projects in Russia and overseas. The two companies share the notion that ‘joint work [will] provide the opportunity to exchange the acquired expertise in oil E&P areas, and to integrate efforts of both companies in order to achieve the maximum efficient result of the work’, and StatoilHydro further sees this as ‘an important building block in our pursuit of seeking E&P opportunities not only in Russia’.

One such place might just be Alaska. StatoilHydro is on a flyer in the US’ northernmost state following its success as high bidder on 16 leases – 14 of which were joint bids with Eni and all of which will be operated by the Norwegian company – in Chukchi Sea lease sale 193, a sale perceived as ‘another step for the company’s future growth’.

Anchored off Baku

Though the wider offshore industry’s spotlight has moved on somewhat from the Azeri sector of the Caspian Sea, StatoilHydro is planning for the long game in the region via ACG and Shah Deniz – which it lists, along with Nigeria’s Agbami, onstream this summer, Pazflor off Angola, and Peregrino, as foundational to its ‘solid inventory’ of world-class projects.

Stakes in BP’s multiphase Azeri-Chirag- Gunashli development, producing through the Central Azeri platform since 2005, and the Shah Deniz gas field, flowing since 2006, are ‘among our biggest commitments’, notes Hatteland. On Shah Deniz, where StatoilHydro has a 25.5% interest, a ‘major’ gas-condensate discovery was made last November when well SDX-04 struck a new high pressure reservoir thought to have the potential of ‘more than doubling the output’ from the field.

StatoilHydro also has a share of a production sharing agreement covering exploration and development of the Alov, Araz and Sharg prospects in a 450-800m deep patch of water that, at 1400km2, ranks as Azerbaijan’s ‘most extensive offshore licence so far’.

Technical evaluation of the acreage was carried out in 2002, but a maiden spud is stalled pending talks between Iran and Azerbaijan concerning maritime boundaries in the sector, one dubbed the ‘next North Sea’.

In the original North Sea, the company is again exercising muscle toned on heavy oil fields such as Norway’s Grane and Brazil’s Peregrino, after taking over its first operatorships on the UK side – in the form of the Bressay, Mariner, and Mariner fields – from Chevron, and, in a separate transaction with Silverstone Energy and Wilderness Energy agreeing to ‘close cooperation’ and technological support in exploring a trio of nearby Quadrant 9 licences.

With a plan for drilling as many as three wells in the next two years to kick-off activity on the former Chevron assets, according to Hatteland, the ‘right results’ might lead to a heavy oil hub being fashioned for this swathe of the UK continental shelf. StatoilHydro is now holding half of the province’s proven, but undeveloped, heavy oil volumes, along with stakes in another six fields with an output of 13,000b/d as well as interests in discoveries such as Rosebank, Amos and Suilven.

Across on the NCS, Norway’s ‘national champion’ is hardly sitting on its hands. Supported by late-life developments on many of its legacy fields – and the technology ‘laboratory’ that its domestic portfolio is home to – StatoilHydro is also responsible for the precedent-setting Snøhvit, Ormen Lange, and – upcoming – Gjøa developments.

Still Hatteland, like most anyone else in the Norwegian oil and gas business, knows the shelf has its limits. ‘The NCS won’t last forever, there is no revelation there, so if we wanted this company to continue we had to go international,’ he underscores. ‘So far we have had a measure of success in doing this – by focusing on those areas, deepwater, heavy oil, mainly, where we feel we have some advantage.’With production targets of 1.9 million boe/d this year and 2.2 million boe/d in 2012, that perceived international ‘advantage’ will have to be pressed home. OE

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