COLUMN | Big is better? Big finds in Namibia; big losses at Gazprom; big sale at Edda Wind; big problems at Petrofac [Offshore Accounts]

Every day, the world uses around one hundred million barrels of oil. The term "big oil" is used pejoratively to describe the industry's lobbying power.

But is big always better? This week, we look at both the biggest and the best, and the biggest and the worst of the oil industry.

Big finds: Namibia and Sabrina Carpenter at number one

For several years, Guyana has been the Taylor Swift of the offshore industry – the undisputed champion of exploration success and production growth, adored by millions of ExxonMobil shareholders.

The recent approval of the deepwater Whiptail project means that the company will operate six floating production storage and offloading (FPSO) vessels in Guyana, with an estimated production to 1.3 million barrels of oil per day by 2027. Chevron's US$53 billion efforts to buy Hess for its 30 percent stake in the Stabroek Block with its 11 billion barrels of discoveries have mirrored Ms Swift's whirlwind romance with gridiron star Travis Kelce.

Unfortunately, even Taylor Swift is sometimes outshone – last week, Sabrina Carpenter hit the top of the UK charts with her bubblegum pop ditty "Espresso". As in pop, so in oil exploration.

Recent massive offshore oil discoveries in Namibia have started a stampede of exploration interest and a frenzy of drilling. Namibia looks like it can displace Guyana as the top spot of exploration interest in 2024.

Big gulp, Galp

Late last month, Portuguese oil company Galp announced it had successfully completed the first phase of the Mopane exploration campaign with the Mopane-1X Well Test performed by the semi-sub rig Hercules, managed by Odfjell. The results were mind-blowing.

"The Mopane-1X well discovered, in January, significant oil columns containing light oil in high-quality reservoir sands at two different levels: AVO-1 and AVO-2," Galp announced. "The rig then moved to the Mopane-2X well location, where in March significant light oil columns were discovered in high-quality reservoir sands across exploration and appraisal targets: AVO-3, AVO-1 and a deeper target. In particular, the Mopane-2X well found AVO-1 to be in the same pressure regime as in the Mopane-1X discovery well, around  8 km to the east, confirming its lateral extension… In the Mopane complex alone, and before drilling additional exploration and appraisal wells, hydrocarbon in-place estimates are 10 billion barrels of oil equivalent, or higher."

Of course, reserves in place are not recoverable reserves, but that is still billions of barrels of oil for just one operator in one block, and Galp has speculated that multiple FPSOs might be needed to bring its finds to production. The company has said it will quickly follow up with a four-well exploration and appraisal programme, hoping to start drilling at the end of this year.

After the second discovery was announced, Galp's market capitalisation leapt to nearly US$17 billion and it pledged to try to farm out half its interest in the block. My money is that Galp as a whole will be gulped up by one of the majors before the discoveries reach production.

Total and Shell already there

Galp's major discovery has followed on the success of TotalEnergies and Shell in country. TotalEnergies recently completed an appraisal drilling campaign in Namibia with the Vantage-managed drillship Tungsten Explorer, with the successful Mangetti-1X well. Like Taylor Swift, that rig is on tour – it just departed Walvis Bay for the Republic of the Congo, where it will drill TotalEnergies' Niamou-1 prospect on the Marine XX block off Pointe Noire, supported by a pair of Tidewater platform supply vessels (PSVs).

The French company is already planning the development of its flagship Venus discovery in Namibia with conceptual design underway for an FPSO with around 180,000 barrels per day oil production capacity. The Odfjell-managed semisub Deepsea Mira will continue drilling there until the end of this year, which is conveniently just when Galp says it will need a rig. Hmmm…

Shell meanwhile has made five discoveries in Namibia – named Graff, La Rona, Lesedi, Jonker and Enigma, with Jonker expected to be the initial development target. Shell has used the Odfjell-managed semi-sub Deepsea Bollsta rig to drill six exploration wells and two appraisal wells since the rig arrived in-country in December 2022.

Shell announced the rig would be released next month, as it moves to assess the reserves it has discovered and formulate a development plan. Deepsea Bollsta is supported by a trio of large PSVs from Bourbon. The rig's owners Northern Ocean said it "continues ongoing dialogues with potential customers in West Africa and harsh environment markets to secure employment in direct continuation of current operations," but so far, neither Northern nor Odfjell has announced a new contract for the rig.

There is no shortage of takers for rigs in Namibia, and clearly it is going to be a major market for high-capacity PSVs. Tidewater has conveniently established its regional headquarters for Africa in Walvis Bay.

Big rush to secure exploration blocks

No sooner had Galp announced its discovery than BP and Eni announced that their Angolan joint venture, Azule, had agreed to take a 42.5 per cent stake in Namibian Petroleum Exploration Licence (PEL) 85, which covers Block 2914A and is currently 85 per cent owned by Rhino Resources.

Rhino has two high-impact exploration wells planned there, using the drillship Noble Venturer in November, after that rig completes work in Ghana for Tullow Oil and a programme in Equatorial Guinea for Trident Energy and Kosmos Energy. Azule and Rhino's block is close to Galp's recent discovery and the deal permits Azule to become operator of the block. Rhino had previously funded a 3D seismic campaign on the block to identify drilling targets.

The Azule announcement came just days after Chevron announced it had purchased an 80 per cent stake in deepwater block PEL 82. In 2022, Chevron also farmed into an 80 per cent stake in PEL 90, north of the Venus find.

The PEL 90 license covers 5,433 square kilometres, in water depths of between 2,300 and 3,300 metres. We can expect a drilling campaign next year, and in addition to the rigs mentioned above, the drillship Noble Voyager and Diamond Drilling's Ocean BlackRhino also have availability in the right window.

Calm down in Perth, too!

Australian player Woodside took an option to take a 56 per cent interest PEL 87, which is operated by PanContinental Energy, a small Australian-listed company. Woodside and PanContinental are currently reviewing the findings of a 5,600-square-kilometre 3D seismic survey that was performed in May 2023.

PanContinental has talked up multiple possible structures for drilling, so we can probably expect a multi-well drilling programme in 2025, when the number of rigs working in Namibia will likely match the number drilling off Guyana.

Taylor Swift might have a song called You Need To Calm Down, but Namibia is going to be a frenzy of excitement for offshore for at least a couple of years. Ignore her.

Big losses: Gazprom

"All of you will die; but know one thing: Mother Russia will never forget us."

So begins the (apparently) motivational speech given by a Russian commander to his troops near the front in Ukraine, shared widely on social media.

And it is not just the half a million soldiers killed or wounded in action that Russia has lost from its war in Ukraine. Now state gas monopoly Gazprom has reported a loss of RUB629 billion (US$6.9 billion) for full year 2023 as sanctions and the destruction of the Nordstream pipelines have led to a collapse in sales to Europe, which was previously its main profit source. Quick, find me the world's smallest violin!

Gazprom's gas sales dropped by half, from RUB 8.4 trillion in 2022 to just RUB4.1 trillion last year, and the company's international sales fell by close to 60 per cent. Russia's share of Europe's gas imports dropped from 40 per cent in 2021, the last full year before the invasion, to 14 per cent in 2023, according to EU data. Russian pipeline exports accounted for 8.7 per cent of EU supply and Russian liquefied natural gas (LNG) another 6.1 per cent.

Big lack of divestment from Paris

Readers may be surprised to find that TotalEnergies has retained a 20 per cent stake the Yamal LNG project, the largest supplier of Russian LNG to global markets. It says that only LNG sold under existing deals that pre-dated the war is sold into the EU.

Russian LNG production fell by roughly six per cent to 31 million tonnes in 2023, Rystad Energy has reported. This fall was due to planned maintenance at both Gazprom's Sakhalin 2 and Yamal LNG projects. Now, Western sanctions are seeking to make it harder to Russia to develop new LNG projects by applying sanctions to those companies that supply technology for the plants, and by making it hard for shipyards to deliver vessels to Russian customers.

Big gap as China does not take up the slack

The Financial Times reported that despite the efforts of the Kremlin to talk up Chinese purchases of Russian gas as a substitute for the lost European sales, those exports to China in 2023 were less than 10 per cent of the average of 230 billion cubic metres a year of gas that Russia exported to the EU in the decade before the Ukraine invasion.

The slump in international sales threatens to push Gazprom to the brink of insolvency as President Putin has continued to artificially suppress the domestic gas prices in Russia to prevent public dissent. This has forced Gazprom to borrow to cover its mounting losses.

Like Russian soldiers, foreign investors in Russian state enterprises should never forget to carry sunflower seeds in their pockets.

Big sale at Edda Wind

When Edda wind listed in 2021, we highlighted how the company was a bit like a hot Instagram promotion for diet tea, with celebrity endorsements from Idan Ofer and John Fredriksen to encourage retail investors.

Since the listing, the company's shares have fallen over 26 per cent in local currency terms, and over 30 per cent in US dollar terms.

Big exit in Oslo, big increase by Mr Fredriksen

Before its listing, Edda Wind was owned by Østensjø Wind and Wilhelmsen New Energy on a 50/50 basis. Østensjø and Wilhelmsen were diluted at the listing and last week, as we reported, Østensjø agreed to sell all its 21.3 million remaining shares in Edda Wind.

Additionally, Østensjø used to manage the Edda Wind fleet of windfarm service operation vessels (SOVs). However, from January 1, 2025, Edda Wind will take management of its ships in-house.

Meanwhile, John Fredriksen has stepped up to the plate to acquire around 10.3 million of the Edda Wind shares sold by Østensjø, making the entities he controls the largest shareholder in the company. Edda Wind has barely made a profit in its more than two years as a listed company.

Big orderbook

Edda Wind has a large orderbook of newbuilds as well as the largest SOV fleet in the industry.

In 2023, the company ordered four additional vessels from the Vard, giving it a total of 13 vessels in operation and under construction (after the sale of the SOV Edda Passat, which closed last month). The company has continually needed to raise both equity and debt to fund its expansion. Edda Wind raised NOK1.2 billion (US$110 million) to cover the equity portion of the vessels and secured a €161 million (US$173 million) green term loan facility agreement for the vessels in December 2023.

Eight of Edda Wind's vessels will be operational by the end of 2024, with an additional five expected within 2026. The company claims that the uncontracted vessels in the fleet will be able to command premium rates when they are delivered.

Will there be a big wind crash?

Last week, we wondered whether there would be a wind crash. If there is, Østensjø has bailed out and doesn't care, and you can bet that Mr Fredriksen will use his massive financial firepower to ensure that he is the one who takes advantage of any distress at Edda Wind.

Meanwhile, Bibby Marine has just confirmed an order for a fully electric SOV at Astilleros Gondan in Spain for delivery in 2026.

It's getting crowded in the wind market and lots of big, shiny, new vessels cost big bucks. Edda Wind shareholders can expect a wild ride.

Big problems at Petrofac

On April 22, we warned that Petrofac's shareholders have to accept that they are on the edge of wipe-out.

Can we say we were right? A week later, Petrofac announced a delay to its audited full year 2023 results, which it now expects to publish by the end of this month.

"Although the audit is substantially progressed, the company and its auditor require additional time to complete the annual report," Petrofac reported. "As a result, in accordance with the Financial Conduct Authority's (FCA) Disclosure and Transparency Rules and Listing Rules for the publication of audited financial statements, the company has engaged with the FCA, and trading in the company's shares will be temporarily suspended from 7.30 a.m. on May 1, 2024 until its full year 2023 results are published."

By the time of suspension, the shares were trading at 10.50 pence, down by more than 50 per cent from the 23 pence price where they stood when we published.

Small default?

During the suspension, it is likely that Petrofac will default on its debt. It reported that its "upcoming payment obligations include amortisation payments due on the company's bank facilities and the coupon payment due on its senior secured notes on 15 May 2024… The company does not expect to make the payment of the bond coupon on the due date of 15 May. The payment has a 30-day grace period. The ad-hoc group of noteholders, representing approximately 41 per cent of the outstanding notes, has entered into a forbearance agreement with the company, which provides an assurance that those noteholders will not take any action in respect of the non-payment of the coupon until at least 30 June 2024, in order to provide time for the group's financial restructuring to be progressed… Managing these payment obligations is of critical importance to the company's ability to maintain sufficient liquidity in the short-term while it is working to implement the financial restructuring."

Big sale in Malaysia

In order to survive, Petrofac has followed the example of Sapura in Malaysia, which was forced to sell its interest in oil producer SapuraOMV to Total for over US$700 million. Petrofac holds a 35.3 per cent stake and operatorship of the PM304 Production Sharing Contract (PSC) in Malaysia, which contains the Cendor, East Cendor, West Desaru, and Irama fields.

Cendor was initially developed by Petrofac with a mobile operating production unit (MOPU) and a floating storage and offloading (FSO) vessel in September 2006, but these were replaced by an FPSO in 2014. The concession runs until September 2026.

In July 2021, Petrofac brought the 7,000 barrel per day East Cendor development onstream after installing a single new Wellhead Platform and a new 6.3-kilometre pipeline linking the field to the existing FPSO Cendor. Now, Petrofac says it has received non-binding offers for its share in the PSC and that it expects the divestment to be completed in the second half of this year. Coyly, Petrofac noted that "offers are in line with the value of anticipated cash flows (subject to oil price and oil premium assumptions) over the remaining term of the PSC."

The Petrofac restructuring is likely to involve further asset sales and divestments. Just as McDermott hit a wall with its disastrous Colombian refinery project, one of the main issues facing Petrofac is the Thai Oil Clean Fuels project, which is a dirty, big mess due to cost overruns.

As a result of a failure to agree who pays for the extra project costs, Petrofac "expects to recognise an incremental loss in its Engineering and Construction division of approximately US$130 million for 2023."

Ouch. If it is losses we are talking about, bigger is never better.

Background reading

Odfjell Drilling's very informative March report is here with details of its rigs drilling in Namibia and some of the met-ocean challenges there.

On Russia, TotalEnergies states in its Code of Conduct that "Being the company of responsible energies requires that our conduct is exemplary." Quite how holding 20 per cent in a Russian LNG project contributing billions to the Russian government, which is currently engaged in an unprovoked invasion of Ukraine, fits with this ethos is not clear.

Readers can refer the issue of Russian investments by TotalEnergies, or other concerns by writing to ethics@totalenergies.com.

It's Monday, so on a lighter note, why not check out Billboard's listing of Taylor Swift's fifty biggest hits? Where else am I supposed to get my story hooks from? Look What You Made Me Do!

See the Edda Wind 2023 annual report here.