Weekly Overview: Upstream Woes, Downstream Shake-up

This was another strong week for oil prices: the expected failure of the April 17 Doha meeting to agree a production freeze, without first ensuring Iran’s buy-in, did not mean that there were not good reasons for firmer prices – such as the US driving season being a month or two off – regardless of how the meeting turned out.

But it went pretty badly for those states seeking higher prices and non-Opec member Russia, whose energy minister was among the organisers of the multi-lateral meeting, was frustrated with the Saudi decision to do nothing without Iran also committing to a freeze (please see external analysis of the causes and possible results of the Doha meeting, published April 22). 

So with Brent crude now in the mid-$40s and continuing strength expected, there might be grounds for optimism in the mergers and acquisitions sector. UK-based Sequa however dropped its plan to buy some Norwegian assets, citing the market, despite being upbeat last month.

It said then that Gina Krog, which it was buying from French Total, was within budget and on schedule for first production in Q2 2017, with opex and capex each calculated at $15/boe.

UK utility Centrica, which announced a plan to spend about £1bn (€1.27bn) this year, of which half is to go on exploration and production, spent around a third of the other half buying a Danish company, Neas, which has an energy management and revenue optimisation service; and has hundreds of customers who own windfarms, solar plants and combined heat and power (CHP) plants, with an installed capacity of about 8.6 GW.

But that still leaves Centrica with £500mn to spend on exploration and production assets globally – it did not say where they would be.

For those assets in the North Sea though it will be competing with a former CEO, Sam Laidlaw, who is running Neptune Oil & Gas, a $5bn acquisition vehicle backed by the Carlyle Group and CVC. Since he joined about a year ago, no purchase has been announced, and indeed most of the news emanating from the UK offshore at least has been about decommissioning rather than commissioning.

Onshore the news is a little brighter, with several companies advancing plans to hydraulically frack gas wells with applications lodged and for one, a hearing is due next month while for another, the shale pioneer Cuadrilla, a report following another hearing is now being composed.

But offshore, the news is mostly grim. Canadian Sterling – run, as it happens, by another former Centrica senior executive, Jake Ulrich – reported another and much larger loss in 2015, and this year will see output from its UK producing field, Breagh, fall, as operator Ineos is waiting for the economic signals before drilling more production wells. And at the other end of the scale, Anglo-Dutch Shell, in its 2015 transparency and sustainability report, identified a $128.36mn payment from the UK government as contribution to its Brent platform decommissioning costs.

The German former giant E.ON, which has forged the way for modern European utilities – ditch the assets and the commodity trading (Uniper Societas Europaea) and focus on the energy transition towards low-carbon technology – announced a deal with the city of Berlin this week, involving a "forward-looking gas supply concept" and a majority stake in shareholding in local utility Gasag.

The city's finance senator Matthias Kollatz-Ahnen said: “We need to significantly accelerate the energy transition in Berlin. Greater commitment by the Land as a shareholder is an important tool here. E.ON has demonstrated that it can be a motivated and competent partner for the Land of Berlin in the field of gas supply. This partnership provides a strong foundation for accelerating the energy transition in Berlin.”

There were no details on either the volume or the new percentage. With the intermittency problem, gas has to obligingly advance and retreat as renewables under or over perform, so the annual volume supplied may be difficult to put a figure on. But E.ON will be helping the city to slash its carbon emissions and perhaps deals of this kind – gas suppliers working to improve air quality and shoehorn in new technology to lower carbon intensity, in exchange for shares in the regional utility – will become more common.

William Powell