General Cove Thread

Craven's been talking to DJNW:

Extract:

  LONDON (Dow Jones)--Oil and gas explorer Cove Energy PLC (COV.LN) Thursday said it has earmarked GBP24.3 million of GBP110 million it raised in a share sale to acquire stakes in exploration assets in Africa.

 

  Chief Executive John Craven told Dow Jones Newswires Cove's interest is primarily in the emerging hydrocarbon province of east Africa, where it has stakes in recent discoveries made off the coast of Mozambique by Anadarko Petroleum Corp. (APC), but it is also scouting for assets in the west and north of the continent.

 

  Craven said Cove's focus remains on exploration and appraisal opportunities rather than producing wells.

 

  "It's the drill bit that's the main game changer in this business," he said in an interview.

 

  He added Cove prefers assets operated by a big partner with deep pockets to speed drilling. 

  .

So at Cove Energy (LON:COV), it is :

• Offshore - so expensive.
• Deepwater - not shallow, deep and expensive.
• Gas - not even oil, only lower value gas.
• Political instability - Africa is rife with it, along with corruption
• No infrastructure - yep, nothing there

Whats attractive about it ? If it were oil then maybe, but gas............ ?

Looks like the proverbial fish in a barrel offshore Tanzania ...

http://af.reuters.com/article/mozambiqueNews/idAFSGE6AS06D20101129?rpc=401&feedType=RSS&feedName=mozambiqueNews&rpc=401&pageNumber=1&virtualBrandChannel=0

Anadarko said the discovery well at the Lagosta prospect, located at the Offshore Area 1, encountered a total of more than 550 net feet of natural gas.

The Lagosta exploration well has been drilled to a current depth of about 13,850 feet in water depths of about 5,080 feet, the company said.

Anadarko said the partnership plans to drill to a total depth of about 15,900 feet to evaluate a deeper zone.

"The Lagosta discovery continues to validate our geophysical models, and we expect to keep the Belford Dolphin drillship in the basin for the foreseeable future," Bob Daniels, senior vice president, Worldwide Exploration, said.

Pro,

What's to like? Hmmm, let's see:

Several TCF already discovered, huge area now looking like a new province.

LNG prices way beyond "normal" gas prices.

East cost African politics a lot better than elsewhere.

Ready markets for LNG - asia and india.

Indications of oil - remember that the UK North Sea had many gas discoveries before oil was discovered.

Sounds quite good to me.

Nice additional discovery (Lagosta) to bolster Cove's contingent resources base.

Some Pros / Cons to Mozambique gas

Offshore - expensive (yes when compared to Middle East onshore but similar ig not cheaper then UK offshore, South Atlantic Offshore and Deepwater GOM/West Africa) .....but offshore Mozambique is close to low cost fabrication infrastructure hubs so not that expensive.

Offshore - In Africa being offshore is much much better than developing and operating onshore, the deeper the water the better and further away from coastline the better. Keeps the politicians and angry locals at arms lenght. Also deepwater means tow away facilities...going gets tough fiscally or politically Operator can up anchor and bugger off (not as simple as that obviously but something you cant do with onshore assets).

Offshore: - much of the main processing / storage assets (if processed offshore) can be leased so a more efficient use of capital is possibel here to increase the boe value in teh ground (annaul cost oil/gas portion of revenue remain high and constatnt for full duration of PSC.....rather than front end loaded which significantly impacts the boe value).

Deepwater - when compared to shallow water, there is no increase in technical challange for deepwater gas fields. And in thsi case its 1500m which is well within the current limits of deepwater developments. Deepwater Oil is expensive to develop compared to shallow water oil .....but gas is not much more expensive than shallow offshore gas.

Gas Revenue/Price- Gas Prices are climbing in 2010 and will continue in 2011......and in any case the under PSC teh oil vs gas net revenue debate is not solely about relative revenue differences...its about value of boe in the ground...and there are many financial engineering type tricks to be played to bring offshore oil and gas boe values to a closer alignment...but I would agree that gas revenues would be lower than oil. However if hooked up to an LNG development (onshore or floating) then significant value can be added to gas. Also PSC terms are trpically less harsh for gas than oil.

Political instability - Africa is generally an unstable and corrupt environemnt for business but all mainly irrelevent if your mainly leased infrastructure and asstes are all offshore.

Infrastructure - this particular asset is close to shore so can be developed as a subsea tie-back or offshore floating development, depending on economics and risk. This is a good thing. This is a known (before drilling) stranded gas developemnt so not very relevent to the debate about this asset whether there is "local infrastructure" or not. The lack of infrastructure though is a common complaint in a new basin. See Uganda/South Atlantic/Arctic.

Operators: Anadarko, despite my opinion of them after their spineless display during the Maconda disaster, are a highly reputable Explorer and Operator with plenty fo deepwater oil and deepwater gas experience to bring to any team. Cove Energy are in a good position here in such company. I can't say same about a few of the recent hyped up binary bet Oilies in South Atlantic/UK North Sea.

So plenty of Pros and a few Cons here. Due to the inferred size of this discovery, it will IMO, even if linked to an LNG development, be developed quicker than a small stranded oil or specialist oil plays.

JPGH - Cove Holder

Just a thought. Are offshore operations in East Africa exposed to the activities of Somali "pirates"? In West Africa there is a real problem in the Niger Delta with kidnapping and sabotage directed against oil production operations. Given the extent of piracy in East African waters and given the fact that oil installations are in fixed locations - so easy to locate. I just wonder about their security. Thinking not only kidnap of personnel, but also sabotage of installations.

If I were an oil producer I think I'd be inclined to retain some private sector expertise/resource to help overcome this problem. Perhaps someone with more flexibility in rules of engagement than western states seem to allow their forcces.

Hi RG,

Agree yr comment. The great advantage being that - instead of having to police 100's if not 1,000's of square miles, an informal 'exclusion zone' (inside which any unfriendly would be handled with 'extreme prejudice') of about 2 miles square should be enough !

Back of trhe fag packet, COV have the best part of half a TCF net to their 8.5% interest?

Due to the inferred size of this discovery, it will IMO, even if linked to an LNG development, be developed quicker than a small stranded oil or specialist oil plays.

Just a small point, but regardless of whether or not it will be quicker than challenging oil plays, it will definitely not be "quick".  Floating LNG is highly unlikely (and unnecessary in this case, I would imagine) until commercially proven - first FLNG is due onstream in 2016 - Shell's Prelude project in Australia.  First LNG from Mozambique will not happen before 2018 IMO: 3 years to FID for what will be an astronomically large project by local standards, and then 4.5 years for construction.

Still, it's starting to look like the new LNG hotspot what with Ophir/BG across the border.

Unless they put the plant onshore? Pluto went from discovery to design to construction pretty quickly?

Totally different situation IMO - everyone is comfortable with building LNG projects in Australia (albeit at high cost), particularly with Woodside, hence the potential for squeezing on timescales.  Getting all of the stakeholders comfortable with a $5 - $10 billion infrastructure investment in Mozambique is going to take time.

In reply to Gooseman, post #60

Seems to work quite well in Equatorial Guinea....

My concern would be to have a floating LNG given the pirate situation - admitedly that could be very easily solved with a suitable force but thats expensive.

Given the margins in LNG, there wont be any problem in getting the plant financed.

It isn't correct to say that LNG plants have to be 5-10 billion dollar megaliths.

There are companies who have small scale LNG technology - LNG in Australia for example - see www.lnglimited.com.au

They have been developing the idea of pre-fabricated modular units that can be shipped out ready to bolt together and start running.

They have had some difficulty getting pilot projects up and running - but the problems have been political rather than technical, with several dodgy governments legging them over part way into projects.

They are currently proceeding with a substantial pilot in Australia which is costing about $1 billion. See www.lnglimited.com.au/IRM/content/invest_presentations.html for presentations on the technology and the current project.

Disclosure: I used to hold shares in LNG some years ago but sold when they were repeatedly shafted by host governments.

Tournesol,

As you say, there are companies looking to develop small-scale LNG technology, but none have been commercially proven yet.  In certain circumstances this may prove an attractive option, but in Mozambique they will undoubtedly be looking at a world-scale project (probably >10 million tonnes per annum capacity, i.e. requiring >10 Tcf of gas) in order to fully capture economies of scale for what will be expensive greenfield infrastructure.

DJP,

Not sure of your point re. EG - that's a land-based plant.

Given the margins in LNG, there wont be any problem in getting the plant financed.

I'm sure it will happen - my point is that it will take time.  ECAs rather than banks are starting to take the lion's share of LNG financing - their somethat more conservative perspective means that there will be quite a lot of hoops to jump through to do a project of this scale in an environment they probably won't be familiar with, such as Mozambique.

With regards to Floating LNG, as I said previously, it's hard to see that anyone else will pull the trigger on a floating project of this scale until Shell's is up-and-running, post-2016.  Note, that project is equity financed.

Cheers,

Goose

Ah Goose, I see we had our wires crossed. I thought you meant (or a previous poster meant) the politics would stop a land based lng solution. Apologies.

Just found this article after the lagosta find.Very upbeat but then he's always been a fan.

http://www.michaelwalters.com/stories/news.phtml?num=3660


Look at the map, and see Lagosta sitting 16 miles to the south of Barquentine and not much further from Windjammer. There is a real possibility of a massive gas area stretching between the two, a possibility encouraged by the way relevant formations and depths are related. The latest find was in the Oligocene fan zone, and the previous finds at Barquentine and Windjammer were in the Oligocene.

It will take another ten days or so for the current well to reach full target depth, deeper into the geology, penetrating the lower Eocene sands. There is some chance that there will be oil shows at that level, and there could be more gas. The lower Eocene is close to the lower Cretaceous area where there could be oil.

So far, some brokers appear to be suggesting that there is a total of around 10TCF of gas in all three discoveries. That could be a significant under-estimate. Something in the region of 15TCF is already coming into view. It requires perhaps 5TCF to warrant the construction of a Liquefied natural gas plant, and these discoveries are well past that. Anadarko is talking about an emerging world-class natural gas province, and encouraging potential LNG plant construction. It is currently making presentations in London.

After Lagosta, the Belford Dolphin drill ship will move 17.5 miles to the south-west to the Tubarao prospect. That is likely to spud (start drilling) around the third week in December, and there could be news in the third or fourth week of January. The real target will be the Eocene sands which are being confirmed as a promising new zone with the Rovuma Basin. And which could be oil-bearing.

Good to see Michael keeps the faith with COV, afterall, it was me who put him on to COV in the first place! ;-)

Some action today? Leaky ship or just buying in expectation of news in the near future?

pub competition write up on TMF: http://boards.fool.co.uk/nfsc-write-up-cove-energy-12190658.aspx?result=RecSuccess

db

Anadarko's 24th February presentation here (slides 59-62 refer):

http://media.corporate-ir.net/media_files/irol/80/80451/2011_APCInvestorCall_Feb24.pdf


Jim Hackett's wrap-up to the webcast drew attention to the Appendix:

"...draw your attention to the net asset values that we've put on some of our major operating areas (using $90 oil, $4.50/mcf). It will give you a way of looking at the embedded value of Anadarko stock".

Slide 3 of the Appendix, here:

http://media.corporate-ir.net/media_files/irol/80/80451/Appendix_APCInvestorCall_Feb24.pdf

refers to values put on International/Frontier projects.

Mozambique is valued at $3bn - $5+bn. That includes the four gas discoveries + exploration.

If Anadarko's 36.5% is worth that amount, then Cove's 8.5% equates to $0.7bn - $1.1+bn.

There is not yet much "public" information on the size of the discoveries, other than Anadarko stating they have exceeded the minimum gas threshold, 3-3.5 TCF for LNG development, yesterday's reference to at least 6TCF, and RBC's note (anybody seen it?) indicating 12TCF, equivalent to 170mmboe net to Cove.

I feel much more relaxed now, holding Cove shares during this period of appraisal.