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Archive for November, 2014

Canadian Oil Companies Gather for CGEF’s “World of Opportunity” Conference

Anne Leonard, November 25, 2014

“Follow the mice to find the elephants,” attendees of the third annual Calgary Global Exploration Forum (CGEF) conference were told last month. While Calgary’s international players, with a couple notable exceptions like Husky Energy, are generally small juniors and even smaller start ups, their impacts have indeed been felt worldwide. In sheer numbers alone they are impressive, as 165 Canadian E&P companies are currently active in 100 different countries. And in what is probably the greatest geographical concentration of energy companies anywhere in the world, most of these firms are within a nine-by-seven-block area in central Calgary.

So the “World of Opportunity” conference was comprised of an impressive lineup of international speakers. As was the case at its first two conferences, the gathering included Canadian success stories in various corners of the globe and a range of Canadian-operated international prospects that are available for farm in. However, this conference turned the tables a bit as it also offered sessions featuring NOCs, Canadian companies touting their cutting-edge technology, experts in raising capital for E&P, and several firms that shared their experiences in social responsibility.

The topic in the forefront of nearly everyone’s agenda these days, at least in the Western Hemisphere, is the opening of Mexico after slamming its doors to international E&P players three-quarters of a century ago. Jorge Miranda of SMPS Legal said the best opportunities in Mexico for Canadian players are not the 169 blocks offered in Round One, which he described as being primarily “huge prospects with huge complexities.” Rather Miranda said Canadian companies should be looking at the blocks Pemex retained in Round Zero. In Round Zero Pemex laid claim to 83% of the country’s 2P reserves and 21% of its prospective resources. The good news for companies looking for opportunities in Mexico is that Pemex will need technical expertise to grow production and maintain these assets.

Another opportunity lies in the existing Comprehensive Contracts for Exploration and Production (CIEP) and Public Works Contracts Financed (COPF), which may be migrated into E&P contracts. The operators of those contracts will also need partners to move forward.

“The time to approach Pemex is now,” was Miranda’s advice to Canadian E&P firms.

Cam Boulton with McDaniel International also outlined the opportunities opening up in Mexico, advising attendees on how to “get a piece of the pie.” He noted that although Mexico in the past decade has substantially increased its E&P expenditures, both production levels and reserves have continued to decline. Therefore, Boulton said, significant opportunities are available for companies with expertise in heavy oil, deepwater exploration – particularly on the Lower Tertiary trend on the Perdido Fold belt– and shale gas exploitation.

Round One offers acreage in the Perdido area, while Pemex is looking for farmout stakes in its Trion, Maximino, Exploratus, Kunah and Kiklis fields. The tender also features heavy oil tracts in the Southeastern Basin, while additional opportunities are available in partnerships with Pemex in the Ogarrio, Cardenas, Mora, Sinan, Bolontiku, Ek, Utsil-Tekel Ayatsil fields.

In the past decade Pemex has devoted a lot of capital and man hours to Chicontepec, with little to show for it. Blocks in this geologically complex play are included in Round One. And while the Eagleford is the hottest play in the US these days and certainly doesn’t stop at the Rio Grande, no Eagleford acreage is being offered in Round One. Rather it is another near-Texas unconventional play, namely the Cuenco de Sabinas, which lies across the Rio Grande south of Del Rio.

While Mexico tended to take the spotlight, a number of other country representatives had traveled to Calgary to promote their opportunities, including Suriname. Marny Daal-Vogelland of Staatsolie said her country, which is perched on the northeastern shoulder of South America on the highly prospective Atlantic Margin, is striving to have 40% of its offshore leased by the end of 2015, up from the current 34%. Staatsolie is also looking for partners in its onshore Nickerie and Commewijne blocks.

Jevon Hilder of Spectrum outlined the prospectivity of Croatia, which is in midst of its first onshore bid round that will close on February 18, 2015. Hilder says the Mediterranean country expects to following with a second onshore bid round in late 2014/early 2015 focusing on the Sava sub-basin, possibly followed by a third further down the line.

Mark Priest of the UK Trade & Investment was on hand to share the news that his country is committed to developing its shale gas to meet its domestic needs. At present, UK gas demand is 2.6 Tcf, of which half is imported. Consequently, as Prime Minister David Cameron said, “We are going all out for shale.” This push offers access to new entrants who can provide lower cost, faster and easier asset sharing. The government is also actively working to garner community support. Priest concluded, saying the geologic knowledge is “expanding all the time” and the country’s Bowland shale is very gas rich, 50% more than US Barnett Shale.

However, as Drillinginfo’s Northwestern Europe manager Bruce Walker notes, the 14th Landward Licensing closed at the end of October, with preliminary reports indicating only around 100 applications were received for the round. Walker said in addition to the Bowland, several other shale plays are also attracting interest. Chemicals multinational INEOS has staked a claim in Scottish shale gas acreage and has promised to offer US-style royalties to landowners on their acreage, while IGas and Cuadrilla continue to await regulatory approvals to advance their own unconventional plans.

Canadian companies’ well-established reputation for success abroad was certainly the draw for these countries appearance at the conference, and certainly any number of Calgary-based firms are due certain bragging rights. Among those is TransGlobe Energy, which after seven years in Egypt has become one of that North African country’s leading onshore drillers. In the process, TransGlobe can claim a number of ground-breaking achievements: first international company in many years to create a core area in the onshore Gulf of Suez, Eastern Desert; first to drill a horizontal well with a multi-stage stimulation; first to implement routine well stimulation on a field basis in a non-conventional reservoir; first to discover the syn-rift Red Bed stratigraphic play; and anticipated to be the first company to implement a chemical flood (ASP) EOR scheme.

Drillinginfo’s Tom Liskey, Dai Jones, Bruce Walker and Ian Blakeley can be reached for further comment on their areas of expertise, respectively Latin America, Continental Europe, the UK and North Africa. Also for further information see:

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Oil industry swashbucklers hit by war, disease and shale boom

By Nia Williams

CALGARY, Alberta, Nov 24 (Reuters) – The world has become a more difficult place for the small, intrepid Canadian oil explorers that roam the globe hunting for the next big petroleum discovery.

Like the big-game hunters that once ranged Africa, these small-cap explorers and producers (E&Ps) call their quest for billion barrel-plus oil deposits “elephant-hunting”, and for many the thrill of the chase is a big part of why they are in business.

“A guy can invest in the Alberta oil sands or a Bakken shale-type company and they are going to make a little bit of money, but they are not going to hit that grand-slam home run we are looking for in elephant country,” said Mark Sommer, spokesman at Simba Energy.

But Ebola, Islamic State and the Ukraine conflict have made an already tough market tougher for these companies, while potential investors are finding the North American shale boom a more comfortable place for their money.

Some of the E&Ps are trying to diversify and bring production back home to Canada’s more stable environment. For most, however, that is not an option. Their expertise lies in finding and proving oil deposits, not asset development.

At Simba Energy, the bulk of its operations are in Kenya but it also has assets in Ebola-stricken Liberia and in Mali, where Tuareg rebels are demanding greater autonomy.

The company is trying to exit Mali and will re-evaluate its Liberian operations if the Ebola outbreak lasts more than another six months, Sommer said.


The E&Ps have always faced some challenges operating in risky areas but only recently has the sector also had to compete with North American shale plays for capital.

E&Ps operating internationally have raised about $6 billion in capital this year, about 10 percent of global issues in the sector, according to RBC Capital Markets. The other 90 percent went to North America.

Merger and acquisition activity in the sector is at a six-year low. On Canada’s TSX Venture Exchange, which has a long history of pairing risk-tolerant investors with companies drilling in distant and dangerous places, initial public offerings have been down two years in a row.

Chris Beltgens, corporate development manager at East West Petroleum, said he has been frustrated by the way the conflict in Ukraine has soured investor attitudes toward East-West’ activities in neighboring Romania.

And a tough market for E&Ps bodes ill for exploration worldwide as small caps are often first to drill in a new region.

If drilling is successful, larger companies take note and follow or buy the E&P outright as commodity trading house Glencore did with Caracal Energy and its Chad assets earlier this year.

“They (E&Ps) start off with prospectivity and follow with exploration success,” said Sonny Mottahed, chief executive at Black Spruce Merchant Capital. “We have gone through three years in the international E&P space where this has been a fairly challenging outcome.”


Some E&Ps are trying to make the switch from international to domestic.

When new management took over Groundstar Resources Ltd two years ago it decided to shift operations back to Canada, and it now has production in Saskatchewan. The company left Iraqi Kurdistan in 2013 but still has operations in Egypt.

“When we took over we basically said let’s come back closer to home and develop assets over here and get ourselves to a much more stable cash flow company,” said chief financial officer Shabir Premji.

Calvalley Petroleum is trying to diversify assets so production is not solely concentrated in Yemen, where sectarian warfare is a danger.

Others are hanging on. Mena Hydrocarbons halted drilling in Syria two years ago but CEO Magdy Bassaly said it will return if the country stabilizes as the company’s well is a good prospect. (Editing by Peter Galloway)

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Sonny Mottahed, CEO & Managing Partner, Black Spruce Merchant Capital

November 12, 2014


Can you give us a brief introduction to Black Spruce Merchant Capital and its main areas of expertise?

Sonny Mottahed (SM): Black Spruce Merchant Capital was founded two years ago as a niche, boutique investment bank, providing impartial advisory services. Our sole focus is on energy-related projects and clients, both domestic and international.

A large part of our international focus is on Latin America, having worked in Argentina, Brazil, and most considerably in Colombia. Black Spruce entered the Colombian oil and gas market in 2006 and financed a large number of Canadian-based private and public companies operating in this region. Although Colombia and Mexico are very different countries, there are many parallels between the regulatory, commercial, and stakeholder standpoints.

Given Black Spruce’s presence in Latin American oil and gas markets, how closely is it monitoring the reforms underway in Mexico?

SM: Black Spruce is certainly keeping a pulse on developments in Mexico’s oil and gas industry. With that said, there are a number of moving targets as to what will actually happen with the reforms. Inclusively, there are upwards of 50,000 companies that participate in the Mexican oil and gas business, while the industry as a whole employs around one million people. Within this mix there will be myriad financing and advisory services required.

Which segments of the Mexican oil and gas market will afford investors the greatest opportunities once the new reforms take hold?

SM: Existing fields occupy a large space in the marketplace, but there is still much uncertainty as to what involvement will look like, be it through licenses or joint ventures. Overall though, brownfield opportunities, such as existing conventional fields and heavy oil will attract the largest aggregate interest from junior companies. Shale is a bit unique, as it is still very much a greenfield opportunity, although clearly the Eagleford formation extends into Northern Mexico. There are major service companies that already have had a long-term presence in Mexico, but the opportunity for many service companies will be in taking their experience and technology and applying them to the newly reformed market.

Many analysts have stated that Mexican plays could be a longer-term investment. What returns will investors expect for conventional plays and under what timeframe?

SM: Capital is fungible; this has been proven time and time again. Mexico has to be competitive in the context of the plays that are going to be put out for bid, proposal, or joint venture. Different companies are going to require different rates of return to make projects viable. When considering technological expertise, balance sheet strength, and the fact that capital has to be appropriately matched with a project’s risk profile, the reality is that capital will need to command international returns. Mexico will have to remain competitive to attract international financing.

What are the levels of risk that investors may be willing to accept when considering Mexican oil and gas plays?

SM: The investment community always has certain players who like to be considered first movers. However, most of the investment community is likely to adopt a watch-and-wait mentality. Some of the variables up for consideration are not easily managed, although physical safety can likely be secured. Political, public opinion, and sovereignty risk will certainly all weigh in on the minds of investors. However, at this time, Black Spruce believes that the stars have aligned in a way that will allow the reforms to happen. There is enough grassroots momentum to get the reforms to hold. The concept of re-nationalization is always a risk but these things do not usually happen in one-year cycles. It is something that is going to weigh in as people assess the risk environment of Mexico as a whole.

Can we draw parallels between Mexico’s newly reformed oil and gas sector and that of neighboring countries, such as Colombia?

SM: Colombia did many things right as it moved to reform its oil and gas sector. The country clearly separated its regulatory authority from the national oil company; this runs parallel to what is happening in Mexico. It is important to have an independent authority to manage the business. In Colombia, there was also a buy-in from the state oil company, which is also happening in Mexico. Companies need to know that contracts their contracts will be safe in Mexico. As of now, this probably is not quite as certain as in Colombia.

What macroeconomic repercussion might face the North American energy market as Mexico ramps up production?

SM: For the United States it would be a “Hollywood problem” to have more reliance on Mexican and Canadian crudes. It is a high quality problem for the United States to have Canadian and Mexican supplies on the rise. As far as gas is concerned, the North American market boasts the cheapest sources in the world, but it is going to be rangebound until new outlets are found for demand. Canada’s oil and gas dominance is unlikely to see any negative consequences as a result of Mexico’s reforms.

Where would you like to see Black Spruce positioned in the future?

SM: Black Spruce’s team wants to be involved with local Mexican companies that have current activity in the business, as well as with international players that are looking to take on a role in the Mexican marketplace. We see ourselves playing a significant role amongst junior and intermediate E&P companies and Oilfields Service companies that want to get active in shale or existing fields activity. Black Spruce has a high level of expertise that holds relevance and application to the Mexican marketplace.

This interview was conducted as part of research for GBR’s upcoming report on Mexico’s oil and gas industry, which will be published in Oil & Gas Investor magazine in January 2015. If you wish to contribute with your comments, please contact Irina Negoita at

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Canada oil producers set to cut 2015 spending as price tumbles

By Scott Haggett and Nia Williams

(In U.S. dollars unless noted.)

Nov 4 (Reuters) – Falling oil prices will lead to lower capital spending in Western Canada next year, observers say, as both oil sands and light oil producers look to cope with less cash coming in the door.

North American benchmark oil prices touched $75.84 a barrel on Tuesday, the lowest since October 2011, after Saudi Arabia cut export prices to the United States.

Although Canadian producers say they are in a strong position to withstand a slump in crude prices, falling profits from oil production look likely to prompt lower capital spending as the hardest-hit look to for ways ride out the storm.

“It’s probably going to force a lot of people’s hands into doing transactions,” said Sonny Mottahed, chief executive of Black Spruce Merchant Capital.

“The (smaller) companies are going to immediately feel the impact on cash flow, so they may start curtailing spending darn fast. The bigger companies … may continue to forge ahead. They can probably endure as long as a year of depressed oil prices.”

Canadian producers are in the midst of firming up spending plans for 2015, with most expected to announce their budgets in coming weeks.

Talisman Energy Inc has cut its current year budget by 6 percent to $3 billion and said it would take the price outlook into account when finalizing its 2015 capital spending program.

“These are difficult times in the energy sector, no doubt about that,” Hal Kvisle, Talisman’s chief executive said on a Tuesday conference call.

Oil sands producer MEG Energy Inc has also lowered its 2014 spending to C$1.6 billion ($1.4 billion) from C$1.8 billion.

Western Canada’s oil and gas producers are forecast to spend about C$76.7 billion in 2014, according to figures compiled by FirstEnergy Capital. With cash flows declining because of lower prices, the investment bank expects that to drop to C$71.1 billion in 2015.

However, most spending on oil sands projects in northern Alberta is already locked in and cuts are more likely to hit early-stage projects.

“If we were to get consistent lower commodity prices that’s probably only really going to show in oil sands production maybe four or five years from now,” said FirstEnergy analyst Michael Dunn.

Indeed, Suncor Energy Inc, said it expects to spend between C$7 billion and C$8 billion next year, about the same as 2014, as it builds its new Fort Hills oil sands mine.

“We have to cut our cloth within our means, but you will not see capital budget coming up and down and these projects being stopped and started,” Suncor chief executive Steve Williams said on an Oct. 30 conference call.

Despite the gloomy outlook, producers and industry observers said it was unlikely any oil sands producers would take the costly step of shutting in production.

“Any cash flow is better than none,” FirstEnergy’s Dunn said. (1 US dollar = 1.1406 Canadian dollar) (Editing by David Gregorio)

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