Increase seen in reported offshore discoveries

"For the first time over the last five years, the number of announced discoveries recorded a year-on-year increase, this year up to 137 from 125 last year. "Announced" discoveries are commercial offshore hydrocarbon finds that operators report in official statements throughout the course of the year. Until this year, the number of announced discoveries worldwide had seen a consistent decline from 210 in 2004 to 125 last year.

*This year, about 60 percent of the announced discoveries lie in less than 2,500 feet (762 m) of water.

*Almost half of discoveries in water depths up to 500 feet (152 m) consisted of only gas, while seven out of 10 of the discoveries between 501 feet (153 m) and 2,500 feet (762 m) were gas or gas and condensate finds.

*Half of the 56 oil discoveries are in water depths up to 500 feet (152 m), while 16 others are in water depths greater than 2,500 feet (762 m).

*Regionally, the North Sea accounts for the greatest number of announced discoveries. In 2008, operators in the region reported 33 discoveries, almost double the 17 announced last year. The U.S. Gulf comes in a distant second with 22 discoveries, followed by India with 16, Brazil with 13, Australia and West Africa each with 11, China with nine, Southeast Asia with seven and the Mediterranean Sea region with five."

More from Energycurrent

Haggling

StatoilHydro Terminates Rig Tender for Norwegian Continental Shelf

"StatoilHydro is terminating its procurement process for rig hire for operations on the Norwegian Continental Shelf due to high rig rates.

"We focus on reducing costs and making strict priorities," said Anders Opedal, head of procurements in StatoilHydro.

The invitation to submit tenders for rig hire was distributed during the summer of 2008, and covered both semi-submersible mobile rigs and jack-up drilling rigs with contract start at the end of 2012.

When the deadline for submitting tenders expired on August 25, StatoilHydro had received tenders for a total of 28 rigs from 15 suppliers.

The rig rates have risen considerably the last years in a period of high oil price. From the invitation to tender was distributed and up to the present, the financial crisis has led to higher insecurity in the world economy, which has made the oil price drop by more than 60%.

Based on changed framework conditions StatoilHydro decided to ask for updated tenders from the suppliers to be submitted by December 1. The updated tenders included reduced rig rates.

"Despite the reduction in the prices offered, there is still a considerable gap between the tenders and the expectations we have concerning the rates," said Opedal. "We have therefore decided to terminate the procurement process.""

Rig Count Keeps Falling

But not as fast as I expected:

OGJ: "US drilling fell for the fifth consecutive week, down by 26 rotary rigs to 1,764 still working, compared with a rig count of 1,809 in the same period last year, said Baker Hughes Inc."

"As usual, the biggest decline was in the biggest category, land rigs, down 28 to 1,688 still working. Inland water activity was unchanged with 9 active rigs. Offshore drilling increased by 2 rigs to 64 in the Gulf of Mexico and 67 in US offshore waters."

Shallow water dayraters in decline

"Analysts at Barclays Capital Resources, New York, said, "Day rates for jack up rigs in the Gulf of Mexico are falling quickly." They cited two recent contracts signed by Hercules Offshore Inc. for commodity rigs working with Chevron Corp. at rates 26% lower than their previous contracts. "These are the first in a series of lower day rates that will likely be revealed as the shallow water Gulf of Mexico corrects," the analysts said."

I expected that the violent decline in commodity prices would have forced at least some of the E&P companies to cut spending on drilling immidiately.

Petrojack sells Petrojack II

Saipem has exercised the call option on Petrojack's jackup Petrojack II. The price for the rig is 199 million. Petrojack II is rated for maximum water depth of 375 ft and is capable drilling up to 30 000 ft.

CNPC ‘makes play for Verenex’

Upstream

"China National Petroleum Corporation (CNPC), the country's largest oil company, is bidding for Canadian energy company Verenex Energy to broaden its oil and gas assets in Africa, it was reported today.

The deal may worth about $300 million, the South China Morning Post reported, citing sources, noting that a successful bid would broaden CNPC's assets in Africa where Verenex owns a 50% stake in part of Ghadames Basin in Libya."

US Drilling Activity Off Sharply

RIGZONE:

"As oil and gas prices fall, drilling activity in the U.S. is slowing more than expected, battering shares of drilling companies, hurting economies in energy-producing states and sowing the seeds for supply shortages when the economy recovers.

In its weekly accounting, Baker Hughes Inc. reported Friday that the number of drilling rigs working in the U.S. had
fallen to 1,790, down 12% from the September peak and down 2% from the same time last year. It was just the second time the weekly report reflected a year-over-year decline in the past five years.

Most industry analysts now expect hundreds more rigs to fall idle by the middle of next year. Some industry experts suggest a drop of as many as 1,000 rigs, which would represent a 50% decline from the peak set in September. That would leave fewer rigs running than at any time since 2003..."

however

OGJ:

"The largest decline was in land operations, down 55 rigs to 1,716 working. Inland waters operations lost 9 units with 9 still drilling. That was partially offset by a gain of 2 rigs in offshore drilling to 62 active rigs in the Gulf of Mexico and 65 offshore overall"

My earlier estimate was that land drilling activity would bottom in midsummer of '09 and currently I'm sticking with that estimate. If the economic situation gets really really bad, the drilling activity will probably bottom in late ´09 or early ´10. I would imagine that a number of land drillers will bite dust within the next 18 months.

Legacy Reserves

Legacy Reserves LP NASDAQ:LGCY

"We are an independent oil and natural gas limited partnership headquartered in Midland, Texas, and are
focused on the acquisition and development of oil and natural gas properties primarily located in the Permian Basin and Mid-continent regions of the United States. We were formed in October 2005 to own and operate the oil and
natural gas properties that we acquired from our Founding Investors and three charitable foundations in connection with the closing of our private equity offering on March 15, 2006. On January 18, 2007, we completed our initial public offering.

Our primary business objective is to generate stable cash flows allowing us to make cash distributions to our unitholders and to increase quarterly cash distributions per unit over time through a combination of acquisitions of new properties and development of our existing oil and natural gas properties."

Market cap(15.12.2008):268.48M

Yield:24.07%($0.52/qrt)

Adjusted EBITDA(millions): 2007: $70.2 2006: $36.5

Reserves(proved)(MMboe): 2007:32.1(29.0 developed) 2006:18.8 2005:12.2 current reserves consist of 72% oil& NGL, 28% natural gas, RLI(proved reserves) 14 years(year end 2007)

Production (boe/d ): latest(9 months):7,255 8400 2007: 4,970 2006: 3,058 2005: 1,438

Production costs per boe(excluding taxes) latest: $19.53 2007: $14.96 2006: $14.28 2005: $12.14

Total Assets(000's): $665,048

Total liabilities(000's): $395,479

Hedging:

"We enter into oil, NGL and natural gas derivatives to reduce the impact of oil, NGL and natural gas price volatility on our operations. Currently, we use swaps and collars to offset price volatility on NYMEX oil, NGL and natural gas prices, which do not include the additional net discount that we typically experience in the Permian Basin. At September 30, 2008, we had in place oil, NGL and natural gas swaps covering significant portions of our estimated 2008 through 2012 oil, NGL and natural gas production. As of November 7, 2008, we have swap contracts covering approximately 65% of our remaining expected oil, natural gas liquid and natural gas production for 2008. As of November 7, 2008, we also have swap and collar contracts covering approximately 58% of our currently expected oil and natural gas production for 2009 through 2012 from existing estimated total proved reserves"

Insider activity

*Founding investors, management and directors own 40% outstanding units

Another New Tender Rig Contract Nearing Completion

SDRL

"Seadrill and Brunei Shell Petroleum have in principle reached an agreement to extend the contract for the semi-tender rig West Pelaut. The extension has duration of three years with commencement in April 2009 in direct continuation of the existing work."

The dayrate in the new contract will be around $140 000, which is 100% higher than in the previous contract which commenced in April of 2004.

New Seadrill Tender Contract

Seadrill's tender rig West Berani II, which is currently under construction has been awarded a five-year contract by Chevron in Angola. The contract commences in the first quarter of 2010. Estimated total revenues for the contract are $378 million, which translates into a dayrate of $200 000. The dayrate seems to be significantly higher than in previous West African tender contracts e.g. West Setia $163 000 and West Menang $127 000.

Pertamina seeks Verenex stake in Libya's Area 47

OGJ:

"Indonesia's state-owned PT Pertamina is considering plans to purchase the 50% stake held by Verenex Energy Inc. in Area 47 of Libya's Ghadames basin.

"Verenex may pull out from the block," said Pertamina upstream director Karen Agustiawan, referring to Area 47, currently owned 50:50 by the Canadian firm and PT Medco Energi Internasional.

Agustiawan said Pertamina is especially interested in Area 47, "as the drilling has been done" and production may begin in 2011 with an initial output estimated at 50,000 b/d.

She added that the block would be Pertamina's third in Libya, if the talks are successful. "We already own two blocks in Libya and are looking forward to see Libya as one of our bases overseas..."

Hopefully the sale goes through, as it's clear that Verenex and Medco do not currently have the resources to develop the block. Raising capital at the moment is nearly impossible and with out a significant financial input the development of the block could be delayed by years.