Thursday, February 23, 2012

FT: Romania: OMV and Exxon in gas find

February 22, 2012
by Stefan Wagstyl

Good news for Romania – a “potentially significant” offshore gas disovery in the Black Sea.

It’s far too early to say whether it is a commercial proposition, but investors were excited enough by Wednesday’s announcement by project partners ExxonMobil and Austria’s OMV to move the markets. OMV shares rose by nearly 6 per cent before falling back to trade 4 per cent higher. ExxonMobil stock barely moved – perhaps even a big Black Sea find may not look that big in Texas.

The partners said in a stock exchange statement:

ExxonMobil Exploration and Production Romania Limited (EMEPRL), an affiliate of Exxon Mobil Corporation and OMV Petrom SA, the 51% [Romanian] subsidiary of OMV Aktiengesellschaft, today confirmed a potentially significant gas discovery offshore Romania.

Operated by ExxonMobil, the Domino-1 well is the first deep water exploration well offshore Romania and has a total depth of more than 3,000 m below sea level. The Domino-1 well is located in the Neptun Block, 170 km offshore in water approximately 930m deep.

The exploration well encountered 70.7 m of net gas pay, resulting in a preliminary estimate for the accumulation ranging from 1.5 to 3 trillion cf (42 to 84 bn m³). Drilling operations started at year-end 2011 and are in the process to be finalized.

ExxonMobil and OMV plan new 3D seismic acquisition during 2012. The evaluation of the Domino-1 well results and the new seismic will determine next steps. It is too early in the data evaluation and exploration process to determine whether the Neptun block will ultimately prove to be commercially developable or not.

However, should further work confirm the technical and commercial feasibility of deep water gas production from the Neptun block, further investment during both the exploration and development phases could reach several billion USD with the potential for first production towards the end of the decade at the earliest.

It’s all very technical but the clue to the find’s importance is at the end – the reference to “several billion USD”. Even groups the size of Exxon don’t throw around such numbers loosely.

For Romania, it is particularly significant that Domino-1 is the first deep water exploration well in the Black Sea. While nothing is certain, it raises the possibility of further discoveries. That will be good for one of the European Union’s poorer economies and for the Romanian oil industry, which has a proud history going back to the 19th century.

The discovery comes at an opportune time for Petrom, the former state oil company where OMV has 51 per cent. Reuters reported that Petrom missed analysts’ forecasts in its fourth quarter profits – posting 838m lei net ($255.3m), compared to predictions of 901m lei. Petrom recorded a profit of 781m lei in the year-ago quarter.

Petrom said its full- year net profits jumped to 3.76bn lei from 2.2bn lei in 2010, thanks to a 40 per cent rise in benchmark crude prices and a 1 per cent output increase. But, as it admitted, it was held back by a 504m lei fine imposed by the Romanian Competition Council, for alleged collusion with rivals in the withdrawal from the market of petrol type called Eco-Premium. It is challenging the fine in court.

OMV itself published fourth quarter net profits of €326m (excluding inventory revaluations), up from from €216m a year earlier. For the full year it made €1.069bn, a decline of 4 per cent. The dividend is going up 10 per cent to 1.10 euros a share.

Benchmark crude was 26 per cent higher in the quarter than a year earlier. But output was down 9.7 per cent, due to the effects of the crisis in Libya, which accounts for about 10 percent of OMV’s normal volumes.

But there was good news on Libya. OMV said Libyan output was at 50 per cent of pre-uprising levels at the end of the year and is now at 85-90 per cent. OMV will need that revenue as it implements plans to increase its focus on exploration, development and production – not least in the Black Sea.

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