Nautical Petroleum - the Kraken wakes?

Tuesday, Nov 24 2009 by
14

Nautical is a very unsexy oil stock. It specialises in heavy crudes, which nobody likes. They're more viscous than other crudes, so they're seen as expensive to produce, with a  poor refining yield. And Nautical is involved in mature producing areas, with a big position in the UK Central North Sea, so compared to oil stocks with West or North African acreage, it looks terribly boring.

But things could be looking up. For a start, UKCS heavy oil is more interesting than it looks. It's become a scarce feedstock for the chemical industry, and the discount to Brent has been narrowing for a while. Hardman & Co points out that Alba oil trades at a tight discount to Brent, and both Mariner and Kraken should have higher yields than Alba [1] . It's also worth noting that the existing UK fields which are producing heavy oil are beginning to run down - the latest figures indicate a 20% drop in production from Captain, Harding and Alba [2] .

It's also worth noting that the new Field Allowance announced in the April 2009 Budget will help Nautical, since heavy oil field developments have been given a total Field Allowance of £800m [3] . That should improve the profitability of Kraken and Mariner, and more generally enhances the value of the company's heavy oil portfolio.

Nautical's two core assets are Mariner and Kraken, both fields on the East Shetland platform. The company is now stepping up development on both fields, and is pruning the rest of its portfolio - potentially involving relinquishment of some licences. It has also had to write off the expenses of unsuccessful exploration at two prospects. (More of that later.) 

Kraken is located on the East Shetland Platform, west of the North Viking Graben. It was drilled in 1985 and then again in 2007. (In 2008, though, a new well failed to provide evidence for a resources upgrade.) An appraisal well will be drilled in 2010; reservoir definition is proceeding with re-processing of seismic data. First oil is  aimed for in 2012. Nautical part-funded development via a 10% farm-out to Canamens. The resource appears to be 37.1mmbbls net, which according to Edison [4] is worth 21p a share.

Mariner is close to Kraken, in Block 9/11a, in shallow waters (107m deep) close to the eastern…

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3 Comments on this Article show/hide all

flyinghorse 24th Nov '09 1 of 3
7

MN,Good summary. I hold Nautical. I would also like to see HO(heavy oil) developed further in the NS(North Sea).

FWIW Captain is the only true NS HO developed and even its on the cusp of a HO definition.

IMHO Nautical are what I call "pre oilers" , in otherwords G&G people working up prospects that only others could develop. They know little of taking a project to development(ie selling the oil).

In other words they hang on Statoils shirt tails. The key point as you state is will Statoil press the development button for the Mariner Maureen sands?

I dont see Nautical funding their own HO development.

You dont mention Canamens who seem to have a big part in funding Nautical nor the parent Masefield Ag .

Several things need to align IMHO for heavy oil to take off in the North sea:

1)Heavy oil is an upstream and downstream business-inotherwords you have to be in the whole value chain. A heavy oil upgrader(ie removes heavy oil discounts by producing diesel) needs to be built in Norway or the UK so that heavy oil is a direct feed into producing low sulphur diesel. Its not correct to say that ordinary refineries can take true heavy oil (oly this qualifies for relief). Its very corrosive to refine.

2)Reservoir recovery factors need to improve so that the capital investment is not so intensive. (ie more bbls/well), or drilling cost become so low you can afford 2 for the price of 1 wells. HO wells are high technology so I dont see this happening in the supply chain.

3)The government/DECC has to be truly serious about helping develop these reserves on behalf of UK tax payers, and are being left fallow, as I think on a risked investment basis the big oil companies with the capabiity and cash just have better global opportunities to put cash into.The smaller ones wont raise the capital due to the risk.
Statoil may be just creating cheap options for the future.

4)Oil prices will have to be above $100/bbl for a sustained period due to the number of wells required and the processing required to treat HO.

FH

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steelwatch 30th Apr '11 2 of 3
4

The Kraken is about to wake again!

Drilling Operations – Kraken 9/02b-EZ (New Entry 18-04-2011)
Drilling Rig/Ship Start Date Finish Date Installation Name/ Well No Position
Awilco 01-05-2011 63 Days Kraken 9/02b-EZ 59°54.000'N 001°15.344'E
For further information, please contact: Matthew Trigg, RPS Energy, Email: triggma@rpsgroup.com

http://www.seafishmarineservices.com/Bulletins/Issue_09_2011_Oil&Gas.pdf

Actual date subject to rig move from Baltic.

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About monkeynuts

Monkeynuts

I'm a business journalist and spend quite a lot of my time checking out interesting commodity stories - oil and gas, metals, agricultural plays, and most recently alternative energy investments. I know 'picks and shovels' made a lot of people money in the Internet boom years, but I prefer real physical picks and shovels, or drilling platforms and combine harvesters. But I do bear in mind that the price of my stocks is always going to be set by the supply and demand for the end product - so I am not a gold bug. Not at current prices, anyway! more »


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