Press Release
18 April, 2007
DANA PETROLEUM PLC
("DANA", "THE COMPANY", OR "THE GROUP")
DANA MAKES STRATEGIC ACQUISITION IN EGYPT
Dana Petroleum plc is pleased to announce that its wholly owned subsidiary, Dana Petroleum (E&P) Limited, has signed an agreement with Devon Energy Corporation ("Devon") to acquire Devon's entire upstream petroleum business interests in Egypt spanning eight companies and eight Production Sharing Contracts ("Devon Egypt").
The purchase price at the effective date of 1 January 2007 is $375 million. In addition to receiving the oil and gas production and exploration assets of Devon Egypt, Dana will also gain approximately $67 million of working capital in Devon Egypt as at the effective date. Dana will pay the net consideration of approximately $308 million in cash (as adjusted at completion for ongoing 2007 production income and expenditure) via a newly arranged banking facility with ABN AMRO Bank. During 2006, Devon Egypt had working interest production of approximately 12,300 barrels per day, and USGAAP operating profits of approximately $53 million. At the end of 2006 gross assets were approximately $242 million.
Key Highlights:
- Acquisition of Devon Energy's entire interests in Egypt, which span the prolific Gulf of Suez and Western Desert oil regions.
- The portfolio of assets comprises interests in eight Production Sharing Contracts, with 13 fields currently producing.
- Upon completion, the acquisition will add production of approximately 12,500 barrels of oil per day to Dana and add approximately 30 million barrels of proven and probable reserves to Dana, all on a working interest basis.
- The portfolio contains significant upside potential within the producing fields through identified infill drilling and well workover opportunities. There are also a substantial number of new targets to exploit through drilling in the largely unexplored Production Sharing Contract areas.
- The companies being acquired are an excellent strategic fit with Dana's existing properties in the Nile Delta and Gulf of Suez. (See maps Dana Egypt - All Assets, Dana Egypt - Gulf of Suez Assets, Dana Egypt - Onshore Assets)
- The net consideration will be satisfied in cash, through a new banking facility arranged with ABN AMRO Bank.
- The acquisition is subject to the normal regulatory and partner approvals and is expected to be completed during the second half of 2007.
Background to the Acquisition
Over the last two years, Egypt has been a significant focus area within Dana's new business strategy, and the Company has been building a portfolio of new oil and gas opportunities in the country. Dana has already secured three interests in Egypt: namely a 50% stake in the West El Burullus concession, offshore Nile Delta (working with Gaz de France), a 20% interest in the South Feiran concession in the Gulf of Suez (working with ENI), and, subject to final government approval, a 25% interest in the North Ghara concession (working with BP) also in the Gulf of Suez. This acquisition from Devon is the largest transaction to date and it builds significantly on the Company's position in Egypt. This further enables the delivery of Dana's corporate strategy which includes a geographical focus on high quality assets in the North Sea and Africa.
Summary of the Assets being Acquired
The new portfolio comprises interests in eight Production Sharing Contract areas ("PSCs"), four of which are developed and delivering production from a total of 13 fields. The fifth PSC has both development and exploration opportunities and the remaining three are at the earlier exploration stage. Four of the eight concessions are in the Gulf of Suez and four are in the Western Desert, both of these regions contain prolific, established oil basins.
Upon completion, this acquisition will add to Dana's portfolio approximately 12,500 barrels of oil per day and approximately 30 million barrels of proven and probable reserves net to Dana's working interest at the effective date of 1 January 2007. Looking beyond the existing production and reserves, there is considerable scope to add both within the producing fields. In addition, there is an array of new opportunities available through drilling prospects emerging in the largely unexplored exploration blocks.
Significant upside potential has been identified in the producing fields and this can be delivered through a combination of well workovers, infill drilling and production optimisation. On the Devon operated East Zeit field, at least nine infill opportunities have been evaluated with the potential to increase production from 6,000 bopd to over 15,000 bopd. Dana and Devon will be working together during the handover period to pursue four of these during 2007 and to examine optimising the use of artificial lift pumps on existing wells. 3D seismic has only recently been acquired in the East Beni Suef concession, and there is no 3D coverage yet on the West Abu Gharadig block, so there is potential for identification of further infill drilling targets in both areas. The use of horizontal completions and reservoir fracturing may further enhance oil recovery.
In addition to infill opportunities, there is a substantial portfolio of new opportunities through drilling in the vast exploration blocks. In both the Ras Abu Darag and South October concessions, both in the Gulf of Suez, there has been recent 3D seismic acquisition, interpretation of which is likely to lead to further drilling targets. In North Qarun, in the Western Desert, a well is planned for 2007, with further prospects already identified in the concession. Overall, there are at least 24 mapped prospects in the exploration acreage with the total potential of these prospects being greater than 300 million barrels of oil equivalent net to Dana. Increases in volumes are likely following the interpretation of existing and future 3D seismic. With onshore exploration and development wells costing just a fraction of those offshore, Dana would expect to have a substantial work programme over the near term. Current plans envisage seven exploration wells in the next two years.
The most significant asset in the group is the East Zeit PSC, which contains the East Zeit producing field, offshore Gulf of Suez. Devon own 100% interest in the field and a 50% interest in the joint operating company, Ocean East Zeit Petroleum Ltd (commonly referred to as "Zeitco") which also operates the onshore Zeitco base and provides services to other third party fields in the area. The East Zeit oil field produced 6,600 barrels of oil per day on average through 2006. Dana has identified a range of workover and infill opportunities in the East Zeit field that it will pursue.
The other assets in the Gulf of Suez are exploration PSCs, namely a 100% interest in the onshore North Zeit Bay concession, where a new exploration phase has just been entered, 65% in the offshore South October PSC, which is adjacent to very large existing fields and has exploration drilling planned for 2008, and 100% in the offshore Ras Abu Daraq PSC.
There are four assets in the Western Desert. Firstly, Dana is acquiring a 30% interest in the West Abu Gharadig PSC, operated by IEOC (a subsidiary of ENI) which contains the Raml and Raml SW fields, and which was producing 6,275 bopd gross at the end of 2006. Secondly, a 25% interest in the Qarun PSC, operated by Apache, which comprises 4 fields, which produced 9,445 bopd gross in 2006. Thirdly, a 50% interest in the East Beni Suef PSC, also operated by Apache, which contains 5 producing fields and significant exploration potential in a relatively underexplored area. Finally, a 50% interest and operatorship of the North Qarun exploration concession is also being acquired.
Final completion of the transaction, which is subject to normal regulatory, partner approvals and the waiving of some preferential rights on certain of the assets, is expected during the second half of 2007. On the basis of Dana's 2006 preliminary results, which are due to be released on 30 April 2007, this transaction does not require shareholder approval.
Tom Cross, Dana's Chief Executive, commented:
"This deal will deliver a significant reserves and production growth step for Dana and strategically, the acquisition fits closely with our previous Egyptian transactions. The new portfolio contains a good balance of producing oil fields with numerous attractive drilling opportunities, both on existing fields and within large exploration concessions.
Looking forward, Dana will have the benefit of an excellent operating team in Egypt. This capability will position the Company with a strong foundation in the region from which to make further investments and acquisitions, and to build a substantial E&P asset base which will complement our successful North Sea business."
For further information please contact:
| Tom Cross, Chief Executive | Dana Petroleum plc | 01224 652400 |
| Stuart Paton, Technical & Commercial Director | Dana Petroleum plc | 01224 652400 |
| Nick Elwes | College Hill Associates | 020 7457 2020 |
Portfolio of assets being acquired:
| Oil Region | Concession/Field | Devon Working Interest | Operator |
| Gulf of Suez | |||
| East Zeit Field | 100% | Zeitco (Devon) | |
| North Zeit Bay | 100% | Devon | |
| Ras Abu Darag | 100% | Devon | |
| South October | 65% | Devon | |
| Western Desert | |||
| Qarun Fields | 25% | Apache | |
| East Beni Suef | 50% | Apache | |
| West Abu Gharadig | 30% | IEOC (ENI) | |
| North Qarun | 50% | Devon |
Additional Information:
1.0 General Comments on Egypt's Upstream Business Structure
In Egypt, it is normal practice for a joint operating company to be established
between the investing oil company group (the "Contractor") and
the relevant government body at the time of sanctioning of a development
lease, which will then lead to a field development. Therefore the eight
Devon subsidiary companies which Dana is acquiring each hold a concession
in Egypt.
Dana's existing 13 producing fields in the UK and Netherlands are all governed
by licence obligations under a tax and royalty system. By contrast, the
13 fields being acquired within Devon Egypt are subject to their relevant
Production Sharing Contracts, the terms of which are agreed when the concessions
are first awarded. The PSCs define the cost recovery, cost oil and profit
oil terms for the Contractor and the relevant Egyptian government authority.
2.0 Egypt's Gulf of Suez Oil Province ("GoS")
The GoS is one of the richest hydrocarbon provinces in the world, and although the basin is considered mature in its exploration life cycle, significant remaining reserves are yet to be found. Advances in 3D seismic technology have expanded the known prospectivity of the region. After establishing a significant acreage position in the Gulf of Suez, Devon acquired over 2160 sq km of state of the art 3D seismic and procured a proprietary high resolution aeromagnetic survey, thus yielding multiple new prospects, leads, and play concepts.
2.1 East Zeit Field, GoS (Devon 100%; Joint Operating Company is Zeitco)
The East Zeit field was brought onstream in 1985 by Exxon. Subsequently, Exxon sold its interests to Seagull, who were acquired by Ocean Energy. Ocean Energy themselves were acquired by Devon and thus the field is now owned 100% by Devon. The East Zeit field is developed from two platforms situated in approximately 240 feet of water. The A-platform is a 24-slot production and processing platform 12 km from shore, to which the 9-slot Platform C is tied back. Production flows via a 10" oil line and a 14" gas line to the processing terminal located onshore. Thereafter the East Zeit oil blend is fed to a CALM buoy some 1.6 km offshore for tanker export. Estimates of gross ultimate recovery made by Esso in the 1980s were around 25-30 million boe (100%), but the current estimate is around 137 million boe, indicating the scale of reserves growth potential in East Zeit. Average gross production in 2006 was approximately 6,600 bopd. Nine identified field exploitation projects, if implemented, could bring the gross production to over 15,000 bopd by 2008. The East Zeit base is operated by Zeitco and it also provides support services to nearby fields, generating an operating income from third parties. Since the discovery of the East Fault Block reservoirs in 2001, the East Zeit onshore and offshore facilities have been upgraded and refurbished to accommodate further oil production.
2.2 North Zeit Bay, GoS (Devon 100%)
The North Zeit Bay is an exploration concession lying onshore some 180 km south of the Ras Abu Darag concession. The first exploration phase ran from 2003 to 2006, covering the block with 3-D seismic and drilling three exploration wells. Devon has just entered the second phase of exploration. Of the initial wells, one encountered oil shows in the Nubia Formation, and the Abydos-1X well was a gas condensate discovery with estimated recoverable volumes ranging from 23 to 60 billion cubic feet. The concession area is 32,148 acres (136.5 sq km), has 100% 3-D seismic coverage and contains a number of identified exploration prospects and leads.
2.3 Ras Abu Darag, GoS (Devon 100%)
This concession covers a gross area of 234,745 acres (928 sq km) and contains
a number of identified exploration prospects and leads. The concession is
covered by two 3-D seismic surveys totalling 870 sq km (590 sq km in 2003,
280 sq km in 2005).
2.4 South October, GoS (Devon 65% and operator, Teikoku 35%)
This concession was acquired as part of licensing round in 2004. The area is 111,786 acres (446 sq km) and contains a number of exploration prospects and leads. In addition to being covered by an aeromagnetic survey, the concession is covered by two 3-D seismic surveys totalling 366 sq km, which are currently being interpreted. The concession lies on a trend between two extremely large fields, Belayim Marine and October, with reserves of 1.5 billion barrels and 750 million barrels respectively. Plans are in place for the first exploration well to be drilled in 2008.
3.0 Egypt's Western Desert Province
The prolific Western Desert oil region contains three of Devon's producing concessions, each with multiple producing fields. These producing concessions are East Beni Suef (EBS), Qarun, and West Abu Gharadig (WAG), and the exploration concession is North Qarun. There are two primary proven plays in the Western Desert: firstly, Late Cretaceous sandstone and carbonate reservoirs holding oil generated from interbedded and older marine source rocks and, secondly, deeper Jurassic age sandstone reservoirs trapping gas and condensate from Jurassic age source rocks and coals. The recent application of 3-D seismic in the Western Desert has proven to substantially enhance the accuracy of mapping these strata, increasing exploration success and, for the established fields, adding infill and extension opportunities.
3.1 Qarun Fields (Devon 25%, Apache 75% and operator; Joint Operating Company is Qarun Petroleum Company)
The concession has an area of 53,074 acres with 3-D seismic coverage over the five Qarun fields. The Qarun fields comprise five producing fields: Qarun, North Qarun, South West Qarun (including Sakr), North Harun, and Wadi El Rayan (or Wadi Rayan). The fields are being produced under primary depletion with a strong water drive supporting field pressure. The produced crude is high quality with an API gravity in the range 38-40 degrees. Gross production from the Qarun fields averaged 9,445 bopd in 2006. In mid-1997 a pipeline connecting Qarun to Dashour was completed, enabling produced crude from Qarun and the satellite fields to be transported via pipeline to Sumed for export. The field has recently undergone a successful horizontal well program and fracture stimulation program to increase significantly the production rates and field ultimate recovery. Further exploration north west of the Wadi Rayan field is also possible.
3.2 East Beni Suef (Devon 50%, Apache 50% and operator; Joint Operating Company is Benispetco)
The EBS concession is in a relatively new and under-explored basin. It
contains five development leases: East Beni Suef field, the nearby Yusif
and Azhar fields, and Lahun and Gharibon. The last four have been converted
to development leases, all of which are currently producing. Production
in 2006 was around 2,800 bopd. Just one of these development leases, Gharibon,
lies east of the Nile River and was the first Western Desert commercial
production east of the Nile. This success has led the partnership to expand
its exploration program to include an east-of-Nile, comprehensive 2-D/3-D
seismic exploration survey in 2006 and 2007. This survey is currently 25%
complete, and the partnership anticipates completing it in 2007, followed
by an exploration drilling programme.
3.3 West Abu Gharadig (Devon 30%, IEOC (subsidiary of ENI) 45% and operator, INA 25%; Joint Operating Company is Rampetco)
This concession area consists of two individual development leases for the two WAG fields, Raml and Raml-SW, totalling 31,117 acres (125 sq km). The Raml field has been in production since December 1996. The partnership drilled four successful wells during 2005, increasing concession-wide production to almost 5,000 bopd. More recently, in the later part of 2006, four additional wells were brought on production, bringing the production for the WAG fields to a historic peak of 6,275 bopd.
3.4 North Qarun Exploration Concession (Devon 50%, operator, Teikoku 25%, Santos 25%)
This concession became effective in August 2005 and was acquired as part of a licensing round in 2004 in which Santos and Teikoku bid jointly with Devon. The concession area is 1,250,113 acres (4,901 sq km) and contains a number of mapped exploration prospects and leads in the Cretaceous and Jurassic formations. The southern portion of the block is on trend with the prolific Cretaceous Qarun Field complex and in the adjacent East Ras Qattara block, Sipetrol has announced a Bahariya Formation oil discovery well, Shahd-1. In the Western Desert, there have been approximately 36 discoveries in the Jurassic with cumulative total recoverable volumes of approximately 6.2 trillion cubic feet of gas and 20 million barrels of condensate.
