http://www.globalpost.com/dispatch/news/afp/130314/eni-sells-mozambique-stake-cnpc-421bn-0

Italian energy group Eni said Thursday it has sold a 20 percent stake in an offshore energy field known as Area 4 in Mozambique to China's state-owned giant CNPC for $4.21 billion.

"CNPC’s entrance into Area 4 is strategically important for the project thanks to the worldwide relevance of the new partner in the upstream and downstream sectors," Eni said in a statement.

The transaction will take place via the sale by Eni to China National Petroleum Corporation of a 28.57 percent holding in Eni East Africa, which owns 70 percent of Area 4, indirectly giving CNPC a 20 percent stake in the asset which lies north of the country, around 2,000 kilometers (1,250 miles) from the capital, Maputo.

Eni will retain 50-percent ownership of Area 4, which is situated in the Rovuma basin at a depth of around 2,600 metres (1.6 miles).

The rest is already owned in equal parts by Empresa Nacional de Hidrocarbonetos de Mocambique, Kogas and Galp Energia.

Completion of the transaction is still subject to approval by authorities in Mozambique, the statement said.

Since obtaining an exploration license for the field in 2006, Eni has discovered gas reserves in three zones, and estimates Area 4's gas potential at 1.974 billion cubic metres (69.7 cubic feet).

In China, Eni and CNPC also agreed to jointly study the development of the Rongchang shale gas block, which covers 2,000 square kilometres (770 square miles) in the Sichuan Basin, and which Eni said "has proven to be the most promising in the country to date".

In Milan, Eni shares jumped by 2.01 percent in morning trading to 18.29 euros, while the FTSE Mib index on which they are traded was 1.0 percent higher overall.

One thing I think people have to remember is that when these companies bid for these resources they don't base their price on TGIP necessarily. They in the end have to evaluate what the recoverable gas is and what the costs are going to be to develop it. That's why we hear/see Yazoo skeptics pounding the table about the "high" costs of IOC's "4 wells". Why do you think CV was so detailed in describing how much IOC has spent to-date (breaking it down between IOC and IOI investors), giving the following breakdown:

"In terms of investment so far as of December 31st 2012, 371 million has been spent on the Elk and Antelope fields of which InterOil has contributed 255 million and Upstream JV partners with 116 million. In addition, 75 million is being spent on the Triceratops-2 field of which Ero [ph] has contributed 61 million and Upstream JV partners 14 million. The LNG joint venture has spend approximately 50 million, 140 million has been spend on the construction equipment, road construction, logistics and site work associated with the upstream development sites and 53 million has been spent on the condensate shipping, front-end engineering and design."

Point is that IOC is expecting a higher % of recoverable gas and condensates than an Area 4 (low estimate of 15Ts at Area 4 is 1/5 of the TGIP of 75Ts). Area 4 is sub-sea, off the coast of Mozambique where the process is in the infancy. IOC is land-based in a country that is derisked from a production standpoint with PNG LNG nearing completion and production. IOC's costs of development will be much less than an Area 4.

Perspective is a valuable thing

'sfiaes' pid='18903' datel Wrote:I believe "Area 4" has 75 Tcf. Cnooc is acquiring 20% for $4.21 B or $.28 an mcf. Is this accurate?

The $0.28/mcf could be accurate, but likely relates to gas in place (so for extractable gas the number would be somewhat higher, maybe 10-15%?). Either way, it is very important to consider the difference in development costs and tax costs when comparing projects. I'll let those more experienced with O&G development to tackle the differences indevelopment costs, however, I have discussed the difference in tax costs for Mozambique versus PNG, which are substantial. See http://seekingalpha.com/article/1204791-interoil-valuation-based-on-png-comparables-and-a-rovuma-field-comparison?source=yahoo where I give an example that shows the difference can equate to $1.82/mcf in additional cost over the life of the project. So if $0.28/mcf is accurate, that means if the development costs were the same, then a firm paying $2.10/mcf (0.28 + 1.82) for an interest in the Elk Antelope field would have the same profit margin over the life of the project as the $0.28/mcf investment in Mozambique.

Best,

Sam

'sfiaes' pid='18907' datel Wrote:Thanks Sam, I realize E/A gas has significant advantages to "Area 4" gas. Is your $1.82 a present value figure or does it have to be discounted back? Additionally, I would have liked to see Cnooc put the $4.12 B towards their $9 B bid for IOC.

The $1.82/mcf is the average estimated over the life of the project for each mcf sold. The tax differential is small af first, but it gets substantially larger. The rate of the increase is hard to predict though, see the article I linked earlier for detail. present value would be less, how much I don't have the time to calculate, but it would be substantial. How substantial? Well, how much would PNG LNG project profits decrease if the tax rate was ~60% over the life of the project compared to ~30%? No doubt this would significantly affect what you would bid.

Best,

Sam