With the basin-opening Jubilee field and other oil and natural gas condensate discoveries, Kosmos Energy and its partners have placed Ghana on the deepwater oil & gas map. The company is now franchising its exploration strategy and aims to open petroleum systems in other frontier regions such as Morocco, Suriname and Mauritania.Jennifer Pallanich details the latest of Kosmos' wildcat ways.
Less than a decade ago, Kosmos Energy didn't exist. Nor was there a deepwater oil & gas industry working in the Gulf of Guinea offshore Ghana, unlike in neighbor Nigeria. As early as 2004, however, Kosmos Energy was interested in the potential offshore Ghana, specifically the deepwater Upper Cretaceous stratigraphic play around the transform margin.
‘We saw a niche which we thought the industry had overlooked in West African exploration,' Paul Dailly, SVP of exploration at Kosmos, says.
The company secured interest in blocks offshore Ghana (OE November 2004). The discovery of a 270m gross hydrocarbon column followed in 2007. The Jubilee field – named in honor of Ghana's 50th year of independence – saw sanction in 2009 and began production in late 2010.
Brian Maxted, CEO at Kosmos Energy, says the company has two main objectives. The first is to maximize the value of the Ghana assets, partly by ramping up production at Jubilee and keeping production levels as high as possible as long as possible, and partly by bringing onstream other discoveries in the two blocks in which Kosmos has interest offshore Ghana.
‘Our second challenge is to replicate success in Ghana and open new petroleum systems elsewhere. That's what our exploration strategy is about,' Maxted says. As such, Kosmos has built a portfolio that lines up a series of exploration opportunities like dominos: Ghana, Cameroon, Morocco, Suriname and Mauritania. Other regions are in the pipeline as well, he says.
‘Our strategy going forward is the same' as the company has followed so far: ‘growth through organic exploration'. Maxted says the goal is to see how many petroleum systems Kosmos can open up and estimates each new petroleum system Kosmos is able to open could create multiple billions of net value.
The company, formed in 2003, is valued at $6 billion. The $620 million initial public offering in May 2011 combined with the cash flow from the nowproducing Jubilee development and a $2 billion credit facility has helped Kosmos create a balance sheet that is allowing it to explore and grow the business.
Seeking big payoffs
As Maxted likes to say, Kosmos is an exploration-led company. Success to date results from developing an exploration concept, testing it and proving it. Once the concept was proved, he says, it was time to leverage learnings, franchise the concept and build on it.
The company's focus is on frontier and emerging basin exploration, Maxted says, specifically basins the company believes have large volumes and high value barrels.
Kosmos took a thematic approach regarding the geologic fundamentals of the location of the reservoir system and source rocks offshore Ghana (OE March 2009). ‘We didn't worry so much about where the traps are, but were taking a leap of faith and getting into the right basins which looked like they had potential trapmakers,' says.
‘We're replenishing the portfolio with Ghana-type opportunities.'
Kosmos' new ventures approach mimics the Ghana approach, and Dailly believes the acreage it is acquiring in Morocco, Cameroon, Suriname and Mauritania reflects that. ‘We go in early in the game, we take a little more risk, and in return for that, we typically get better terms,' Dailly says. He says Kosmos' habit of taking a large controlling operated position in frontier regions is beneficial for both the government and the company. Kosmos is able to operate quickly, and is motivated to explore. That ‘appetite for exploration', Dailly says, ‘makes us attractive to host governments.'
While seeking areas with billion-barrel potential, Kosmos tries ‘to capture these trends in their entirety to give us a lot of running room,' Dailly says. As he puts it: ‘There are good frontier basins and bad frontier basins.' A good one exhibits some evidence of hydrocarbons. Certain fundamentals guide Kosmos' exploration approach.
‘We look for thick reservoir sequences in deepwater where old shallow-water exploration has shown evidence of a working petroleum system,' Dailly says. Beyond that are the need for both play diversity and prospect dependency. ‘If the first well is a failure, you don't have to leave the acreage. There are other plays you can explore,' he adds.
Kosmos has little interest in chasing reserves in proven and mature areas like Angola because the terms and potential rewards are no longer in the company's favor, Maxted says. ‘That's why you see us in places like Suriname, that don't have an oil industry. Morocco. Ghana before we got there,' he says.
The Dallas-based company won't likely license further interest offshore Ghana. ‘Once a basin has been unlocked and de-risked, the contracts are different, and that's the case in Ghana,' Maxted says. Frontier regions, he says, offer commensurate returns to balance the exploration risks.
The geologic theme Kosmos likes is the Upper Cretaceous stratigraphic layer around the transform margin. To expand to new frontier regions, Kosmos is seeking similar types of plays in new geographies. ‘That's what Suriname is all about,' he says of the 2.8 million acres the company holds offshore the South American country.
‘Using plate tectonics, we have extrapolated the successful (Ghana) play across the ocean to Suriname,' Dailly explains. Kosmos, which operates the Suriname acreage, with water depths ranging 650-8850ft, with 100%, is planning to acquire 3D seismic later in 2012.
Elsewhere, the Morocco acreage is the
‘coming together' of knowledge gained from Kosmos' experience with the Upper Cretaceous theme northward from the transform margin and the industry's knowledge gained from the pre-salt plays offshore Brazil and Angola and in the Gulf of Mexico. Kosmos' geoscientists asked ‘are there any other Atlantic margin salt basins? Lo and behold, there is one major one, Morocco,' Maxted points out.
While Kosmos prides itself on thinking up approaches the industry at large has not yet thought of, it does seem the competitive landscape has changed, even in new regions. ‘What we're seeing in frontier areas is a lot more competition from both the larger independents and the supermajors,' Maxted says. As a result, Kosmos is working to identify frontier regions before other companies can. ‘That requires us to come up with even brighter ideas,' he says, a task he believes the company's exploration team is fully up to: ‘We're not short of technical ideas in Kosmos.'
The increased competition is likely due to continued high oil prices prompting other companies to spend on exploration for both reserves replacement and growth, he says.
The Kosmos approach calls for picking up high working interest in large acreage positions in frontier regions and later bringing in other partners if need be. Flexible commitments, such as options on seismic and long exploration periods, and no- or low-cost entry are also key, he says. These combined with exploration success can translate into low finding costs.
‘We think our work creates a contrarian perspective that is characterized by two things: a different perception of risk and a different prediction of reward,' Maxted says. A prospect one company may view as having a 1:10 chance of holding 100 million barrels, Kosmos may see as having a 1:3 chance of holding 1 billion, he explains. Part of the risk management relies on play diversity and prospect dependency.
‘Rifle shot' rather than ‘shotgun' is how Maxted describes the exploration style at Kosmos. ‘The way we de-risk prospects to get them to that level is through a lot of up-front work,' he says. ‘We give ourselves the best chance of success.'
In 2011, Kosmos acquired three blocks offshore Morocco, with water depths up to 9850ft, to add to the block the company had already acquired in 2008. It has recently acquired about 5000km2 of 3D seismic over portions of these blocks to supplement existing 3D seismic. Once the data is processed, Dailly says, Kosmos aims to drill offshore Morocco in 2013. ‘It's a pretty exciting play,' he says of the 13.7 million gross acres Kosmos holds offshore Morocco.
Kosmos operates all its Morocco acreage. Kosmos and Pathfinder each hold 37.5% in the Foum Assaka block, with state oil company ONHYM holding the remaining 25% interest. Kosmos operates Tarhazoute with 100%. Kosmos and Camamens each hold 37.5% interest in Essaouira block, while ONHYM holds 25%. Kosmos operates Cap Boujdour (75%) on behalf of ONHYM (25%).
Mauritania, which Kosmos announced gaining entry to last month, is appealing for several reasons. Dailly says Kosmos likes the Mauritania potential because there are deepwater finds dating back to the 1990s, and Kosmos was able to acquire acreage containing Late Cretaceous source rocks. The next step offshore Mauritania is to shoot 3D seismic to identify trapping geometries, he says.
Kosmos operates its newly acquired 6.7 million acres offshore Mauritania in water depths of 5250-9800ft, with 90%; the government oil company Societe Mauritanienne des Hydrocabures (SMH) holds the remaining 10%.
The 2012 exploration focus calls for at least three wells offshore Ghana and one well onshore Cameroon, while 2013 is the year for Morocco and 2014 will see Kosmos likely spin the drill bit offshore both Suriname and Mauritania.
Jubilee phase 1 features nine production wells, six water injectors, and two gas injectors. Kosmos is in the early implementation cycle of the phase 1A development, which will include five additional production wells and three more water injectors.
The Ghanaian government approved phase 1A at Jubilee in January. This phase of development calls for five new producers and three water injectors with drilling planned to wrap up in 1H 2013. As of last month, the first producer for this new phase had been drilled and the top hole of a second well had been drilled. The wells are taking about 40-45 days to drill and complete, COO Darrell McKenna says. Phase 1A will tap the Upper Mahogany 2 layer, which was not targeted in the original phase 1 development. The new wells will produce to the existing FPSO Kwame Nkrumah via subsea tiebacks as they are ready. As such, the first production for phase 1A is expected in June or July.
McKenna calls the phase 1A wells high-confidence, low-risk and low-cost per barrel. The original discovery well in 2007 – Mahogany-1 in 1322m of water depth – discovered a 270m gross hydrocarbon column. Kosmos and its partners sanctioned the FPSO development scenario for Jubilee in 2009 and aimed to reach first oil in 2010, quite an ambitious program for a project that would open up Ghana's petroleum industry. Jubilee began production in late 2010.
Jubliee, the largest Upper Cretaceous stratigraphic discovery offshore West Africa to be found and come onstream, is fairly sizable, covering nearly 200km2 offshore Ghana and straddling the Deepwater Tano and West Cape Three Points blocks. Tullow operates Deepwater Tano while Kosmos operates West Cape Three Points, and the pair worked out an agreement for the Jubilee development under which Tullow is the unit operator for the field, dealing with the in-country operator activity and production operations. Kosmos as the technical operator handled preparing the development plan and managing the subsea installations.
Phase 1A will help Jubilee reach plateau production of 120,000b/d and keep it there for multiple years. McKenna says there are minor subsea contracts to let for the $1 billion phase 1A development; 70% of the investment in this phase is associated with drilling. The remaining 30% of the budget is earmarked for tie-in work.
Phase 2 – likely to be a series of tiebacks, depending on reservoir performance – targets beginning production in 2015, he says.
In all, current and later phases are expected to exploit reserves in six reservoirs.
‘It's just a function of time,' McKenna points out. So far, he says, ‘we're pleased with the reservoir performance'. Through April, Jubilee had produced 31 million barrels of the 36-37°API oil.
Kosmos operates the West Cape Three Points block with 30.9% on behalf of partners Anadarko (30.9%), Tullow (26.4%), Sabre Oil & Gas (1.9%) and Ghana National Petroleum (10% carried interest).
The current Deepwater Tano licensees are operator Tullow (50%) and partners Kosmos (18%) and Anadarko (18%), as well as Sabre (4.1%) and GNPC (10% carried interest). Under a deal announced in February, Kosmos is buying all of Sabre's Deepwater Tano interests for $365 million. Once Kosmos and Sabre close on their deal, expected in the next few months, Sabre will no longer hold interest in the Deepwater Tano block and Kosmos' share will jump to 22.1%.
Under the Jubilee unitization structure West Cape Three Points has 54.37% interest while Deepwater Tano has 45.63% interest. That breaks down to a current shareholding of Tullow with 35.5%, Kosmos and Anadarko each with 24.1%, Sabre with 2.7% and GNPC with a carried 13.6%. Once the Kosmos-Sabre transaction closes, the new shareholding will shift so that Kosmos will hold 25.8% and Sabre will hold 1% in Jubilee, with the remaining interests holding steady.
Very near the Jubilee development, Kosmos anticipates submitting a plan of development for the Tweneboa/ Enyenra/Ntomme, or TEN, project to the Ghanaian government in 3Q with approval anticipated by year-end. Tweneboa, discovered in 2009, holds oil and gas condensate reservoirs. Enyenra, discovered in 2010, is what Kosmos calls a ‘substantial' oil field. Tweneboa Deep and Ntomme were both discovered in 2011. These fields lie in water depths ranging from 3600ft to 6200ft.
As of early April, McKenna says, the company had nearly completed the TEN appraisal program aside from one drillstem test at Ntomme, which was to wrap up shortly. ‘Other than that we are fully through the appraisal phase.'
The development scenario for TEN, which lies in the Tullow-operated Deepwater Tano block, calls for a standalone FPSO, McKenna says, and the company expected a design competition ongoing with a trio of vendors in Singapore to be complete by the end of this month. After that, he says, the primary contract for construction of a high-volume oil- and gas-handling FPSO with water injection capabilities would be let. The number of wells and overall field architecture have yet to be finalized. First oil at TEN, pending timely government approval, is targeted for mid-2015.
Enyenra-4A, a recent appraisal well, encountered more oil than originally expected. The partners flow tested the original discovery location at Enyenra-1 with very strong flow rates from multiple zones. The partners encountered significant oil at Ntomme-2A, where the flow test is slated for 2Q 2012, and liquidrich gas-condensate and oil at Tweneboa.
McKenna says TEN is gaining momentum, especially because Kosmos and its partners are able to apply knowledge gained from the Jubilee project, which lies partly in the Deepwater Tano block. Efficiencies have come from applying completion and subsea methods used on Jubilee as well as a better understanding of metocean and environmental data. ‘All of that will be factored in,' McKenna says. ‘The technical challenges are well understood.'
Queuing up behind TEN is MTAB – Mahogany, Teak, Akasa and Banda – which are further discoveries, this time in the Kosmos-operated West Cape Three Points block. Mahogany, discovered in 2008, is an oil field, while Teak, discovered in 2011, is an oil and gas condensate field. The Akasa and Banda fields, both discovered in 2011, hold oil. The four fields lie in waters of 1450-4450ft.
‘We have a full appraisal program through October, so this is a pivotal year in terms of proving up the resource base for the MTAB area,' McKenna says, noting the Atwood Hunter was drilling Teak-4 as of early last month. ‘We know there will be a development, we just have not determined whether we have the resource base for a standalone FPSO at this time.'
Kosmos is contemplating drilling Teak-5 as an additional appraisal well; a flow test is planned at Teak, which McKenna says may lead to further appraisals. A flow test is also slated for Akasa.
Once the appraisal program is complete, McKenna says the plan of development will be submitted to the government of Ghana. ‘It will take the four discoveries on a holistic basis – maybe it will take all four discoveries to make a standalone development,' he says. With Teak a mere 25km away from the Jubilee FPSO, ‘a tieback to the Jubilee FPSO is one of our options'. A standalone FPSO is on the other end of the development scenario possibilities for MTAB.
Currently, the Atwood Hunter, Seadrill's West Leo, and Transocean's Sedco Energy are under contract drilling on the Deepwater Tano and West Cape Three Points blocks in the Tano Basin. Given all the development and exploratory activity Kosmos and its partners have planned in the two blocks, ‘there's certainly enough work for a fourth rig right now', McKenna says. OE