Sintana Energy Inc V.SEI

Mopane; Offshore E+P Flexing its Muscles

[5L4]

Coutesy of Tommy Deepwater on Twitter. Great write up.

$GALP.PL $SEI.V $RIG $VAL $TDW $NE $TTE $XLE "Mopane: Offshore E&P Flexing its Muscles" (1) After headline discoveries in Namibia by $TTE (Venus) and $SHEL (Graff), Galp’s Mopane exploration wells have been one of the key industry watches of 2024 since it announced the contracting of $SFL Hercules drilling rig in May 2023. While current Galp management has been tight lipped and professional, a FORMER Galp executive publicly stated he believed PEL 83 was the best “ZIP code” in Namibia partly due to shallower water depth (~2,000m) than peers. Last Sunday, Galp announced outstanding Mopane results of (1) >10 billion barrels of oil equivalent and (2) flows reaching “maximum allowed limits” during the well test. Without any further exploration success, I believe this translates to an eventual ~400k bpd oil development (~5 years to first oil). The development cost may be ~$25B, but with IRR’s comfortably >20% at $70 Brent. For the sake of comparison, $PXD Pioneer Natural Resources produced 372k barrels of oil per day (715k boepd) in 2023. (2) Mopane ~400k bpd Capacity? Galp announced success hitting multiple layers of “significant light oil columns” at Mopane-1 and Mopane-2 with “good porosities, high pressures and high permeabilities.” ExxonMobil’s Liza-1 and Liza-2 wells in Guyana’s Stabroek Block were drilled 8 km apart, a similar distance between Mopane-1 and Mopane-2. Today, Liza Phase 1 (~150k bpd) and Liza Phase 2 (~250k bpd) produce ~400k bpd in Guyana. (3) Galp is rumored to be interested in drilling up to an additional 10 exploration and appraisal wells in PEL 83. As noted below, PEL 83 has additional prospects (Source: Sintana Energy, 4.9% interest in PEL 83). While offshore exploration is inherently risky, Total and Shell had oil discoveries beyond Venus and Graff in their respective blocks. Also, Galp publicly disclosed a “near-term” drilling plan to further explore and appraise the Mopane complex. Given the other identified targets and the Mopane success, I believe another discovery of ~150k bpd capacity potential is probable (my Base Case) although would not be explored until 2025. (4) Long-Term Leading Indicator of Floater and OSV Demand: Exploration success in Namibia is very likely to lead to strong, durable demand growth for floaters and OSV’s. The demand growth should be gradual given deepwater’s long-cycle nature, but especially strong from 2026-2032. Shortly after Galp’s Mopane discovery announcement, Rhino Resources hired Noble’s Venturer drillship to drill two wells in their block. Additionally, Chevron will likely begin exploration drilling in PEL 90 in late 2024. Further, Upstream reported $TTE is rumored to target a 180k bpd capacity FPSO for likely Venus development (Phase 1?). $RIG $VAL $TDW $ODL.OL $NE $SDRL $DO In 2023, a test of my confidence in the offshore thesis was future exploration drilling in Namibia. The deepwater floater market is trending positively, but needs to clear a modest amount sidelined drillship capacity. In order to get to longer term leading edge dayrates of $600k, it needs incremental demand growth from exploration success and we're currently seeing it in Namibia, as well as other countries.