Canadian E&P companies active in Europe and the Middle East must deal with complex economic and social issues

A little over a year ago, most European and Middle Eastern countries looked pretty attractive to Canadian oil and gas firms casting their eye overseas. Both regions are now facing their own particular forms of economic and social turmoil, but with a few exceptions, Canadian companies are still there. Europe may in fact have more of a shine now and the Middle East more of a tarnish.

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Conversely, thanks to the Arab Spring that burst out in Tunisia early last year and its rapid spread to Egypt, Libya, Yemen and Syria, many Canadian firms have put their interests in that region on hold.

Who's doing what, and where?

North Sea

Destinations for the most billions of dollars in Canadian energy capital in Europe are the United Kingdom and Norwegian sectors of the North Sea.

Heading the list is Talisman Energy Inc. Of its total 426,000 barrels of oil equivalent per day of worldwide production, fully one-quarter comes from its operations in the North Sea, which also claim 26 per cent of the company's reserves. In 2010, Talisman's Norwegian production averaged 54,000 barrels of oil equivalent per day, accounting for 13 per cent of the company's worldwide production. Oil is the primary focus here: together with liquids, it represents 73 per cent of Talisman's Norwegian production. It operates about 77 per cent of that. Production is expected to grow when the company's Yme project comes on stream, expected in the second quarter of this year.

In the U.K. North Sea sector, Talisman is the leading independent operator and hopes to hold production there between 80,000 and 90,000 barrels of oil equivalent per day through to 2020. In 2010, production in the United Kingdom averaged 77,000 barrels of oil equivalent per day, 18 per cent of the company's worldwide production. The primary focus is oil and liquids, contributing 97 per cent of Talisman's U.K. production.

Talisman expects to continue the pace in the North Sea: according to its reports, capital spending there is planned at $1.2 billion for 2012, roughly matching last year. The company says $800 million of that is slated for the United Kingdom, where the major projects are the Monarb and Auk South field redevelopments. According to its latest information, that will go to Claymore platform upgrades aimed at increasing operating efficiencies and development wells at Tweedsmuir and Clyde. In Norway, Talisman plans a number of infill wells at Brage, Veslefrikk, Gyda and Rev. As a result, the company's North Sea production should average 95,000–110,000 barrels of oil equivalent per day this year.

Thanks to its involvement in the rich Buzzard facility, Canada's Nexen Inc. is the second-largest oil producer in the U.K. North Sea. In 2011, it generated about 62,000 barrels of oil equivalent per day net to the company, and the company has good reason to stay: its proved reserves in the North Sea have doubled since 2004 and it continues to actively explore there.

Nexen has its eye on the Golden Eagle development next—one of the largest discoveries in the region in the past decade. Initial production is expected in late 2014, with 26,000 barrels of oil per day net to Nexen. A number of tieback opportunities to existing facilities are slated to deliver near-term growth.

And the plan is to stay for a long time yet.

"We've been a consistent and responsible developer and member of the community, and we're in the UK for the long term," Nexen spokesman Davis Sheremata says. "Our major opportunity is growth in the region."

A major Canadian integrated is also significantly involved in the U.K. and Norwegian North Sea sectors. Suncor Energy Inc., from its office in Aberdeen, Scotland, is focused on the Central North Sea, where it holds a 29.9 per cent interest in Nexen's Buzzard field, in the Outer Moray Firth. Buzzard, which came on-stream in early 2007, provides over 60,000 barrels per day net to Suncor.

Suncor also sees continued growth opportunities elsewhere in the Central North Sea, including the Golden Eagle discovery, in which it holds a 26.69 per cent working interest.

In Norway—with an office in Stavanger—Suncor participates in bid rounds for exploration licences, both operated and non-operated. The company made the 2009 Beta Statfjord discovery with its first operated well in Norway. This discovery was appraised and tested with a further well in 2010, and appraisal work will continue to assess the future potential, the company reports. Its eight non-operated licences are reported to be doing well too.

Suncor appears to be in for the long haul too. With its operated acreages in the northern North Sea (Marulk Basin) and in the north of the Norwegian Sea (Voring Basin), the company reports it is establishing a long-term business presence in Norway.

The U.K. sector of the North Sea sees another Canadian operator, Canadian Natural Resources Limited (CNRL), which is active in four main areas. In the northern North Sea, about 386 kilometres north-northeast of Aberdeen, oil from the Ninian (three fixed platforms), Lyell (tied to Ninian) and Columba fields is processed onboard the two platforms and exported to the Sullom Voe Terminal in the Shetland Islands via the Ninian Pipeline System.

In the Central North Sea, CNRL reports production from the Tiffany, Toni and Thelma fields, 250 kilometres northeast of Aberdeen. Tiffany first produced oil in 1993. The Toni and Thelma fields are reported as subsea tie-backs, with production via subsea manifolds to the Tiffany platform. Ultimately all of the oil from these fields is exported from the Tiffany platform and onward to shore at Cruden Bay in northeastern Scotland.

Continental Europe

North America's chronically low gas prices are driving many Canadian companies to take serious looks at opportunities in continental Europe, where natural gas will often fetch several times the North American price. The area is handy to the big consumer markets where some relief from reliance on Russian gas supplies would be welcomed, and considerable distribution infrastructure to burner tips is already in place.

Here the hot action is developing in Poland, which has reportedly already granted around 50 exploration licences. Several Canadian companies with good shale gas expertise and experience are attracted.

Talisman has entered into a farm-out agreement to earn an interest in three concessions in Poland, and earning wells on two of the three have already been drilled.

Last year, Talisman completed a 2-D seismic acquisition program and followed that up with a drilling program: its first shale exploration well was drilled late in the year, a second over the year-end period, and a third was spudded this past March. More wells are planned for this year, the company says.

Nexen is highly interested in Poland too.

"Last year we entered into a joint venture agreement to explore 10 concessions in Poland's Paleozoic shale play," Sheremata says. "We have a 40 per cent non-operated working interest in the concessions, which encompass more than two million acres."

That play is considered to be one of the most significant unconventional resource plays in central Europe with reports of over 185 trillion cubic feet of estimated recoverable shale gas resource, although a recent report puts Poland's recoverable shale gas reserves at no more than 768 billion cubic metres, or about 27 trillion cubic feet. Still, seismic surveys are underway to get a better handle on the play.

Nexen sees it as a great occasion. But as with any new venture, caution must temper enthusiasm, Sheremata notes.

"Exploration results must be examined and we'll need to compare the investment opportunities in Poland with the other investment opportunities that exist in other parts of our business," he says. "We're excited by the opportunity but need to fully assess [it] before we can finalize development plans."

LNG Energy Ltd. is a Canadian company focused on exploring and developing oil and gas reserves in Poland, where it is operator with a 50 per cent net interest (San Leon Energy Plc, an international group of companies with offices in Ireland, London and Warsaw is its partner) in approximately 360,000 acres of prospective shales. LNG Energy also holds a 20 per cent interest in approximately 734,000 gross acres of prospective shales in Poland, together with BNK Petroleum Inc., Sorgenia E&P SpA., and Rohöl-Aufsuchungs Aktiengesellschaft.

But the shale focus in central Europe isn't all on Poland. Further to the southeast—in Bulgaria—LNG has entered into a farm-in agreement on 405,000 acres of prospective shale formation with Direct Petroleum Bulgaria EOOD.

Other Canadian companies active in continental Europe include PRD Energy Inc., whose European subsidiary has recently been awarded the Molme production licence covering approximately 3,400 acres in Germany. That licence is located onshore in the state of Lower Saxony.

Elsewhere, Vermilion Energy Inc. is one of the most active Canadian companies in Europe. Touted as France's top oil producer, the company last year produced 8,110 barrels of oil per day and nearly a million cubic feet of gas per day from 220 producing wells (193 net) in the Paris and Aquitaine basins.

After entering France in 1997, Vermilion followed up in the Netherlands in 2004 where it acquired 5,900 barrels of oil per day of mature natural gas properties. The 2004 purchase of production in the Netherlands came with adjacent lands and abundant, close-in, lower-risk exploration prospects where the company drilled its first step-out wells in 2007. Prospects appear attractive: Vermilion reports it is currently seeking permits to continue drilling. Four to six wells per year are slated for the foreseeable future.

As well as the continent, Vermilion is active in Ireland, with an interest in the Corrib field lying about 83 kilometres off the northwestern coast of the country. The company reports expectations of approximately 9,000 barrels of oil equivalent per day net from Corrib beginning in late 2014.

Albania is Calgary-based Bankers Petroleum Ltd.'s country of choice. The company owns and operates continental Europe's largest onshore heavy oil fields at Patos-Marinza and Kuçova, as well as an exploration contract. Patos-Marinza has a licence agreement of over 25 years and boasts original oil in place (OOIP) reserves of some 7.5 billion barrels and proved plus probable reserves of some 226 million barrels. At Kuçova, OOIP reserves have been estimated at 297 million barrels OOIP, with proved plus probable reserves pegged at 11 million barrels.

Hard to categorize as either Europe or the Middle East—as it straddles both—is Turkey. One of the few Canadian energy companies active there is Calgary-based Valeura Energy Inc. The company holds land positions and production in the Thrace and Anatolian basins.

In the Thrace basin, Valeura holds four production leases and 10 exploration licences—two onshore, three in the near-shore waters of the Sea of Marmara (depths up to 200 metres) and five in the deeper (200–1,200 metres) waters.

In parts of the Thrace Basin, Valeura reports up to 9,000 metres of sediments with a number of tight gas and other unconventional gas targets that are expected to benefit from multistage fracture treatments in vertical wells, given the relatively thick nature of the stacked sandstone reservoirs.

Middle East

Focused exclusively in Egypt and Yemen, TransGlobe Energy Corporation is fully aware of the effects of the Arab Spring. In Egypt, the company holds working interests ranging from 50 per cent to 100 per cent in West Gharib and Nuqra (both of which it operates) and in the non-operated East Ghazalat field. West Gharib produced 11,280 barrels a day (6,255 barrels a day net to TransGlobe after royalties) in the fourth quarter last year.

Nexen has dealt with its share of risks in Yemen since it first entered the country 25 years ago.

"Yemen was our first international investment, and success there provided us with the opportunity to grow and expand our company," Nexen's Sheremata says.

One of the challenges the company initially faced there was the lack of skilled labour—very few Yemen-based workers had the skills to work at an oil and gas facility, he says. "Through investments in training and education we were, over time, able to reduce the number of expats we had in that country. By the end of 2011, 92 per cent of our employees were Yemeni nationals."

One chapter of Nexen's history in Yemen ended last December with the expiration and subsequent nationalization of its Production Sharing Agreement on Block 14 (Masila). Over the life of the Masila PSA, Nexen produced more than a billion barrels of oil, and while Nexen remains active in Yemen, it is at a level far below the peaks associated with Masila: production from Block 51 (East Al-Hajr) averaged about 5,000 barrels a day under a PSA that runs through to 2023.

Suncor, finally, has had its own difficulties to deal with in the Middle East, culminating in December last year when it declared force majeur under its contractual obligations and withdrew from the country.