Q&A with Mike Lakin, Managing Director - Envoi Limited at the Africa E&P Summit London
Can you tell me a little about Envoi and your history since the formation of the company in 2000
I founded Envoi, (which actually stands for ‘Energy Ventures Opportunities International’) as a specialist independent acquisition & divestment (A&D) advisory group based in London, after 10 years an employee and ultimately manager of an established private A&D Advisory firm (Petresearch), which like Envoi now, assisted upstream oil and gas companies manage their international exploration and production (E&P) portfolios. This followed graduation from Cardiff with a Geology degree in 1984, when I cut my teeth as a young geologist, initially with Superior Oil before its acquisition by Mobil, then in operations for 5 years with Carless Exploration, exploring and drilling wells onshore UK, until it was acquired by Perenco (alias Kelt), when I joined Petreseach. Since founding Envoi, we have working on over 500 E&P projects around the World for clients and evolved its unique range of specialist A&D services which today include:
Advisory: Review and assessment of international projects with advice to E&P clients and NOCs on technical and commercial prospectivity, risk and marketing strategies for portfolio management including divestments, plus also the planning and preparation of Licence Rounds.
Divestment: Selling of upstream assets & Licence Round implementation with Envoi’s unique technically driven approach to market exploration farmouts, appraisal development & producing assets and access to its established global contact network.
Acquisition: An ‘eyes and ears’ service to help clients identify new international upstream opportunities through Envoi’s extensive global reach.
How do you feel Envoi differs from other companies that promote and market farm-in opportunities?
Firstly, Envoi has been successfully established in the specialist A&D Advisory field for nearly 20 years. Secondly, we have spent this time dissecting and understanding the processes which maximise a successful divestment. We put this down to maximising the effort in four key areas which we call the 4 R’s that define what is needed to successfully market a deal involving risk. i.e. the Right Information, in the Right Way, to enough of the Right People and at the Right Time. We are therefore very technically focused as pretty much every upstream deal needs a technical tick in the box before anyone ever proposes it to management. Our unique approach with the Envoi marketing materials available on our website (www.envoi.co.uk) will demonstrate this where we like to be sure contacts receive enough information to match the project against their criteria for effective project screening. This also saves everyone time and money. We spend a substantial amount of time travelling to key events around the World to both maintain and grow our global contact network, which is so essential for knowing the right people, whilst listening and monitoring the market to establish our intelligence on who, what, where and when deals might be best placed during the A&D cycles we’ve experienced.
Namibia and South Africa have seen significant planned and completed farm-ins by super majors in the past year. What do you feel has been the driver for this?
This is partly down to fact that although the recent downturn reduced the Major’s ability to fund E&P activities, they were able to maintain some of the technical teams in the areas of interest with budgets ready to deploy much earlier than the rest and at much lower entry costs. South Africa for example has seen very little exploration drilling over the last 20 years after the discoveries in the Bredasdorp Basin, but new ideas, technology (including deep water drilling) and significantly enhanced data (including 3D broadband seismic) have ensured that significant new play potential is targeted and through drilling can be unlocked, as the last E&P Cycle demonstrated in Ghana, Mozambique, Kenya, and Uganda.
The recent Brulpadda discovery in South Africa by Total shows that deep water success is possible in one of the harshest ocean environments in the world. Namibia is different in that the Majors and large independents (including ExxonMobil, Tullow, Galp and Shell) have farmed-in to the northern and southern basins, but with no new drilling success as yet. It remains however, very under drilled with a total of around 17 exploration wells from several phases of drilling in the four offshore basins since the Kudu gas field was discovered in 1974. It is now evident that few of these wells to date have properly tested the plays south of the Walvis Ridge where there is no salt and the plays are clearly going to be different. In Namibia, it’s interesting that ExxonMobil has taken a large new acreage position in the Namibe Basin in Northern Namibia where north of the Walvis Ridge there is some salt. In the Walvis basin and essentially totally undrilled Luderitz Basin though, there is now also clear evidence that many of the historic wells were drilled above the Upper Aptian Shale, which appears to be over pressured and could be acting as a seal. Equally interesting is the fact that the few wells drilled below the seal in the right parts of these and the Orange Basin to the south all found hydrocarbons where the wells encountered any reservoir. New wells that will test this concept will almost certainly result.
Let’s just hope that small and independent players which as you point out are responsible for many of the new play ideas and prospects that have been farmed out to the Majors which can afford to drill, are not forgotten if and when new success is achieved.
With licensing rounds being held in several West African countries in 2019, how do you see majors dividing their focus between bid round block applications and farm-ins?
I suspect it will be a mix of both although there are simply fewer companies with money that are focused on E&P than there were before the crash. The likes of Marathon and ConocoPhillips which used to be significant international players, have sold much of their conventional international portfolios to focus exclusively on US resource plays. Many other large and medium sized E&P players have all gone for the same reason, have been merged or simply gone to the wall due to high gearing, limited cash reserves and then low prices. Much of the smaller and mid-sized International E&P activity have been devastated by the recent price downturn and even though the oil price seems to have stabilised for now at around US$ 70 for Brent, many companies do not have the money to get back in quickly. The markets too see E&P as far too risky versus other equity sectors. Some of the prospect generators, as well as host governments, may well be disappointed with the results of their farmout and licencing campaigns unless they can succeed with the 4Rs.
What is the outlook for divestment and farm-in opportunities in Africa in 2019?
I would say far more positive that the last few years of downturn, as the many new smaller companies set up by those who have left the Majors seek to use their talents with new ideas in areas both old and new. Why Africa? It’s such a massive continent and, as it split away from the other ancient continents, much Mesozoic and Tertiary marine geology was deposited which contains many under explored but highly prospective areas. These include deeper water areas where technology is allowing modern exploration (e.g. South Africa, Northern Madagascar and the Cosmoros), plus areas where exploration has been historically limited by political instability (e.g. Somalia) The various internal rifts are also likely to play their part such as Zimbabwe that will hopefully continue the successes seen to the north in Kenya and Uganda. That said, one issue not often mentioned but which could massively impact the A&D (Acquisition & Divestment) not just in Africa but the world, is the increasing lack of experienced G&G (Geological and Geophysical) teams in existing companies, even when those companies now have more money.
With increasing levels of divestment and farm-in opportunities, what can minnow oil companies do to get themselves noticed?
Firstly go back to what smaller companies did in the 80s and early 1990s when many acquired some cash flow production with the funds that could be raised. This paid for their overheads for enough years to enable the search for enough good acreage to licence, work up and farmout to bigger companies that have the funds to drill and hopefully achieve success. This seems obvious but was not followed in the last cycle by many, even though we should all know that 85% of all exploration wells over the last 20+ years have been unsuccessful, so to have even an odds-on chance of success required a minimum of probably 6-7 wells. Even 350 bopd can sustain a US$ 2 million annual overhead for a capable management and technical team. I’m not convinced that many minnows will find funding sources with deep enough pockets, let alone the equity markets to fund this anymore or for some time to come.