Global Energy Advisory - 9th June 2017

While this week has seen high-level political and geopolitical developments that hint at a dangerous climax in tensions emanating from the Middle East - as an OPEC rift widens and exacerbated by rumblings in Washington, we start with a look at technology and artificial intelligence instead …

• BP has invested $20 million in a startup with 20 years of experience in artificial intelligence. Beyond Limits, which has a long history of working with NASA on developing tech solutions to be used in space, has now turned to Earth to focus on developing AI solutions for a range of industries, beginning with oil and gas. According to BP, its partnership with the AI developer will completely change how exploration, production, and refining are done. According to Beyond Limits, the company will aim to create software that can think like a human and “augment human capability.” In fact, the company will be adapting its space solutions to the oil and gas industry, improving not just exploration results but also decision-making. Effectively, the news represents perhaps the first major foray of AI in oil and gas, as the industry begins to increasingly open up not just to automation and enhanced-efficiency technology but also big data and, now, artificial intelligence. The energy industry has been notorious for refusing to join the digital revolution that has engulfed most other industries but its adoption of cutting-edge tech was only a matter of time: when the global business environment undergoes a transformation as fundamental as digital, it’s impossible for any industry to not be affected at all. This is all the more true given the possibilities that technology offers oil and gas businesses: better exploration results, closer to optimal production costs and safer operations. What’s not to like about that?

Deals, Mergers & Acquisitions

• Exxon is buying a deepwater block of the Equatorial Guinea coast. The block spans 307,000 acres and neighbors a producing field, Zafiro, also operated by Exxon, which has in its 20 years of operation yielded over a billion barrels of crude. After the acquisition of the EG-11 block, Exxon will start 3D seismic surveying.

• Apache Corp. has inked a deal with Canada’s Cardinal Energy for the sale of its assets in Western Canada for mover $240 million. The assets produce some 5,000 bpd of light crude. Apache will use the proceeds to expand its footprint in the Permian as part of efforts to streamline its operation and focus on higher growth potenti al areas.

• Marathon Oil said it has completed the purchase of 21,000 net acres in the Northern Delaware Basin, part of the Permian play, for $700 million. The sellers were Black Mountain Oil & Gas and a few private parties. The new assets will bring Marathon Oil’s total Permian footprint to 91,000 acres.

Tenders, Auctions & Contracts

• Shell and Gazprom signed two deals that will see them set up a joint venture for the Baltic LNG project and start working on the preliminary documentation for the project. The project envisages the construction of a liquefaction plant at the Ust-Luga port in Russia’s Leningrad region. The plant will produce 10 million tons of LNG annually.

• Irish Providence Resources has farmed out a 50% working interest in the offshore Avalon field to French Total. The deal will see Total assume operatorship of the field for the next two years. The French company has also approached the South Sudan government with regard to the development of two of the country’s biggest oil deposits after the collapse of earlier talks. In this, Total will be competing with Tullow Oil, which has also declared interest in the blocks.

Discovery & Development

• A rift between Woodside Petroleum and FAR Ltd. is threatening a promising offshore oil project in Senegal with a delay. The SNE block was scheduled to start producing crude in 2021 but minority shareholder FAR has now said it will not accept Woodside as operator of the project. Woodside was set to become operator after it bought 35% in the project from ConocoPhillips but FAR now says that it should have had pre-emptive rights over the stake, which cost Woodside $350 million and was considered quite a bargain.

• Morocco’s National Office of Hydrocarbons and Mines has announced a natural gas discovery in the Dardara region. The discovery was made by Gulfsands Petroleum and after the results from the test drilling are analyzed, commercial drilling will begin. Morocco is a newcomer on the gas market. Earlier this year, another explorer working in the North African country, announced a discovery that could hold between 3 and 4 trillion cubic feet of gas in the Tendrara field.

• Rosneft expects its crude oil output in Venezuela to expand fivefold over the next ten years to as much as 12.5 million tons of oil equivalent. Last year, the Russian major’s production in the troubled South American country reached 8.4 million tons, of which Rosneft took home 2.67 million tons.

• Shell has reopened its Forcados export terminal in Nigeria after over a year of suspension under force majeure forced by a string of militant attacks on the Trans Forcados pipeline that feeds crude into the terminal. The restart of the terminal will aggravate OPEC’s situation as Nigeria is exempt from the production cut agreed last November and recently extended to march 2018.

Regulatory Updates

• Australia’s Tax Office is demanding $800 million from Chevron in unpaid taxes after a court established that the energy giant had used a tax avoidance scheme to not pay taxes due Australia for five of the last seven years. The demand is part of a bigger push, estimated at more than $3 billion, against international energy companies operating in Australia.

Politics, Geopolitics & Conflict

• The 22 GOP senators that urged President Trump to pull the U.S. out of the Paris Agreement on climate change have received a combined $32 million in campaign contributions from the energy industry and $18 million from oil and gas companies specifically. Media reports have also emerged that a big oil lobbying group had met with Trump’s interior secretary at the Trump International Hotel on 23 March, the same day the Trump administration revoked a rule the oil industry opposed.

• Cyber-intrigue is tearing apart the Middle East. The spat between Qatar and its Gulf allies continues, despite the Qatari side announcing that the news report featuring remarks from the country’s ruler that sparked the conflict was the result of a hack job. A single hack of a media agency today can cripple geopolitics—and even has the potential to start wars. When Qatar’s official news agency suddenly—and inexplicably—quoted the emir of Qatar calling for everyone to make friends with Iran and the militant side of Hamas, and then talking about tensions with Trump and suggesting Trump wouldn’t last long as president, that was all it took. No one paid much attention to the fact that it was highly unlikely for the emir to make such statements and of no benefit to Qatar whatsoever geopolitically. It also made no sense for the emir to then talk about Qatar’s good relations with Israel. Try as Qatar did to get in front of this with denials, online news is a virus, and the Saudis were on to it as soon as it went live. Was it a hack? Logically, yes. But hackers now have a new power that has been emboldened by Washington’s treatment of loose facts and the media in general. Both the FBI and British authorities have already said that this appears to have been a hack; still, the drama continues to unfold and the rift continues to widen. Gulf alliances are being rewritten, and Qatari officials believe the hack was the work of the Saudis who are keen to demonstrate a new ‘friendship’ with Washington.

• At the same time, a terrorist attack on the Iranian parliament killed 13 and left many more injured. Another attack had a suicide bomber blow up the mausoleum of the Ayatollah Khomeini. ISIS has claimed responsibility for the attacks—the group’s first on Iranian soil.

• Britain voted in snap elections on Thursday. Security and Brexit were seen as the top priorities for voters. The conservative Tories had a moderate lead over Labour before the polls opened. This snap election was essentially an attempt by Prime Minister Theresa May to solidify her power, but she lost this bet. The conservatives remain the largest party but they lost seats and are now weakened. It was an embarrassing move for May—calling a snap election three years early on a bad bet based on misleading opinion polls that she was in a much stronger position than she was. In the end, Jeremy Corbyn’s Labour party made off with a fair amount of conservative seats—far more than anyone expected. Now May has to form a new government from the standpoint of having lost her party’s majority in this gamble. To do that, she is likely to rely on the support of Northern Ireland’s Democratic Unionist Party in parliament. Expect political turmoil in the UK after this election.

• Anti-government protests in Venezuela are continuing, with protesters demanding that Nicolas Maduro’s government cease his attempts to rewrite the country’s constitution.

• North Korea launched several land-to-ship missiles just one day after its southern neighbor decided to delay the deployment of a U.S. anti-missile system aimed to deter hostile action on the part of Pyongyang.

• Philippines President Rodrigo Duterte has refused to sit at the negotiations table with IS-affiliated local groups that took over the city of Marawi after a breakdown of an earlier ceasefire.