Global Energy Advisory – 18th April 2014

Delays Ahead for Mexico Energy Reforms

Implementation of Mexico's much-awaited sweeping energy reforms is likely to be delayed as lawmakers grapple with secondary legislation that is trying to make its way through a current congressional session, which ends on 30 April. The latest news is that the lawmakers may need "extra weeks" to pass the secondary laws, which have yet to be presented in the session. In December, Mexico's Congress approved sweeping energy reforms that will end state-run Pemex's monopoly on crude oil production. Once the details of the reforms are in place, we could be looking at significant new streams of private investment into the country's energy sector. Originally, the secondary legislation for the reforms was scheduled to be approved by 20 April.      

US State Energy Legislation Updates

•    Minnesota has seen three new bills introduced, with measures to boost the state's emergency response to crude oil transportation disasters. The measures call for a grant program for hazard incident preparedness to be funded with $5 million in new fees assessed on railroads and pipeline companies. The measures would also require railroads to regularly notify local officials about oil train movements and to improve grade crossings and add state track inspectors.

•    The Ohio Environmental Protection Agency (OEPA) has passed new requirements aimed at reducing air pollution from shale oil and gas development. Under the new policy, operators will be required to scan all well site equipment on a quarterly basis. This is compared to the previous requirement to conduct checks annually. Any leaks identified must be fixed within five days, and operators will be required to submit leak detection and repair reports to state regulators annually. Ohio is the latest major oil and gas producing state to adopt a policy focused on curbing the emissions of methane and volatile organic compounds. Colorado and Wyoming implemented similar policies last year. The OEPA has also rolled out more stringent criteria that set forth the terms and conditions of a general permit for oil and gas well site operations. After a company demonstrates that it meet the standards, its application process is fast-tracked.

Discoveries & Exploration Results

•    Russia's Natural Resources Ministry has announced the discovery of a new oil field containing an estimated 300 million tons of oil and 90 billion cubic meters of gas in the country's Astrakhan region. The discovery of the field, Velikoe (The Great), was made by AFB Oil and Gas Company, which is expected to start seeking partners to help develop the field. Those partners are likely to be either Rosneft or Lukoil. This is the first major onshore oil discovery in Russia since 1988, when the Vanqor field with over 500 million tons of estimated oil reserves, was discovered. The Astrakhan region is also home to Lukoil's Filanovsky field, with around 150 million tons of recoverable oil in the Caspian Sea. It is also home to the Tambov field, which is the fifth largest oil field in the world.  

•    Norway's Statoil has announced an oil and natural gas discovery in the Valemon North prospect in the North Sea. The discoveries were at two wells located in Norwegian waters. Statoil estimates the total volumes in Valemon North to be in the range of 20-75 million barrels of recoverable oil equivalent. Exploration wells 34/10-54 S and 34/10-54 A are situated in the Valemon Unit area in the North Sea. Statoil is operator with an interest of 53.775%. The partners are Petoro AS (30%), Centrica Resources (Norge) AS (13%) and A/S Norske Shell (3.225%). Discovered in 1985, Statoil said the prospect is one of its most important assets on the Norwegian continental shelf. In total, the field holds an estimated 206 million barrels of oil equivalents. The Norwegian Petroleum Directorate confirmed the discovery in a northern part of the Valemon field in an area not previously known to contain oil and natural gas reserves. The development concept is a fixed platform, with rich gas export to Heimdal and condensate export to Kvitebjørn.  Production start-up is expected fourth quarter 2014.

•    Nighthawk Energy PLC has announced a new oil discovery at its Snow King 13-33 exploration well, close to its major Arikaree Creek oil field in Colorado. The Snow King 13-33 well started production on April 12 from the Mississipian Spergen formation with an initial production rate of 300 to 400 barrels of oil per day. According to Nighthawk, the discovery is a "landmark moment that has the potential to open up the basin to full-scale development" similar to the Arikaree Creek operations. Before full-scale development begins, the next steps are permitting of additional wells and further 3D seismic.  

•    Crescent Point Energy Corp. has announced a discovery in the Flat Lake area of the Torquay formation in southeast Saskatchewan. The company is touting the Torquay formation as similar to North Dakota's Bakken region and estimates around 11.2 million barrels of oil equivalent here.

•    Latin America's GeoPark Limited has launched production in a new oil field in Colombia, in the central Llanos basin. GeoPark drilled the Aruco 1 well to a total depth of 10,705 feet. The company then used an electrical submersible pump, lowered to about 10,075 feet, to test the well and produced approximately 1,154 gross barrels each day. GeoPark will need more consistent production to determine the average flow rate from the well and estimate the amount of oil in this location.

Political Developments

•    Algeria held elections on 17 April, with incumbent President Abdelaziz Bouteflika expected to win another term in office (already having served 15 years). While questions of stability have been raised due to Bouteflika's poor health, his continuation in the presidency will lend more stability at this time than a complicated change of regime in Algeria at a time when instability emanating from neighboring Libya and Tunisia threaten Algeria's borders. Investors should be relieved. Preliminary election results are expected later on Friday, at the earliest.

•    Restive Egypt will also hold presidential elections in late May, which we will be monitoring closely over the coming weeks. The country plans to boost electricity prices for the richest 20% of the population ahead of those elections-as any other reduction of food or fuel subsidies would be problematic for General al-Sisi at the polls. We still don't have details of the planned price increase. At the same time, on the energy scene, Egyptian Refining Co. has announced it will begin construction this month on a grassroots refining upgrade of the existing Mostorod Petroleum Complex (MPC), 20 kilometers northeast of Cairo.

•    We are also keeping a close eye, on the ground in Ukraine, where presidential elections are scheduled for 25 May. The situation here is extremely dynamic and volatile, and OP Tactical is uniquely positioned to assist foreign investors or potential investors in this arena, with direct access to industry insiders, political leaders and legal counsel. Contact OP Tactical for more information.