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A Disastrous Year For Azerbaijan's Oil Industry

Oil

Politics, Geopolitics & Conflict

Bakhmut is the new Ukrainian symbol of resistance in the Donetsk region, and it’s being pounded by Russian forces. Wagner mercenaries are attempting to encircle the city. So far, Ukraine has held out in the months-long battle; however, military officials have indicated that they may not hold out forever, and Ukrainian troops could be withdrawn if necessary. Withdrawing from Bakhmut would not really signal a major victory for Russia, nor would it significantly change the war.

In the aftermath of the devastating earthquakes in Turkey and Syria, and amid ongoing aftershocks that continue to claim lives and take down buildings, Erdogan (as we have mentioned before) is facing a grave economic challenge on top of scrutiny for his role in bypassing proper building codes. Goldman Sachs is now warning that along with the depletion of Turkey’s currency reserves, the lira is at risk of severe crisis in the run-up to May 14 general elections.

IAEA inspectors this week stated that they had discovered traces of uranium enriched to near weapons grade at an Iranian facility. The particles are just under the 90 percent needed to produce an atomic bomb.

The only good thing happening right now in Azerbaijan’s oil sector is increased incentive to explore for new oil and gas plays. But that’s a very long-term plan, and in the meantime, Azerbaijan is a unique victim of Russia’s war on Ukraine. We saw the country very briefly benefit from the tragic earthquakes in Turkey when Azerbaijan’s Caspian Sea oil was allowed to resume flows to Georgia’s Black Sea coast through the Baku-Supsa pipeline. These flows have been offline for close to a year because they have to go through the Black Sea, which is unsafe (the same problem Ukrainian grain shipments are having due to mines). Essentially, Azerbaijan has only one of three pipeline routes left—the BTC that runs through Turkey. Everything has been rerouted there, and even that pipeline was shut down for nearly a week in February due to earthquakes. Even when not shut down, this single pipeline cannot compensate for Azerbaijan’s lost export routes in terms of capacity. The brief flirtation with the Baku-Supsa pipeline which requires oil to traverse the Black Sea against security concerns, has done nothing to strengthen Azerbaijan’s exports.

Markets

China approved 106 GW of coal-fired power capacity in 2022, 4x higher than in 2021 and the highest level of capacity additions since 2015 as energy security took center stage. In China, 50 GW of coal power capacity began construction, up by 50% from 2021.

China isn’t the only Asian nation beefing up its coal power. Coal India Ltd saw a big spike in coal production in the 11 months to February–reaching 619.70 million tonnes, compared to 542.38 million tonnes in the same period during the year prior.

Deals, Discovery & Development

BP is embarking on Phase 2 of a giant Greater Tortue Ahmeyim LNG project off the Mauritania and Senegal coast. The project will boost the capacity of the Greater Tortue. An FPSO vessel took off from China en route to the Mauritania coast for use in the project, carrying components capable of processing 500 million standard cubic feet of gas per day. The first phase is already in development. BP made the FID in 2018.

India has approved its largest hydropower project to date, near the border with China. The project, known as Dibang, is a $3.9B 2,880 MW project that will take 9 years to build. The project will encompass more than 12,000 acres of forest and is considered by India as a renewable energy project.

Eni reached closing for BP’s Algeria business, the In Amenas and In Salah gas projects. The two businesses are jointly owned by Sonatrach and Equinor. Eni already has a presence in Algeria, where it plans on reaching 130,000 boepd this year with the addition of this project. BP has been in Algeria for 30 years. The two projects make up 15% of all Algeria’s gas exports. BP was not the project operator. The In Amenas JV is one of the largest wet gas projects in Algeria.

Oklahoma-based Riley Permian has agreed to acquire New Mexico assets from Cibolo Energy Partners affiliate Pecos Oil & Gas. Under the terms of the deal, Riley will pay $330 million in cash for the assets.

Baytex Energy has agreed to acquire an Eagle Ford pure-play company, Ranger Oil for $2.5 billion in a cash and stock deal, which includes assuming its $650 million in debt. Acquired inventory includes 741 net (oil-weighted) undrilled locations. Assets include 523 opportunities in the Lower EF, and 218 opportunities in the Upper EF and Austin Chalk. Baytex said it planned on growing production from 83,519 boe/d to 155,000-160,000 boe/d with the deal. The deal is set to close late in Q2.

TotalEnergies has agreed to buy Spanish Cepsa’s upstream assets in the UAE for an undisclosed amount. The deal will give TotalEnergies a 20% stake in Satah Al Razboot, Umm Lulu, Bin Nasher, and Al Bateel concessions.

Aramco is looking to invest in an LNG facility outside Saudi Arabia as the world’s thirst for LNG remains strong. Aramco is said to be looking at LNG projects in the United States and in Asia–preferably at a facility that offers easy shipments to one of its prized markets, Asia.

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Baker Hughes has been cleared by a UK competition regulator CMA to take over Altus Intervention. As part of the deal to appease the CMA, Baker Hughes has agreed to sell off its coil tubing and pumping services in the UK to Archer Ltd.

Range Resources Corp said they “don’t need to pursue any sort of “ merger or acquisition when asked about the rumor that Pioneer Natural Resources was looking to acquire Appalachian pure-play Range. Range stopped short of flat-out denying the veracity of the rumor or that conversations were had between Pioneer and Range. Pioneer, for its part, said it was not contemplating “a significant business combination or other acquisition transaction.” Range reported 2022 Q4 net income of $814.2 million, or $3.38 per share.

China’s CNOOC discovered a large oil and gas field in the Bohai Sea that the company said could contain more than 100 million tonnes of oil equivalent. Bozhong 26-6 has an average water depth of 22.1 meters. Proven reserves of the field have surpassed 130 million tonnes of oil equivalent.

Legislation and Regulation

A court dismissed a case against TotalEnergies that attempted to stop developing its East Africa Crude Oil Pipeline and its associated Tilenag oilfield. The case was brought to court by French and Uganda campaigners that sought to prove that Total failed to address the pipeline’s associated environmental and human rights issues. Ultimately, the court ruled this week that it did not have the authority to examine the situation and added that the case had changed too much since the campaigners first filed.


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