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Banks Battle For The Aramco IPO

Market Movers

- JPMorgan (NYSE: JPM) shares are up as media label it as the frontrunner for investment banks to take the lead in Aramco’s upcoming IPO, which appears to be moving along at a healthy pace now with the reshuffling of Saudi Arabia’s energy ministry and Aramco’s board. From Friday at $112.63, JPM’s stock rose to $116.23 by mid-day on Tuesday. Aramco has selected a range of banks for the IPO, and wasting no time, these banks have flocked to Dubai's Ritz Carlton this week for meetings with Aramco and the SWF.

- Canada’s oil inventories are falling and have reached lows not seen in years, at 26 million barrels as of the end of last month. This is a markedly different picture than the glut from last year that drove the discount of WCS to WTI to crazy lows. But Canada isn’t out of the woods just yet and has extended its production caps by one year. Without Enbridge’s Line 3 - which has been delayed to no one’s surprise - and without those production caps, Canada would be producing 150,000 barrels more per day than it could consume and export.

Discovery & Development

- Independent Oil & Gas has confirmed an estimated 129 bcf gas find at Harvey appraisal well in the North Sea. Analysis is now underway to determine resource range and reservoir quality.

- OPEC’s smallest member, Equatorial Guinea, has plans to boost oil output by 15,000 bpd in September, as new finds by Noble Energy come online. This will be in addition to the 128,000 bpd that it currently produces. Next year, Equatorial Guinea has plans to boost that to 145,000 bpd.

- State-owned Iraqi Drilling Company (IDC) has signed a contract with the Dhi Qar Oil Company to drill 20 wells in Southern Iraq Nasiriyah oil field with the goal to expand production by 40,000 barrels per day of crude.

- General Electric has won a turbine supply contract for a 175-MW wind project in Sweden. The US manufacturer will deliver 33 units of its 5.3 MW Cypress platform turbines. Once fully operational, the wind farm will be able to generate enough electricity to meet the demand of 175,000 local homes.

- Chevron, ConocoPhillips, ExxonMobil, Equinor, and Shell - and some others who together make up the OOC Oil & Gas Consortium - have awarded a contract to Data Gumbo to implement blockchain in a Bakken oilfield to automate payments to vendors for an expected cost savings of $3.7 billion annually. Data Gumbo is backed financially by Equinor Technology Ventures and Saudi Aramco Energy Ventures--the venture capital arm of Saudi Aramco.

- US independent shale oil startup Alta Mesa Resources filed for Chapter 11 bankruptcy protection amid collapsing finances with more than $1 billion in debt and an SEC investigation into possible fraud over the subsequent stock price plunge. The company’s stock, led by a former Anadarko Petroleum chief executive, has lost 93% of its value this year.

Deals, Mergers & Acquisitions

- Exxon has acquired three ultra-deepwater oil and gas concessions at Brazil’s auction. The oil giant has teamed up with Murphy Oil and Brazil’s Enauta for the project. Initial estimates are that the region where the blocks are located could produce 30 million cu m/d by mid-2020s. Exxon will hold a 50% operating stake.

- General Electric is giving up majority control of the oil-field services firm Baker Hughes, selling shares in the company that will raise about $3 billion in cash. The sale would result in a reduction of GE’s stake in Baker Hughes to less than 50%. Last year, it sold 12 percent of the stake for $4 billion.

- Billionaire investor John Paulson’s hedge fund has opposed Callon Petroleum Co’s proposed $3.2 billion acquisition of Carrizo Oil & Gas Inc. The fund said Callon's stock has lost 36% since the acquisition deal was announced and urged Callon to pursue selling itself.

- Brazil’s development bank BNDES announced the sale of its stakes in listed companies with Reuters reporting that state-controlled oil company Petrobras is one of them. In July, BNDES said it is looking to sell nearly $27 billion in listed assets. Its largest stakes are in Petrobras worth roughly $13 billion and miner Vale SA at $4 billion.

- The world’s largest independent tank storage company, Vopak, says it has bought 49% shareholding in Colombia’s liquefied natural gas import facility Sociedad Portuaria el Cayao (SPEC). SPEC is the only LNG import facility in Colombia and has been in operation since 2016.

- India may sell its second-largest state-owned refinery and fuel retailer, Bharat Petroleum Corp., to a foreign company in an effort to increase competition in India’s oil and gas industry. The is part of India’s push to offload some of its state-run companies as it tries to raise nearly $15 billion this fiscal year to close India’s budget gap. A sale of Bharat could account for 40% of what it needs to meet that goal.

Legislation & Regulations

- Court records show that executives of the Philadelphia Energy Solutions oil refinery were paid roughly $4.5 million in retention bonuses after a late June fire that led to the company’s bankruptcy. According to documents filed last week with the Bankruptcy Court for the District of Delaware, five executives received a retention bonus with CEO Mark Smith receiving the largest sum of $1.545 million, just two weeks before the bankruptcy.

- The government of Somalia is planning to present the objectives of the Somali national oil and gas sector at the Africa Oil Week summit scheduled for November in Cape Town. Seismic surveys conducted by British companies Soma Oil & Gas and Spectrum Geo suggest the country has promising offshore oil reserves of up to 100bn bbl. In May, the government passed a new petroleum law in an effort to kick-start oil development that has been halted by two decades of civil war. The Somalian government hinted that it is expected to honor most legacy contracts and several international companies were approached to renew the contracts. The government said that an agreement has already been reached with Shell and Exxon to settle rental fee payments for offshore blocks. The companies failed to comment on whether they are returning to Somalia, largely because there is an ongoing maritime territorial dispute between Kenya and Somalia that is being decided by the International Court of Justice (ICJ), and Kenya is balking at the idea of Somalia handing out blocks that infringe upon territory claimed by Kenya.

- Mexico's government will inject another $5 billion into struggling state oil company Pemex to help reduce its $100 billion debt. Earlier this year, Moody’s warned that Pemex’s investment-grade status is in jeopardy. In June, Fitch became the first agency to downgrade Pemex debt to junk. The announced aid is an addition to a $4.4 billion contribution, including cash and tax relief, unveiled in the government’s 2020 budget plan.

- The US House of Representatives passed two bills banning new offshore oil drilling off the Pacific and Atlantic coasts as well as Florida. The H.R. 205 bill bans oil and gas leasing in areas of the Gulf of Mexico close to Florida’s coast. H.R.941 would permanently ban oil and gas leasing off the Atlantic and Pacific coasts. The White House announced that President Trump would veto the bills, even though the drilling that is taking place in the areas protected by the bills is minimal.

- Russian Finance Ministry has greenlighted (in principal) the provision of new tax breaks for Rosneft’s Priobskoye project, the country’s largest oilfield. The ministry said that tax breaks for the oil companies could last for 10 years but no start date has been agreed. Earlier this year, Rosneft requested an annual oil-production tax break of $699 million for 10 years. Output at Priobskoye is around 500,000 barrels per day.

- Chevron appears to be making preliminary preparations for a potential exit from Venezuela as the country sinks further into chaos and as the US administration seeks to more vigorously levy sanctions on the socialist regime and anyone doing business with it. Chevron has updated some of its contracts with partners in Venezuela in such a way that would allow it to leave the country without penalty for early termination. The company’s waiver to operate in sanctioned Venezuela expires on October 25. Chevron has officially denied that it is planning to leave the country, but has reiterated that it will comply with the law in this regard.

- Nigeria’s government has proposed raising the Value Added Tax (VAT) standard rate from 5% to 7.2%, in an effort to reduce its reliance on crude sales which accounts for 90% of foreign currency earnings. The increase, if approved by the National Assembly and local governments, will likely be put into place in January next year. The average VAT in Africa is around 16%.

Politics, Geopolitics & Conflict

- Russian state lender VTB has denied media reports that is has been in talks with Chinese companies about a possible investment in EN+, which manages the energy and aluminum assets previously controlled by Oleg Deripaska. Earlier this week, the Financial Times cited sources with knowledge of the talks saying that there is "serious interest" from the unnamed Chinese firms in taking a stake in EN. VTB currently owns 21.68% shares of EN+, who was under U.S. sanctions for the second half of last year, until its former President Deripaska agreed to relinquish his controlling stake in the group in January 2019.

- Iran has sold crude cargo aboard the Adrian Darya 1 tanker to a private company at sea, according to the Iranian envoy to the UK. After meeting with the British Foreign Secretary, Ambassador Hamid Baeidinejad denied that Tehran had broken the assurances it had given over the vessel. The tanker loaded with 2.1 million barrels, previously blacklisted by the US, went dark last week and was later photographed near the Syrian port of Tartus.

- Hoping to pave the way for offshore oil and gas exploration, Lebanon authorities called on the US to resume mediation efforts between Lebanon and Israel to demarcate a contested shared border. Newly appointed US assistant secretary of state for Near Eastern affairs David Schenker said that the US is keen to “renew its efforts to contribute to the land and maritime border negotiations.” Last year, Lebanon licensed a consortium comprised of Eni, Total and Novatek to start with the country's first offshore energy exploration in two blocks with one of them containing waters disputed with Israel. The two countries have an unresolved maritime border dispute over a sea area of about 330 square miles along the edge of three of Lebanon's southern energy blocks. Earlier this week, Lebanon's Hezbollah said it shot down an Israeli unmanned aircraft outside the southern town of Ramyah.

- The US is considering imposing sanctions on Russia’s oil giant Rosneft over its involvement in trading oil from Venezuela, following Trump’s August executive order freezing all assets of the Venezuelan government in the US. According to Rosneft’s own reports, the company more than doubled its oil purchases on the “international market” in the first half of the year. The company said that all its oil operations in Venezuela had been agreed before US sanctions were imposed. (Similar to the successful argument that has worked for India in its intake of Venezuelan oil).

- Ukraine cut US-based Trident Aquisitions’s right to explore and develop Black Sea oil and gas reserves. Trident was expected to invest $1 billion there, but the bidding process has since been called into question due to its hurried nature, as some other bigger players did not get a chance to participate. But Trident’s bid was never really secure. Naftogaz still holds claims to 40% of the block in question. And the previous government was the one who actually awarded the project to Trident, leaving office before giving final approval, so it was no surprise that the new government pulled it back. The reneging of the tender highlights the uneasy atmosphere in Ukraine’s oil and gas industry, which it needs to develop if it wants to break free from its dependency of Russian oil.

- China’s Xi Jinping has offered Philippines President Rodrigo Duterte the controlling stake in a joint venture deal if it would ignore the recent Hague ruling over oil and gas rights in the South China Sea. The Hague determined that China has no right to most of that area.

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