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Floods And Fires Threaten Oil Outages

Discovery & Development

- Iraq has lifted the state of emergency it declared on the Majnoon oil field amid floods. Production at the field was unaffected despite the state of emergency and the daily rate remained stable at 240,000 barrels. Majnoon is among the largest fields in OPEC’s number-two producer with output planned to be boosted to 450,000 bpd by 2021.

- Kazakhstan’s giant Kashagan oilfield has hit a record output of 400,000 bpd and is eyeing another 10,000 bpd boost before the end of this year, boosted by the completion of maintenance work over the course of last month. The field produces CPC Blend crude.

- Albemarle has broken ground on what promises to be the world’s largest lithium processing plant in the world in Australia in a ~$700-million build-out plan, and Samsung and Posco are eyeing a similar move in Chile for a facility to produce the chemical components for lithium-ion batteries. For Albemarle, though, the move is indicative of a much bigger game here: The game not only to control a large chunk of the world’s lithium mining, but also to control its refining, and perhaps beyond.

- Wildfires in Alberta, Canada’s oil heartland, have shut in some production and pushed prices for Canadian heavy higher amid tightening global supply. Although no major shutdowns have been announced for now, Canada National Resources’ announcement that it would shut down operations yielding 65,000 bpd served to provide a significant boost to prices. IHS Markit has forecast that Canada’s oil sands production will continue to rise over the next years albeit at a slower pace compared with the last decade. The slowdown is the logical result of pipeline infrastructure constraints but healthy demand for heavy crude should offset some of the effects of these constraints as refineries that cannot operate without heavy crude have few supply options. If the wildfire danger worsens, this will drive Canadian heavy prices even higher, which would cause some refiners to look for more affordable alternatives but since there is a shortage of these, chances are the market for Canadian crude is guaranteed for the time being.

- Sempra Energy has shipped the first liquefied natural gas cargo from its $10-billion Cameron export terminal in Louisiana. This is the fourth U.S. export terminal with another dozen in the works. The tanker was chartered by Sempra’s partner in the Cameron LNG project but the destination remained undisclosed. In separate but related news, Cheniere sold its first LNG cargo to Bulgaria, at 90 million cubic meters. The small Bulgarian energy market is almost entirely dependent on Russian gas and the state gas company is looking for diversification opportunities.

Deals, Contracts, Mergers & Acquisitions

- Russia’s Lukoil has agreed to acquire a 25% interest in the Marine XII license in the Congo for $800 million in cash. The deal concerns a license for five fields with 1.3 billion boe in proved and probable reserves. Italian Eni operations the license with a 65% stake, while Congo’s state-run company has a 10% stake.

- Russian gas giant Gazprom and Shell have agreed to create a JV to develop fields in West Siberia with combined estimated reserves of 1.1 billion mt of oil, despite any potential sanctions risk. The deal is expected to be finalized early next year.

- Chinese state-owned power company China Huaneng Group is in talks over the purchase of a controlling 51% stake in solar power producer GCL New Energy Holdings (GNE), which operations solar power plants not only in China, but also in the US and Japan.

- BP will sell its oil concessions in the Gulf of Suez to a UAE-based company, Dragon Oil. The deal is worth at least $600 million, according to media reports. An official value has not been disclosed. The divestment is part of BP’s plan to focus on natural gas in Egypt after the launch of an offshore field in the West Nile Delta. The company spent $12 billion on exploration and production in Egypt over the last four years and plans to spend another $3 billion by 2021.

- Italian Saipem and US-based McDermott have sealed a massive $6-billion contract to construct Anadarko’s LNG project in Mozambique. The contract consists of the construction of two LNG trains, with a total nameplate capacity of 12.9m tons annually. French energy major Total is expected to take ownership of the project next year.

- Murphy Oil has completed the acquisition of a number of offshore assets in the deep waters of the Gulf of Mexico from two private companies: LLOG Exploration Offshore and LLOG Bluewater Holdings. The acquisition cost Murphy $1.227 billion, most of which will be funded with debt financing. The assets yield an average 22,000-24,000 barrels of oil equivalent daily.

- France’s Total has sealed a deal with Toshiba to buy its liquefied natural gas operations in the United States. The deal will give Total access to 2.2 million tons in annual production capacity at the Freeport LNG terminal in Texas. The facility has yet to begin production after several delays that were the reason for Toshiba’s pullout. Although Total is the buyer, it will be the one getting paid under the complex terms of the transaction. Under the transaction, Total will acquire all shares of Toshiba America LNG for $15 million to be paid by Total to Toshiba and will be assigned all contracts related to the LNG business by Toshiba Energy Systems and Solutions Corp. for a consideration of $815 million to be paid by Toshiba to Total.

- UK energy independent Ineos has struck a deal with Aramco to build a chemicals plant in Saudi Arabia. The investment Ineos will make in the facility is $2 billion and the first venture of the company in the Middle East. The facility should be completed by 2025 and will be located at the petrochemicals complex that Aramco operates in partnership with French Total.

- The Iraqi government has selected Hyundai E&C to be in charge of a $2.4-billion project aimed at boosting the country’s oil production. The project involves the construction of a seawater injection facility that will feed water into wells that otherwise risk losing pressure, which would severely affect production rates. The injection facility will have an initial capacity of 5 million bpd of water, to be further increased to 7.5 million bpd.

- Angola has launched the first licensing round of a new six-year licensing cycle as it seeks to boost oil production despite OPEC’s production cut agreement. This first round will offer a total of 10 blocks in the offshore Namibe Basin and one block in the Benguela Basin, also offshore. The announcement comes on the heels of an update from Eni that it had struck oil from a fifth well in offshore Block 15/06. Also in Angola, BP and partners confirmed they have agreed on further investment into deepwater Block 15. Operated by Esso Angola, the asset has produced more than 2.2 billion barrels of oil since 2003. The new investment is expected to result in an additional 40,000 barrels of oil production per day. State-run Sonangol will receive a 10% equity interest in this deal. On the renewables end, Eni and Sonangol are planning to build a 50MW PV plant in the country’s south through a jointly controlled company called Solenova Ltd.

- Norway's Equinor is planning a 200MW floating offshore wind farm off the coast of Spain’s Canary Islands. When completed, it would be the world’s largest planned floating offshore wind farm. The project, to be built in the Canaries Special Zone, could begin operations as early as 2024. Equinor confirmed that it has received a necessary permit to move forward with building the farm, and investment valued at $970 million.

Company News

- Shell plans to return to shareholders some $125 billion in dividends and share buybacks over the next five years. This compares with $90 billion for the five-year period ending in 2020.

- U.S. prosecutors have subpoenaed Citgo documents in an ongoing probe into bribery allegations against U.S. oil producers that also involves Citgo parent PDVSA.

- The city of San Francisco is considering buying the distribution assets of California’s largest utility, PG&E, which earlier this year filed for bankruptcy protection.

Regulatory Updates

- The Minnesota Court of Appeal has rejected Enbridge’s environmental impact assessment of its Line 3 replacement project saying the state’s public utility commission had given the project the go-ahead without “substantial evidence” that the assessment document was adequate. This is the latest setback in the pipeline project, which has faced the wave of growing pipeline opposition from environmental groups and Native American communities on both sides of the Canadian-U.S. border.

- Exxon has agreed to pay $1.05 million in final compensation for an oil spill in the Yellow River in Montana. The spill occurred in 2011, as a result of heavy floods that exposed an oil pipeline on the riverbed and caused a break. Exxon had already paid $12 million in natural resource damage compensation and another $2.6 million for violating pipeline safety and state pollution laws.

Politics, Geopolitics & Conflict

- Chevron has warned President Trump’s tariff push against Mexico may harm the nascent development of its fuel import market amid growing demand.

- Norway’s oil industry barely averted another worker strike that would have taken some 440,000 bpd of oil equivalent in daily production off the market. Norway’s offshore union Industri Energi (IE) has warned that nearly 1,000 rig workers could be taken out on strike later this month unless a pay deal is reached. Most of the floating installations that could be affected by the strike are operated by Norway’s Equinor. All offshore oil and gas worker unions are demanding an increase of $0.34 per hour for working nights and conference overtime, and $5.75/hour for hours worked on public holidays. A strike could have reduced the country’s crude output by 440,000 barrels per day (Bpd) - 23% of the country’s total production.

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