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Geopolitical Uncertainty Shakes Oil Markets

Politics, Geopolitics & Conflict

- Following the arrest of five Algerian billionaires and members of the political elite close to former president Bouteflika, investor fears are becoming a reality. The one piece of assurance is that the military has long been one of the beneficiary of Sonatrach revenues and measures will be taken to ensure that the oil giant is protected. After firing the CEO of the state-run oil giant Sonatrach and replacing him with the company’s head of production and exploration, the Algerian government is doing its best to assure investors that it’s business as usual and that deals are safe - along with production and development. While there is still no word on whether Chevron will go through with its planned talks with Sonatrach over Algeria’s shale patch (after Exxon bowed out), Sonatrach announced late this week that its new CEO, Rachid Hachichi, signed an MOU with Italy Eni’s CEO on the renewal of a gas supply contract through a Mediterranean pipeline. That move was meant as a message to other investors and potential investors that deals will move forward under the new leadership. In the meantime, keep a close eye on the emerging elite clan warfare in Algeria. Algeria has two influential clans - one representing the presidency and one representing the military - and the billionaires that have fallen were from the presidential clan.

- There have been no significant changes on the Libyan front to impact oil flow as of yet. General Haftar continues to launch his offensive on Tripoli, making daily gains but also experiencing daily losses as militia forces push the LNA back. Fighting is still confined to the suburbs and has not let up in intensity.

Deals, Mergers & Acquisitions

- Sempra Energy has finalized the divestment of renewable energy operations and non-utility gas storage facilities that generated $2.5 billion in proceeds. The buyer is American Electric Power. The proceeds will go towards shrinking Sempra’s debt burden and funding its domestic core business operations. For AEP, the acquisition will enhance its diversification efforts.

- Murphy Oil has struck a deal to buy $1.38 billion worth of oil and gas assets in the deep waters of the Gulf of Mexico from two independents, LLOG Exploration Offshore and LLOG Bluewater Holdings. The value of the deal also includes additional payments of up to $250 million contingent on reaching certain production milestones. Murphy expects the purchase to add between 32,000 and 35,000 bpd to its daily output in the GOM.

- Schlumberger has agreed to sell its Saudi Arabian drilling business to a local business, Arabian Drilling Company. The buyer is a joint venture between a Saudi state entity and a subsidiary of the U.S. oilfield services giant.

- Petroleo Brasileiro (Petrobras), Brazil’s state-run oil giant, has closed a nearly $1.3-billion deal to sell 50% of its exploration and production rights in two offshore fields to Malaysia’s state-run Petronas. THe deal includes the Tartaruga Verde and part of the Espadarte fields and is intended to help reduce the indebtedness of the Brazilian oil company. Petrobras has divested over $11 billion in assets this year already.

Tenders, Auctions & Contracts

- Exxon has closed a 20-year contract for the deliveries of 1 million tons of liquefied natural gas annually to Chinese Zhejiang Energy. Supplies will begin next year, as the project necessitates the construction of a receiving terminal. The facility will have a capacity of 3 million tons of LNG. Exxon will source the fuel for delivery to Zhejiang from its LNG contracts around the world but not the United States.

- Eni has inked an exploration and production sharing deal with Abu Dhabi’s oil authority for the Ras Al Khaimah block in the emirate. The Italian company will have a 90% interest and will be operator of the project. This is the latest expansion step by Eni in the UAE, after earlier this year it said it will pay $3.3 billion for a stake in a local refinery that is the fourth-biggest in the world.

- Shell is negotiating with BP the acquisition of its stake in the Shearwater oil and gas field in the UK section of the North Sea. The deal could fetch up to $250 million for the seller, whose stake in the Shearwater field amounts to 27.5%. Shell holds a 28% stake in the field and is operator. The Anglo-Dutch supermajor last year announced expansion plans for the project, which aim to boost exports from the field to 400 million cu ft daily.

- In more news from the North Sea, Israel’s Delek Group is getting closer to clinching a deal with Chevron for the acquisition of the U.S. supermajor’s assets there. Chevron announced it was selling out of six fields in the North Sea last year, excluding its interest in the Claire field, which is operated by BP. Delek vied for the assets in competition with consortia including Premier Oil, Ineos, and Apollo Global Management.

Discovery & Development

- Bolivia is preparing to join the ranks of LNG exporters by setting up an export channel via neighbor Argentina. To this end, it would need to build a number of liquefaction terminals in Argentina jointly with Argentina’s state oil and gas company. Argentina has been a major destination for Bolivian natural gas but recently it has reduced its intake of the fuel, prompting Bolivia t look for new markets.

- After the successful completion of a pilot project, Italy’s energy major Eni plans to start building industrial-scale offshore wave power stations. The endeavor is part if Eni’s shift to renewable power, like its peers. It is also a way of repurposing and reusing offshore oil and gas platforms after the end of the productive life of the fields they service. These platforms would be converted into wave power plants.

- BP has given the green light to the next phase of development at the giant Azeri-Chirag-Guneshli system of fields in the Azeri sector of the Caspian Sea. The phase will cost around $6 billion to compete and will boost the processing capacity of the project by 100,000 barrels of crude daily. First production is scheduled for 2023 with total output over the productive life of the project is estimated at up to 300 million barrels.

- Volkswagen is now jumping on the blockchain train to source materials for EV batteries, in what is fast becoming a popular space. IBM and Ford are already in the group.

- In the meantime, it’s another hit for global coal as Germany’s RWE utility giant cancel future investment in coal-fired plant as it prepares for a major structural rehaul this year. Instead, RWE will focus on renewables, and that also means scrapping plans for a giant power station at Niederaussem, where it was to invest in a rehaul. Instead, RWE will be taking over 10,000 MW of renewable powerassets, some from E.ON. The asset deal will make RWE the fifth-largest renewables company in the world.

Company News

- Germany and Poland have turned off the taps on the Druzhba pipeline that carries Russian crude to Europe because of contamination of the oil with organic chloride that can harm refining equipment. The contamination, according to reports, originated with an unnamed Russian oil producer, with levels of the chemical at levels many times over the maximum allowed. Pipeline monopoly Transneft is working on the problem, the Russian side said.

- French oil giant Total SA has seen record oil and gas output, but volatile oil prices still managed to shave 4% off profits, which were down to $2.8 billion, year-on-year. Total SA is targeting 9% production growth this year, banking on new project launches (Angola, Brazil, UK, Norway) and ramp-ups. (Look to Brazil, Russia and Uganda for new potential projects by Total as well).

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