Global Energy Advisory – 11th July 2014

Regulatory Alerts

The US Federal Energy Regulatory Commission (FERC) has approved a second natural-gas export terminal in Louisiana, authorizing Cameron LNG LLC, a unit of San Diego-based Sempra Energy, to operate and construct an LNG export facility in Hackberry. The project has passed its environmental assessment, the last regulatory hurdle for Cameron. The $10-billion project will begin construction later this year and will export up to 1.7 billion cubic feet of natural gas a day by 2019.

North Dakota’s Industrial Commission, with regulates the oil and gas industry, has endorsed a policy setting goals for reducing flaring in incremental steps through 2020 and allowing regulators to set production limits on oil companies in flare reduction targets are not met. The reason for flaring is that production is outpacing the development of pipeline and processing facilities, which means companies have to flare about 30% of their gas. Flaring must be reduced 26% by 1 October 2013 and 90% within six years, taking into account planned infrastructure development. North Dakota says it is losing $1 million per month in tax revenues due to flaring.

Deals, Mergers & Acquisitions, Management

•    Houston-based Linn Energy has agreed to acquire assets—around 900,000 net acres and 4,500 wells-- in five US operating areas from Devon Energy Corp. for $2.3 billion. The agreement should close in the third quarter of this year. The acreage is in the Rockies, Midcontinent, East Texas, North Louisiana, and South Texas regions. Production from the assets by Devon totals 275 MMcfd of gas equivalent, of which 80% is gas (Devon is purging some gas assets in favor of oil). To finance the acquisition, Linn is selling off assets in the Texas Panhandle and western Oklahoma.
 
•    Czech oil processing firm Unipetrol is set to gain full control of the Ceská Rafinérská JV with the acquisition of a 32.4% stake from Italy’s Eni for $40.7 million. Unipetrol is majority owned by Poland's Orlen, which currently holds a 67.55% stake in the JV following the purchase earlier this year of Shell's 16% stake. Unipetrol will become the sole owner of the Ceská Rafinérská. The JV owns refineries in Litvínov and Kralupy with a total conversion capacity of 8.7 million tons of crude oil each year.

•    Westinghouse Electric Company LLC announced its intent to purchase 100% ownership of Mangiarotti S.p.A., an Italy-based manufacturer of components for the nuclear, oil and gas industries

•    Romanian investment fund Fondul Proprietatea plans to sell its 13.5% stake in state-owned power grid operator Transelectrica

•    India is planning to sell off a 5-10% stake in state-run energy explorer Oil and Natural Gas Corp for around $5.84 billion

•    Japan’s largest oil refiner, JX Nippon Oil & Energy, is seeking to downsize in Japan and expand across Asia amid declining domestic fuel demand. Indonesia and Vietnam are at the top of Nippon’s list of new potential venues.

•    Houston-based Cheniere Energy has added Heather Zichal, former Obama White House Deputy Assistant to the President for Energy and Climate Change, to its board of directors. Zichal knows her way around the LNG export permitting process in Washington, and the move is likely to give Cheniere additional savvy as it works towards obtaining further LNG export permission.

Discovery & Development

•    Royal Dutch Shell has conceded defeat in its exploration for natural gas in Saudi Arabia’s deserts, which it had estimated to hold 288 trillion cubic feet of natural gas. Shell was working on developments in the Rub al-Khali desert through a joint venture with Saudi Aramco, but work has been halted since February due to mounting costs

•    Spain’s Repsol has announced the discovery of 40 million barrels of oil equivalent offshore Trinidad and Tobago, in the Caribbean. The reserve has produced 1,200 barrels of high-quality oil in tests and is ready for commercial production. The company has been exploring here for two decades already, with a total of over 325 million barrels of oil in reserves as of the end of last year

•    British Tullow Oil has announced a small oil discovery in the Norwegian arctic in the wildcat well on the Hanssen discovery. Tullow has a 20% interest in the project, estimating up to 50 million barrels of recoverable oil. It’s a small discovery but good timing for Tullow, which disappointed investors last week after a $415 million write-off due to poor results in Mauritania, Ethiopia and Norway

•    A new natural gas pipeline is being proposed by ET Rover Pipeline, a subsidiary of Energy Transfer Partners, which would go through Michigan to Ontario, Canada, transporting over 3 billion cubic feet of gas per day. The proposal is in the pre-filing process

Geopolitical & Conflict Alerts

Iraq/Syria

We are now witnessing the creation of a new “Sunnistan” that encompasses a swatch of territory connecting Iraq and Syria and included all of Syria’s main oil and gas fields. The Islamic State (IS) group—former ISIL and then ISIS—now has control over this corridor, which extends from Syria’s main oil province of Deir Az Zor (Deir el-Zour/Deir Ezzor) to territory it controls across the border in Iraq. Among IS’ conquests are the al-Omar oil field in Syria—the largest oil field--on the Iraqi border, which it seized last week, and the Tanak oil field, in the desert area of the province. The only oil field that is not under the control of IS is the small al-Ward field, which another local tribe is controlling, but which produces a negligent amount of oil. The goal of free movement across borders for transfer of weapons and personnel has been achieved, and a Sunni caliphate has been declared. The new Osama bin Laden is now Abu Bakr al-Baghdadi for all intents and purposes. Fighters from the rival al-Qaeda-linked al-Nusra Front have largely been pushed out of the province. (Earlier on in the Syrian conflict, ISIL (as it was then branded) was fighting alongside al-Nusra under the “al-Qaeda” umbrella; however, al-Nusra decided to get rid of al-Baghdadi due to his reputation for torturous violence (including filmed decapitations and crucifixions) against the civilians whose hearts and minds al-Nusra was trying to win over. Al-Baghdadi is a Sunni from Iraq. (We also note that the Kurdistan Workers’ Party, PKK, claims that the leader of the Kurdistan Regional Government, KRG, in Northern Iraq, and ISIS (now IS) actually colluded in order to partition Iraq and take over the disputed oil-rich territory of Kirkuk so the Iraqi Kurds, under Massoud Barzani, could claim an independent Kurdistan.)

Afghanistan

Dr. Ahsraf Ghani has won the 14 June run-off presidential vote in Afghanistan according to preliminary results announced by the election commission, though the final results are not expected until 22 July. We are concerned about the implications of this as his main rival, Dr. Abdullah Abdullah, and his supporters are describing the announcement as no less than a “coup” manipulated by President Hamid Karzai, which indicates there may not be a smooth transition of power and that this could be interpreted as a call for civil war.