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Global Energy Advisory 13th October 2017


October 13 is D-Day for the major European companies that have forged new geo-economic territory by cutting deals with Iran. On the 13th October, Trump will decide whether he’s going to certify Iran’s compliance with the nuclear deal. If he doesn’t, we’re looking at two months before Congress slaps new sanctions on Iran. For European giants (including French oil giant Total SA), this is a nightmare that threatens multiple billions of dollars in deals. Right now, Europe has no real plan to work around this.

And trouble is brewing in Alberta’s oil industry, as well…

TransCanada has decided to scrap its $12.6-billion Energy East pipeline project after years of controversy and opposition. The pipeline was planned to carry 1.1 million barrels of crude from Alberta and Saskatchewan to refineries on the east coast of Canada. The company cited “changed circumstances” likely to do with growing opposition to new pipeline projects, despite the federal government’s support for the project. TransCanada will take a $1-billion charge for pipeline planning and its federal review process.

The news puts Alberta in a precarious position as crude oil production is growing and it needs to be transported somehow from the fields. For Canada’s oil-rich province the only option now is the expansion of the Trans Mountain pipeline of Kinder Morgan, which, however, is being threatened by the new government of British Columbia, whose Energy Minister said last month BC doesn’t need more crude being shipped to its ports.

The problem, which opponents to the pipelines seem to be oblivious of, is that pipes are statistically the safest way of transporting crude. The truck and railway alternatives have been shown to carry higher risks of spills. Yet, BC officials have now joined environmental groups and First Nations in challenging Trans Mountain, which is bound to increase inter-provincial tensions and create more problems for Alberta oil industry.

In fact, there is a possibility that Trans Mountain would be scrapped, too, which would put a great burden on Albertan oilfield operators and on the province’s budget plans. Opponents of the pipeline now claim that the federal government failed to consult First Nations about the project and it must cancel its approval. A judicial review has been launched, and the project’s delay is imminent. Eventually, Kinder Morgan might follow TransCanada’s example and give up the expansion project altogether.

Deals, Mergers & Acquisitions

• Saudi Aramco is in talks with Indian refiners for the formation of a joint venture as part of an expansion plan that seeks to grow the state company’s access to a wider variety of oil industry segments. India is a favored target because it is the fastest-growing oil consumer globally and because most of the oil it consumes is imported, so a refining JV would secure a huge market for Saudi crude in the future.

• Carrizo Oil & Gas has sold Marcellus shale assets for about $90 million to Kalnin Ventures as part of a $300-million divestment plan that will help it pay for acreage it acquired in the Delaware Basin in the Permian. The Houston-based independent said the Marcellus deal generated $84 million in cash plus a contingency payment to the tune of $7.5 million that would depend on oil and gas price thresholds over the next three years.

• Sinopec is selling its Argentine oil and gas assets and the deals could fetch between $750 million and $1 billion. China’s top oil refiner ran into losses and has also encountered labor-related issues with the assets, which it bought for $2.45 billion from Occidental Petroleum back in 2010 in a diversification drive. Production from the assets is also reportedly declining, which could make a sale harder. Even so, there are at least a dozen potential suitors that Sinopec’s advisers have approached, including Angola’s Sonangol, Russian Rosneft, and Mexican Vista Oil & Gas.

• Rosneft has closed the acquisition of a 30% stake in the offshore Zohr gas field in Egypt from Italy’s Eni. The Russian state giant paid $1.125 billion for the interest plus compensation for costs Eni has incurred so far. The Italian company will remain operator of the field with a 60% stake, and BP will have 10% in the project.

Tenders, Auctions & Contracts

• Indian state oil company ONGC Videsh has offered up to $11 billion for the development of the Farzad B gas field in Iran. The offer comprises $5.8 billion for the development of the field plus another $5 billion for the construction and operation of a liquefaction facility so the gas can be marketed as LNG. Farzad B led to tensions between Tehran and New Delhi earlier this year, which reached a peak when the Iranian government announced it will award the field to Russia’s Gazprom. ONGC refused to give up, however, and continued raising its investment offer.

• Anadarko signed three exploration contracts worth $200 million with the government of Peru amid anti-oil industry protests in the Amazonian communities. Anadarko, however, will explore offshore – the first deepwater exploration project in Peru. The American independent will partner with PetroPeru on the exploration of the three blocks.

Discovery & Development

• Chevron and Total are willing to step in and replace Shell as operators of the Majnoon field in Iraq. The Anglo-Dutch company said it was no longer interested in operating the field last month but has not yet finalized this decision. Majnoon yields 200,000 bpd and according to unconfirmed reports from September, Chevron had been thinking of buying Shell’s stakes in Majnoon and another large Iraqi field, West Qurna-1.

• Tullow Oil has bought a 90% stake in four offshore blocks in the Ivory Coast, all located in a proven petroleum system, the company said. The Ireland-based oil E&P has been present in the Ivory Coast for two decades and the new buys will complement its local portfolio. The road from discovery to production should be quick once commercial oil finds are made, Tullow believes.

• Statoil has made a new oil discovery in the North Sea with proven reserves of at least 25 million barrels of crude. The maximum is estimated at 130 million barrels, the Norwegian state company said. The discovery was made in the UK continental shelf. Separately, Statoil said this week it will drill more in the Barents Sea, after this year’s campaign yielded just one discovery of 50 million barrels but unviable on its own.

• Iran plans to increase its daily oil production to 6 million barrels by 2023 from less than 4 million barrels currently. This will require the tapping of new oil fields, the managing director of the National Iranian Oil Company told media. The production increase plan could be threatened by the U.S. presidential administration, which has not given up its idea of imposing new sanctions on Iran.

• Aker BP, the independent Norwegian oil company, plans to pump 135,000-140,000 bpd of crude oil this year, after reporting its third-quarter output averaged $131,900 bpd, a decline from the $142,700 bpd for the second quarter.

Politics, Geopolitics & Conflict

• Turkish army forces have entered the Idlib province in Syria formally on a reconnaissance mission but reports suggest the Turkish forces are seeking direct confrontation with the Kurdish military units in the area. Tensions have been high between the Kurdistan Regional Government in Iraq, Baghdad, Ankara, and Tehran – all three are firmly opposed to an independent—and oil-rich—Kurdistan. As part of the opposition, Iraq and Turkey have started talking about restarting an oil pipeline that bypasses Kurdistan.

• Paris plans to ban the sales of internal combustion engine cars by 2030. The capital of France earlier announced plans to ban cars that run on diesel and has now gone one step further, in tune with national policies for ending the fossil fuel-car era.

• The Syrian army and its allies have recaptured parts of the city of Mayadin and al-Omar oil field from Islamic State. The operation is part of the Syrian advance to IS’ main urban base in the country. Earlier this week, the Russian Ministry of Defense announced that its warplanes were carrying out 150 air strikes a day on ISIS-held areas in Mayadin City. Supported by Russian air attacks, the Syrian army is hoping to thwart ISIS attempts to extract oil from the territories under their control.

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