Global Energy Advisory 15th September, 2017

Last week the Indian energy minister announced New Delhi has renegotiated the price for the fuel under a 20-year contract with Exxon. Renegotiations of long-term contracts in oil and gas are a rare occurrence, so Exxon's move sent ripples across the industry.

According to Indian media reports, the supermajor, which will be supplying Indian state energy companies with LNG from the Gorgon project in Australia, will take on the shipping costs and will charge its Indian clients 13.9% of the prevailing Brent crude price for a total amount of 1.44 million tons. This compares with a standard LNG price of 14.5% of Japan crude oil imports. Analysts calculate that this constitutes savings of between $1.2 and $1.5 billion for India.

On one hand, this could be bad news for LNG producers whose product is not as competitive as Exxon's Gorgon LNG. It's very possible that more buyers will now ask for a revision of their long-term LNG supply contracts to reflect the continuing glut on the global LNG market.

At the same time, this is good news for buyers across the world. With the market in oversupply, it only makes sense that prices should be renegotiated. This will benefit off-takers as well, by the way, by lowering the cost of their feedstock and improving their trading margins. This should cushion any blow from potential contract renegotiations.

Deals, Mergers & Acquisitions

• Premier Oil has confirmed its agreement to sell its 33.8% stake in the UK's largest onshore oil field, Wytch Farm, to Verus Petroleum, a UK-based independent oil and gas firm. The deal is worth $200 million and the release of letters of credit worth $75 million, related to future decommissioning costs for the field.

• The Competition and Markets Authority of the UK has given the go-ahead to the $2.9-billion takeover of Amec Foster Wheeler by Wood Group. The two agreed to sell Amec's engineering and construction services divisions to alleviate competition concerns. The deal is expected to close by the end of next month.

• BP Midstream Partners has informed the Securities and Exchange Commission it plans to go public, listing shares worth $100 million on the NYSE. The parent company said two months ago it was considering a spinoff for the midstream U.S. assets and restructuring it into a master limited partnership. The structure is popular among capital-intensive segments of the oil and gas industry, such as pipelines as it carries tax advantages.

• Glencore and the Qatar Investment Authority have sold most of their 19.5% stake in Rosneft to Chinese conglomerate CEFC for $9.1 billion. The 14.16% interest will ensure long-term supplies of Rosneft crude oil to the Chinese firm, while at the same time allowing Glencore to keep its own access to Russian oil thanks to the minority stake it will retain.

• Total may be mulling over the acquisition of Australian Oil Search. The target company has in its portfolio some high-quality LNG assets, including a share in Exxon's Papua New Guinea project.

• Chevron has sold 64,500 net acres in the Permian to independent oil and gas firm Sabinal Energy. The assets and their output are valued at $400 million, although the companies have not disclosed the size of the deal. The acreage represents about 5% of Chevron's Permian holdings. The company plans to sell a total 13% of its acreage in the play.

Tenders, Auctions & Contracts

• Tanzania's parliament has ratified a project that will see the construction of a crude oil pipeline from landlocked Uganda's oil-rich Hoima region to the Tanzanian coast. The 1,445-km pipeline will have a capacity of 216,000 bpd of Ugandan oil. The producing country will pay Tanzania $12.20 per barrel in transit costs.

• Shell's Nigerian subsidiary has inked a $300-million deal with local Shoreline Energy for the construction of gas infrastructure around Nigeria's commercial capital Lagos. The contract covers production, sales, purchases, and distribution of natural gas in the area, giving Shoreline exclusive rights to sell the gas Shell produces.

• Petrobras and Shell have signed a memorandum of understanding about the joint development of oil fields in the pre-salt layer off the Brazilian coast. The five-year agreement follows already active partnerships between the two companies in the pre-salt, namely in the Lula and Libra fields, in the Santos Basin, as well as in other, smaller fields.

Discovery & Development

• Shell and Canadian oil and gas companies are shutting in wells in Alberta amid ranging wildfires that might threaten the production infrastructure in Canada's biggest oil-producing province. Shell alone shut down 24 gas wells this week, leaving, however, its gas processing plant in operation but ready to shut it down if the flames came too close.

• BP and the government of Azerbaijan signed this week an extension to their production sharing contract for the development of the biggest oil fields in the country until 2050. As part of the new agreement, the BP-led consortium will pay Baku a one-off bonus of $3.6 billion. The consortium, which also includes Chevron, Statoil, Exxon, Inpex, Itochu, TPAO, and ONGC Videsh, develops the Azeri-Chirag-Guneshli group of fields, which pumped 585,000 bpd in the first six months of this year.

• Eni and Total, partnering on exploration off the Cyprus coast, have failed to find enough natural gas to motivate the construction of an onshore export terminal. U.S. Noble Energy struck natural gas off the Cypriot coast back in 2011, which gave the country hopes it could become a regional gas player. Now, Eni and Total's results have dampened these hopes.

• Norway's Aker BP plans to drill between six and eight new wells next year, of which four in the Barents Sea. The Barents Sea, part of the Arctic Ocean, is estimated to hold two-thirds of Norway's undiscovered oil and gas reserves. One of the drilling sites is in the Korpfjell deposit, on the border between Norway and Russia. The deposit is believed to hold substantial oil and gas reserves but Statoil recently announced disappointing drilling results there.

Politics, Geopolitics & Conflict

• ISIS is re-establishing a presence on the fringe of Libya's main oil-producing region. This will inevitably lead to a spike in internal tensions and might threaten Libya's plans to continue expanding its crude oil output. According to local officials, the group is active on the western fringes of the main oil producing region, in an area of about 40,000 square kilometers.

• The UN has slapped new sanctions on North Korea in response to its latest missile tests, prompting a heated response from Pyongyang that it will sink Japan and reduce the U.S. to ashes. The sanctions will erase some $1.3 billion from North Korea's annual export revenues.

• Norway's ruling Conservative Party has won parliamentary elections in Europe's largest oil and gas producer, but it will now have to contend with two green-oriented parties as coalition partners. This could affect Norway's oil and gas industry as both parties, the Greens and the Liberals, are against more drilling in the Arctic.

• Saudi Arabia's oil minister Khalid al-Falih has discussed another extension of the OPEC oil production cut agreement with his counterparts from Venezuela and Kazakhstan, suggesting a growing possibility of the second extension taking place next year.