Global Energy Advisory - 17th March 2017

Politics, Geopolitics & Conflict

• Mustafa Ali, a prominent environmental justice adviser with the Environmental Protection Agency (EPA) has handed in his resignation in response to a White House plan to slash the EPA's budget by 25% and close the Office of Environmental Justice, where Ali was assistant associate administrator. The budget cut is part of the sweeping changes the Trump administration is making in the EPA and will result in a 20% reduction in the agency's workforce and the loss of funding for several dozen programs, among them the one for environmental justice. Ali said that in light of these changes he could not stay on and sign off on a decision that would hurt the communities that the OEJ was set up to protect.

• Libya is now officially an acronymic nightmare of bloody proportions that will hinder it from ever ramping up oil production in the foreseeable future, or for any prolonged length of time. Libya's National Oil Corporation (NOC) could split into two again as the process for unifying it in the common interest has recently started to break down. Earlier this week, the Tobruk-based House of Representatives (HoR) - the country's elected legislative body - said it was in favor of splitting the NOC. The statement from the HoR, which is still at odds with the UN-backed Government of National Accord (GNA), comes after two weeks of fighting at two oil terminals in the Oil Crescent between the HoR-affiliated Libyan National Army (LNA) and the Islamist Benghazi Defense Brigades (BDB). The LNA announced on Wednesday that it can regain control of Ras Lanuf and Es Sider and was preparing to oust the BDB from the nearby town of Jufra, where the group had fled after losing the ports. The separation of the NOC will hardly contribute to the stability of the country and the recovery of its oil industry: an earlier attempt by the HoR to take control over the local oil industry without consulting the GNA brought on international sanctions, which are still in place to this day.

• Somali pirates hijacked a tanker on Monday, taking the crew hostage. This is the first vessel hijacking since 2012, when international efforts put an end to the practice that earned the pirates millions. The vessel, leased by a UAE-based shipping company, was transporting fuel from Djibouti to Somalia's capital Mogadishu when it was seized by the pirates. According to European Union naval officials in the region taking part in the anti-piracy patrols, all communications have been cut and the pirates are demanding a ransom to release the crew and the vessel. The size of the ransom has not however been decided yet. The event will probably lead to a buildup of military presence in the waters around the Horn of Africa as it is part of one of the main global maritime routes, not to mention that the Bab el-Mandeb channel is nearby - one of the eight biggest oil shipping routes in the world, with 3.8 million barrels of crude passing through it every day.

Deals, Mergers & Acquisitions

• Shell has struck a deal to sell almost all of its Canadian oil sands operations for a total consideration of $7.25 billion, keeping a 20% stake in the Athabasca Oil Sands project, consisting of a 10% direct interest and another 10% that will come from the joint acquisition of Marathon Oil's Canadian business with Canadian Natural Resources. CNR is also the buyer of Shell's oil sands business.

• Marathon Oil is focusing on acreage in the Permian after the offloading of its Canadian oil sands business for $2.5 billion. The sale, according to Marathon, will reduce its operating expenses for 2017 by as much as a quarter. The company recently acquired 70,000 acres in the Permian for $1.1 billion, including a portion that is "oil-rich stacked play" - the type of layered oil-rich rocks that made the Permian the focus of the energy industry's attention.

• Exxon has agreed to buy a 25% stake in Eni's Coral offshore gas project in Mozambique. The $2.8-billion deal is part of Exxon's expansion into natural gas. As part of the deal, the U.S. giant will build and operate a liquefaction plant on the coast. The deal is awaiting the green light of the Mozambican government. Separately, Exxon applied for an oil production license in Guyana, planning to start pumping oil at its offshore discovery in the country in two years. The discovery, estimated to contain 1.4 billion barrels of crude, was announced last year.

Tenders, Auctions & Contracts

• Iran and Iraq are in advanced negotiations for the joint development of three oil fields that the countries share. Iran's Oil Minister Bijan Zanganeh said that when the talks are finalized, the three fields, in the provinces of Kermanshah and Kuzhestan, in western and southern Iran, along its border with Iraq. Azadegan and Yadavaran, two of the shared fields, are at the top of Iran's priority list, Zanganeh said.

• Saudi Arabia and China signed preliminary deals worth up to $65 billion as the desert kingdom and OPEC's largest producer seeks to enhance its presence in Asia's largest economy and secure the long-term future of its crude oil. The exact nature of the deals was not disclosed but Chinese officials said they covered a lot of industries, from energy and petrochemicals to space.

Company News

• Pertamina, Indonesia's state-owned oil major, has a new chief executive. Elia Massa Manik was appointed at the helm of the energy firm after serving as head of the state company for plantations and, before that, as chief of oil and gas company PT Elnusa, a business division of Pertamina. The appointment came after the ousting of the incumbent due to "leadership problems," as explained by the company.

Discovery & Development

• Maersk Oil has plans for expansion in the North Sea, beginning with the launch of commercial production at one of its existing projects. The company's managing director Morten Kelstrup said the North Sea was Maersk Oil's "back yard" and that the company strongly believed there is space for expansion there. Parent company Moeller-Maersk announced last year that it will spin off Maersk Oil to focus exclusively on its core logistics and transportation business.

• Faroe Petroleum said it will abandon an oil well in the Norwegian part of the Barents Sea after failing to strike commercial-scale oil or gas reserves. The Aberdeen-based company had been drilling in Arctic waters for three years and is now giving up. The Barents Sea is enjoying growing attention from Norwegian companies, however, who plan to increase their spending on projects in its waters.

Regulatory Updates

• The Trump administration is preparing a windfall for the oil industry with its plan to cut the highest corporate rate to 15-20% from the current 35%. This would free around $10 billion annually for the oil industry - funds that can be invested in more drilling at a time where cash is still tight despite the moderate improvement in oil prices. However, nothing is sure yet, analysts caution, in light of the recent slide in oil prices that came on the back of reports that Saudi Arabia increased its oil output in February and that U.S. shale output is set for 109,000-bpd growth in April.