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Global Energy Advisory 18th August 2017

Oil

British Columbia’s government, in keeping with its election promise, has moved to stop the expansion of the Trans Mountain oil pipeline that would have catered to the growing production of crude oil from the oil sands in Alberta, transporting the crude to Canada’s west coast and opening up new export routes alongside its top client, the United States.

The federal government of Justin Trudeau approved the $5.87-billion project last year and the previous government of British Columbia gave it the green light in January, on 37 conditions on top of the 157 conditions from the National Energy Board. Now, the new government, which is a coalition between the New Democratic Party and the Greens, has declared its firm stance against it.

The project is being challenged in court on the grounds that the approvals granted Kinder Morgan for it were unconstitutional. A First Nation is suing the province for its approval specifically, and the new government will likely work with the plaintiffs to resolve the matter, seeing as both are on the same side.

Opposition against new pipeline projects has been growing both in Canada and the U.S., despite statistics showing that pipeline transportation is safer than the alternative – railways. Canada is soon to find itself in a tight spot unless new pipeline capacity comes on stream as oil sands output is growing at a rate that will soon exceed this capacity.

Deals, Mergers & Acquisitions

• Transocean will take over Norwegian Songa Offshore for $1.1 billion in what is the biggest M&A deal in the oil services industry since the 2014 price crash. The acquisition boost Transocean’s order backlog to $14.3 billion, $4.1 billion more, and will strengthen the Swiss-based major’s position in harsh environment drilling and ultra-deepwater drilling.

• A consortium of Chinese banks has invested $250 million in Nigerian oil, the country’s state oil company said, adding that the Chinese lenders have undertaken to supply any funds necessary for the advancement of new oil and gas projects.

• Iraq has set up a joint venture with a regionally-owned shipping company for the transfer, storage, and marketing of oil and oil products. Al-Iraqia Shipping Services and Oil Trading will be active in oil and oil product trading, storage, marine services provision, and bunkering.

Tenders, Auctions & Contracts

• Malaysian Bumi Armada has inked a $134-million contract with Russia’s Lukoil for engineering, procurement, construction, and installation services at the Filanovsky field in the Caspian Sea. The two companies have worked together in the Caspian since 2012.

• Kuwait has scheduled a tender for a $1.2-billion solar power plant for the first quarter of 2018. The tender is part of a strategy to increase the share of renewable energy in Kuwait’s energy mix to 15% by 2030. The Dibdibah plant will generate half of the country’s renewable energy.

• Dresser-Rand, a unit of Siemens has won a contract to supply power generation equipment to China’s CNNOC. The equipment will supply energy for the development of the Penglai 19-3 offshore oil field, one of the largest offshore deposits in China.

• Chinese-headquartered, London-listed Greka Drilling has won two contracts with PetroChina for two coal bed methane blocks in Shanxi province. The combined value of the contracts is about $2 million.

• Italy-based Saipem has won a new contract worth $850 million project related to the new Al Zour refinery in Kuwait. As part of the contract, Saipem will construct a system of pipelines with which will be of around 450km in length, is planned to transport crude oil and gas to the new Al Zour refinery from different KOC South Tank Farm manifolds.

Discovery & Development

• Eni and Anadarko will press ahead with their plans for building LNG terminals in Mozambique, to process natural gas they will extract from adjacent offshore fields in the Rovuna Basin. Mozambique’s gas reserves are estimated at 180 trillion cu m. The combined capacity of the two terminals will be about 15 million tonnes annually. Eni will use a floating LNG plant for the liquefaction – the third in the world. Anadarko will process its gas on land as its field is in shallower waters.

• A Wintershall subsidiary together with GeoPark Ltd announced an oil discovery in the Neuquen basin in Argentina. The natural flow from the exploration well is about 300 barrels of oil equivalent daily but the results are also promising for adjacent prospects in the CN-V block, where GeoPark and Wintershall Energia are drilling test wells.

• Chevron will restart the bidding process for the Rosebank field in the North Sea, as part of confirming its commitment to the region. Last there, the supermajor sparked worry when it canceled a FPSO order for Rosebank but now it will carry out another tender for a vessel later this year. In addition, Chevron will make a final investment decision on another North Sea asset, the Captain field, which has been producing since 1997 and now the company has to decide whether to seek ways to prolong its productive life.

• Gulf Keystone Petroleum said it was on track to achieve its production target of 32,000-38,000 bpd of crude oil for full-2017. The company issued the update after it announced it had extracted the 40 millionth barrel of crude from the Shaikan field in the Kurdistan Autonomous Region of Iraq. The daily average over the first half of the year was 36,671 bpd, in line with full-year targets.

• Colombia’s state oil company Ecopetrol is planning to shift its attention from conventional to shale oil. Its chief executive told media that recoverable shale oil reserves in the Andean country could reach 2.5-7 billion barrels. To exploit these, Ecopetrol will seek partners with experience in unconventional oil development. Shell and Occidental Petroleum have expressed interest in such partnerships.

• Petro River Oil, an independent explorer, announced a new oil discovery in Kern County, California. This is the company’s fourth discovery over the last three months, and the second in California. Two more discoveries were made in Osage County, in Oklahoma.

Company News

• Australian Santos announced it will book a one-off impairment charge of $690 million in its first-half financial report because it has had to revise down its forecast for oil prices. The charge will be in the form of a write-down on the company’s Gladstone LNG project as well as on oil and gas assets in the Cooper Basin at home and in Indonesia. After the revision of oil prices, Santos expects these to average $50 this year, $55 in 2018, and $60 in 2019.

• Aramco could lose as much as $500 billion from its valuation ahead of its initial public offering thanks to policy initiatives included in the Paris Agreement on Climate Change. These initiatives would make oil investments riskier and investors less willing to buy Aramco shares.

Regulatory Updates

• Norway’s oil industry is trying to convince the government to provide it with some support in the form of tax incentives, with the local Oil and Gas Association arguing that such incentives could unlock as much as $19 billion in fresh investments. The incentives would chiefly stimulate enhanced recovery from mature fields – these are estimated to have greater return potential than new discoveries. Norwegians are voting for a new government next month.

Politics, Geopolitics & Conflict

• Saudi Arabia’s crown prince Mohammed bin Salman wants to pull out of the Yemen war, according to leaked emails between two former U.S. government officials. Bin Salman was the spearhead of the Saudi intervention in its smaller neighbor but the two years of fighting have only resulted in a major famine and an outbreak of cholera, in addition to the 10,000 dead and 40,000 injured since the start of the war.

• A drilling ship commissioned by Spain’s Repsol for an offshore block in the South China Sea has left the area and has arrived at a Malaysian port. Repsol was working with the Vietnamese government on Block 136/3, which China argues is in its maritime territory.

• Saudi Arabia and Iraq will reopen a border crossing that has been closed for 27 years, since Iraq’s invasion of Kuwait. The reopening of the Arar pass is a signal of the closer ties that Saudi Arabia and Iraq have been forging after the fall of Saddam Hussein.

• Russia’s former Economy Minister, Alexei Ulyukayev, who was charged with bribery has accused Rosneft chief Igor Sechin of setting him up, with help from the Federal Security Service. Ulyukayev is on trial for a $2-million bribe alleged to have been received for support for Rosneft’s acquisition of a stake in smaller oil producer Bashneft.

• Algeria’s President fired the second Prime Minister this year, replacing him with a veteran who’s served as PM three times already since the 1990s. The move is the latest sign of Algeria’s struggle with lower oil revenues, which are essential for the North African country’s economy.

• Libyan state oil company NOC and Sonatrach are discussing the return of the Algerian state-owned company to work in Libya. Sonatrach has halted operations in Libya in 2014 due the security concerns. Prior to that, Sonatrach operated three natural gas-focused exploration blocks.




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