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Global Energy Advisory 21st July 2017

OPEC

Ecuador has announced plans to start increasing its oil output, effectively breaking off its engagement with OPEC in the cartel’s production cut deal. Ecuador is a small producer and it had pledged to cut 26,000 bpd from its oil output, which it never did. It cut about 60% of that, so its daily production currently stands at 545,000 barrels. That’s a bit more than what Saudi Arabia undertook to slash from its daily output to support prices.

The initial announcement by Ecuador’s Oil Minister Carlos Perez struck the market hard, and many worried this would be the end of the deal as other financially strained OPEC members could use the precedent to leave the deal. A day later, however, Perez was quoted by media as saying that Quito would maintain its support for the oil production cut efforts of OPEC and its partners. The Andean country has so far reduced its output by 16,000 bpd, he said, for “tax needs.”

The two statements seem to be contradictory. Perhaps the OPEC leadership had something to say after the first announcement and the implications it might have for other cartel members. Media that covered the announcement noted that this is the first time an OPEC member has publicly declared a rank-breaking move.

So far, no other OPEC members have taken up Ecuador’s example. They will probably wait until the July 24 meeting of the ministerial committee that monitors compliance with the cut, but it seems that there is little that is holding OPEC together right now, especially with a growing number of analysts and observers putting shale oil in the spotlight as the new market swinger. The latest here was an outlook from UK private bank Coutts that forecast oil prices would stay in the $40-60 range in the next year or two thanks to shale.

Deals, Mergers & Acquisitions

• Shell has partnered with EV charging station provider to install EV charging stations at Shell locations across Europe. The deal is a test for EV charging demand and will initially involve a limited number of Shell stations in the UK and the Netherlands, with the EV fast chargers to be installed by the end of the year.

• BP plans to spin off its pipeline operations in the U.S. and list the new company as a master limited partnership. The MLP structure allows the controlling company to pay less in taxes and more in dividend-like payments to shareholders. Shell, the other Big Oil company with an MLP, enjoyed $1 billion generated in 2014 when the MLP, also comprising its pipeline business, was set up.

• Exxon has withdrawn from a consortium with Indonesian Pertamina and Thai PTT EP formed for the development of the Natuna gas field. The U.S. company pulled out after reviewing a feasibility study on the field. Reserves at Natuna are estimated at 46 trillion cubic feet, making it one of the largest gas deposits in Asia.

• India’s government has given the go-ahead to the sale of a $4.6-billion stake in Hindustan Petroleum Corp to Oil and Natural Gas Corp., the country’s largest state-owned energy company. The move is part of a strategy to consolidate the state energy entities into an oil and gas behemoth fit to compete with Big Oil internationally.

Tenders, Auctions & Contracts

• Brazil’s energy industry regulator ANP has released a new model contract for the 14th bidding round for oil and gas blocks, to take place in September. The new contract does away with a stipulation about local content as part of the bid and introduces lower royalties for new exploration areas and areas that carry higher risk.

• Mexico will tender 30 deepwater oil and gas blocks in the Gulf of Mexico on January 31, 2018. A third of the blocks are located in the Cordilleras Mexicanas Basin, another 10 are in the Perdido Fold Belt, and the rest are in the Salina Basin. The untapped Cordilleras Mexicanas Basin is considered particularly promising.

Discovery & Development

• Thai energy company Banpu will spend $293 million on drilling more wells in its Marcellus shale acreage aiming to increase production to 78 million BTU of gas daily, a 70% boost on current production. The company had initially invested $207 million in the Marcellus shale and is currently pumping 46 million BTU of gas daily.

• China’s crude oil production last month dropped by 2.3% on an annual basis thanks to ample import supply amid persistently low prices. Production stood at 16.21 million metric tons, with output for the first half of the year at 96.45 million tons, down 5.1% on the year. Chinese energy companies have been grappling with field depletion and lack of new discoveries over the past few years and have been expanding their international presence to make up for the local production decline.

• The Avalon offshore oil block in the Irish Sea could hold up to 12 billion barrels of oil equivalent, according to the latest assessment of the prospect. Avalon is operated by Total, which acquired a 50% stake from Irish Providence Resources last month, becoming the largest shareholder in the project. Now Providence has 24% in the project, with Cairn Energy holding 20%.

• Egypt plans to double its natural gas production by 2020 thanks to recent discoveries of high-potential fields including Zohr, North Alexandria, and Nooros. These three, according to Petroleum Minister Tarek El Molla, will help Egypt become self-sufficient by the end of next year. The three fields are projected to pump 4.6 billion cubic feet of gas daily by the start of 2019.

• Eni has received the green light from the Bureau of Ocean Energy Management to go ahead with oil and gas exploration off the Alaskan coast, in the Beaufort Sea. The Italian company won exploration licenses for several blocks in the area back in 2005 but the Obama administration restricted oil and gas exploration in Arctic waters subsequently. Now Washington is set on boosting the country’s energy independence and as part of efforts in that direction is reversing previous drilling rules.

Company News

• Oil and gas companies operating in Louisiana may be slammed with litigation claims valued at more than $50 billion, which could practically put an end to the oil industry in the state, according to the vice president of the Louisiana Oil and Gas Association, Gifford Briggs. His comments came on the heels of a call by New Orleans City Councilman Jason Williams to local citizens to join in the legal fight against oil and gas. The industry is being accused of contributing substantially to the erosion of the Louisiana coast. Several coastal parishes have already filed lawsuits against oil and gas companies in the state.

• Occidental Petroleum has increased its quarterly dividend to $0.77 per share, up 1.3% from the previous quarter. The move is significant as it takes place amid a still weak price environment in oil, with most companies having to struggle to keep their dividends at current levels. It’s worth noting that Occidental is the only big oil independent that has hiked dividend three times during the last two years.

Politics, Geopolitics & Conflict

• Saudi Arabia, Bahrain, Egypt, and the UAE have dropped their demands for Qatar, now calling on the defiant emirate to agree to following six broad principles, including combating extremism and terrorism, stopping its financial and safe-haven support for terrorist groups, and putting an end to interference in the internal affairs of other nations.

• The opposition parties in Venezuela called a national strike for this Thursday – the first since 2002. The strike follows months of protests against the Nicolas Maduro government and comes ahead of a national election for a Constituent Assembly, which would have the powers to amend the country’s constitution, which, the opposition says, will serve to cement the ruling party in power.

• The United States, Canada, and Mexico have agreed to speed up the NAFTA renegotiations initiated by the Trump administration. The purpose of the fast-pace agenda is to complete the renegotiations by early 2018 to avoid dragging it too close to the next presidential elections in Mexico.

• The European Commission is mulling over sanctions against Poland for a recent legislative change that, the EC claims, will make the country’s judiciary dependent on the government. The news gave rise to speculation that Poland may decide to exit the EU.




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