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Global Energy Advisory 22nd December 2017

Putin

While Washington was busy saber-rattling, Russia was busy deploying soft power to strengthen its hold on Venezuela. Russia’s Rosneft is expanding its presence in Venezuela: the company recently signed contracts for the development of two offshore gas blocks, with CEO Igor Sechin saying this is the first time Caracas has awarded a foreign company 100% of the exploration and operation rights to a hydrocarbons block. Under the terms of the contract, Rosneft will have the right to market overseas all the gas it extracts from the blocks.

The two blocks have combined reserves of 180 billion cubic meters, and Rosneft will develop them for 30 years. It is possible that the deals have something to do with the $6 billion Caracas owes the Russian company. Then again, it may be eager to allow one of its very few remaining allies to get something in return for agreeing to restructure a debt owed to Moscow that Caracas is finding it impossible to pay as per the original schedule.

In the same week as the Venezuela deal became public, Rosneft also said it had plans to start exporting natural gas to Europe. Naturally, this won’t be Venezuelan gas but the fact Rosneft is eyeing the European market is indication enough that whatever the EU thinks about Nord Stream 2 and Russian gas in general has very little to do with market realities, which come down to who will offer the lowest prices. For now, this is Russia and it would do the EU well to try and accelerate alternative gas supply projects, such as the Trans-Adriatic Pipeline, that should bring in gas from the Caspian Sea but is being wildly outpaced by Nord Stream.

In October, Venezuela’s state-owned PDVSA was negotiating to swap Russian oil producer Rosneft’s collateral in Venezuelan-owned, U.S.-based refiner Citgo. Rosneft holds a 49.9 percent collateral in Citgo for a loan last year of about $1.5 billion

Deals, Mergers & Acquisitions

• Exxon and BHP Billiton have decided to pull the plug on their 50-year-old gas marketing joint venture operating in Australia. The decision was prompted by Australian market regulatory authorities that are currently focusing a lot of attention on competition in the gas market due to fast-rising prices. After the dissolution of the JV, Exxon and BHP will each market the gas they extract from the Gippsland Basin on their own.

• Statoil has bought a 25% stake in the Roncador offshore field in Brazil, which will allow it to triple its crude oil output in the country, from 40,000 boepd to 110,000 boepd the Norwegian company said. It paid $2.9 billion for the interest to Brazil’s Petrobras, which will be its partners in the development of the mature field, located in the prolific Campos Basin. The field started producing in 1999 and as of November averaged 240,000 barrels of crude daily.

• Aker BP has bought a 17% interest in Fishbones – a company active in the development of unconventional stimulation technology for oil and gas extraction from tight plays. The acquisition will provide Aker BP with cost savings and higher recovery rates, initially to be enjoyed at Valhall, a mature field in the Norwegian section of the North Sea. Besides Aker, Fishbones shareholders include Norway’s Statoil, with a 25% interest, and Freyer Holding, a private Norwegian company, with a 51% stake.

Tenders, Auctions & Contracts

• Aramco awarded GE-owned Baker Hughes a $175-million contract for enhancing gas recovery and processing rates at two gas fields that are part of the Al-Ghawar oil and gas field – the largest in the world. Baker Hughes will supply 27 high-efficiency gas compression trains to boost production rates. The fields, Haradh and Hawaiyah, are instrumental in Saudi Arabia’s attempts to utilize its not-too-impressive gas resources more fully, as petrochemical production grows and as domestic demand for gas soars sky-high. Plans are to boost gas production in the kingdom to 23 billion cubic feet daily over the next 10 years. Riyadh also plans to increase the share of gas in its energy mix from 50% to 70%.

• The Australian government plans to include a block in the Great Australian Bight in its 2018 offshore Petroleum Exploration Acreage Release, which has sparked the anger of the Wilderness Society. The block will be among 21 that will be the subject of public consultation before the final decision on the 2018 tender, but environmentalists have been quick to speak out against any oil and gas drilling plans for the Bight, which is home to fragile marine ecosystems and endangered species. Even if the block goes on to be offered in the tender, the chances of any company taking up drilling there are questionable: recently, two Big Oil majors quit exploration in the Bight—BP and Chevron—citing economics.

Discovery & Development

• French Total SA has announced it will commission the construction of the first-phase floating production, storage, and offloading vessel for the Libra oil and gas project in Brazil’s Santos Basin. The vessel will have a daily capacity of 150,000 barrels of oil, to be extracted from 17 wells, at technical costs of less than $20 a barrel.

• The giant offshore Zohr gas field in Egypt has begun production, its operator, Eni, said. The company noted that the launch of production had taken a record-short time but given Egypt’s eagerness to expand its natural gas production, the rush is understandable. According to Eni, Zohr’s reserves in place reach more than 30 trillion cubic feet of gas, or 5.5 billion barrels of oil equivalent. The field was discovered in 2015 and is to date the largest gas discovery not just in Egypt but in the whole Mediterranean.

• Tellurian has a plan to build a $7-billion natural gas network from the Permian and the Haynesville shale plays to the LNG export terminals along the coast of southern Louisiana. The pipelines will be connected to existing gas transport infrastructure in the region as well as to another pipe planned by Tellurian, to carry gas to the company’s future Driftwood LNG export terminal on the Louisiana coast. Plans are to have the new network ready by 2022, as long as Tellurian can find enough paying customers to fund the project.

• Colombia’s Ecopetrol says it struck oil and gas in the Middle Magdalena Valley Basin in northwestern Colombia. The well yielded crude oil of a grade lighter than the heavy oils typical of Colombia’s fields. The discovery was made in an already producing region with processing infrastructure in close proximity, which significantly improves the commercial viability of the discovery.

Politics, Geopolitics & Conflict

• The U.S. has started talks with China on the prospects of new sanctions targeting North Korea after Pyongyang’s latest missile test conducted at the end of November. The sanctions will aim to cut the country’s access to oil products as a means of slowing down its nuclear weapons program. A military option is also being discussed in Washington.

• The giant corruption scandal that shook Brazil and Petrobras has spilled into Peru: President Pedro Pablo Kuczynski is now facing impeachment on charges of bribery from Brazilian conglomerate Odebrecht.

• Congress has passed the Republican tax bill that will see some major corporate tax cuts and will also allow oil and gas drilling in parts of an Alaskan wildlife refuge.

• Former executives from oil Royal Dutch Shell and Italian Eni are to be tried on charges of aggravated international corruption for their role in a $1.1 billion deal for Nigerian oil block OPL 245 in 2011. The Nigerian people lost out on over $1 billion because of this, and the precedent of trying Big Oil CEOs should have the industry on edge.

• Kazakhstan's oil fund has just been frozen on grounds of corruption as a Moldovan investor Anatolie Stati allegedly was pushed out of his oil and gas investments by the Kazakhstan government. Freezing a sovereign wealth fund is another precedent no one was expecting.




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