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Global Energy Advisory 22nd September, 2017


China’s belligerence towards its neighbors in the South China Sea is hampering oil and gas exploration in the basin, analysts are warning. A couple of months ago, China threatened Vietnam with a military response after the country gave Spain’s Repsol the go-ahead to start drilling in a disputed block. Now, Indonesia, which has an exclusive economic zone in the South China Sea, has said it will use its military to secure oil and gas exploration in the zone.

China shares the basin with Vietnam, the Philippines, Malaysia, Brunei, and Taiwan, but it is claiming roughly 90% of it. Its neighbors are naturally not happy with its claims but the Asian giant has remained unfazed by their protests to its territorial claims. Due to the size of its market, oil players eyeing projects in the region need to tread extremely carefully, which in reality means making sure they play by Beijing’s rules.

At the same time, however, China doesn’t seem to be too eager to develop its own resources in the disputed areas of the sea. That’s because more than 70% of the discovered reserves within the area that China claims as its own are commercially unviable.

There are also doubts about the total oil and gas resources in the South China Sea but due to the heightened regional tensions new estimation activities are unlikely to happen soon. Meanwhile, Chinese fields are nearing depletion and the country’s state oil giants are buying production assets abroad. It’s quite possible that the South China Sea oil saga will be a major red herring.

Deals, Mergers & Acquisitions

• Elk Petroleum has agreed to buy Resolute Energy’s Aneth oil field in Utah for $160 million. Aneth has been ranked 86th among U.S. oilfields in terms of proven reserves and the acquisition will give the Australian buyer access to about 59 million barrels of crude oil and 6,500 bpd in output. The field’s cumulative production to date is an impressive 450 million barrels, pumped over three decades.

• IOC has pledged some $130 million in investments in Eagle Ford, STACK, and Arkoma-Woodford, in Oklahoma. The money will fund three acreage acquisition deals for the private equity firm, to be carried out by subsidiary IOG Resources LLC. IOG was set up by Chesapeake’s former chief financial officer Mark Rowland three years ago and has since funded 23 oil and gas investments.

• Total has acquired two renewable energy companies as part of its shift to clean energy production. Both are French companies. One, Greenflex, deals in energy efficiency and will strengthen Total’s footprint on this market in Europe. The other, Eren Re, develops and operates wind and solar power installations.

• Abu Dhabi National Oil Co is considering the sale of minority stakes in some of its service divisions to fund its business expansion. This expansion will take place through partnerships, a senior Adnoc official told media, extending outside discovery and development into refining and petrochemical production. There is no option for a stake sale in Adnoc itself, however.

Tenders, Auctions & Contracts

• Qataragas has sealed a mid-term sales and purchase agreement with Turkey’s Botas for the shipment of 1.5 million tons of LNG to Turkey over a period of three years. The deal is part of Qatar’s efforts to maintain its top spot on the global LNG export market and is the first longer-term deal with the Turkish energy company. Until now, Botas has been buying Qatari LNG on the spot market.

• BP has started shipping natural gas to Mexico, at a rate of 200 million British thermal units daily. Its clients in the country, where natural gas demand is booming, are industrial companies, distributors, and power generation utilities. Mexico imports around 5.3 billion cubic feet of natural gas from its northern neighbor daily, up from less than half of that at the start of 2015.

• Anadarko is planning to repurchase stock worth $2.5 billion and representing about a tenth of its outstanding shares at current prices. The move, which comes after Anadarko’s stock suffered a 35% drop between January and September this year, will boost its earnings per share although some investors have said they would rather see higher dividends than the current $0.05.

Discovery & Development

• UK oil independent Jersey Oil & Gas announced it will restart drilling at a North Sea location in partnership with Statoil, despite the first exploration well drilled at the prospect turning up dry. Statoil, Jersey said, had found reason to drill nearby based on exploration data suggesting a find is waiting for them. Even though the find might be smaller than the initial estimate of 160 million barrels, it could still be commercially viable.

• Australian Triangle Energy has confirmed positive results from an exploration well in Western Australia. The company, which is developing the TP/15 block in partnership with local Norwest Energy and two other companies, said drilling operations will continue.

• Oryx Midstream, a Midland-based Texan pipeline construction company, will build a 400,000-bpd pipeline in the Delaware Basin, part of the Permian play. The new piece of infrastructure will bring Oryx’s total transportation capacity in the Delaware Basin to 600,000 bpd of crude. The company is financed by a group of private equity firms, including Quantum Energy Partners, Post Oak Energy Capital, and Wells Fargo Energy Capital.

• India’s ONGC has made a new discovery near its Mumbai High offshore oil and gas field, with reserves that could reach 20 million tons of crude oil. One of the wells in the new patch yielded 3,000 bpd, sources close to the company said. The Mumbai High filed produces around 9-10 million tons of oil equivalent in crude and natural gas annually.

Politics, Geopolitics & Conflict

• Venezuela has started quoting its crude oil in Chinese yuan, after threatening to do so for years. The tipping point was the new round of U.S. sanctions targeting the oil-dependent economy.

• The army of South Sudan is downplaying threats to oil production coming from armed opposition groups, local media report, although these armed groups, associated with former Vice President Riek Machar, are attacking local communities. South Sudan inherited all of formerly-united Sudan’s oil wealth, while Sudan got the only exports routes.

• Russia has become the biggest investor in the oil and gas industry in the Iraq region of Kurdistan (under the Kurdistan Regional Government), with about $4 billion in investments pledged in less than a year. Russia is also the only major world power that has not spoken in opposition to the planned independence referendum, which the EU, the U.S., Turkey, and Iran have urged the Kurdistan Regional Government to cancel.

• Peruvian villagers from the northern part of the country have shut down 50 oil wells and plan to shut down more, as they protest the negotiations of a new contract between the government and Canadian Frontera Energy, which is not taking into account what the local communities think, contrary to a 2011 law on prior consultation.

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