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Global Energy Advisory 23rd February 2018

Oil Sands

Canada’s oil sands production will continue to grow over the next ten years despite a shortage of pipeline capacity and several years of underinvestment. That’s what a study from IHS Markit has found. Despite falling investment, production will continue to grow as every incremental dollar put into new production leads to growth, regardless of international prices, the research company noted.

The country’s oil industry has been plagued by underinvestment resulting from the 2014 price collapse and by very strong opposition to any new pipeline capacity project. Three such projects were suspended by the federal government but one, Trans Mountain’s expansion, received the green light because even a government as liberal as Justin Trudeau’s realized that pipeline capacity shortages are in no one’s favor.

Now this opposition has led to a trade war of sorts between British Columbia, which strongly opposes the pipeline expansion, and Alberta, which needs the expansion to stop paying higher rates for shipping oil by rail.

The fact that even in such conditions the local oil production will continue to grow is a clear indication of the resilience of the industry despite the challenges.

Deals, Mergers & Acquisitions

• Exxon has bought a 2.5% interest in the Baku-Tbilisi-Ceyhan oil pipeline that ships crude from the offshore Azeri-Chirag-Guneshli field complex in the Caspian to Turkey via Georgia. The seller is a subsidiary of Japanese Itochu. The BTC pipeline has a daily capacity of 1 million barrels.

• Aker BP has bought a 50% stake in a Ghanaian deepwater field from Hess Corporation for $100 million. The Norwegian company has ambitious plans for oil and gas development in the African country: the field, Tano Cape Three Points, contains an estimated 550 million barrels of oil equivalent plus another 400 million barrels in potential reserves.

• Spain’s Repsol has agreed to sell its interests in local Gas Natural to a company controlled by private equity firm CVC Capital Partners. The deal valued the business at 19 euro per share, for a total of 3.82 billion euro, or around $4.7 billion.

• Shell is considering the acquisition of a controlling interest in Indian Fourth Partner Energy, a rooftop solar installations maker. This would further its foray into solar power after last month the Anglo-Dutch supermajor bought a 44% interest in U.S. Silicon Ranch Corporation.

Tenders, Auctions & Contracts

• Indonesia is launching a road show in Europe and the United States seeking bidders for 24 oil and gas blocks as part of efforts to reverse a decline in local hydrocarbons production. The lineup also includes one coalbed methane deposit and one shale oil and gas block. The Indonesian Energy and Mineral Resources Ministry hopes it would be able to find suitors for at least a dozen blocks. Another offering is scheduled in six months’ time.

• Petronas has signed its first LNG supply term agreement with an Indian company. The gas will go to H-Energy Mideast DMCC, a unit of the LNG business of Indian real estate conglomerate Hiranandani Group. The announcement comes on the heels of a plan by the Indian government to boost the share of natural gas to 15% of the country’s energy mix by 2022, which will require a substantial jump in imports, including LNG imports.

• Noble Energy and Delek Group, the partners operating two offshore gas fields in Israel, have struck a deal with a private Egyptian firm to supply it with 64 billion cu m of gas from Tamar and Leviathan over a period of 10 years. Dolphinus Holdings will pay $15 billion for the supplies.

• Turkey has not yet issued a license for Gazprom to proceed with the land section of the Turkish Stream pipeline. The $8.6-billion project aims to reduce Gazprom’s dependence on Ukraine as a transit route for its gas to Europe. So far, Turkey has authorized the construction of two underwater sections of the piece of infrastructure.

Discovery & Development

• BHP Billiton will drill two wells—one appraisal and one exploration—at the Trion offshore field later this year, the company said. The Anglo-Australian mining major holds 60% in the Mexican field and this stake is valued at $11 billion. BHP signed a 35-year license contract for the development of Trion in 2016, in partnership with Mexico’s Pemex.

• Exxon and Total have agreed to expand the capacity of their LNG project in Papua New Guinea twofold to 16 million metric tons of LNG, their third partner, Oil Search, said. The capacity will come from three new liquefaction trains. The expansion would cost the partners $13 billion, which is much less than the cost of the original plant. The new trains should be in operation by 2023-2024, so PNG LNG could respond to higher LNG demand expected to exacerbate the need for new production capacity by that time.

• Chevron has restarted its drilling operations in Kurdistan, at the Sarta 3 well. The company had suspended drilling works in the autonomous region in October, after the Kurds’ independence referendum sparked an immediate reaction from Baghdad that involved sending troops into Kurdistan and seizing control of the oil fields around Kirkuk.

• Romania could double its natural gas production to as much as 20 billion cu m annually by 2025 thanks to new offshore discoveries in the Black Sea. This would help the country further its almost complete energy independence, which makes it unique in the region. Romania imports only about a tenth of the gas it needs, from Russia. Currently, it consumes some 10-11 billion cu m, so a doubling in production capacity would potentially turn it into a net exporter of the commodity.

Company News

• Devon Energy’s fourth-quarter financial results failed to live up to analysts’ expectations on the back of lower than projected production. Still, it was in the black, with a profit of $183 million. That was a decline on a year earlier, however, when the net result was $207 million.

• Continental Resources reported a much higher profit for the fourth-quarter, at $841.9 million, versus just $27.7 million a year earlier, thanks to higher output and improving oil prices. Production increased by 37% to almost 287,000 bpd in the reporting period.

Politics, Geopolitics & Conflict

• The Syrian army and its Russian allies have closed in on the last rebel-held district, east Ghouta, near Damascus and are bombing it for the fifth straight day. The UN Security Council has called for a ceasefire.

• Iran may withdraw from the nuclear deal it struck with six Western powers in 2015 if it can’t see any economic benefit from it, even if President Trump extends the sanction waiver that was the core of the agreement.

• Venezuela said it had raised some $735 million from the pre-sale of its brand new petro oil-backed cryptocurrency. The public sale of the digital currency is slated for next month, but a Department of Treasury spokesman has said that buying petro could expose U.S. citizens to legal risk as the department sees it as extending credit to Caracas in breach of U.S. sanctions.




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