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Global Energy Advisory – 24th August 2018

Rig

Aramco’s initial public offering may never happen, after four industry sources told Reuters earlier this week that the company had disbanded its financial advisors on the listing. While Oil Minister Khalid al-Falih rejected the report, saying the Aramco listing was on track and a lot of the preparation work had been completed, the Reuters report is likely to deepen skepticism, since Falih also said that conditions for the listing had to be optimal, although he did not elaborate.

What was initially touted as the biggest IPO in the history of stock exchanges over the last year lost a lot of its spark as doubts began to emerge and then deepen that there will not be an international listing due to a number of challenges with financial transparency and the prospect of litigation in the United States following 9/11 legislation allowing U.S. citizens to sue Saudi ones.

Indeed, a while ago Aramco confirmed it would initially list on the Saudi exchange, Tadawul, and consider its international listing in the future. However, even a local listing was challenging, giving a disproportionate weight to oil stocks on the exchange and possibly pushing away investors in other Saudi industries, not to mention the sheer size of the Aramco float, which at 5% was estimated to be worth $200 billion.

The value of the stock has also been challenged more than once on the grounds that a lot of factors needed to align for this valuation to become real, with the top one being oil prices, of course. As these are still below the level where Riyadh needs them to be—$80 or more—nobody was really surprised when it emerged Aramco was planning to buy a majority stake in another Saudi state giant, Sabic, from the Kingdom’s sovereign investment fund. Indeed, this deal would bring in a lot less than $100 billion, around $50-70 billion, but it will be money in the coffers. Aramco will fund the purchase with a bond, the latest reports said.

Deals, Mergers & Acquisitions:

• Austrian OMV and Thai PTTEP are among the companies interested in acquiring Hess Corp’s offshore oil and gas assets in Southeast Asia, which are concentrated off the coast of Malaysia. Although the U.S. company has not yet decided whether it will divest from the assets, estimates put their value at between $4 and $5 billion.

• Australia’s energy major Santos will acquire local sector player Quadrant Energy for $2.15 billion, gaining access to the biggest oil find in Western Australia since at least 2000. The announcement acquisition follows a failed attempt by Harbour Energy to buy Santos itself for $10.8 billion. Quadrant shares the exploration rights for the Dorado field with Carnarvon, which recently said the partners had struck an oil deposit that could contain more than 150 million barrels of crude.

• Canada’s largest pipeline operator Enbridge Inc. has reached a deal to buy the rest of Spectra Energy Partners LP for about $3.3 billion in stock. It follows by two years Enbridge’s acquisition of Spectra for $28 billion. Enbridge raised its offer to 1.111 of its common shares for each Spectra unit, compared with its previous offer of 1.0123 of its shares.

• UK’s oilfield services provider Petrofac Ltd has agreed to sell its 20% interest in the North Sea to oil and gas operator Ithaca Energy, owned by Israel-based Delek Group, in a deal worth up to $292 million. Petrofac owns 20% interest in the Greater Stella Area development and 25% interest in the FPF1 floating production facility. The transaction, which is expected to be completed in 2019, would increase Ithaca’s production by approximately 50% to 22,000 barrels of oil equivalent per day.

Tenders, Auctions & Contracts:

• French Total has officially pulled out of the South Pars Phase 11 development project, in which it partnered with Chinese CNPC to develop the world’s largest gas field shared by Iran and Qatar. The French company had earlier said it would seek a sanction waiver from the U.S. but has apparently been discouraged in this respect. Now the Chinese company will take over Total’s share in South Pars.

• Mexico would suspend crude oil tenders for two years as per the plans of newly elected president Andres Manuel Lopez Obrador, who also intends to tweak the laws to boost the role of state energy company Pemex in the local oil and gas industry, sources told the Wall Street Journal this week. The changes, however, will not involve amendments to the constitution, which was last amended in 2013 to allow the entry of foreign oil and gas companies in the country.

Discovery & Development:

• Norway’s Petroleum Directorate revised upwards the estimated reserves of a new oil discovery that state energy major Equinor made recently in the North Sea. While Equinor’s initial estimate was of between 1.8 and 8.8 million barrels of crude, the NPD upgraded this to between 6.9 and 12.5 million barrels. The discovery is important as oil production in Norway is declining and the government is looking for ways to reverse the trend.

• Premier Oil has made the final investment decision on the Tolmount natural gas project in the North Sea, which is seen to produce some 500 billion cubic feet of gas beginning in late 2020. The project is a joint undertaking by Premier and Dana Petroleum, each with 50%.

• Exxon plans to spend $1.9 billion on the expansion of a petrochemical complex in Baytown. The expansion is scheduled to begin in 2021 and finish by 2023. The project is the latest in a string of investments by the supermajor in the expansion of its petrochemical production capacity: earlier this year Exxon completed the construction of an ethylene cracker at the Baytown complex and the expansion of the capacity at another facility, in Mont Belvieu. Exxon also recently inked a deal with Saudi Sabic for the construction of a $10-billion petrochemicals and plastics complex in Corpus Christi.

• Crude oil output from the North Slope in Alaska could expand by as much as 40% over the next eight years, IHS Markit has forecast, noting the recoverable oil reserves of the area have recently swelled to more than 28 billion barrels of crude and 50 trillion cubic feet of natural gas thanks to new discoveries.

Company News:

• UK-based Premier Oil booked a twofold increase in net profits for the first half of the year, to $98.4 million on the back of higher oil prices. Production is seen to average 80,000-85,000 barrels of oil equivalent daily.

• ConocoPhillips and Venezuela’s PDVSA have agreed on a settlement that will see the U.S. supermajor receive $2 billion awarded to it by an international arbitration court as compensation for the forced nationalization of its operations in Venezuela.

Regulatory Updates:

• A former Swiss banker has pleaded guilty for his participation in a money-laundering scheme involving embezzled funds from Venezuela’s oil company PDVSA. According to the banker, the currency exchange scheme started in 2014 and aimed to siphon out and hide some $600 million from PDVSA.

Politics, Geopolitics & Conflict:

• Philippine President Eduardo Duterte has warned China to avoid drilling for oil and gas in the West Philippine Sea or there will be trouble. West Philippine Sea is the name of the Philippine part of the South China Sea. China is claiming ownership to as much as 90% of the basin.

• The trade war between the United States and China moved to the next level after mutual tariffs of 25% on goods worth $16 billion from each of the countries took effect on Thursday despite ongoing talks in an attempt to put an end to the heated dispute.




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