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Global Energy Advisory - 27th April 2018

Iran

WTI could jump to $75 a barrel if President Trump reimposes sanctions on Iran on May 12. That’s the deadline for a sanction waiver that Trump has said he will not extend unless the United States’ partners in the Iran nuclear deal from Western Europe come up with a better deal.

Judging by price movements over the last week, it seems the market is leaning towards new sanctions and generally fails to recognize Trump’s penchant for bringing things to a fever pitch and then letting the air out. Despite a surprise build of 2.2 million barrels in U.S. crude oil inventories in the week to April 20, prices did not lose any of their earlier gains made on the back of rising tension between the U.S. and Iran. They also remained largely unresponsive towards yet another record-breaking week in production: the EIA said U.S. drillers produced 10.586 million barrels of oil daily last week.

However, if we are to believe French President Emmanuel Macron, Trump might get his new deal: his European partners are currently working on a revision of the original 2015 deal that seeks to address Trump’s concerns, Macron said.

Should Trump approve the revised deal, prices might fall as this would be the less expected outcome of the situation. By how much they would fall, however, remains unclear. If trump rejects the revised deal, WTI at $75 is a possibility, especially since Iran has indicated it will not leave such a blow unanswered. Tehran has not gone into any details as to what its retaliation to new sanctions would be but any further flare-up of conflicts in the Middle East is invariably positive for prices and this will be no exception.

Deals, Mergers & Acquisitions

• Brazil’s Petrobras is mulling over the sale of its 60% interest in four refineries, retaining a minority stake in each. The refineries are divided into two downstream blocks, one in the Northeast and one in the Southeast, and will reduce Petrobras’ share in Brazil’s refining industry to 75%. The state-owned giant will keep its majority holdings in its nine other refineries.

• Petrobras separately said that it has received three binding offers for its 90% stake in gas pipeline network operator TAG. The bidders are French utility Engie, UAE’s sovereign wealth fund Mubadala Development Co., and a consortium led by Australian Macquarie Group. At least one of the offers could be worth $7 billion, according to sources close to the tender.

• Norway’s offshore oilfield services provider Subsea 7 has offered $2 billion for sector player McDermott. Shareholders in the U.S. company are due to vote on another offer next week and the board has rejected the Norwegian company’s bid but Subsea 7 has signaled it is ready to raise the offer if the target company suggests any additional benefits from the deal as it is now. McDermott’s board has recommended the rival bid, by Chicago Bridge & Iron.

• Petrofac has struck a deal with Shanghai Zhenhua Heavy Industries Co Ltd to sell the Chinese company an offshore construction vessel as part of efforts to slim down its debt load. The deal is valued at $190 million with the buyer throwing in a 10% stake for Petrofac in a special purpose company that will own the vessel after the deal is completed.

• Shell ash sold its downstream business in Argentina for $950 million to Brazilian Raizen Combustiveis, a joint venture of Shell and another Brazilian company, Cosan SA Industria e Comercio. After the acquisition, the buyer will expand its market share in Argentine fuel distribution to 20%.

Tenders, Auctions & Contracts

• Iraq has received more than 90 bids for the construction of a new oil pipeline from the Kirkuk fields to the border with Turkey. The tender should be finalized by the middle of the year, according to Energy Minister Jabar al-Luaibi. The new pipeline will replace a badly damaged section of the Kirkuk-Ceyhan pipeline—the only pipeline carrying northern Iraqi crude to Turkey.

• Algeria’s state energy company Sonatrach is negotiating the development of an oil field in Iraq, Nassiriya, which holds an estimated 4 billion barrels of crude. The field’s development plans also include the construction of a 300,000-bpd refinery. Last month, Iraqi media reported that France’s Total is interested in bidding for the construction of the refinery’s first phase, with a capacity of 150,000 bpd.

• Mexico's National Hydrocarbon Commission (CNH) launched Thursday an auction to farm out seven onshore clusters under Pemex's control in a bid to help the state oil company find financial resources and technical support to halt a sharp drop in production from the areas.

Discovery & Development

• Lukoil has launched production at a natural gas processing plant in Uzbekistan, which will export its output to China. The facility has an annual capacity of 8 billion cubic meters, which also constituted Lukoil’s total gas production in Uzbekistan last year. By 2020, the Russian company plans to double this to 16 billion cubic meters annually. Separately, state-owned Uzbekneftegaz’s chief Alisher Sultanov said the central Asian country had contracts for exporting 6 billion cubic meters of Russian and 10 billion cubic meters of local gas to China annually.

• The Netherlands has become a net importer of natural gas because of the planned phase-out of the largest gas field in Eastern Europe, Groningen. Groningen is scheduled to be completely shut down soon because of earthquakes that have been rising in frequency and whose source has been shown to be gas extraction from Groningen. This is the first time the Netherlands imports more than it exports since the 1950s.

• Nova Scotia’s regulatory authorities have greenlit BP Canada’s plans to drill an offshore well as part of its Scotian Basin Exploration project. The project will involve the drilling of a total seven wells over three years. The province hopes an oil discovery during the project would help its economy, although no details about resources in place have been revealed.

• UK E&P Savannah Petroleum has struck oil in Niger, from the onshore Bushiya-1 exploration well. The company has not yet estimated the reserves contained in the deposit but will continue drilling in the R3/R4 PSC area, located in southeastern Niger. Niger’s total daily production of crude oil is about 10,000 bpd.

Company News

• Hess reported a net loss of $106 million for the first quarter of the year, down from $324 million a year earlier and lower than analysts had expected.

• Schlumberger booked an 88% annual increase in net profit for Q1 2018, at 525 million, with cash flow from operations coming in at $568 million.

• Halliburton reported net income of $46 million for January-March 2018, swinging back into black from a loss of $32 million for the first quarter of 2017.

• Shell booked a 42% annual increase in Q1 profits to $5.32 billion, also beating analyst expectations of $5.28 billion.

• French Total’s net profit for the first quarter came in at $2.9 billion, versus analyst expectations of $2.77 billion thanks to its highest-ever quarterly production, which averaged 2.073 million bpd.

Politics, Geopolitics & Conflict

• Israel’s Defense Minister Avigdor Lieberman has threatened an Israeli strike against Tehran in case Iran attacks Israel. Tensions between the two have flared up in Syria.

• Macron’s draft revision of the Iran nuclear deal will leave the current stipulations in place and add several more to appease an agitated Donald Trump, a German government official has told media without providing any further details.

• The Syrian army has entered a Damascus district held by the Islamic State and, according to reports from rebel groups, has ordered the groups to surrender areas with an IS presence.




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