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Global Energy Advisory 27th October 2017

Aramco Oil

Saudi Aramco’s initial public offering has been making more than its usual share of headlines this week, with the latest coming from the chief executive of Riyadh’s stock exchange Tadawul, who said he would vie for an exclusive Aramco listing. This, Khalid al-Hussan told the FT earlier this week, would put Tadawul on the global stock exchange stage and promote Riyadh as a capital markets hub.

This immediately raises questions about the international listing of the world’s biggest oil company in terms of reserves. Although Aramco has insisted that all is going as planned with the IPO and it is on track to take place in the second half of next year, there have been doubts. Earlier reports suggested Aramco may be considering shelving the IPO or delaying it. The Saudi company rejected these reports but it has not been very forthcoming with details about the progress in its preparation for the listing of the century.

About the international listing of 5% of Aramco’s stock, the company said it is reviewing a number of venues, including the London Stock Exchange, NYSE, and the bourses in Tokyo and Hong Kong. A New York listing is tricky because of U.S. legislation that makes Saudi nationals vulnerable to legal action related to the 9/11 terrorist attacks.

The LSE has become the target of a legislative probe following revelations that the boss of the UK’s financial markets authority had met with executives from Aramco several months before the watchdog proposed changes in the LSE listing rules, which were widely perceived as rule-bending in favor of Aramco.

As if the bourse drama is not enough, the uncertainty around the valuation of Aramco remains. The man behind the listing idea, Crown Prince Mohammed bin Salman, is eyeing $100 billion from the sale of 5% in Aramco. This would give the company a total valuation of $2 trillion. However, non-Saudi reviews have questioned this valuation, on the grounds of current oil prices as well as the opacity of Aramco. The saga continues.

Deals, Mergers & Acquisitions

• Hess Corporation has sold its North Sea assets to Norwegian Aker BP for $2 billion as it seeks to accumulate funds to invest in Guiana – one of the latest oil and gas hot spots. Hess has also divested its 85% stake in two oil fields in Equatorial Guinea to Kosmos Energy and is looking for buyers for its oil and gas operations in Denmark. The energy major has partnered with Exxon on a Guyana discovery that could contain 2.5 billion barrels of oil. According to Exxon, the first phase of the project could cost $4.4 billion, with first oil scheduled for 2020.

• Pipeline builder and operator TransCanada has sold its solar power operations for $422 million to focus on its core business. This is a bit less than the company bought the assets for but it would still make a return of $65 million from the sale. The proceeds will go into TransCanada’s capital program, worth $18.8 billion, where gas pipelines are a top priority, followed by crude oil pipelines.

Tenders, Auctions & Contracts

• Aramco and SABIC have received several bids for the construction of joint petrochemical plant, which is estimated to be worth $20 billion. The preliminary joint venture deal between the two Saudi majors is scheduled to be signed in mid-November and the facility should be commissioned by the end of 2024. The project is part of Aramco’s expansion into downstream operations, which also involves joint projects overseas, notably in Malaysia and Indonesia. In Malaysia, Aramco has partnered with local state energy company Petronas on an $8-billion refinery project, for which the two are currently seeking funding from banks. The RAPID project is calculated to cost $27 billion and Aramco agreed to take a $7-billion stake in it.

• Brazil is holding an auction of eight deepwater offshore blocks today, with participants including Exxon, Shell, and Total – all of them already present in Brazil’s offshore oil and gas sector. The eight presalt blocks’ combined reserves are estimated at more than 12 billion barrels worth some $600 billion at current prices.

Discovery & Development

• Argentina’s state energy company YPF plans to splash $21.5 billion between 2018 and 2022 on raising crude oil output by 26%. This will involve drilling 1,600 new wells, both for oil and for natural gas. YPF will also enlist the help of international oil companies, which will contribute another $8.5 billion in investments.

• Exxon has been cleared by the local government of the Neuquen province in Argentina to start its 35-year shale gas development program in the Los Toldos I South block. The Big Oil major will spend $200 million on the first phase of the project to drill and put into operation seven wells, along with the construction of production facilities and export infrastructure. Output from Los Toldos is seen at 11 million cubic meters of gas daily eventually, from up to 300 horizontal wells.

• CNOOC kept its full-year production target unchanged after the release of its third-quarter output and earnings results. The Chinese major still aims to pump 450-460 million barrels of oil equivalent in 2017. Over the first nine months of the year CNOOC produced 354.1 million barrels of oil equivalent, which represents more than 77% of its full-year target but is 1.4% less than the production for the first nine months of 2016.

Company News

• Suncor booked net earnings of $1.01 billion for the third quarter of 2017, up substantially from the $306-million net result for the corresponding period of 2016. The company said the improvement came thanks to higher production from the oil sands and record-breaking refinery output. Suncor produced an average daily 739,900 barrels of oil equivalent in the third quarter, a record amount, with its refineries processing 466,800 bpd in the period.

• BP Midstream Partners has priced its initial public offering at $18 per unit. This is below the company’s pricing range, which was last week announced at $19-21 per unit. At this price, the proceeds from the deal will come in at around $765 million, with 42.5 million units sold. The stock started trading on the NYSE yesterday under the symbol BPMP.

Regulatory Updates

• A group of 85 House representatives has approached Attorney General Jeff Sessions to alert him to oil and gas infrastructure vandalism. In a letter, the Congressmen asked the AG whether there were effective mechanisms in place to prosecute the people who sabotage pipelines and make death threats against oil and gas industry employees. The group noted that keeping oil and gas infrastructure safe is a matter of national security. The Congressmen also asked the AG if a sabotage attempt on an oil pipeline last year was being investigated, noting it was precisely this sort of acts that threatened the security of the oil and gas infrastructure of the country, risking to inadvertently cause the kind of environmental damage activists seek to avoid with their protests against pipelines.

Politics, Geopolitics & Conflict

• A North Korean diplomat said the world should take Pyongyang’s warning for a hydrogen bomb detonation seriously. The warning was made by North Korea’s Foreign Minister last month. The top diplomat said Pyongyang planned to test a hydrogen bomb in the Pacific.

• Iraqi troops yesterday launched an offensive against Islamic State aimed at retaking control of two towns in the western part of the country, near the border with Syria.

• China’s President Xi Jinping has cemented his position as the country’s leader after revealing the new top-echelon lineup of the Communist Party. The seven-people Politburo Standing Committee is older than the President, which suggests that he has no plans to pass control of China to anyone else anytime soon.

• Russia and Qatar have signed a military cooperation agreement during the first-ever visit by a Russian Defense Minister to Doha. Until now, Qatar bought mostly U.S. weapons but also from Italy and UK. In 2015, Qatar ranked first in the world for money spent on U.S.-made weapons and military equipment.

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