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Global Energy Advisory 29th September 2017

Kurdish Military

Tensions in the Middle East have soared after 92 percent of Iraqi Kurds voted in favor of independence in Sunday’s referendum. The referendum has been slammed as unconstitutional by Baghdad, and Western Europe and the U.S. have urged the Kurds to cancel it and focus their attention on driving what remains of ISIS out of Iraq. It’s a big ask, though. The Kurds have been instrumental in pushing back ISIS in northern Iraq, and in protecting Kirkuk’s oil, and - in doing so - they’ve had their eye on independence.

This independence opens a Pandora’s Box for the Middle East. Turkey and Iran are nervous, and both have substantial Kurdish minorities whose empowerment by the Iraqi Kurds they would like to shut down.

For Iraq, the problem of an independent Kurdistan, however, is particularly pressing. The autonomous region is rich in oil and the Kurds are the de facto rulers now of Kirkuk – an oil-rich region in northern Iraq that is not within the borders of the autonomous region. Baghdad has been disputing Kurdistan’s influence over the region for years.

Following the overwhelming support for the vote, the Kurds might press to add Kirkuk and its oil wealth to the autonomous region, so the Iraqi parliament was quick to state that it would send troops into ethnically diverse Kirkuk to seize all oilfields under Kurdish control and to suspend international flights from and to the Kurdistan region.

The decision is up to Iraqi PM Haider Al-Abadi, who has stated he is against violence. Meanwhile, Turkey’s President has threatened to shut down the pipeline that carries most of Kurdistan’s oil to international markets at a rate of 500,000 bpd. So, essentially, Turkey has been helping the Iraqi Kurds build up an independence bid by taking its exports, and now it wants to pull the plug.

Currently, Iraq has an oil profit-sharing agreement with the autonomous region’s government and it’s no wonder it is unwilling to let go of the region given Kurdistan’s substantial oil reserves, estimated at 45 billion barrels by the Kurdistan Regional Government (KRG). Even if the KRG is being too optimistic about its reserves, the actual figure is likely to be substantial.

The KRG is indicating it will fight to make independence a reality, despite mounting pressure from Iraq, Iran and Turkey. If the conflict escalates, prices, already boosted by Iraq’s growing compliance with the OPEC cut, are likely to rise further.

Deals, Mergers & Acquisitions

• Cenovus has struck a deal with International Petroleum Corp for the sale of its Suffield oil and gas operations in Alberta for $409 million. The deal is part of Cenovus’ asset divestment plan and, according to the company’s CEO, brings it “right on target” with the plan. The divestments were made necessary after Cenovus acquired most of ConocoPhillips’ Canadian assets for a total $14.2 billion.

• Australian Beach Energy has agreed the buy the conventional oil and gas operations of Origin Energy for $1.25 billion. The acquisition will boost Beach Energy’s reserves to 232 million barrels of oil equivalent, a triple increase from its existing reserves. As a result, 2018 production should double to 25-27 million barrels of oil equivalent.

• The Indian government is prepared to start letting private companies acquire stakes in the operating oil and gas fields of state giant ONGC. At the moment, private companies can only take interests in blocks that are awarded to them in open tenders under the New Exploration Licensing Policy. This means they can only buy into newly discovered fields.

Tenders, Auctions & Contracts

• Brazil auctioned 287 offshore oil and gas blocks on Wednesday, with 37 blocks finding buyers. Exxon turned out to be the most generous bidder, snapping up a total of 10 blocks for $1.2 billion. On six of the blocks, Exxon partnered with the local energy giant, Petrobras, and their bid on one of these, in the Campos Basin near the pre-salt zone, stood at $700 million – much more than the Brazilian national Petroleum Agency expected from the whole tender.

• Chevron and Total have inked a partnership agreement for the development of seven deepwater prospects in the Gulf of Mexico. The French major’s stake in the projects will vary from 25 percent to 40 percent. For Total, the move is part of an expansion drive, which also saw it acquire all the assets of Maersk Oil, strengthening its presence in another legacy oil area, the North Sea.

• The oil and gas division of Larsen & Toubro, an India-based international conglomerate, won a $265-million deal for the construction of an oil pipeline in Kuwait. Construction should be completed in 2020, the company said.

• Symbion Power and Highland Group Holdings have signed a deal for the co-funding of a $370-million, 106 MW methane-powered power plant in Rwanda. The gas will come from Lake Kivu, which contains an estimated 55 billion cubic meters of methane.

• IOG has signed a contract with Schlumberger for the development of the former’s two North Sea gas projects, the Blythe Hub and the Vulcan Satellites Hub. Schlumberger will help IOG to move the projects to the stage of the final investment decision, IOG said.

Discovery & Development

• Chevron has allocated $4 billion in investments for 2018 to boost its output from the Permian Basin. The company sees its output from the star shale play of the country exceeding 400,000 bpd over the next few years. Chevron also expects total output from the Permian to rise from the current 2.4 million bpd to 3.8 million bpd by 2020.

• BP has started production at the Khazzan gas field in Oman, the company said. This is BP’s largest new project of a total seven due to start this year. During the first phase of the project, BP will pump 1 billion cubic feet a day from Khazzan. This should grow to 1.5 billion cubic feet daily. The field’s reserves are estimated at 10.5 trillion cubic feet of recoverable natural gas.

• Eni has completed drilling the Mizton-2 well in the shallow-water Campeche Bay in Mexico’s part of the Gulf, the company said. The new well will boost the recoverable reserves of the block Eni develops, Contractual Area 1, to more than 1.4 billion barrels of oil equivalent. The Mizton field holds around 350 million barrels of oil equivalent.

• Frontera Energy is prepared to declare force majeure on its Peruvian operations after local communities from the Amazon halted production in the country’s largest oil block. The protests were sparked by the government’s failure to seek the communities input when negotiating a long-term contract for oil development with Frontera. The field in question, Block 192, pumped 9,500 bpd in August.

Company News

• Exxon has announced a program that will lead to a reduction of methane emissions from its shale oil and gas operations. Activities under the program include replacing aging equipment and updating technology. It will continue for three years but Exxon was unwilling to disclose how much it will cost. The company was forced to take action about its carbon footprint by activist investors and environmental groups that have accused it of knowing about the effect of oil and gas on climate change for decades but concealing this knowledge.

Regulatory Updates

• An indigenous community in Alaska and northern Canada has selected five U.S. Senators, from Nevada, Alaska, Arizona, Colorado, and South Caroline, all Republican, to lobby with them for the ban on oil drilling in the Arctic National Oil Refuge. Drilling in the refuge has been banned since the 1980s but now there are news reports that the Trump administration may allow seismic surveying in the area.

Politics, Geopolitics & Conflict

• Canada has imposed sanctions on 40 Venezuelan government officials decrying Caracas’ authoritarian policies. The U.S., for its part, added to its own sanctions and a travel ban for the South American country.

• The Christian Democrats in Germany won the elections with a very weak result and now Angela Merkel will have to start her fourth term in office with a wider than comfortable coalition with the Greens and the Free Democrats.

• Japan’s Prime Minister announced snap elections for October 22 amid growing worries about belligerent neighbor North Korea. Shintzo Abe’s party is in favor right now, with support at 44 percent, but a new opposition is emerging and surprises can be expected when the Japanese vote.

• Myanmar’s government has become the subject of sharp criticism over the Rohingya refugee crisis that has seen thousands of people from the ethnic group flee to Bangladesh after violent clashes with the Myanmar army.




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