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Global Energy Advisory - 2nd February 2018

Canada Oil

Canadian drillers are moving rigs to Texas chasing better business opportunities south of the border in yet another sign that the U.S. oil industry is in full growth mode. Naturally, the main destination is the Permian – the hottest spot in the American shale patch.

Demand for rigs is so high, Canadian drillers say, that some of them may not return to Canada despite the logistics. In fact, some U.S. clients are willing to take on the relocation costs of the rigs in a bid to attract more rigs.

According to drilling company executives, there is a feeling that the Canadian government is turning a blind eye to their woes, while Washington is supporting the industry, which is hardly surprising given President Trump’s energy dominance agenda.

Canadian pipeline capacity expansion is being stalled or challenged and production costs are rising, these executives say, making their job at home more difficult, while south of the border taxes are being lowered and production costs are falling, making the Lower 48 an irresistible temptation for Canadian drillers.

This seems like yet another sign that despite the legitimate environmental agenda of the federal authorities in Ottawa, demand for crude, or rather, demand for local crude, in Canada’s southern neighbor, is growing. Meanwhile, British Columbia’s outspokenly anti-oil government earlier this week found another way to delay Kinder Morgan’s Trans Mountain pipeline expansion.

The province’s environmental ministry launched a research project into the potential clean-up of diluted bitumen spilled in water. The panel in charge of finding out whether and how such a hypothetical spill could be cleaned up could take as long as two years, during which time the ministry has suggested any additional oil shipments across BC are banned.

Deals, Mergers & Acquisitions

• Statoil has quit negotiations on the acquisition of a 25.5% interest in an offshore gas block in Mozambique. The Norwegian company said it had given up after two years with no progress on the talks. An unfavorable business environment in the African country contributed to the decision. Now, it would be up to the other partners of the consortium that won the rights to developing block A5-A—Eni, Sasol, and the local state energy company ENH—to decide on the development of the block.

• Noble Energy plans to divest part of its stake in the Tamar gas field offshore Israel for $800 million. The buyer is Noble’s local partner in the venture, Tamar Petroleum Ltd., and it will cost it $560 million in cash and 38.5 million shares. The divestment is a condition set by the Israeli government in a bid to stimulate competition on the local gas market. After the sale, Noble’s interest in Tamar will be 25%, down from 32.5%. In terms of production, the 7.5% stake to be sold amounts to 62 million cubic feet of natural gas daily.

• Emerson has bought oil and gas industry software provider GeoFields to expand its digital portfolio in pipeline data management in the latest sign that the oil industry is moving slowly but surely towards wider adoption of digital technology. The size of the deal and its terms were not disclosed.

• Mitsui has offered $481 million for the acquisition of Australian gas company AWE. The offer is higher than two earlier ones from other bidders, all attracted by the prospects at the Waitsia gas field in Western Australia, in which AWE is operator with a 50% interest.

Tenders, Auctions & Contracts

• Shell won the exploration rights to nine offshore blocks in Mexico after the latest lease tender, which made it the biggest bidder. The tender raised a total $500 million from 19 blocks, with royalties set at 19% or more. Five of the blocks Shell won are in the Perdido Fold belt, close to several new finds Shell made in the U.S. section of the Gulf of Mexico, and four are in the Salina Basin. Chevron, Inpex, and Eni also took part in the tender along with several smaller companies but 10 blocks found no suitors.

Discovery & Development

• BP has announced two new discoveries in the North Sea that will help it double its production from one of the most mature oil-producing regions in the world to 200,000 bpd by 2020. The supermajor is also confident that the discoveries will help it sustain oil production in the North Sea until 2050. In one of the new fields, Achmelvich, BP is partner with Shell and Chevron. Separately, BP struck a deal for the decommissioning of two mature fields in the North Sea with Enquest. The deal is worth $50 million.

• Exxon plans to increase its daily oil and gas production in the Permian Basin to over 600,000 barrels of oil equivalent by 2025. Most of this will probably come from the Delaware and Midland basins, parts of the Permian, where Exxon’s production will rise fivefold in the period. As part of its growth plans for the region, Exxon plans to spend north of $2 billion on transport infrastructure – a strategy that will be helped by the recently approved tax reform in the U.S. that is widely expected to spur higher capital expenditure in the energy industry.

• Gazprom is eager to develop four gas fields in Iran, including Farzad A, Farzad B, North Pars, and Kish. The Russian giant recently signed memoranda of understanding with the Iranian energy ministry about studying development prospects in the four fields, one of which, Farzad B, has been the bone of contention between Tehran and New Delhi, which is also vying for the huge deposit through its state-owned energy major ONGC. Iran and India seem to be unable to agree on the terms of a potential deal, which would benefit the other major contender, Gazprom.

• Total has announced first oil from its $16.5-billion Fort Hills oil sands project in Alberta. Total has a 26% partnership in the project, whose operator is Suncor with 53%. Now the project will gradually ramp up to reach 180,000 bpd over the next few months.

• NNPC announced the production costs at the Egina field, which it operates in partnership with Total, will be as low as $20 a barrel. The floating production, storage and offloading project, which has so far cost $10 billion, has a daily capacity of 200,000 barrels of crude.

• Exxon will spend $35 billion more in the United States over the next five years thanks to the tax reform approved by Congress at the end of last year. The company’s initial domestic spending plans were for $15 billion. The $35 billion would go into expanding production in the Permian.

Company News

• Quintana Energy Services has become the latest sector player to go public, aiming to raise $125 million by selling 9.3 million shares at $12-15 apiece. The Texas-based company said in its IPO filing it had booked a loss of $23 million on revenues of $307.2 million for January-September 2017.

Politics, Geopolitics & Conflict

• North Korea will declare war if its access to oil and oil products is completely cut off, the Russian envoy to Pyongyang has warned in response to plans by the White House to do just that in a bid to stop Kim Jong-un’s weapons program.

• Saudi Arabia has banned foreigners from taking up jobs in 12 private sector areas in a bid to tackle rising unemployment among local citizens, which has jumped over 12%.

• Secretary of State Rex Tillerson will spend six days in Latin America starting Thursday in a bid to garner support from national governments for applying pressure on Venezuela to change its ways.




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