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Global Energy Advisory 5th May 2017

Global Energy Advisory 5th May 2017

Politics, Geopolitics & Conflict

• North Korea is using its state news agency to lash out at China for media reports suggesting Beijing might want to take a tougher stance on its neighbor’s nuclear missile program. The Korean Central News Agency called the reports ‘absurd and reckless remarks”, threatening China with “grave consequences”. This comes from a country that depends on China for its survival in no uncertain terms—in so far as survival means food and fuel (and it does). If China decides to cut the lifeline, North Korea’s regime would very likely collapse within weeks. Pyongyang imports up to 90% of the oil it consumes from China and a lot of its food as well. However, Beijing has grown increasingly impatient with North Korea, and is also being urged by Washington to take a tougher stance. Diplomatic word is that Washington and Beijing are poking the unhinged North Korean bear with talk of more sanctions. At the same time, Trump’s goading of North Korea is dangerous, and China of course knows this, so take news of sanctions talk with a grain of salt. Dispatching a U.S. nuclear-powered submarine to the Korean Peninsula should be viewed as reckless, not bold. Provoking tyrannical leaders who are driven solely by paranoid power cannot be resolved through a demonstration of who is bigger. If there is anything the markets should fear, it is the uncertainty of the new U.S. president’s move against an unhinged Pyongyang.

Deals, Mergers & Acquisitions

• BP has agreed to sell its 50% interest in the Shanghai Secco Petrochemical Company for $1.68 billion to Sinopec as part of its efforts to generate funds for payments related to the 2010 Deepwater Horizon disaster. This year, plans envisage divestments to the tune of $5.5 billion. Shanghai Secco, which BP managed on a 50/50 basis with Sinopec, was one of the company’s largest operations in China.

• Centennial Resource Development has bought an 85% stake in an exploration plot in the Delaware Basin, part of the Permian, for $350 million. The plot spans 11,860 net acres, of which 79% are being developed. The deal, Centennial said, will add 255 gross horizontal drilling locations to its portfolio. Now the company will invest another $38 million on a drilling rig, plus completion costs.

• Aramco has taken over the largest crude oil refinery in the U.S. in Port Arthur as part of a deal with its former partner, Shell, which was first announced last year. Under the deal, Aramco also acquired 24 distribution terminals, paying Shell $2.2 billion, in addition to assuming the debt of Motiva Enterprises, the JV that controlled the Port Arthur refinery.

• Noble Energy has agreed to sell all its production assets in the Marcellus shale play in northern West Virginia and southern Pennsylvania for more than $1.2 billion, including an upfront payment of $1.12 billion.

• Devon Energy is selling part of its Barnett shale assets as well as others, to the tune of $1 billion in order to focus more on its operations in Oklahoma, west Texas, and New Mexico. In Barnett, Devon has one of the largest footprints and its production there accounted for over a quarter of its overall natural gas output last year.

• Norwegian-listed independent oil and gas producer African Petroleum has said that it still holds 90 percent in a block offshore Senegal, for which France’s oil major Total SA signed an exploration and production sharing contract the day before. Earlier this week, Total said that it had signed a deal for the Rufisque Offshore Profond block, in which it will be the operator with a 90 percent interest, with state firm Société Nationale des Pétroles du Sénégal (Petrosen) holding the remaining 10 percent. Now African Petroleum reiterates its position that it owns 90 percent of the Rufisque Offshore Profond (ROP) production sharing contract, potentially setting the stage for a hefty legal battle. The potential dispute over the offshore Senegal resources comes at a time when Australian exploration company FAR said in February that it had discovered more than 1.5 billion barrels of crude off the coast of Senegal.

Tenders, Auctions & Contracts

• The government of Australia’s Northern Territory has greenlit a $592-million gas pipeline project aimed at alleviating the shortage that has hit eastern Australia. The pipeline, 622 km in length, will be built by local Jemena.

Company News

• France’s Total reported a 77% annual increase in its net profit for the first quarter of 2017 to $2.85 billion.

• Shell booked a net profit attributable to shareholders of $3.54 billion for the first quarter of the year, and set the dividend payout at $0.47.

• BP reported net earnings of $1.51 billion for Q1 2017, beating analyst estimates of $1.26 billion, on sales of $55.86 billion.

• Exxon booked profits of $4 billion for the first quarter, up from $1.8 billion a year earlier, missing revenue expectations, however, reporting $63.3 billion, versus a forecast $64.7 billion.

• Chevron swung into a profit in Q1, reporting a positive net result of $2.7 billion, from a loss of $725 million for the first quarter of 2016.

• Noble Energy reported net earnings of $36 million for the first quarter of the year, but the adjusted net result was a negative $23 million.

• Mexico’s Pemex reported its second consecutive quarterly profit for the last two years, with a net result of $4.7 billion for January-March 2017, on revenues of $18.5 billion.

Discovery & Development

• BP has announced a breakthrough in seismic research imaging technology that has allowed it to revise upwards the reserves at its Atlantis field in the Gulf of Mexico. According to the company, the improved images have uncovered what is effectively a whole new field holding some 200 million barrels of crude oil. The company plans to deploy the tech across its GOM operations and abroad.

• Nigeria’s crude oil output will reach 2.1 million barrels daily in the near term as the Bonga field returns to full-scale production after a shutdown for maintenance. Earlier in the week, Oil Minister Emmanuel Ibe Kachikwu said he hoped Nigeria will return to a daily output rate above 2 million barrels by next year, helped by OPEC’s production cut extension.

Regulatory Updates

• Trump has signed an executive order for the review of offshore drilling regulation put in place by the previous administration to potentially open up the U.S. outer continental shelf to oil and gas drilling. Shortly before his term ended, President Obama effectively banned drilling in the Arctic and parts of the Atlantic indefinitely, invoking a rarely used clause from the 1953 Outer Continental Shelf Lands Act. Trump’s order received an immediate response from environmental groups: ten organizations, including environmentalists and Alaska Native groups filed a lawsuit against the president, claiming that he exceeded his constitutional authority with the executive order. According to them, the power to regulate use of federal lands lies with the Congress, and while previous lawmakers have let presidents ban drilling in such territories they have never allowed the reverse.

• Australia’s government has allayed industry fears of an upward revision to the country’s petroleum tax, which it sparked last year, complaining of a decline in tax revenues. It seems that Canberra is clear about the industry’s current troubles brought on by falling gas prices after local companies had splashed billions on large-scale LNG projects. At its next federal budget meting in June, the government could raise the tax burden for new oil and gas projects but not existing ones and this will only happen after negotiations with industry executives.

• Indonesia’s Ministry of Energy and Mineral Resources has simplified the procedure for awarding oil and gas exploration licenses by reducing the number of permits necessary for a company to obtain before being awarded a license. From 2015, when such a company would need 105 permits, the number has dropped to just six. These have to do with a company’s processes, transportation, commercial activities, and data utilization.

• A group of Anadarko shareholders have filed a class action suit against the company following the conclusion of an official investigation regarding a house explosion in Firestone, Colorado, which killed two people. The explosion was linked to a leak from an Anadarko vertical well near the house. The shareholders allege that they were misled by Anadarko with regard to its safety protocols regarding vertical wells, which were subpar but this was not reflected in the company’s public statements.

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