Politics, Geopolitics & Conflict
• Nothing like an air strike on Syria to bring us back to what everybody hated about Clinton’s foreign policy. It’s taken only a few months in office for Trump to do an about-face on his foreign policy. Welcome back to the status quo, and welcome back to Syria, in a very noisy way. What will it achieve outside of renewed conflict with Russia? It’s great for oil prices, for one. Oil prices love a good military strike, particularly when it was unexpected. It will also give Trump a boost in his ratings, which was sorely needed, and provide a phenomenal distraction from Russia investigations.
The U.S. has launched two guided-missile destroyers in the eastern Mediterranean, firing 59 Tomahawk missiles at Syria’s Shayrat air base—from whence Washington says the Assad regime carried out a chemical weapons attack in Idlib province that killed as many as 80 people.
What actually happened in Syria? There is a lot of spin on this and a menagerie of intelligence groups involved in the mix to the point where agendas are blurred. Just a week ago, the U.S. was talking about how removing Assad was no longer a foreign policy goal. Indeed, it’s a suspiciously timed incident in Syria because it specifically puts the U.S. at odds with Russia and the Assad government immediately after it became clear that the U.S. had largely handed Syria over to Russia and the Iranians. So what happened? According to U.S. security officials, Assad’s army carried out the chemical attack. According to Syrian and Russian officials, an air force operation accidentally hit the storage facility where the chemical weapons had been stashed by rebel groups. U.S. President Donald Trump said the attack “crossed many lines” while Secretary of State Rex Tillerson said Thursday that “steps are underway” on an international coalition to pressure Bashar Assad from power. Russian Deputy Foreign Minister Gennady Gatilov warned that the case should not be used to influence the Syria peace talks, which are at a sensitive stage. When asked whether Russia would reconsider its backing for Assad, Russia's Foreign Ministry instead challenged the U.S. The Idlib province is where ISIS militants were escorted during the Aleppo offensive. Assad’s chemical weapons arsenal was reported destroyed completely back in 2014, after a deal brokered by the U.S., which saw the weapons disposed of on board a U.S. ship in the Mediterranean.
• South Sudan’s main opposition faction is threatening to cripple the country’s oil industry. They take issue with what they say is the government’s use of crude revenues to buy weapons that are killing civilians. The Sudan People’s Liberation Movement in Opposition recently kidnapped several oil workers, which it has now released. Rebels loyal to former South Sudanese vice president Riek Machar kidnapped four workers from the DAR Petroleum Operating Company, whose holders include China National Petroleum Corporation (CNPC), China’s Sinopec, and Malaysia’s Petronas. The government claims that the rebel group demanded a ransom of $1 million for the workers—a claim SPLMO denies. The group claims to be fighting for the rights of the South Sudanese people but it has threatened oil companies previously to leave South Sudan’s oil fields in a bid to cut the government’s access to oil revenues. Right now, South Sudan is producing about 130,000 bpd, and hope to reach 500,000 bpd by July. This is not likely to happen, with a situation similar to that in Libya right now. Investors have been scared away for the most part, and we see no short-term resolution that would allow South Sudan to make a dent its estimated 3.5 billion barrels in proved oil reserves.
• Kurdistan is close to launching a new oil pipeline that will increase its oil export capacity by some 75,000-80,000 bpd. Current production from the fields in northern Iraq held by the Kurdistan Regional Government (KRG) is around 600,000 bpd. The pipeline will connect two fields, Atrush and Shaikan, to the main pipeline that carries Kurdish crude to the Turkish port of Ceyhan. This set-up will cause tensions between the Kurdish authorities and Baghdad as it brings the Kurds even closer to oil independence. At the beginning of this decade, Kurdistan had been planning to boost its production to 1 million bpd by 2015. These plans were stymied by the advance of ISIS in northern Iraq in 2014, the start of the oil price crash, and the continuous disputes Baghdad over oil production, export routes and revenues.
• In Libya, yet another militia has arisen from the chaos to challenge the country’s plan to ramp up oil production. This time it’s the Supreme Council for Oil, Gas and Water resources in the Oases and Sirte Basin. It makes for quite an acronym, but these groups are popping faster than Libya can produce a barrel. The group is trying to undermine the deal between the National Oil Company (NOC) and Glencore, which was extended in February and concerns the sale of oil to Glencore from the Sarir and Messla fields. If the group succeeds in blocking oil production from these fields it would mean hitting out at about a quarter of the country’s current production.
Deals, Mergers & Acquisitions
• BP struck a deal with Ineos to sell it its Forties pipeline network for $250 million. The 235-mile network connects 85 oil and gas assets in the North Sea and is one of BP’s biggest assets there. The oil that the network carries is part of the basket that makes up Brent – the international benchmark. The deal is a strategic acquisition for Ineos, which last year turned into the largest oil asset owner in the UK, after the government awarded it 21 exploration licenses. For BP, it represents part of its plan to move from legacy assets in the North Sea to untapped ones.
• Media have reported that Norway’s Aker Solutions is in talks with Halliburton to sell it parts of its engineering and services business. The two companies have declined to comment on the reports, dismissing them as speculation. Other reports note, however, that Aker’s owner, Kjell Inge Rokke is negotiating divestments with several international companies.
• Premier Oil is selling its business in Pakistan for $65.6 million. The divestment is part of the company’s focus on core operations. The buyer is Pakistani conglomerate Al Haj Energy. According to Premier, it will book a gain of $40 million from the sale.
• Shell has sold a New Zealand field to local Todd Energy, which is Shell’s partner in the development of the field. The move is part of Shell’s exit from the upstream sector in New Zealand. The value of the deal for the Kapuni onshore field remained confidential.
Tenders, Auctions & Contracts
• UK-based oil well technology developer Plexus said it had received its first order from Russian Gusar – an oilfield equipment manufacturer, with which the UK firm partnered earlier this year. For Plexus this is the first entry into the Russian market as well as the markets of neighboring countries. Historically, Plexus has focused on the North Sea oil industry.
• Indian ONGC has revised its investment plan for the Farzad B gas field off the Iranian coast, pledging to spend more than $3 billion on the giant field’s development. The investment plan caused friction between Tehran and New Delhi after the Iranian side delayed its decision to award ONGC the license for Farzad B. The perception from the Indian side was that Iran is looking for potentially more lucrative offers. India retaliated by announcing a cut in Iranian crude oil imports but has now apparently decided not to miss the opportunity Farzad B offer and up its investment plans.
• Petrofac has struck a $1.3-billion engineering, procurement, and construction contract with the Kuwait Oil Company. The project concerns the building of a gathering center at the Burgan oil field, which will process sour crude from four other fields. The center should come online by the middle of 2020.
• Petronas, Malaysia’s state-owned energy major, plans to invest $150 million in India’s lubricant markets in a bid to expand its presence in the lubricants industry. The money will fund the construction of a 110-million-liter production facility near Mumbai, plus the setting up of a technology center for motorbike oil.
• Statoil has sealed a deal with Transocean to use its Transocean Spitsbergen rig for two offshore projects – one in the UK and the other in Norway. The contract’s size for the first project alone – drilling of three wells – is $18 million. Work is scheduled to begin this summer. The value of the other drilling project is seen at $95 million and will include the drilling of six wells.
• Exxon and Qatar Petroleum have signed an exploration and production sharing deal with Cyprus for an offshore oil and gas block. Drilling will begin next year, after the consortium submitted the winning bid for Block 10. The two companies will also help Cyprus navigate its nascent oil and gas industry.
Discovery & Development
• Shell and Agip will sign the final investment decision for the $13.5-billion development of the Zabazaba deepwater field in Nigeria by the end of June. The project’s development was first planned several years ago but the oil price crash made it unviable until now. The field is located in the OPL 245 block in the eastern section of the Niger Delta. Estimates put the block’s oil reserves at 9 billion barrels, making it the biggest in Africa.
• Shell will raise the capacity of its Hazira LNG import terminal in India twofold to 10 million tons annually, the company said, reflecting rising demand for the fuel not just in India but across Asia, despite the market’s saturation that has weighed on prices. Shell operates Hazira in partnership with France’s Total.
• Petro River, an independent oil producer has started drilling the first of four wells at its Pearsonia West concession in Oklahoma. The concession may contain up to 2.5 million barrels of crude, 3D seismic surveys have estimated.
• Cheniere Energy reached a milestone last week, exporting its 100th cargo of liquefied natural gas. Cheniere is the only U.S. LNG exporter to date and recently launched a third liquefaction train at its Sabine Pass facility. Late this year it will add a fourth train. The company is likely to be the only U.S. LNG exporter for a while longer as other companies are still building their export terminals.
• Eni announced a new gas and condensate discovery off the Libyan coast, in the Gamma Prospect, which stands some 140 km from the Tripoli coast. According to the Italian company, the well where it made the discovery from can produce more than 7,000 barrels of oil equivalent daily. The discovery is part of Eni’s ongoing exploration campaign near the Libyan shore. The company pumps some 350,000 boepd in Libya.