Global Energy Advisory 8th September, 2017

OPEC Deal "Has No Impact" on Crude Oil Market

Russian Rosneft CEO Igor Sechin on Friday stated that the recent uptick in oil prices had nothing to do with curbing crude oil production among OPEC or non-OPEC countries; rather, he said, this is all about a weaker dollar. Taking this further, he stated that the OPEC deal has zero impact on the crude oil market.

"The Americans support their shale oil producers through dollar depreciation. I believe that the OPEC deal has no impact on the market, it is the dollar devaluation," Sechin said.

This comes ahead of OPEC's next meeting in late November, when the group will decide whether to extend the production cut deal for another six months. While the U.S. dollar depreciation is boosting shale producers, for the Saudi's extending this deal will come down to the planned IPO of giant Saudi Aramco. Sechin's take? If this IPO goes through, the Saudis will be much more interested in higher oil prices, and it is this that will likely determine what happens in November.

Keeping an eye on this IPO is also key for playing the currency hedge game. A successful IPO will go a long way towards indicating that the Saudis are gaining ground in the reforms laid out in Vision 2030. Any considerations of a depeg of the Saudi Riyal from the dollar will most likely be based on this. Right now, our take is that a depeg isn't going to happen any time soon.

Deals, Mergers & Acquisitions

• Sempra Energy can go ahead and acquire Texas utility major Oncor as long as it gets the go-ahead from the xs been operating under bankruptcy protection since 2014 as its parent Energy Future Holdings Corp. filed for Chapter 11 with a debt load of $50 billion.

Sempra offered $9.45 billion for the 80% stake of Energy Future Holdings Corp. in the Texas utility, beating two other suitors, one of them the energy investment arm of Warren Buffett's Berkshire Hathaway. The other contender for the prize was Elliott Management Corp., which controls a hefty portion of Energy Future's debt.

Earlier this year and in 2016, the Texas PUC blocked two attempts for an acquisition of the troubled company, one by NextEra Energy and a more recent one by a consortium led by Hunt Consolidated. In the first case the Texas utility watchdog blocked the sale on the grounds that it was not in the public interest and in the second it imposed conditions the consortium was unwilling to comply with as it sought to ensure the financial stability of Oncor under the new ownership.

• Indian LNG trader Petronet plans to set up joint ventures with companies from Japan and Sri Lanka for the construction and development of a liquefied natural gas terminal on the island. The terminal will be built near the capital Colombo and will distribute the regasified fuel to power plants and transport facilities across Sri Lanka.

• Continental last month sold non-core assets in the STACK and Arkoma Basin, in Oklahoma for a total of more than $140 million to slim down its debt load. The total acreage sold is 32,500 acres, of which the majority in the Arkoma Basin. The company is also selling $7 million worth of oil-loading facilities.

• Whiting Petroleum completed the sale of $500 million worth of production assets in the Williston Basin, part of the Bakken shale play. The assets span 30,000 acres with average daily production of 8,000 barrels of oil equivalent. The buyer is RimRock Oil & Gas.

• Total has struck a deal with Kuwait Foreign Petroleum Exploration Company to sell it its 15% interest in the Gina Krog field in Norway. The deal is worth $317 million and will allow the French company to focus on developing the assets of its recently acquired Maersk Oil.

• Petrobras has put 90% of its wholly-owned gas transport unit Transportadora Associada de Gas up for sale, which operates a pipeline system spanning 4,500 km in northern and northeastern Brazil. The country's state oil and gas major has been selling assets in a bid to reduce its massive debt load that at the end of last year exceeded $120 billion.

Tenders, Auctions & Contracts

• Petrofac has won a $700-million contract with Sakhalin Energy for its onshore gas processing facility on Sakhalin Island in the Pacific. The contract involves engineering, procurement, offshore fabrication, construction, and site services. These will help Sakhalin Energy maintain its LNG capacity at the site, the Russian company said.

• Gazprom and Mitsui have inked a partnership deal focused on the production, transportation and marketing of LNG in Japan, plus LNG bunkering in the Sea of Japan. LNG bunkering is turning into a major growth area in LNG trade as a growing number of vessels switch to the cleaner fuel.

• Angola has sealed a deal with Vitol for the sale of LNG from the African country's only LNG terminal, which this year should produce up to 3.5 million tons of the fuel, compared with just 770,000 tons last year. The project is led by Chevron and so far LNG from the facility has been sold only on the spot market. Vitol was the biggest buyer of Angolan LNG on that market and has now become the first company to secure longer-term supplies of Angolan LNG.

• Indonesia's state energy major Pertamina has been granted a license to start exporting diesel. This will put the company in direct competition with established players on the international fuel market including Shell, Exxon, and Solaris Prima Energy. Pertamina currently has excessive supply of diesel at a time when there is a shortage of the fuel in Asia following tighter supply from the U.S. as a result of Hurricane Harvey.

• Indian's state oil and gas major ONGC will take part in tenders for oil and gas blocks in Israeli waters, India's Energy Minister said. This will be the first deal of such magnitude between the two countries.

Discovery & Development

• The Kashagan oil field in the Caspian Sea could pump 260,000 bpd next year, Kazakhstan's deputy Energy Minister told media. The field is being developed by a consortium including Exxon, Shell, Total, Eni, CNPC, Inpex, and the Kazakh state oil and gas company KazMunayGaz. Kashagan started pumping oil commercially last year, after a string of cost overruns and delays. Total investments in the field since 2000 have reached $50 billion. The field contains an estimated 38 billion barrels of crude.

• Statoil has completed 60% of the first development phase of its huge Johan Sverdrup field in the North Sea. The Norwegian company said it has also reduced the gross capital expenditure for the project by $640 million to $11.8 billion. Statoil is the operator of Johan Sverdrup with a 40% stake and its partners include Lundin Norway, Aker BP, Petoro, and Maersk Oil, which was recently acquired by French Total.

• China's teapot refiners are planning to consolidate into a consortium with the aim of integrating their fuel and oil derivatives production. There are 31 independent refiners in the country, most of them based in the Shandong province. The new entity will be called Shandong Refining & Chemical Group Co. The group will have a substantial refining capacity with the two biggest members alone sporting a combined 400,000 bpd.

• Exxon plans to pour $200 million into the development of an oil and gas block in the Vaca Muerta shale formation in Argentine. The company has applied for a 35-year development license of the Los Toldos I block with the government of the Neuquen province. The investment involves ramping up production from seven wells along with the construction of additional facilities and pipelines.

• Separately, Exxon may start work on the Blue Whale natural gas project in Vietnam in two months. The deposit has reserves estimated at 150 billion cubic meters and is the country's biggest. First gas is planned to flow in 2023.

Politics, Geopolitics & Conflict

• North Korea has claimed it now has the capability to fire an intercontinental ballistic missile with a hydrogen bomb on it. Defense Secretary James Mattis warned any attack on the U.S. or its allies in Asia will be met with a "massive military response."

• The Syrian Arab Army broke the Islamic State siege on the eastern city of Deir al-Zor that lasted for three years, trapping thousands of civilians and soldiers from the Syrian army. Deir al-Zor was the last stronghold of the terrorist group in Syria.

• The Mexico negotiators of NAFTA will seek to enshrine the 2014 energy sector reform in the new agreement in a bid to secure it from future governments. The frontrunner for the 2018 elections is leftist candidate Andres Manuel Lopez Obrador, who argues that the reform, which opened up Mexico's oil and gas industry to private investment, has failed to live up to expectations.

• The first phase of Brexit negotiations could take until the end of the year before the European Commission and the UK government move on to Phase 2. The delay was, according to EC officials, due to a lack of progress on key issues such as citizens' rights.