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Global Energy Advisory April 21, 2017


Politics, Geopolitics & Conflict

• The referendum to change Turkey into an executive presidential system has passed with the narrowest of margins, even though the opposition and EU bodies claim that 2.5 million votes could have been manipulated. With all votes counted, supporters of the proposal had 51.3 percent of votes cast, and opponents had 48.7 percent. Opposition parties had called on the electoral board to annul the referendum, but Turkey's High Electoral Board has rejected the appeal. It is certain that Turkey's shift toward a more authoritarian system will represent a dramatic change for Turkey domestically in the long term. The vote has shown just how deeply polarized the Turkish electorate has become. The proposal went through despite losing the three largest cities in the vote — Istanbul, Ankara, and Izmir. On other hand, the country’s foreign policy will remain largely unchanged. It will continue its focus in northern Iraq and Syria in order to contain Kurdish strength and expansion. The European Union has taken a measured stance on the referendum issue, aware that it must tread carefully with its relations to Turkey, which it considers a major partner in gas matters and a key alternative to Gazprom’s gas routes. Also, the EU understands that they still need Turkey's cooperation in order to contain migrant traffic and keep a check on Russia. The mission of observers from the 47-member Council of Europe, the continent's leading human rights body, has already pronounced that the referendum was an uneven contest. European Union foreign ministers will discuss the referendum victory at a scheduled meeting on April 28.

• Clashes between a pro-government and an anti-government march in Caracas and other cities across Venezuela resulted in three deaths as civil tensions in the embattled South American country escalate. The marches were organized as a commemoration of the start of Venezuela’s fight for independence from Spain. Prior to the marches, Nicolas Maduro’s government deployed armed forces to the streets to keep the population in check. Meanwhile it emerged that PDVSA’s U.S. business, Citgo, had donated half a million dollars to the events around the inauguration of President Trump.

• Four U.S. warships are heading towards the Sea of Japan after a hot exchange between the White House and Pyongyang, following North Korea’s latest (failed) missile test. China is calling for a peaceful resolution to the conflict, while the North Koreans are threatening a nuclear strike on U.S. targets should the U.S. fleet display any sign of aggression. Japan also announced the dispatch of an unknown number of destroyers to the East China Sea.

• OPEC is moving closer to announcing an extension of its six-month production cut agreement. Most recently, Saudi Arabia’s Oil Minister Khalid al-Falih said that consensus in the cartel is being built but “it’s not done yet.” Russia is also likely to join the extension as are some other non-OPEC producers, as suggested by Kuwait’s Oil Minister, Essam al-Marzouq. An extension could push oil prices higher up and keep them there for longer if U.S. shale producers slow down their output-boosting efforts.

Deals, Mergers & Acquisitions

• Australian Pan Pacific petroleum NL has agreed to sell a 5% stake in an oil and gas block in the South China Sea to Spain’s Repsol for $5 million. The Australian company is also studying new investment opportunities, with $16 million in cash and liquid investments of $3 million.

• A Brazilian court has suspended the acquisition by Statoil of an offshore block property of local state giant Petrobras after a trade union filed a lawsuit against the company. According to the National Federation of Oil Workers, the Carcara block should have been put up for sale in an open tender. Petrobras instead agreed directly with the Norwegian major to sell it the 66% it holds in Carcara for $2.5 billion, half of which has already been paid.

• Chevron has agreed to sell its Burnaby refinery and a network of gas stations in British Columbia for about $1.08 billion to Canadian Parkland Fuel Corp. The assets include 129 gas stations, 37 commercial cardlock facilities and three marine fueling stations.

• India’s ONGC Petro additions Ltd. is reportedly in discussions with Saudi Aramco for the sale of 50% in the Indian company’s brand new $4.6-billion petrochemical plant in Gujarat. If the deal is sealed, it will strengthen Aramco’s foothold in India and the larger Asian petrochemicals market – a market that analysts expect to see boom in the coming years. In India alone, demand for petrochemical products is estimated to grow at an annual rate of 12% in the medium term.

Tenders, Auctions & Contracts

• CNOOC is looking for bidders for 22 oil and gas blocks in the South China Sea, the state company said, adding that it is currently preparing the information that it will provide to foreign candidates by June 15. The tender itself will run until September 15, the company said. Earlier this month, the Chinese E&P struck a partnership deal with Husky Energy for the development of a shallow water block in the sea. The local unit of the Canadian company will be the operator of the project and take care of all necessary investments.

• Norway’s offshore service and equipment provider Solstad Offshore has struck a deal with the Portuguese unit of Italy’s Saipem to lease it a construction support vessel for four years. Saipem will use the vessel for a project in West Africa this year and other subsea construction projects around the world until the contract expires.

• KBR has landed an engineering, procurement, and construction deal with Chevron for its operations in Sumatra. Under the terms of the five-year contract, the oilfield services provider will work together with Indonesian Singgar Mulia Engineering Consultants on three fields, managing day-to-day operations plus the construction of infrastructure and the provision of training services for the local personnel.

Discovery & Development

• Iran has raised the daily output capacity of its South Pars gas field to 570 million cubic meters with an investment of $20 billion. This has allowed Iran to almost catch up with its neighbor Qatar in terms of gas production. Qatar’s biggest deposit is the North Field – the Qatari half of South Pars. Iran has plans to further boost production and overtake Qatar as gas producer and it also has export ambitions but these will have to wait as currently almost all of the gas it produces goes towards satisfying domestic demand for energy and heating and towards boosting crude oil output by injecting as into wells.

• Exxon’s Papua New Guinea LNG project pumped 20% more gas than its nameplate capacity during the first quarter of the year, at an annualized rate of 8.3 million metric tons, the minority partner in the venture, Australian-listed Oil Search said. The company added that recent reserves assessment at PNG LNG have confirmed there are ample resources to sustain this higher output, which will be added to term contracts and offered on the spot market. The new assessment increased Oil Search’s proved reserves at PNG LNG by 50%.

• ConocoPhillips is planning to expand the capacity of its Darwin LNG project in Australia by tapping unexplored gas deposits operated by other companies. The LNG plant is currently being fed with gas from the Bayu-Undan field, which will be depleted around 2022. Although the U.S. company earlier said expansion at Darwin will be a challenge because of the current price environment in LNG, it has apparently decided to take the risk and share it with peers including Shell, Eni, Petronas, and local Santos and Origin Energy.

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