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Global Energy Advisory April 6th, 2018


ConocoPhillips said this week that it has sold non-core assets worth $250 million in the Lower 48 and bought more acreage in Canada for $120 million in a classic sell high-buy low move aimed at ensuring its low-cost production from a slimmer but more focused portfolio. Conoco boasts an average sustained cost per barrel of just $40.

The company will retain most of its acreage in the Permian, it said, also acquiring some land in the Austin Chalk formation in Louisiana. This formation has not attracted a lot of attention until recently but it is now seeing interest from local drillers. It is too early to say whether it would attract the amount of attention the Permian has enjoyed, but given Conoco’s focus on low-cost production, the Austin Chalk might be a place to watch.

Meanwhile, investors are rewarding Conoco for its strategy of returning more cash to shareholders rather than focusing exclusively on boosting production. Its stock has become the best performer in the U.S. oil industry in the past 12 months, while those among its peers who have come out with upbeat higher capex plans, such as Exxon, have seen their stock decline in the period.

Conoco’s recent moves—and not jut the recent ones, either—suggest the company has learned the 2014 lesson very well and it plans to insulate itself from future price shocks with the prioritization of low-cost production even if it remains unchanged on previous years, which the company now expects.

Deals, Mergers & Acquisitions

• Midstream company Rocky Mountain Crude Oil has acquired sector player Concord Energy Transportation. The value of the deal was not disclosed but it will double the size of RMCO, expanding its presence in the Permian Basin considerably. Following the acquisition, RMCO will be transporting some 55,000-65,000 barrels of crude daily by truck and pipeline.

• Shell has sold its 50% interest in the North Sabah oil project in Malaysia to local company Hibiscus Petroleum. The deal, worth $25 million, involves 20 offshore platforms across four producing fields in the South China Sea and a crude oil terminal. Hibiscus will have the rights to develop the fields that contain a combined 41 million barrels of crude until 2040.

• U. S Harbour Energy has offered $10.4 billion for Australian Santos, which represents a 30% premium to Santos’ stock prices as of the last session before the offer was made. This is Harbour Energy’s fourth attempt to acquire the Australian oil and gas major since last August. This time, Santos has expressed interest in negotiating a deal but has warned shareholders not to rush into accepting the bid before it is assessed. Even if the shareholders of Santos accept Harbour’s bid, however, the deal may be blocked by regulators because of Santos’ strategic importance for the Australian grid.

• Exxon and Imperial Oil have put up for sale their joint Horn River shale gas project in British Columbia. The assets include 239,000 acres of land plus a stake in pipelines, roads, and other facilities. Touted as a major LNG supply project, the Horn River development has stalled recently and last year Imperial Energy suspended it.

Tenders, Auctions & Contracts

• Statoil has awarded $1.5 billion worth of contracts to three Scandinavian oilfield services providers for the construction and surrounding work of a platform at its Johan Sverdrup field—the largest oil discovery in Norway for the last 30 years and a major priority for Statoil. Johan Sverdrup contains about 3 billion barrels of crude and production should begin in 2019. Its peak production rate is seen at 660,000 bpd.

• Shell won the exploration rights to four offshore blocks in the Campos and Potiguar basins in Brazil during the latest licensing round, all deepwater. The signing bonuses for the four blocks total $70 million. This will bring the company’s total assets offshore Brazil to 18 fields.

• A consortium including Exxon and Statoil has won the exploration rights to two blocks in Brazil’s Campos Basin—one of the hottest spots in the country. Exxon has 40% in the venture that will develop the blocks, with Statoil holding 30% and Petrobras the remainder. Separately, Statoil and BP teamed up on two more blocks with a 60/40 partnership with 60% held by BP. Exxon won the rights to eight blocks in the latest Brazilian licensing round.

• Baker Hughes and its new parent, General Electric, have signed separate contracts for the processing of natural gas from two oil fields in Iraq. The deals will help reduce the rates of gas flaring at Iraqi fields, saving the country a lot of money: Iraq is losing some $2.5 billion every year from gas flaring, according to calculations by the World Bank.

Discovery & Development

• Bahrain this week announced the biggest oil discovery in the country since it began pumping oil in 1932. The Khaleej Al Bahrain field is estimated to hold up to 60 billion barrels of crude oil and 280-500 billion cu m of natural gas. However, the technically recoverable portion of these massive reserves could be tiny, Wood Mac analysts have warned, greatly reducing the significance of the find in the smallest Arab oil producer.

• Apache Corp. has struck oil at an offshore oil field in the UK sector of the North Sea that could contain recoverable reserves of more than 10 million barrels. Apache is the sole rights-holder to the Garten field. This is the fourth major oil discovery by Apache in the Beryl license area in the past three years.

• Sinopec plans to double its LNG capacity over the next six years and boost domestic natural gas production in a bid to increase the share of gas in its product mix. The company targets a more than 60% increase in local shale gas output alone. To date, Sinpoec has an LNG capacity of 27 billion cubic meters. In six years, this should grow to 60 billion cubic meters.

• Total announced first flow of gas from an Algerian field, Timimoun, which has an estimated maximum daily production capacity of 5 million cubic meters of gas or 30,000 barrels of oil equivalent. Total is a minority partner of Algerian Sonatrach in the field, holding 37.75%. The French company’s current oil and gas production in Algeria averages some 15,000 barrels of oil equivalent.

Company News

• Oil and gas company EV Energy Partners has filed for Chapter 11 bankruptcy protection with debts of $654 million and assets of $61.4 million. Its parent company, however, EnerVest, remains solvent, EV Energy partners said.

• FirstEnergy Solutions and FirstEnergy Nuclear Operating Company also filed for bankruptcy protection in a largely expected move: the coal and nuclear power generation business in the United States has suffered a severe blow from the natural gas industry and these are the latest two victims of this blow.

Politics, Geopolitics & Conflict

• Brazil’s Supreme Court has rejected former President Lula da Silva’s bid for a delay to his 12-year prison sentence for corruption. Lula da Silva can be arrested within days to begin serving his sentence, which would have a major impact on the presidential elections to be held later this year: he was the frontrunner for the vote.

• A UK select committee has released a report, warning that if North Korea’s nuclear missile program continues, it could result in the development of missiles capable of reaching UK soil within 18 months.

• President Trump has decided to postpone the withdrawal of U.S. troops from Syria although he kept his promise that the withdrawal will be quick when it comes.

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