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Global Energy Advisory August 25th 2017

Oil

Crude oil production growth in the Permian could speed up after the expansion of the BridgeTex Pipeline, the Federal Reserve Bank of Dallas said. The pipeline’s capacity was raised by 100,000 bpd to 400,000 bpd in the second quarter of the year. The BridgeTex pipeline system currently carries Permian crude oil from Colorado City, Texas, to the Houston Gulf Coast area.

The Permian is already the fastest-growing oil-producing region in the U.S., instrumental in driving the total national output to over 9.5 million bpd, as of the latest EIA weekly petroleum report. The pipeline, operated by Magellan Midstream Partners and Plans All American, connects the play to the Houston area, which IHS Market analysts forecast will be the main destination for most of the new production that comes on stream in the star play.

From there, the oil will likely be exported as global demand is stronger than local, with daily U.S. exports seen by IHS Market analysts growing to 3 million barrels over the next eight years and Permian oil accounting for most of that amount.

At the moment, the Permian is yielding around 2.5 million barrels of oil daily and the play is also a hot spot for new pipelines. Total capacity in this segment could reach almost 5 million bpd by 2020, while production could expand to 4 million bpd if international prices increase to $60 a barrel.

Deals, Mergers & Acquisitions

• French Total announced this week the acquisition of Maersk Oil, the energy subsidiary of Danish logistics major Maersk, for a total consideration of $7.5 billion. The bulk of the price Total will pay in own shares, worth $4.95 billion and the rest will come from the assumption of $2.5 billion in debt. The deal should be completed by the end of the first quarter of next year and will enhance Total’s presence in the North Sea as well as other locations around the world, including Africa, South America, central Asia, and the Gulf of Mexico.

• Sempra Energy has offered $9.45 billion for Texas power distribution services provider Oncor Electric Delivery, plus the assumption of debt, which brings the total offer to $18.8billion. Sempra will pay for the distributor with a combination of debt and equity. In the race for Oncor, Sempra outbid Warren Buffett’s Berkshire Hathaway.

• Premier Oil has announced it will sell its stake in the Wytch Farm field, the largest onshore oil and gas deposit in Western Europe. The company did not disclose the name of the buyer but said the deal was worth $200 million plus another $75 million in letters of credit, to cover future field abandonment liabilities.

Tenders, Auctions & Contracts

• Italy’s Saipem has inked an onshore engineering and construction deal worth $850 million at Kuwait’s new Al Zour refinery. The company will be in charge of the construction of feed pipelines for the refinery – a $16-billion project of the Kuwait petroleum Corporation.

• Japanese Inpex may take part in a tender for the development of the Azadegan field on the border between Iran and Iraq, said the managing director of the National Iranian Oil Company, Ali Kardor. The Japanese company developed Azadegan until 2010, when it left to avoid being placed on a black list of companies doing business in sanction-hit Iran.

• Iran’s oil ministry is eyeing oil and gas contracts worth between $50 and $60 billion with foreign companies, to be signed by the end of March 2018. To do this, the country’s energy ministry is now working to make the investment climate in the local industry as open as possible, minister Bijan Zanganeh said after Iran’s parliament gave him a vote of confidence for another four years in office.

• Lithuania this week received the first cargo of U.S. LNG, supplied by Cheniere Energy. The 140,000 cu m of LNG are the first step towards a decisive diversification of gas supplies for the region that has for years complained about its dependence on Russian natural gas imports. EIA estimates suggest that by 2020, the U.S. will have the third-largest LNG capacity in the world after Qatar and Australia.

• Iraq’s oil marketing company SOMO has approached its Asian clients seeking opinions on a plan to change the way Iraqi Basra Light is priced. The move would entail switching the pricing model to Dubai Mercantile Exchange futures from the current mix of the averages for Oman and Dubai crude taken from S&P Global Platts.

Discovery & Development

• BP has almost completed the second stage of development at the giant Shah Deniz offshore gas field in the Caspian. A company report on its activity in Azerbaijan said that Phase 2 is 95% completed. The second phase should lead to an increase in gas output from the field from 9 billion cu m annually to 25 billion cu m. The gas will be exported to Turkey and Europe via three pipelines: the South Caucasus, the Trans-Anatolian pipeline, yet to be built, and the Trans-Adriatic pipeline, scheduled for launch in 2020.

• The Norwegian Petroleum Directorate has issued two new drilling permits, to Aker BP and Statoil, for new fields in the North Sea. Aker BP will drill a wildcat well in the Lotus license area, which has no proven reserves but is adjacent to the Froy field, which is estimated to contain 56 million barrels of oil. Statoil will drill, using a mobile drilling facility, production wells at the Valemon field, whose reserves are est6imated at 192 million barrels of oil equivalent, most of it oil.

• Libya’s Sharara field has once again stopped producing oil following yet another blockade of the pipeline that carries crude from the country’s largest field to the export terminal at Zawiya. This is the latest in a string of production suspensions at the field, which have compromised its contribution to Libya’s growing oil output.

• Essar Oil, in which Russia’s Rosneft recently bought a 49% stake, plans to double the throughput of its Vadinar refinery, which at the moment has a capacity of 400,000 bpd of crude. The Indian company will also expand its network of filling stations to 5,500 from the current 3,500.

• Tullow Oil has stopped drilling offshore wells in Ghana due to a dispute between the country and neighbor Ivory Coast. The dispute, which concerns the TEN offshore oil and gas project where Tullow is drilling, has been brought in front of the International Tribunal for the Law of the Sea Ivory Coast claims part of it falls in its territorial waters. Pending the court’s decision, Tullow has suspended drilling at TEN. The Tweneboa, Enyenra, and Ntomme fields that make up the project hold estimated reserves of 300 million barrels of oil equivalent.

Company News

• Chevron’s chief executive John Watson will step down in September as the company adjusts to a new oil market environment, according to people close to the company. His successor, however, has not yet been decided on, the people said.

• The chief executive of Essar Oil resigned in favor of the chief executive officer of Trafigura India – the commodity trader and Rosneft bought the Indian company in a $13-billion deal that was finalized last week.

Politics, Geopolitics & Conflict

• The governor of Virginia, Terry MacAuliffe, has called on Congress to exclude the state from future oil and gas drilling tenders. In a letter to the Bureau of Ocean Energy Management, MacAuliffe asked the authority to exclude Virginia from the 2019-2014 National Outer Continental Shelf Oil and Gas Leasing Programme.

• Kazakhstan is planning to cancel an agreement with Russia that bans Kazakh exports of light oil products. Astana will initiate the cancellation next January in a bid to find international markets for its excessive fuel output, which stands at between 1.2 and 2 million tons of diesel and gasoline each.

• The Iraqi army has launched an offensive against Islamic State in Tal Afar, a city northwest of Mosul where the terrorist groups still has control, along with territories in the surrounding area and Kirkuk.

• Venezuela’s former attorney general, Louisa Ortega, has told media she has corruption evidence against President Nicolas Maduro, who is also accusing her of corruption. Ortega has left Venezuela, saying she fears for her life, while the president is threatening to set Interpol on her.

• Oil-rich Angola’s incumbent ruling party claimed victory in critical elections to replace President Jose Eduardo dos Santos after nearly four decades of rule. Incumbent Defense Minister João Lourenço is expected to take over for dos Santos. Handpicked by Dos Santos, Lourenço was widely expected to win the election, and the Dos Santos family is expected to maintain their control over many of the biggest companies in Angola, including the state-held oil firm Sonangol.




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