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Global Energy Advisory December 15, 2017


Brent crude prices got a major boost this week after the operator of the largest oil pipeline network in the North Sea announced it would shut it down for three weeks after the discovery of a hairline fracture.

Ineos, an independent oil and gas producer that acquired the infrastructure from BP earlier this year for $250 million, said on Thursday that the crack was “stabilized” and it was now considering ways to repair it.

The Forties network transports more than 400,000 bpd from oilfields in the North Sea to the Scottish coast, supplying 40 percent of UK’s oil. As a result of the shutdown, 85 platforms had to stop producing and Brent briefly jumped above $65 a barrel.

For WTI this is good news as the more the discount at which it trades to the international benchmark widens, the more attractive U.S. crude becomes, especially for Asian customers, which are key buyers and always on the lookout for bargains. According to analysts, we’re likely to see a spike in Asia-bound U.S. crude oil exports while the Forties remains shut.

On the other hand, the U.S. benchmark was buoyed on Wednesday, after the EIA reported the fourth consecutive weekly crude oil inventory draw, and the spread with Brent has narrowed to about $6 a barrel. Still, the discount is substantial enough to keep demand for U.S. crude growing.

Deals, Mergers & Acquisitions

• Oasis Petroleum will buy 20,300 net acres in the Delaware Basin from Forge Energy for $946 million, of which $483 million in cash and the rest in 46 million shares. The acquisition will expand Oasis’ footprint in what’s perhaps the most promising part of the Permian: the Wolfcamp Basin. To date, production from the asset averages 3,500 barrels of oil equivalent per day.

• Exxon has acquired a 25 percent stake in the offshore Area 4 in Mozambique from Italy’s Eni. The gas deposit contains an estimated 85 trillion cu ft of natural gas and is the site of the Coral South floating LNG project. Exxon, which paid Eni $2.8 billion for the stake, will now have an equal share in Area 4 with Eni, at 37.5 percent, but the Italian company will remain operator of the venture. Other participants in it include China’s CNPC, Mozambique’s national oil and gas company ENH, Portuguese Galp Energia, and Korean Kogas.

Tenders, Auctions & Contracts

• The Bureau of Land Management auctioned almost 33,500 acres of public land in Nevada for oil and gas drilling. The auction sparked the outrage of the Center for Biological Diversity and other environmental organizations, which argue that oil and gas drilling in these lands would threaten the habitats of threatened species, which make up part of the acreage auctioned.

• Commodity trading major Vitol and independent midstream services provider Harvest Pipeline have agreed to build and operate together an oil terminal in Corpus Christi, Texas. The terminal will receive crude from the Permian, which is the shale play with the fastest production growth in the Lower 48 states and send it to international markets, amid growing demand for U.S. crude.

• Gazprom and the National Iranian Oil Company inked a preliminary contract for the development of the $4-billion Iran LNG project. The first phase of the project envisages the construction of two liquefaction trains, each with an annual capacity of 5.25 million tons of LNG. The second phase will see the total capacity of the project jump to 21 million tons annually, from two more liquefaction trains.

• Oilfield service provider Petrofac won a contract worth $800 million from BP for the development of Phase 2 of the Khazzan tight gas field in Oman. This is Petrofac’s second contract for Khazzan, which started commercial gas production three months ago. The first phase of development will see Khazzan produce 1 billion cu ft of gas daily, which will expand to 1.5 billion cu ft daily during Phase 2. The first two phases of development are planned to extract an estimated 10.5 trillion cu ft of tight gas.

• Australia’s competition watchdog blocked the sale of Woolworths’ fuel stations to BP despite BP offering to sell some of its own outlets to quench antitrust worry. Initially announced last December, the acquisition would have helped Woolworths focus on its core supermarket business and strengthened BP’s fuel station footprint. However, after months of talks between the parties and competition authorities, the latter put the brakes on the deal, saying the acquisition will lead to higher fuel prices, based on the observation that BP sold its fuels more expensively than other retailers and also that it was quicker to raise them and slower to reduce them as oil prices moved up and down. In the absence of low-price competition from Woolworths, the Australian Competition and Consumer Commission said, BP would prompt all other fuel retailers to sell their products more expensively.

Discovery & Development

• UK-based Europa Oil & Gas Holdings has announced a discovery offshore Ireland that could hold more than 2.5 trillion cu ft of natural gas. The discovery was made in an exploration area adjacent to the Corrib field, which is the biggest producing offshore field in Ireland. The discovery was made in shallow waters, Europa said, which will mean lower costs for further exploration and production, improving the commercial viability of the project.

• The first cargo from Russia’s Yamal LNG project, of 170,000 cu m, was shipped to Petronas UK, the operator of the project, Novatek said. This is Russia’s first LNG project and Novatek is already planning a second one targeting the growing LNG market. According to Novatek’s chief executive Leonid Michelson, the Yamal peninsula in northwestern Siberia has the reserves to produce more than 70 million tons of liquefied natural gas annually.

• Qatar Petroleum is among the companies interested in developing oil and gas fields in Iraq, according to Iraq’s Oil Ministry. The Qatari company has expressed interest in both oil and gas production, and downstream activities, including petrochemicals. Iraq recently launched a tender for nine new oil and gas blocks, trying to expand its production capacity.

Company News

• Saudi Aramco has announced an upward revision to its spending plans for the next decade. The state giant will spend some $40 billion annually through 2027, or a total of $414 billion. That’s 25 percent more than the $334 billion it last year announced it planned to spend until 2025. Of the total, $134 billion will go into new field development and another $78 billion will be used to maintain production potential. Some $120 billion will be used to develop offshore field and another major portion of the investment will go into downstream projects.

• French insurer AXA, the world’s third-largest, announced it will pull out from the oil sands industry and stop insuring oil sands project because of their carbon footprint. The company will divest some $820 million of oil sands field development projects and infrastructure, as well as $2.8 billion of coal-related investments. What’s more, AXA will stop insuring such projects as part of its effort to distance itself from the fossil fuel industry. The insurer, however, is wary of a complete exit from this industry: it said nothing about other oil investments and insurance for oil producers and petrochemical businesses.

Politics, Geopolitics & Conflict

• Tensions between the Arab world and the United States spiked after President Trump declared Jerusalem to be the recognized capital of the state of Israel. Naturally, no Arab state is willing to support this declaration.

• A militant attack on a UN peacekeeping base in the Democratic Republic of Congo suggests growing instability in the country. The attack, reportedly by an Islamist group, was the biggest in recent UN history, killing at least 15 people and injuring another 53.

• Secretary of State Rex Tillerson has put himself at odds with the White House on North Korea, after he invited Pyongyang to the negotiations table. A day after his statement, the White House released one of its own, reiterating the tough stance President Trump has taken towards the pariah state.

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