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Global Energy Advisory, January 12th, 2018


New York City is suing the world’s five biggest oil companies on allegations they knew about the impact the industry was having on the environment but concealed this knowledge from the public for decades.

The city’s authorities didn’t stop there, either. Mayor Bill de Blasio said New York’s five pension funds would divest their holdings in fossil fuels, which are around $5 billion. The city will also be seeking billions from the Big Oil group, which includes Exxon, BP, Chevron, Shell, and ConocoPhillips.

While not all companies were willing to comment on the news, a spokesman for Shell said that courts were not the place to address climate change.

The announcement of the lawsuit comes on the heels of Exxon saying it would seek to sue a number of government officials from several California counties and San Francisco for making misleading statements. Attorneys for the company said that while these counties, in their lawsuits against more than a dozen oil companies, claimed they were under imminent environmental dangers because of the energy industry, they failed to mention this in several bond offerings from the last few years.

The wave of lawsuits could be attributed to America’s notoriously litigious culture, but it’s not the end of Big Oil’s problems. Earlier this week, it emerged that President Trump’s America First tax reform plan may turn out to be a mixed blessing for the big energy companies.

The reform includes a cap on debt interest payments and also a cut in the amount companies can deduct from their taxes on previous years’ losses, which would make it difficult for them to borrow money for new, capital-intensive projects. Apparently, these changes will be more harmful to companies with international operations, which means Big Oil.

Deals, Mergers & Acquisitions

• Shell has sold a petroleum liquids storage terminal in Germany to Zenith Energy for an undisclosed sum. The divestment is likely part of Shell’s debt reduction strategy aimed to relieve the pressure from a debt pile of over US$92 billion accumulated with the acquisition of BG Group that turned Shell into a major player on the international gas market.

• Lucid Energy Group has announced the sale of a business united called Lucid Energy Group II focused on the Delaware Basin in the Permian shale play for about $1.6 billion in cash. Lucid Energy itself is focused on the Permian and calls itself the biggest privately held natural gas processor. The buyers are a group of investment funds grouped in a joint venture. The assets comprise processing capacity of 585 million cu ft daily as well as 1,700 miles of gas gathering pipeline network.

Tenders, Auctions & Contracts

• German wind power turbine maker Nordex said it had won three contracts in the United States for the construction of a total 820 MW worth of generating capacity. Nordex is the sixth-largest wind turbine manufacturer in the world and the fourth-largest supplier in the U.S. The company declined to name its U.S. clients saying that three of the orders were placed by international utilities.

• Tullow Oil said it had bought six new exploration licenses for offshore blocks in Peru. Five of these the Africa-focused explorer bought from Petroperu in full and it also acquired a 35% interest in the sixth one from Karoon Gas Australia. Separately, the UK-based company said it expected to report strong full-2017 results next month thanks to production growth, rising oil prices, and strict financial discipline.

Discovery & Development

• Midstream services provider Oneok will build a natural gas pipeline to transport natural gas liquids from the Rocky Mountains to its NGL facilities. The project, which also includes all associated infrastructure, will cost $1.4 billion and will initially have a capacity for transporting 240,000 barrels of unprocessed natural gas liquids. Going forward, the capacity of the infrastructure will be raised to 400,000 bpd.

• Premier Oil expects its oil production to increase by a tenth this year, to reach 85,000 bpd of oil equivalent. That’s up from an average of 75,000 bpd of oil equivalent in 2017. The increase will come on the back of a ramp-up at the Catcher field that will see it reach its peak production level of 60,000 bpd by the end of the first half of the year. This, Premier Oil said, will help it move forward with its debt reduction program.

• Crude oil production in Venezuela fell to a 28-year low of 1.7 million bpd in December, down 100,000 bpd from the prior month amid continuing political chaos, executive reshuffles and lack of funds for field and equipment maintenance. To top it all, refinery workers are resigning, fearing heightened risks of accidents since, they say, security protocols are not being followed.

Company News

• Aramco has invited international banks to bid for the role of coordinator in its upcoming IPO, advertised by Riyadh as the biggest IPO in history with the company’s valuation in excess of $1 trillion. The hopefuls include Citi, Goldman Sachs, and Deutsche Bank. The winner(s) will be selected at the end of January or early February and will join a team that already includes JPMorgan, Morgan Stanley, and HSBC.

Regulatory Updates:

• The Department of Interior has exempted Florida from its new five-year oil and gas drilling lease program after Governor Rick Scott complained opening up its waters to drillers will wreak havoc on its tourism industry. The move could see more coastal states press Washington for an exemption, since the new lease program covers about 90% of the U.S. outer continental shelf.

• BP has settled a lawsuit in California after the state accused the oil major of overcharging it for natural gas deliveries. The terms of the settlement remained undisclosed but BP faced penalties of several hundred million dollars had the case gone to court. The state’s suit alleged that overcharges were between $150 and 300 million.

Politics, Geopolitics & Conflict

• The Syrian army and its Russian allies have gained more ground in territories controlled by opposition groups in the provinces of Idlib and Ghouta.

• North Korea has consented to hold talks with its southern neighbor on the possible participation of Pyongyang in the Winter Olympics that will take place in South Korea. There is hope for a de-freezing of bilateral relations.

• Violent protests in Tunisia, whose government is trying to press ahead with unpopular austerity measures, have led to several hundred arrests as people demonstrate against higher prices and taxes.

• In Iran, about a thousand people were arrested during the worst protests since 2009 but official sources said most of them, except for “instigators, have been released. At the same time, Trump was also expected this week to extend sanctions relief to Iran, which should be good news for Total SA’s $1-billion investment commitment.

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