Global Energy Advisory July 25th 2014

Regulatory Alerts

With the final voting schedule for its Energy Reform regularly pushed back, Mexico finally gives investors a piece of good news. The Senate voted Tuesday to end the rule stating that Pemex was the only player permitted to explore and exploit oil and gas resources in the country. The bill, which is expected to pass the Chamber of Deputies, would definitely open the door to foreign players investing in the Mexican oil and gas sector and attract as much as $20 billion in foreign investment a year.

The White House has tightened regulations for freight trains hauling oil, after coming under pressure to act following the derailing of an oil train in Lynchburg, Virginia, back in April. Old models will now progressively be phased out, oil tanker construction will have to follow far more stringent regulations while the trains will have to travel under lower speed limits.

After holding public hearings last week, the US Environmental Protection Agency is forging ahead with regulations that would heavily limit emissions that can be churned out by refineries. The EPA is calling for new measures at the country's 149 refineries, including the first ever public measurement of benzene emissions, as well as setting specific acceptable emissions levels for flares, coking units and storage tanks.

Deals, Mergers and Acquisitions

Breitburn Energy Partners has closed a deal worth $3 billion to buy QR Energy, based in Houston, including QR's debt and outstanding Class C convertible preferred units. Breitburn paid $1.6 billion for the acquisition, which will provide the combined company with an average daily production of 57,300 barrels of oil equivalent. This deal would also create the largest oil-weighted MLP

Talisman Energy has been approached by Repsol about a potential takeover, although no formal bid has been lodged to date. With its share price having taken a hit due to natural gas prices, the acquisition of Canada's fifth-largest oil and gas company would see it gain assets in the US, Canada, Vietnam and Indonesia as well as highly promising exploration prospects in Kurdistan.

Angola's Banco BIC has formally announced that it is preparing to expand its operations and enter Mozambique and São Tomé & Principe. With Sinoangol, a JV between China's Sinopec and Angola's Sonangol, having promised to invest $154 million to develop its concession in São Tomé & Principe Banco BIC would be putting itself in a favorable position to claim a slice of the pie.

Perusahaan Gas Negara, an Indonesian public gas company, has captured a 36% stake in the Fasket shale gas block in Texas from Swift Energy. This is the first foreign acquisition of a $1.25 billion acquisition spree that has seen PGN pick up several new concessions in Indonesia this year.

FeOre Limited has closed a Memorandum of Understanding to acquire 100% of Quangas Poly, which is currently pursuing three oil and projects in Kyrgyzstan with KPC. This marks FeOre's latest move to secure assets in Central Asia, since divesting itself of assets in Mongolia.

A new study from GlobalData shows estimates that the U.S. will spend around $4 billion on expanding its refining capacity between 2014 and 2020. This would see the country add 315,000 barrels per day to its current capacity, representing a 3% increase to the global total.

Discovery and Development

Canacol Energy has confirmed that it has successfully appraised its 2013 Oso Pardo light oil discovery in Colombia's Middle Magdalena Basin, as part of the Santa Isabel Exploration and Production Contract. The potential of this find is coupled by the accompanying discovery of Tertiary sandstone oil at nearby Mono Arana.

Israeli authorities have granted permission for Afek Oil & Gas to begin a three-year drilling program across ten wells in the Golan Heights, south of the town of Katzrin.

Geopolitical conflict

Libya

Clashes between the Misrata Brigades and factions associated with the National Forces Alliance have killed over 50 people around Tripoli, forcing production to dwindle at the El-Feel oil field. It seems that the good news concerning the re-opening of two terminals at the ports of Es Sider and Ras Lanuf was premature. Libya's National Oil Corporation successfully lobbied for the re-opening of the port of Brega, which allowed for oil to flow from the Sharara oil field in early July, but fighting around Tripoli Airport has undone this good work. The same security forces were protecting El-Feel and Tripoli Airport, where a fuel tank exploded on Wednesday.

With that violence showing little sign of abating, we do not expect major oil flow to resume from Libya soon, particularly as Total, Repsol and Eni are pulling staff out of the country. Although the port of Brega is back in business, no oil tankers have been loaded there in recent weeks although the Olympic Spirit II was loaded up with Aframax crude and departed for Bilbao on Tuesday from the port of Zawiya.

China/Venezuela

China has extended a $4 billion credit line to Venezuela, among a raft of economic agreements, in return for 100,000 barrels of crude a day. The deal also includes a payment of $691 million, allowing increased exploration of Venezuelan gold and copper reserves by Chinese firms. At a time when Caracas is rightfully concerned about its economy being in the doldrums, Beijing will help build housing and infrastructure and import goods that Venezuela has in short supply, such as electronics. In return for extensive financial help from China, President Nicolas Máduro has promised to double its oil exports to China from 500,000 bbl/d to 1,000,000 by 2020.  

This is just part of Beijing's charm offensive in Latin America. President Xi Jinping's tour saw him agree an $11 billion currency swap with Argentina and propose that China could fund a railroad spanning the length of South America. As the US continues its pivot to Asia, China has softly launched a counter-offensive by seeking to undercut US influence closer to home.

EU/Russia

The European Commission agreed Wednesday to mandate energy savings of 30% across the block, a deal largely seen as aimed to reduce EU dependence on Russian gas imports. Environmental campaigners said the agreement did not go far enough in cutting carbon dioxide emissions but accepted that meeting this 30% drop would lead to a 22% reduction in gas imports.  Ultimately, any thoughts the move was purely altruistic were laid to rest when EU Climate Commissioner Connie Hedegaard said this was 'good news for reducing carbon emissions and not such good news for Putin."