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Global Energy Advisory - June 15th 2018


Crude oil prices are back on the seesaw as the market prepares for next week’s OPEC+ meeting in Vienna. Most analysts expect the group to agree to start raising crude oil production gradually, although there are those uwho oppose such a move, such as Iraq and Iran.

Iraq has been particularly vocal in its opposition to a production recovery although it has been the OPEC member that has most consistently failed to cut production to its assigned quota. However, now Baghdad is angry with Riyadh and Moscow: both Saudi Arabia and Russia have already upped their crude oil production ahead of the meeting.

President Trump, meanwhile, has launched another Twitter offensive against OPEC, blaming the cartel for keeping oil prices high even though both Brent and WTI are palpably lower now than they were in April, when Trump railed against OPEC’s cuts for the first time.

Russia’s Alexander Novak has said Russia and Saudi Arabia are in agreement about a gradual increase of production but this agreement would not mean much if Iraq and Iran try to put their foot down. If this happens and the June 22 meeting ends with no unanimous decision, it would not mean that everyone will keep pumping at the lower levels. It means that a lot of producers will start cheating and production will be higher again.

Deals, Mergers & Acquisitions

• Hong Kong-based Ck Infrastructure has offered $9.8 billion for Australian gas pipeline operator APA Group, the largest player in the sector in the country. The deal, if approved, offers a premium of 33% to APA’s closing stock price on the day before the bid was made. It will turn the Hong Kong company—already a large player on Australia’s gas market, into one of the top gas companies in the eastern part of the country.

• Alberta-based oil drillers Akita and Xtreme have announced a plan to merge their operations in a deal worth $160 million. The new company will operate under the name Akita. The two have operations on both Canada and the United States, notably in the Permian, where Xtreme has a solid presence.

• GeoPark has expanded its footprint in Argentina’s Vaca Muerta shale play after the acquisition of the Los Parlamentos block together with local state major YPF. The Latin American independent will receive 50% in the block in exchange for footing 50% of the bill for drilling one exploration well and conducting 3D seismic survey. The block neighbors producing fields in the prolific Neuquen basin.

Tenders, Auctions & Contracts

• Algeria’s Sonatrach inked a gas field development deal with French Total and Spanish Repsol. The three partners plan to invest a total $324 million in the Tin Fouye Tabankort field in order to maintain its output level at 3 billion cubic meters of gas annually over the next six years. Part of the sum will go towards developing other reserves at the field, which are estimated at more than 250 million barrels of oil equivalent.

• Aramco and Indonesia’s Pertamina signed the first contract for Saudi supply of gasoline over the second half of the year. The deal will give Aramco access to the largest importer of gasoline in Asia. The agreed amounts are 1 million barrels of the fuel per month. The source of the gasoline has yet to be determined but it will likely be South Korean S-Oil Corp, the third-largest refiner in the country, in which Aramco holds a majority stake.

• Citgo, the U.S. retail division of Venezuela’s PDVSA has tapped the open market for crude as supplies from the parent company dwindle amid plummeting production and export capacity constraints. Trading data shows that Citgo has been buying heavy crude from Colombia and Ecuador, as well as Azeri Light and Arab heavy and medium blends.

Discovery & Development

• Equinor has received the approval of the Norwegian parliament to move ahead with the development of the Johan Castberg field in the Norwegian sector of the Barents Sea, in the Arctic. The $5.85-billion project is one of the biggest recent discoveries in Norway but attracted a lot of environmentalist opposition because of its location in the fragile ecosystems of the Arctic. Production is slated to begin in 2022. The field holds reserves estimated at 558 million barrels.

• Shell is moving closer to the start of production at its Preluge LNG project off the coast of Australia by introducing feed gas into the floating LNG production facility. Feeding gas into the system is part of the equipment cooling process ahead of start-up, which should take place later this year. Shell has declined to set a date but has said it plans to generate cash flow from Prelude before the year’s end.

• Exxon has begun development drilling in its Liza field offshore Guyana. The start of production is scheduled for 2020. During the first phase of development of the field, Exxon and its partners in the project will drill 17 wells to tap the estimated 3.2 billion barrels of oil equivalent in reserves. Royalties from the Phase 1 development are seen at over $7 billion.

Regulatory Updates

• The U.S. Army Corps of Engineers will complete its environmental assessment of the Dakota Access pipeline project within the next two months. The court-ordered assessment was originally supposed to be done by early April but the Army Corps said it had encountered problems in obtaining necessary information from four tribes that live in the vicinity of the route of the pipe and fiercely oppose it.

• Enbridge Inc.’s costs to build its Line 3 replacement project through Minnesota could rise by US$1.2 billion, or 16 per cent, ahead of a critical regulatory decision in Minnesota. The Minnesota Public Utilities Commission is set to rule on the Line 3 pipeline during the two-day-hearings on July 26 and 27.

Politics, Geopolitics & Conflict

• The U.S. embassy in Mozambique has urged American citizens in the African country to leave if they live in the northeastern town of Palma, close to a major gas field but also part of an area that has seen a recent increase in Islamic militant activity.

• Saudi-led forces launched strikes against the main port in Yemen, held by the Houthi rebel group, which is also the main point of entry for humanitarian aid in the war-ravaged country. The battle could become the biggest in the war and is likely to aggravate the already dramatic humanitarian crisis in Yemen.

• Former Brazilian president Liuz Inacio Lula da Silva has promised he will suspend the sale of Petrobras assets if he is elected president again in October. Lula da Silva is currently serving a prison sentence but will run for president nevertheless.

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