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Global Energy Advisory June 17th 2016

Politics, Geopolitics & Conflict

• Unknown gunmen attacked two Iranian cargo trailers in Turkey's southeastern region on Wednesday night, setting fire to the trucks, according to Iranian officials.

• The Kurdistan Regional Government’s (KRG) recent statements that the Iraqi Kurds would resume joint exports if the Iraqi central government would guarantee it $1 billion in revenues a month, is being considered in Baghdad as nothing more than a publicity stunt as the the Kurds gear up for an independence referendum. Baghdad says no new deals are being discussed between Erbil and the central government.

• Nigerian media reports began to emerge late last week and earlier this week to the effect that the newly emerged militants attacking oil installations in the Niger Delta are actually of Somali origin. Oilprice.com sources on the ground in the area confirm absolutely that the militants are not of Somali origin and that the militancy is strictly local. The Niger Delta Avengers on Thursday claimed responsibility for another attack on a state-run oil pipeline. The government’s alleged efforts at peace talks are not viewed as genuine in the Niger Delta, and we expect the attacks to continue and even to intensify in the very new future.

• With the support of Russian air strikes, the Syrian Arab Army claims to have liberated two strategic targets from ISIS that return control of oil and gas reserves in the east Homs region to the Assad regime. The military offensive was launched las week, and as of the time of writing, various media are reporting that the village of Arak, next to the Arak oil field, has been liberated. The main target of the offensive has been Al-Sukhanah, which is a strategic town in eastern Homs area, off a highway that leads to the provincial capital of Deir Ezzor Governorate.

Discovery & Development

• Iran’s Offshore Engineering and Construction Company (IOEC) will start drilling operations at Phase 14 of the supergiant South Pars gas field by mid-July. IOEC will be drilling 22 wells during this phase, which should take two and a half years. Phase 14 will develop 56.5 million cubic meters per day of sour gas, 75,000 barrels per day of gas condensate, and 1 million tons per year of liquefied gas.

• Faroe Petroleum has made a North Sea oil and gas discovery in the Brasse exploration well in license PL740. The well was drilled to a depth of 2,780 meters, encountering 18 meters of gross gas-bearing reservoir and 21 meters of gross oil-bearing reservoir. The working theory is that this is analogous to the Brage producing oil field about 13 kilometers north of Brasse. “This discovery in one of our core areas, builds on Faroe’s already significant position in the Norwegian North Sea via a low cost exploration well,” Faroe Petroleum Chief Executive Graham Stewart said in the release. “If the Brasse drilling results prove a commercial discovery, it could be tied-back to the Brage production facilities or alternatively to other nearby installations.” Faroe has a 50% interest and is the operator in the license. Point Resources holds the other 50%.

• Russian Rosneft and Italian Eni will launch joint offshore drilling projects in the Black Sea next year.

• A long-delayed natural gas interconnector pipeline linking Romania and Bulgaria is now set to become operational this year. The development of this pipeline was fast-tracked after Russia said it would scrap the South Stream pipeline. The interconnector is 25 kilometers long and construction began in 2012, with initial plans to have it operational in 2013 before a series of delays blamed on technical difficulties. The bulk of the pipeline is in Bulgaria, with a capacity of 1.5 billion cubic meters of natural gas per year going to Romania, while the reverse flow capacity will be 500 million cubic meters per year.

• Russian Lukoil has started drilling its first offshore development at the Filanovsky field—the largest discovery (made in 2005) in Russian in two decades, with estimated recoverable reserves of 128 million tons of oil and over 1.4 trillion cubic feet of natural and associated gas. The company previously announced that it planned to invest up to $12 billion to cover operational costs of the field.

• Latin America explorer GeoPark Limited has launched drilling operations in the Llanos 34 Block of the Jacana oilfield in Colombia, targeting 6 wells in the Llanos 34 Block thie year. The Jacana field is currently producing 5,700 b/d of oil from two wells. A week prior to this announcement, Chile's environmental regulator (SME) said it was investigating GeoPark for violations, including hydraulic fracturing without having the necessary permits.

Legal Ease

• Rwanda has passed a national petroleum law that will guide future investment in oil and gas exploration. The country has no known oil or gas deposits and is landlocked; however, other finds in East Africa (particularly in Kenya, Uganda, Tanzania and the Democratic Republic of Congo) have potential explorers hopeful of piggybacking onto regional geology here for new discoveries. All eyes will be on Rwanda’s portion of the East Africa Rift Valley. In 2013, Canadian Vanoil abandoned exploration in Rwanda’s northern Lake Kivu area after drilling dry wells, and the government cancelled their contract, saying the company was not exploring at the expected pace. New exploration is expected to start next year. Rwanda’s petroleum law will see exploration licenses valid for three years and production licenses valid for up to 25 years. Ownership rights, however, remain with the state.

• JKX Oil & Gas plc operating in Ukraine through Poltava Petroleum Company, has confirmed that Ukrainian police raided its offices this week, along with the homes of two of its executives, in connection to an investigation into alleged tax evasion. JKX maintains that the police action is unjustified.

Tenders & Auctions

• UK-listed Tullow Oil, though its Tullow Oil Zambia subsidiary, has been awarded an exploration license for 31 blocks in Zambia’s Luapula and Northern Provinces. Tullow believes there is a high potential for oil and gas here due to the blocks’ location in the prolific rift area where major discoveries have been made in Kenya and Uganda.

• The Egyptian Electricity Transmission Company (EETC) will tender Egypt-Saudi Arabia electricity interconnection project lines and cables next week, on 26 June, with offers to be accepted as early as next month. The project, when completed, will have a generation capacity of 3,000 megawatts, with trial operations to be launched in 2019. The project is expected to cost some US$1.6 billion, with the Egyptian side responsible for $600 million.

Money Matters

• British Gulf Keystone Petroleum, a key operator in Iraqi Kurdistan, has for the second time extended an agreement with its lenders to consider its debt. In late April, Gulf Keystone reported that it lacked the capital to maintain steady output and was short 27% of the funds it needed to boost production to the targeted goal, prompting it to negotiate a standstill agreement with its lenders on interest payments for April, extending them to the end of May. The company has now extended the agreement to 1 July. Originally, Gulf Keystone was targeting output capacity of 110,000 bpd from its Shaikan oilfield in Iraqi Kurdistan.

Deals, Mergers & Acquisitions

• Penn West Petroleum Ltd. is preparing to sells its Viking region assets in Canada’s Saskatchewan province for around $760 million to Teine Energy, backed by the Canadian Pension Plan Investment Board. The company is under heavy debt burden.

• Russian Lukoil may sell four oil refineries, which is says are not strategic assets, as the company narrows its focus on exploration and development. Lukoil’s entire European oil refinery business may go up for sale, or it may spin off its refineries into a separate entity. The four refineries under consideration are in Bulgaria, Romania, Italy and the Netherlands.

• Houston-based Par Pacific has acquired the Newcastle refinery in Wyoming from Black Elk Refining and its Houston parent, EOR Energy Services, $272 million. Par Pacific will also take ownership of other Wyoming Refining assets, including 140-mile Thunder Creek crude oil pipeline and 650,000 bbl of crude and refined product tankage.

Company News

• CNOOC has named Yang Hua as its new CEO after the resignation as CEO and president, Li Fanrong. Yang is a senior economist who has been with CNOOC since 1982. He is also a former director for the state-run company’s overseas development department, among numerous other positions he has held at CNOOC.

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