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Global Energy Advisory March 10th 2017

Politics, Geopolitics & Conflict

• Iran and Iraq have reached an agreement that will see a resolution of the two neighbors’ squabble over oil and gas fields they share territorially. These fields have over the years regularly been the topic of dispute. As part of this shift in bilateral relations, the respective oil ministers this month discussed the construction of a pipeline that would see oil flow from the northern Iraqi fields around Kirkuk to Iran for further exports or for processing at the Abadan refinery. For Iraq, this means regaining control over the Kirkuk fields now controlled by the Kurdistan Regional Government (KRG), or at least an attempt to regain control since the Kurds have already voiced their opposition to this development. The thawing between Tehran and Iraq, therefore, would almost certainly mean a rise in the hostility between the central government in Baghdad and Erbil.

• In Libya, there is a new actor on the militia scene in the Oil Crescent. The Benghazi Defense Brigades last week wrestled control of two of the four oil terminals in the area from the Libyan National Army (LNA) and then surrendered it to the Petroleum Facilities Guard (PFG), which used to control all four ports until last September and use them as a bargaining chip in payment negotiations with the UN-backed government. The Islamist BDB was formed as opposition to the LNA, led by General Khalifa Haftar and, according to the Terrorism Research and Analysis Consortium, shares its ideology with al Qaeda, although the group itself claims it has no affiliations in Libya. Meanwhile, three al Qaeda affiliates active in the Sahel region that spans from Senegal to Sudan, announced their unification into a new organization, Support of Islam and Muslims. This move is bound to make the terrorist group more efficient and will in all likelihood help it expand in numbers and reach.

Deals, Mergers & Acquisitions

• Austrian OMV has bought a 25% stake in the Yuzhnorusskoye gas field in Russia for $1.85 billion from German Uniper, a former unit of utility E.on. The field is one of the largest in Russia and will expose OMV to annual dividends of around $200 million over the medium term, the buyer said. Yuzhnorusskoye produces 25 billion cubic meters of gas annually and is the main source of gas for the Nord Stream pipeline that exports the fuel to Germany.

• Saudi Arabia is negotiating the purchase of an atoll in the Maldives in a bid to secure its oil export route to East Asia and chiefly China. Although media reported that the entire Faafu atoll will be sold, the president of the Maldives said the negotiations concern a $10-billion “mega-project”, details on which will be revealed once an agreement is reached. Asia is a key market for the desert kingdom and it is seeking to expand its footprint there. The Saudi ruler, Prince Salman bin Abdulaziz al Saud, is currently on a tour in Asia.

• Aramco will take over the largest refinery in the US, in Port Arthur, within the next three months, after successfully negotiating the split of its joint operations with Shell in the country. The company will have to pay a breakup fee of $2.2 billion to its partner. The split of Motiva, initially announced last year, stumbled along the way as the partners found it hard to agree on the details. The Port Arthur refinery processes 600,000 barrels of crude daily. As part of the split, Shell will become the sole operator of two other refineries, in Louisiana, whose combined daily throughput of less than 500,000 bpd.

• BHP Billiton is looking to buy more oil assets, as it becomes increasingly optimistic about this industry, which last year hit it with a hefty loss due to low oil prices. The company’s head of petroleum operations said that the first signs of market rebalancing are visible and by the early 2020s oil’s fundamentals will be “compelling.” BHP Billiton recently struck a joint venture deal with Pemex to develop the deepwater Trion fields in the Gulf of Mexico.

• UK-based oil junior Northern Petroleum will buy production assets in Alberta for $1.1 million, together with its joint venture partner High Power Petroleum. Northern Petroleum will take 75% of the assets, which consist of six wells, shut by their previous owner – a Canadian operator that remained unnamed – because they were considered non-core operations. The buyers plan to restart production at the wells as soon as possible.

Tenders, Auctions & Contracts

• The first oil lease tender spanning the whole U.S. sector of the Gulf of Mexico since 1983 will see licenses covering 73 million acres put up for bids. According to Interior Secretary Ryan Zinke, the opening up of more federal lands for oil and gas exploration is part of the foundation of President Trump’s energy policy, although the tender was actually organized and scheduled by the previous administration.

• Indonesia plans to increase the amount of liquid petroleum gas from Iran twofold to 1 million tons, especially if the seller offers sufficient discounts. This will affect imports from other countries, the director general of oil and gas at Indonesia’s Natural Resources Ministry admitted, adding that Saudi Aramco has already been notified of the change.

Company News

• Anadarko expects its oil sales to rise by a quarter this year as it focuses on high-return projects and offloads ones it considers burdensome. The company sold its acreage in the Eagle Ford earlier this year for $2.3 billion and plans capital expenditure of $4.5-4.7 billion, up considerably from last year’s $3.31 billion.

• Cairn Energy reported preliminary financial results for 2016, boasting a solid decline in pre-tax loss to $152 million from $498 million a year earlier. For this year, Cairn plans to start commercial production at two fields in the North Sea, Kraken and Catcher, along with developments across its international portfolio.

Discovery & Development

• Exxon will spend $20 billion on the development of 11 new and several existing production and export sites in the Gulf Coast in the next decade. The facilities will include refining operations, chemical and lubricant production, as well as LNG projects on the coast of Texas and Louisiana. According to CEO Darren Woods, the investment program will strengthen the United States’ position as an emerging oil and gas exporter, drawing on the abundant and cheap domestic oil and gas output thanks to the shale plays.

• BP has ambitions to bring a record-high number of new projects online this year: seven. According to CEO Bob Dudley, this is the largest number of new project launches within a year in the company’s history. He defined the project as “massive” and said they stretched from Egypt to the Gulf of Mexico.

• Gas exports from the Mafumeira Sul oil and gas field in Angola, operated by Chevron, will start in the second quarter of this year, Angola’s state-owned energy major Sonangol said. The field, which began oil production last October, has a daily output rate of 150,000 barrels of crude and 350million cu m of natural gas.

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