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Global Energy Advisory, March 2nd, 2018

Putin

The United States is about to overtake Russia as the world’s top oil producer in 2019, the International Energy Agency (IEA) said, adding this could even happen earlier, before the end of the current year.

Last week, the Energy Information Administration (EIA) reported average daily production of 10.28 million barrels, up by 10,000 bpd from a week earlier, and by 1.25 million bpd from a year earlier, signaling that producers have no immediate plans to stop ramping up output. That comes despite calls from investors to start returning cash to shareholders instead of focusing on production growth exclusively.

The U.S. production trends are also worrying OPEC more than ever because output is growing strongly just as the results of the cartel’s production cuts become evident. The global oil inventory overhang is much smaller than it was two years ago and yet U.S. production is fueling fears that inventories will start growing again despite the cuts.

Prices are responding with excessive volatility, jumping on a remark from an OPEC official here, falling on an estimated U.S. inventory build from the API. Some analysts are forecasting an average price for West Texas Intermediate of above $60 a barrel while others are seeing a range of $50-75. The latter might turn out to be right if the fast production growth continues and more doubts about the strength of global demand are given cause to persist.

Deals, Mergers & Acquisitions

• Malaysia’s Petronas has agreed to buy a 40% stake in FAR’s exploration licenses in two offshore oil blocks in Gambia. FAR will keep a 40% interest in both blocks. The Malaysian state oil and gas company will absorb 80% of the costs of an exploration well, Samo-1, to be drilled later this year, as long as the figure doesn’t exceed $45 million.

• Anadarko expects to ink several sales and purchase agreements for LNG from its Mozambique plant this year. The brand new facility has a capacity to produce 12.88 million tons of LNG annually. The future buyers of the fuel include Japanese, Indian, and Chinese companies, among others.

Tenders, Auctions & Contracts

• Schlumberger and Subsea 7 are negotiating a joint venture focused on subsea installations and services. The news was interpreted by traders as a suggestion that Schlumberger may be planning to take over its smaller sector player, even though this is not the first joint project of the two companies.

• India has offered Saudi Arabia a stake in its future strategic oil reserves that the country is beginning to build now. It has also offered the Kingdom to take part in funding a 1.2-million-bpd refinery project as Indian seeks to reduce its reliance on imported crude and fuels.

• Shell and the Albanian government have signed an exploration contract for an onshore oil and gas block in the Balkan nation, in which the Anglo-Dutch company will invest 42.5 million euro over a period of 7 years. This is certainly a change in Albania’s oil and gas history. While the country does have reserves, these are located at great depths making exploration hardly viable.

• Bolivia has reached a preliminary agreement with Dubai’s Kampac Oil and UK investment firm Milner Capital for a $2.5-billion investment in oil and gas exploration in the Andean country. Drilling will be in the Madre de Dios basin, which has estimated reserves of 4 billion barrels of crude and 12 trillion cubic feet of natural gas.

Discovery & Development

• Fortescue Metals’s CEO Andrew Forrest has partnered through a private company with Japanese Marubeni and Jera to build and operate an LNG import terminal on Australia’s east coast. The facility will have a processing capacity of 2 million tons of LNG annually. The east coast of Australia is the most populous part of the country and is suffering an energy shortage that needs urgent addressing beyond last year’s new legislation that allows the government to put a cap on LNG exports in case of higher local demand.

• India’s Directorate General of Hydrocarbons has approved a $4-billion investment plan by BP and Reliance Industries to start drilling for natural gas in the KG Basin. The plan involves three fields, which, according to BP, could reach a peak production rate of some 20 million cubic meters daily. The fields are slated to begin producing in 2022.

• Norway’s Statoil said it had spud the first well at its Oseberg Vestflanken field, one of nine to be drilled on the site. The company has also reduced the budget for the field’s development to $820 million from $1.01 billion, boasting a breakeven level of just $16 a barrel, down from $34 a barrel. The development of the field, which is part of the larger Oseberg area, is seen to result in the recovery of 110 million barrels of oil equivalent.

• Baghdad is in negotiations with Chevron for the development of the Majnoon oil field. Majnoon’s previous operator, Shell, said last year it wanted to exit the project and hand control over to state-run Basra Oil Co. Majnoon produces about 235,000 bpd of crude.

• Russia’s Gazprom Neft expects to start commercial production from the Bazhenov shale oil play in 2025 in case it succeeds in lowering production costs. These need to be no more than $151 per ton for production to become economically justified. The Bazhenov play in the largest shale oil deposit globally, according to the International Energy Agency. Gazprom Neft had estimated it could pump about 8 million bpd of oil equivalent from the deposit. That’s 400 million tons compared to the current production rate of 150 tons daily.

Company News

• Seadrill’s owner John Fredriksen has struck an agreement on the restructuring of the bankrupt offshore driller with most of its creditors. Per the agreement, Seadrill will raise $10.8 billion in new secured notes and equity to creditors. The company was once the largest offshore rig driller but it couldn’t survive the 2014 price collapse and filed for Chapter 11 protection last year.

• The Stockholm Arbitration Court ruled in favor of Ukrainian Naftogaz in its debt dispute with Russia’s Gazprom. The court ordered the Russian company to pay $2.56 billion to Naftogaz for failing to supply the complete volume of gas as agreed in their contract. The full sum of the compensation was $4.63 billion but the court found Naftogaz owed Gazprom payments for deliveries made, which reduced the final figure almost twofold.

• French energy company Total substantially raised its presence in Libya with the purchase of a 16.33 percent stake in Libya’s Waha concessions from U.S. Marathon Oil for $450 million. Total has been in Libya for decades and holds a production share of 31,500 boe/d in 2017 from concessions in the offshore Al Jurf field and the onshore Sharara field.

Politics, Geopolitics & Conflict

• Sudan and Norway will forge closer ties in oil and gas as part of an initiative signed by the two countries earlier. The initiative is part of a series of oil and gas cooperation agreements between Khartoum and Oslo dating back to 2005.

• Iraq has agreed with Kurdistan to resume oil flows along the pipeline from Kirkuk to Turkey, which were suspended last July.

• Russia is considering pulling out of the European Convention on Human Rights and ceasing its cooperation with the European Court of Human Right as their policies ran counter to its interests, unnamed government sources have said.

• China has filed a complaint with the U.S. after Congress passed a bill aimed at forging closer ties with Taiwan. A foreign ministry spokesman said there may be reverberations for Sino-American relations from the bill.

• Oil exploration project between Exxon Mobil and a Russian government-owned oil company Rosneft will be abandoned by Exxon after United States government sanctions prevented the venture from expanding and waivers for the project were denied. The deal was announced by Exxon in 2013, with then-CEO Rex Tillerson praising the effort to drill in the icy Kara Sea, to Russia's north.




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