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Global Energy Advisory May 4, 2018

Refinery

Marathon Petroleum will buy peer Andeavor in a cash and stock deal worth $23 billion, creating the biggest independent refiner in the United States, overtaking Valero. The new company will have a refining capacity of some 3.1 million barrels of crude daily.

The deal, which includes the assumption of more than $12 billion in debt, will give Marathon Petroleum a 66% stake in the new company and a better position to take advantage of the booming shale oil production in the country.

Andeavor’s refineries are scattered across the States and equipped to process exactly the type of light sweet crude that is pumped from the shale patch, unlike most Gulf Coast refineries that require imported heavy crude. This makes Andeavor better positioned than the Gulf Coast refineries to take advantage of the shale boom.

The deal values Andeavor’s stock at $152 per share, a premium of 24% to its closing price this Monday. The company operates refineries in Alaska, Utah, California, North Dakota, New Mexico, Texas, and Washington, while Marathon’s refining assets are in the Midwest and the Gulf Coast.

Deals, Mergers & Acquisitions

• Austrian ONV and Abu Dhabi’s Adnoc have finalized a deal for OMV’s acquisition of two stakes in offshore fields worth a combined $1.5 billion. The deal is the final one in a string of concession awards by Adnoc, which totaled $8 billion since the start of the year. The Abu Dhabi company will retain majority stakes in all fields awarded to international players.

• The Russian Federal Anti-Monopoly Service has finally cleared Schlumberger to buy a stake of between 25% and 49% in Eurasia Drilling, the largest oilfield service provider in Russia with a market share of 20%. The head of the FAS, however, suggested Schlumberger team up with the Russian Foreign Investment Fund and Mubadala—the sovereign investment fund of the UAE—for the acquisition, in which the U.S. giant would buy 25% and the other two will acquire 16% in Eurasia.

• Exxon is buying an Indonesia motorbike lubricant maker for $436 million. The company said the acquisition of FKT, including its brand Federal Oil will strengthen its presence in the lubricants market in Indonesia.

• Statoil has agreed to sell its 17% interest in the Alba oil field in the UK section of the North Sea to Verus Petroleum in a bid to green up its portfolio, the company said. The value of the deal was not disclosed. Verus Petroleum also bought 47% in the Babbage gas field, also in the North Sea, from Premier Oil for $63 million.

Tenders, Auctions & Contracts

• Two Chinese companies and an Emirati energy firm won the rights to explore six oil fields in Iraq in the latest tender organized by Iraq. All the large international players that were shortlisted for the tender withdrew, possibly due to lack of time as the tender’s date was moved to April from late June. These included Exxon, Total, Gazprom, and Lukoil.

• Aramco has awarded KBR a contract for the construction of an integrated petrochemicals complex in Saudi Arabia, with plans to paunch it in 2025. The project is part of Saudi Arabia’s diversification efforts in the energy industry, which involve a shift from crude oil production into refining and petrochemicals production.

Discovery & Development

• India’s state energy giant ONGC has allocated $2.64 billion for new oil and gas drilling this financial year. The company has plans to drill 535 wells, which would be a record-high number as India struggles to satisfy growing domestic demand without raising its already huge dependence on imported crude. Local production has been falling for years, hence the rush to make new discoveries and start production as soon as possible.

• Gran Tierra Energy has struck oil in an appraisal well in Colombia. The Canadian company reported the well produced 100-600 barrels of crude daily and it planned to drill more wells in the vicinity. The Ayombero-1 well is located in the Galembo field, in the Middle Magdalena Valley. The field is close to an already producing field, Acordionero, operated by Gran Tierra. There, the Canadian company plans to drill six more wells by the end of the year.

• Highlands Natural Resources, a UK-listed energy company, said it had spud the fifth well at its East Denver oil and gas project in the Niobrara play. Plans are for six wells to be drilled at the site. The drilling is funded by Highlands’ partner in the project, True Oil LLC.

Company News

• BP reported a 71% increase in net profits for the first quarter to $2.6 billion, beating analyst expectations of $2.2 billion.

• Apache Corp booked a net profit of $145 million for the first quarter of the year, lower than a year earlier but higher than analyst estimates.

• Continental Resources’ Q1 profit beat analyst estimates, hitting $234 million, up from just $469,000 a year earlier.

• Higher oil prices helped Pioneer Natural Resources to swing into a profit of $178 million in the first quarter, from a loss of $42 million a year earlier.

• Marathon Oil also booked a net profit of $356 million for the first quarter, versus a loss of $4.96 billion a year earlier.

• Suncor reported higher than expected profit for the first quarter, at $766.4 million, even though its production fell during the period by 4.9% to 689,400 barrels of oil equivalent daily.

Regulatory Updates

• Indonesia is relaxing further its regulations for the energy industry in an attempt to stimulate more exploration. The current regulatory regime for oil and gas companies is prohibitively complicated, with lengthy procedures that put off foreign oil and gas players. Indonesia produces about 800,000 bpd of crude but this is about 50% of what it consumes, which has made the situation rather urgent.

Politics, Geopolitics & Conflict

• Around 40 Syrian military personnel have been killed in a series of air strikes most likely carried out by Israel, heightening regional tensions further.

• The lead of Mexico’s Morena presidential candidate Andres Manuel Lopez Obrador has narrowed as his closest rival emerged from corruption allegations. Elections are taking place on July 1.

• The U.S. Treasury and Commerce Secretaries are in China for talks aimed to alleviate bilateral tensions that have sparked global worry about a trade war.




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