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Global Energy Advisory November 10th 2017


Saudi Arabia was in the spotlight this week, after a string of arrests on corruption allegations and muscle flexing in the direction of Iran. The so-called anti-corruption sweep toppled former and current ministers and several members of the Saudi royal family, sparking worry about a possible destabilization in OPEC’s largest oil producer.

It has emerged in the meantime, however, that the operation might be primarily focused on money-gathering: to date, some $800 billion in assets of the people arrested have been frozen by the government and some observers have suggested the money will become state property, to go into propping up the government coffers.

At the same time, Saudi Arabia is baring its teeth at Iran, accusing it of a direct military attack after earlier this week the Iran-backed Houthi rebels in Yemen fired a missile at Riyadh, which the Saudi anti-missile system intercepted. The White House is backing the Saudis in their claims against Iran. Tehran has said the missile attack came in response to Saudi intervention in Yemen. This intervention, initiated two years ago, is a heavy load on Crown Prince Mohammed.

All these events have been bullish for oil prices but the latest from Saudi Arabia may have an opposite effect. Satellite imaging services provider Orbital Insights has released data suggesting Saudi Arabia has been lying about the state of its crude oil inventories. While Riyadh has been reporting a decline in these since early 2016, Orbital Insight data suggested a slight increase.

That data only comes from storage tanks on the ground, while Saudi Arabia also stores crude abroad, at foreign ports, and underground tanks. If stockpiles declined there then the Orbital data is irrelevant. If the Orbital data does indeed show cheating on the numbers, the OPEC production cut deal could well be dead in the water.

Deals, Mergers & Acquisitions

• French Total has bought the LNG exploration and production assets of Engie for $1.45 billion. The assets include a liquefaction plant in Louisiana, a number of long-term sales and purchase agreements, a fleet of LNG carriers, and access to re-gasification terminals in Europe. The deal also involves an additional consideration of $500 million if oil prices improve in the next few years.

• Australian Elk Petroleum has finalized the acquisition of the Greater Aneth oil filed in Utah, for a total $160 million. The seller is Resolute Energy Corp, which had a 63% stake in the field, which is among the biggest CO2 enhanced oil recovery projects in the country. Its remaining recoverable reserves after a 30-year productive life are about 300 million barrels.

• China Energy Investment Corp. has signed preliminary agreements to invest $83.7 billion in U.S. LNG storage, power generation, and chemical production projects. The investment will be focused on West Virginian and was agreed during President’s Trump visit to China as part of his Asian tour.

• Noble Energy has agreed to sell 30,200 acres in the Denver-Julesburg Basin to SRC Energy for $608 million. The assets produce an average 4,100 bpd of oil equivalent from 600 drilling locations.

• Anadarko is selling its Moxa gas field in Wyoming for $350 million. The field’s output has been in decline since last year, with peak production at 96 million cubic feet daily. This has now, a year later, fallen to 72 million cubic feet daily. The company did not mention the name of the buyer.

Tenders, Auctions & Contracts

• Mexico’s tender for an oil and gas marketing firm was declared void this week, as it failed to attract any bids. The government organized the tender to pick a marketer that will sell the oil and gas produced under new contracts. Until 2013, when Pemex had a monopoly of the Mexican oil and gas market, the marketing of Mexican oil and gas was the charge of a Pemex unit, P.M.I. Comercio Internacional.

• The state oil companies of Iraq and Iran are discussing joint oil field development in Iraq, local media reported--two days after news of another ongoing negotiation concerning the possibility of shipping crude oil from Kirkuk fields to an Iranian refinery.

Discovery & Development

• China is preparing to launch the world’s largest offshore drilling rig in the South China Sea, to explore for gas hydrates, a potentially promising source of energy of which there may be vast reserves, according to scientific investigations. The Blue Whale 2 is a floating platform and can operate in 11,000 feet of water. What’s more, it can drill at depths of 50,000 feet, which is unprecedented.

• Nigerian Oranto Petroleum has started exploration activities in South Sudan in partnership with geophysical survey services provider BGP. The Nigerian company has pledged $500 million for the exploration project, which contains an oil and gas block with reserves estimated at over 3 billion barrels of crude oil.

• Shell has started the construction of a $6-billion petrochemical complex in Pennsylvania, whose main feedstock will be natural gas form shale plays in the area. The complex will include three polyethylene plants with a combined annual capacity of 1.6 million tons, plus a steam cracker with a capacity equal to that of the polyethylene plants.

• UK-based Tower Resources plans to resume its exploration activities in Cameroon after a $2.76-million capital injection. The company is exploring for oil in the Thali license area, which has estimated oil-in-place resources of 39 million barrels. Drilling could begin as soon as next year, so the company can take advantage of the low prices for oilfield services while they last.

Regulatory Updates

• The chairwoman of the Senate’s Energy and Natural Resources Committee, Lisa Murkowski, has released a bill that would open the Alaska Arctic National Wildlife Refuge to oil and gas drilling if passed. The bill envisages at least two large-scale lease sales over the next ten years, spanning a minimum of 400,000 acres each. Surface development, however, should not exceed 2,000 acres, according to the bill. Environmentalists are unhappy about the legislation, arguing that recent leases sales in the North Slope have failed to yield any significant finds.

Politics, Geopolitics & Conflict

• The Niger Delta Avengers have announced an end to the ceasefire they had agreed with the Nigerian government and now once again oil infrastructure is fair game for the militant group despite calls from local community chiefs for its members to lay down their arms.

• Protests from local communities continue in Peru and are likely to continue to affect all natural resources industries present in the Andean country. Late last month, indigenous villagers ended a 43-day protest that had halted production in Peru’s largest oil block after signing a deal with the government. Protesters demander cleaning up oil pollution and from government to commit to including tribes in talks on long-term oil drilling plans, and the government accepted the terms. It is not announced why the protests were renewed. Oilfield in question, Block 192 is operated by Canadian Frontera Energy Corp but has not produced any oil from it since three indigenous tribes seized oil wells in mid September.

• The latest offshore tax haven leak, the Paradise Papers, could cause a headache for Glencore as they reveal the company hid its ownership stake in SwissMarine Corporation when it was negotiating its takeover of XStrata. Also, according to leaked documents, Aberdeen, Scotland-based Ithaca Energy is said to have set up a shell company in Bermuda in 2012 to purchase its share in a $50-million North Sea oil production platform.

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