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Global Energy Advisory November 3, 2017


Venezuela narrowly escaped a debt default this week after making a last-minute payment on a $1.2-billion bond that was due last Thursday. The payment, to the tune of $842 million, was received by bondholders on Wednesday, a day before the deadline for another debt payment, of $1.12 billion.

Bondholders are on edge as Caracas and PDVSA have been late to pay several earlier debt installments in the last couple of months and the country’s coffers are fast getting depleted. This Thursday payment, like last week’s, is particularly risky as neither of these involve a provision of a grace period of up to 30 days. In other words, if Venezuela fails to make the $1.12-billion payment, it could formally be recognized as a country in default on its debts.

Meanwhile, Russia has once again demonstrated its support for the Nicolas Maduro government by restructuring $1 billion in payables for 2017. Indeed, a demand for Caracas to repay the debt would make little sense, observers note, what with all the other debts that the government and the state-owned oil company have to meet. Instead, Russia and Venezuela will restructure the debt and delay the start of payments.

Venezuela is facing debt payments of another US$750 million in the next four weeks. The government is adamant that the country will not default on its debts, blaming bondholder concern on a smear campaign.

Deals, Mergers & Acquisitions

• Rosneft is mulling over a stake buy in Croatian oil and gas company INA. INA is a joint venture between the Croatian government, with 44.85%, and Hungarian state oil company MOL, with 49.1%. The two shareholders have been locked in a dispute over who should control the company for years. Rosneft’s Igor Sechin said the company was interested in a strategic partnership with the Croatian government via a stake acquisition in INA but gave no further details on a possible deal.

• Ineos has finalized the acquisition of BP’s Forties pipeline network for $250 million. Along with the acquisition of the Kinneil Terminal as part of the deal, the energy independent will gain control over infrastructure transporting some 40% of the oil and gas UK gets from the North Sea.

• In another North Sea deal, Harbor Energy announced the completion of a $3-billion buy of Shell assets in the region. Harbor is the financial back behind energy independent Chrysaor, which is now the largest independent oil and gas producer in the North Sea. Production from the Shell assets is about 120,000 net barrels of oil equivalent, with production costs as low as less than $15 per barrel.

• PNG producer Oil Search has paid $400 million for a venture into oil production through the acquisition of stakes in three oil fields in Alaska. The fields are all in the North Slope and the stakes range between 25.5% and 37.5%. The sellers were private firms Armstrong Energy and GMT Exploration Company.

Discovery & Development

• Indonesia’s state energy company Pertamina will take full control over the country’s largest gas field, Mahakham, at the end of the year, amid rising natural resource nationalization that has pushed out the previous operator of the field, French Total. The change is a challenge for Pertamina as production from the field is in decline and the company does not have a whole lot of cash to invest in new wells, which is the only way to reverse the decline.

• Tullow Oil has reported disappointing results from a drilling campaign at Lake Turkana, in Kenya. After making two discoveries earlier this year, with combined reserves of 750 million barrels of oil, the company said its latest well-drilling push has turned up no meaningful finds.

• Chevron sent the first cargo of LNG from its Wheatstone project offshore Australia to Japanese JERA. The volume of the cargo was not disclosed but the annual production capacity of Wheatstone, once it reaches full-scale production, is planned at 8.9 million metric tons.

Company News

• BP reported a net profit of $1.9 billion for the third quarter of the year, up more than twofold on the year, thanks to stronger performance from both its upstream and downstream business divisions.

• Shell reported a net result of $4.2 billion for the third quarter, up by 47% on the year, with cash flow, however, declining quote a lot from the second quarter, to $3.67 billion from $.12 16 billion.

• Exxon booked a 50% rise in its Q3 net profit, to $3.97 billion, from $2.65 billion a year ago. The company attributed the improvement to higher oil prices and stronger performance across business operations.

• Chevron also reported a substantial improvement in net results, at 53%, to $1.95 billion, with the company saying that in addition to higher oil prices it reaped the benefits of an asset sale program.

• Norway’s state oil major Statoil booked a net loss of $478 million for the third quarter, up from $427million a year ago but a 48% improvement in operating profits, at $1.1 billion.

• French Total booked a 29% increase in Q3 net profits, to $2.67 billion thanks to cost cuts, higher oil production and higher oil prices.

• Anadarko reported a net loss of $699 million for the third quarter, disappointing analysts but still doing better than a year ago, when the quarterly loss was $830 million.

Regulatory Updates

• The European Union is preparing new legislation aimed at putting another hurdle in front of Gazprom’s Nord Stream 2 project. The legislation envisages applying EU internal energy market rules to gas pipelines running to European countries. The rules cover third-party access to the pipelines, separating pipeline operators from their parent companies, and setting non-discriminatory tariffs. The reason the EU wants Gazprom to give up Nord Stream 2 is that it will result in a lot of gas deliveries bypassing Ukraine and will also strengthen the Russian company’s position in Europe, which many see as a monopoly, although Gazprom’s share of gas deliveries to the EU is basically equal to the share of Norway, at around a third of the total.

• An Italian court is set to decide next month whether to take Shell and Eni executives to trial over a corruption allegation regarding the $1.3-billion acquisition of an oil block in Nigeria back in 2011. The deal has been subject to investigations by both Dutch and Italian prosecutors, while a Nigerian court directly ordered that the block, OPL 245, be seized and control be transferred to the federal government. Separately, the Nigerian financial crimes watchdog has pressed charges to several Shell and Eni executives for conspiracy to commit a felony and a breach of corruption laws for paying a bribe of $801 million to government officials to secure the purchase of OPL 245.

Politics, Geopolitics & Conflict

• U.S. President Donald Trump is off to Asia next week, where he will most likely try to convince China’s Xi Jinping to apply more pressure on Pyongyang.

• The president of the Kurdistan autonomous region has announced his resignation, sparking violent protests against the Kurdish parliament. Masoud Barzani said, however, that he remained committed to Kurdistan’s fight for independence.

• UK’s Foreign Secretary Boris Johnson is set to travel to Washington next week, to try and convince U.S. Congress not to drop the Iran nuclear deal.

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