Global Energy Advisory October 28th 2016

Politics, Geopolitics & Conflict

• The Niger Delta Avengers have again violated the ceasefire negotiated with the Nigerian federal government, blowing up Chevron's 100,000-bpd Escravos pipeline. The militant group had warned Chevron against attempting to repair and restart the pipeline. The NDA also said the peace negotiations with Abuja are not moving forward. The latest attack comes just days before President Buhari's visit to the Delta to discuss the future of the region with local community leaders. According to some, NDA is being supported by southern politicians who want to see Buhari dethroned. The Nigerian South, where the Niger Delta lies, is predominantly Christian, while Buhari, who comes from the North, is a Muslim and took over the helm of the country from a southerner in the 2015 elections. The Delta communities are much poorer than the North, and unemployment rates are higher, causing widespread unrest. In the meantime, while the Nigerian government announced on Tuesday that Shell's Forcados terminal exports have been relaunched after attacks forced its shutdown in February, our sources in the Petroleum Ministry say that Forcados has been exporting for some time already, but had kept it quiet to avoid retribution from militants.

• Another Mubarak-era official in Egypt has won an acquittal for criminal charges, this time the former oil minister, charges with selling under-priced gas to Israel and squandering public funds. Mubarak-era oil minister Sameh Fahmy was arrested in 2011, convicted in 2012 and sentenced to 15 years in prison. He was acquitted in February 2015, after a retrial, but the prosecution appealed. On Thursday, he was acquitted by an Egyptian appeals court.

• While the battle to retake Mosul rages on and ISIS (according to media accounts, at least) is losing ground, it is important to understand why Mosul-and who will control it once ISIS is gone-is so important. So many different groups have a stake in Mosul, and while the coalition of Iraqi Kurd Peshmerga forces, Iraqi security forces controlled by Baghdad and Sunni Arab militias have joined together to root out ISIS, once the dust settles, a secondary battle of sorts will begin. The Kurds' Peshmerga fighting force has for some time been instrumental in keeping ISIS at bay in northern Iraq (even beyond more secure territory controlled by the Kurdistan Regional Government), particularly in oil-rich Kirkuk, and elsewhere across the territory disputed by the KRG and the Iraqi central government. The Kurds are freeing Mosul for nothing, and like oil-rich Kirkuk, Mosul will also be drawn powerfully to the KRG, so much is also at stake for Baghdad after Mosul is liberated. Mosul is of strategic importance for the KRG because it is through here that any new pipelines would run to carry Kurdish gas to markets in Europe.

Deals, Mergers & Acquisitions

• Eni is still in discussions with Exxon for the sale of a large stake in the Italian company's Area 4 gas deposit off the shore of Mozambique. The sale was announced in August but Exxon had asked Eni not to announce its closure for another few months. The Italian company has 50% in Area 4 and said it would sell half of this.

• Pilgrim Petroleum, a private-equity backed independent energy company has bought 79% in oil production assets spanning 220,000 acres in the Bakken, Eagle Ford, and Woodford shale plays. The value of the deal was $330 million.

• Total, Glencore, and oil trader Gunvor are bidding for the downstream assets of Chevron in South Africa. The assets, in which Chevron is selling 75%, include a refinery in Capetown with a capacity of 110,000 bpd. Their value, along with some assets in Botswana, is estimated at $1 billion.

• Cooper Energy has agreed to buy the offshore gas assets of Santos in Victoria for around $62 million. The assets include a 50% stake in the Casino-Henry gas field and 100% in the Patricia Baleen field, which is not yet operational.

• Clayton Williams, an energy junior, has sealed a deal for the sale of its assets in the Giddings area in Eagle Ford to an unnamed buyer. The value of the deal is $400 million and the proceeds will be used by Clayton Williams to fund its Delaware Basin operations.

Tenders, Auctions & Contracts

• Iraq is offering international oil companies customized contracts for the development of 12 fields. This is a move away from its standard service-based contracts that stipulated a fixed payment to the field operators per barrel of crude extracted. The new contracts will be based on individual submissions by the candidates to operate the fields, with the terms of each contract to be negotiated directly between Baghdad and the respective bidder.

Discovery & Development

• Russia expects 2017 to bring new oil and gas discoveries as a result of exploration work in Western Siberia, according to the Minister of Natural Resources Sergey Donskoy.

• BP Oman is close to completing the first phase of its large-scale tight-gas project. The phase is at 80% completion, the company said, and first gas should flow late next year.

Company News

• Key Energy Services, an oilfield service provider, has filed for Chapter 11 bankruptcy protection, after finding itself unable to service its $1-billion debt. The restructuring following the filing will see this slim down to $250 million.

• Schlumberger reported a 82% drop in net income for the third quarter of the year. CEO Paal Kibsgaard, however, said that the company is starting to stabilize, after losing half of its revenues over the seven previous quarters. Halliburton also booked a sharp annual drop in earnings, to $0.01 per share, from $0.31 per share for the third quarter of 2015. Revenues were flat at $3.83 billion, the company said.

• Statoil reported a loss for the third quarter, at $261 million, from a profit of $445 million for Q3 2015. The company said its result was affected by persistently low oil prices.

• Baker Hughes exceeded analyst estimates for a loss per share of $0.45, reporting a net result of -$0.15 per share. Revenues were in line with analyst predictions at $2.4 billion.

Regulatory updates

• Britain's newly nationalized Oil and Gas Authority will use any tool available to it to make North Sea field operators speed up the development of the remaining hydrocarbon resources there. The OGA's new chief Andy Samuel said that he is prepared to impose fines and even revoke licenses if the companies pumping oil and gas in the North Sea don't do their best to maximize output. These measures are part of the OGA's new powers, approved early in October. Fines could reach US$1.22 billion, as the UK strives to weather the effects of the oil price slump that has affected North Sea oil revenues.

• Angola's president has been summoned by the country's Supreme Court to respond to an inquiry initiated by 14 lawyers into the appointment of his daughter to the top spot at the state oil company Sonangol. Isabel dos Santos, ranked the richest woman in Africa by Forbes, was appointed CEO of Sonangol earlier this year in a surprise move by her father, which also say the company's complete board of directors ousted. The Appointment has, unsurprisingly, led to accusations of nepotism and breaching the Angolan probity law. Dos Santos, for his part, has stated as goal of the reshuffle improving the efficiency of the company. Angola is currently Africa's biggest crude oil producer, having overtaken Nigeria this spring.

• Switzerland has transferred $51 million from a frozen PDVSA account to the U.S. in response to a request from the U.S. anti-corruption authorities, which are investigating graft practices at Venezuela's state oil company. The Department of Justice launched the investigation after two Venezuelan nationals pleaded guilty to violating the Foreign Corrupt Practices Act.