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Global Energy Advisory October 7th 2016

Politics, Geopolitics & Conflict

• The British government is still in favor of fracking, according to the Communities Minister, despite opposition from local authorities, fuelled by environmentalist protests. The support took more specific form today, when the Tory Cabinet decided to grant permission to Cuadrilla, a gas exploration company, to employ hydraulic fracturing in Lancashire. The central government’s decision has overruled the local legislative authority and is bound to lead to protests.

• ISIS is adapting to new security measures and military takeovers quickly. For revenues, French sources say the group is now ramping up trafficking in cigarettes, food and drugs to replace reduced illicit oil revenues. In the meantime, while Western media is keen to view any possible victory over ISIS in Mosul as the beginning of the end for ISIS, the likelihood is that it will adapt, regroup and relaunch elsewhere.

• The bill opening up Brazil’s pre-salt oilfields to foreign firms has passed. Beyond this, there will be even more pre-salt blocks up for grabs by foreign firms as an additional move has been made to amend the regulations governing the Transfer of Rights. The caveat is that foreign companies getting in on this second Transfer of Rights loophole will not be able to be operators, which is the purview of state-run Petrobras. There is also more good news for foreign oil companies: Local content requirements will be less restrictive in the next bidding rounds, which will in turn lead to an improved cost structure. The schedule for future bidding rounds is as follows:

- 4th Bid round for marginal oil and gas fields; call for bids in the second half of 2016, bid in the first half of 2017.
- 14th bid round for oil and gas fields under the concession regime; call for bids in the first half of 2017; bid in the second half of 2017.
- 2nd pre-salt bid round under the production sharing regime: call for bids in the first half of 2017; bid round in the second half of 2017.

• While repairs have been completed on the pipeline ruptures by militants that shut down Nigeria’s Forcados oil export terminal in February, Shell (the operator) wants to avoid making a formal announcement of resumption of exports from the facility. This is because the company fears it would be an invitation to another major attack on the pipeline system given the heightened tensions in the Niger delta. The peace moves that were being proposed between the Niger Delta Avengers and the government have more or less collapsed (not officially, but in reality) after prominent leaders from the region shunned a government-initiated meeting in Abuja planned for Sept. 26. The Niger delta elders and leaders nominated by the militants to negotiate on their behalf have largely been ignored by the government, which is pressing on with military action against the militants. The government—through airstrikes and allegations--has set the stage for further military action and attacks by militants in turn targeting oil and gas facilities. Already, some pipelines in the outer reaches of the Forcados system have come under attack from the Niger Delta Greenland Justice Mandate, helping set off the apprehension of Shell and small independents, such as Seplat and Shoreline Energy, which use the Forcados terminal to export their crude. (Though the rainy season is not over, the NDA is frustrated and no longer planning to wait until November). Though the NDA claimed it attacked the Bonny crude export line last week, industry officials think the group is planning to disable the Forcados line as soon as it can. And because of this Shell will not announce the restart of Forcados but would likely quietly resume exports from there this week. This unannounced resumption this week of exports is not likely to work as Shell plans. They cannot control media reports entirely. There are too many leaks. Word is already out that buyers are purchasing advance loads of crude from Forcados in anticipation.

• Nigeria is suing several international oil companies for alleged theft of as much as $17 billion worth of crude oil. The theft was perpetrated by either declaring less crude than was loaded on tankers leaving Nigeria or not declaring entire cargoes at all. The companies in Accra’s crosshairs include Chevron, Shell, Total, and Eni.

• In a surprising turn of events, a peace deal between the Colombian government and the FARC rebel organization was voted down by the population at a referendum, raising questions about the country’s future. The deal was welcomed by the energy industry but now it seems the problems that have prevented Colombia from fully exploiting its hydrocarbon resources will persist.

Deals, Mergers & Acquisitions

• Qatargas has inked a 20-year LNG supply deal with Pakistan, under which the Qatari firm will ship to Pakistan 1.3 million tons of liquefied gas annually, with a clause stipulating this could be raised to 2.3 million tons. The deal, according to Qatargas’ CEO, demonstrates the importance of Pakistan as an energy market.

• Jordanians are protesting against the major long-term gas supply deal signed by Amman and Tel Aviv last week that will see Jordan receive 45 billion cu m of gas from the Goliath offshore field over 15 years. The $10-billion deal, according to Jordan’s Information Minister, will reduce the country’s energy bill by $600 million annually. Protesters, however, see it as a political sell-out.

• Marathon Oil has agreed to sell $235 million worth of non-core assets in western Texas and New Mexico, whose combined yield during the first half of this year was 4,000 barrels of oil equivalent. The buyer’s name has not been disclosed.

• Canadian Enerplus has put up for sale its assets in the Marcellus shale, with proceeds estimated at $500 million. The sale, if it takes place, will help Enerplus to reduce its debt pile, which at end-June stood at about $530 million, and focus on its domestic operations.

• In a new twist to a long-running story, Rosneft could privatize itself, buying up the portion that the government is planning to sell, 19.5%. Moscow is eyeing $11 billion in revenue from the divestment. Meanwhile, Moscow also allowed Rosneft back into the race for a majority stake in Bashneft. The government is privatizing 50.8% in the company, looking at proceeds of $5.2 billion. Meanwhile, Rosneft finalized deals that will see a consortium of Indian oil companies acquire substantial minority stakes at two of Rosneft’s east Siberian fields in exchange for $3 billion. The buyers include Oil India and ONGC.

Tenders, Auctions & Contracts

• Gabon’s state-owned oil firm has closed its first E&P deal, with the country’s government. Until now, Gabon Oil Company had been engaged in the marketing of crude oil produced on its territory by Total and Shell, and fuels. Now, the company will start developing the Mboumba field, with initial output of 1,500 bpd.

• Sources confirmed that the winners of exploitation rights in Cuichapa Poniente and Moloacán 14 in Veracruz from Round 1 Tender 3 (Servicios de Extracción Petrolera Lifting de México, S.A. de C.V.; Canamex Dutch B.V. in consortium with Perfolat de México, SA de CV and American Oil Tools) are having a hard time launching operational activities due to problems meeting government requirements under the new energy reform, as well as security and infrastructure challenges.

Discovery & Development

• Iran’s oil and condensate exports are likely to have reached pre-sanction levels, standing at some 2.8 million bpd last month. That’s up from 2.5 million bpd in August. The increase came mainly thanks to a ramp-up in condensate exports, which do not fall within the quotas assigned each OPEC member. The bulk of the condensate exports, 600,000 bpd of it, went to Asia, where there is growing demand for this light crude.

• Russian DEA, a company owned by billionaire Mikhail Friedman, is investing $1.3 billion in the Dvalin gas field offshore Norway. The company has 50% in the project, after the other day Maersk Oil relinquished its 20% interest in it, selling 10% to DEA and the rest to Norwegian Petoro, which now has 30%. Austrian OMV left the project last month, selling its 20% to Petoro. The remainder is held by Italian Edison.

• Independent exploration company Caelus has announced what could be the biggest new find in Alaska: an offshore deposit holding an estimated 6 billion barrels of light crude, of which some 40%, or 2.4 billion barrels, recoverable.

Company News

• Pemex has issued bonds worth $4 billion and swapped $1.5 billion worth of existing debt in a bid to prop up its balance sheet. The new debt is divided into two batches of equal value, one maturing in seven years and the other, a long-term one, maturing in 31 years.

• Seadrill’s largest shareholder, billionaire John Fredriksen, has expressed his willingness to provide the ailing driller with a loan of $1.2 billion. The loan will make up part of a bailout plan for Seadrill, which sports the highest debt pile in the drilling industry. The plan also includes debt restructuring, currently being negotiated with banks and bondholders.

• Canada’s oil industry may be in for a second year of losses in a row, according to a think-tank, the Conference Board of Canada. According to the Board, energy companies in the country could book a combined loss of $10 billion, with profit margins at a negative 19%.

Regulatory updates

• Miami-Dade county may ban fracking, after the local legislature proposed such a measure in a bid to ensure drinking water stays clean. The Commission of the county is currently discussing the matter. Mimi-Dade is located on top of the Biscayne Aquifer, where most of Florida’s drinking water comes from and the legislators are concerned allowing fracking operations in the areas will pollute the underground water with chemicals.

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