Exxon’s Generous Royalty Deal in Guyana Is Safe, For Now
Investors have been waiting to see what the outcome of the latest political crisis in Guyana would be in the aftermath of a string of major offshore discoveries that came along with a very generous royalties deal for Exxon.
The wait is potentially over. Guyana has now made it clear that it will revisit royalties contracts with an eye to bigger revenues for the government, but for now, the plan is to apply that to future contracts--not existing ones.
Fears were additionally stoked when regulators announced an investigation into possible corruption related to oil deals. Guyana’s State Assets Recovery Agency (SARA) announced last quarter that it was probing how those licenses were awarded, which sent another wave of anxiety through hedge funds invested in Exxon.
Again, SARA made it clear that while all deals are technically being probed “in fairness”, only two blocks (not having to do with Exxon) are really the target here.
Exxon’s royalties will remain intact, according to our political experts and government sources on the ground in Guyana. At stake are the 4 billion barrels of oil it’s just discovered, and no one wants to rock this boat.
PDVSA’s New Clientele: The Illicit Oil Swap
Reuters has brought to light an unknown “Turkish” company that is oddly buying oil from Venezuela. Using our sources on the ground in Turkey and our access to various documentation, we’ll unpack this for you further because this is a front company Maduro is using to get Venezuelan oil to market.
Venezuela’s state-run PDVSA has fallen on rather hard times, and, as a result, has had to lower its standard for customers who may or may not be able to pay. One of those lowly customers is apparently a small, private Turkish company (Grupo Iveex Insaart), a tiny construction company formed less than a year ago with under $2,000 in capital. But this isn’t just about lowering standards. This is a front company.
The company was founded by a Venezuelan national--Miguel Josue Silva Perez. He registered Iveex Insaat with a Turkish partner, Erhan Kap, in late September 2018. Kap is a Turkish tourist guide. Coincidentally, the unlikely company was registered just a week after Maduro visited Istanbul.
Silva's Grupo Iveex Istanbul address is an apartment located in middle class residential building. In that same small building is another oil company called ENPETROL. ENPETROL is focused in Turkey, the Middle East, Russia, FSU and Africa, and it claims (even on its website) to conduct “risky transactions”.
The Turkish address is intentionally low key, and this is what the office building looks like:
Grupo Iveex also shares an address with a Spanish company called Construcción, Minería y Servicios (COMINS). Last year, COMINS was awarded a 7,000-hectare concession to prospect and mine coltan and gold in Venezuela's Arco Minero.
Silva is also the founder of IVEEX, LLC, a Florida-registered branch that appears to conduct no activity at all. There is also a London branch what is similarly inactive.
In late March, Grupo Iveex signed a contract with Houston-based MCC Petroleum to supply 350,000 barrels of gasoline and 225,000 barrels of naphtha for delivery to Gebze, Turkey. The deal was worth over $7.3 million. MCC Petroleum is nominally an “oil services company” with offices in Kuwait, Turkey and UAE.
So how does it all work? PDVSA is having clients settle their bills with two banks in Dubai (Emirates NBD and Mashreq Bank). We do not yet know who is controlling those accounts, but one investigative journalism group is convinced it’s MCC Petroleum, though MCC has denied any involvement.
It cannot deny involvement entirely, though.
Iveex started buying Venezuelan oil in April, which is all well-documented, and then went quiet in May and June. It was a lot of oil, and far more than any tiny company with $2,000 in capital could afford, not to mention the illogic of such a transaction. Reuters sources put the amount of Venezuelan oil purchased in April by Iveex at around 8% of the country’s total exports.
The deal, allegedly, is for Iveex to supply PDVSA with refined products in return for crude. It’s getting those refined products, in part, from MCC (based on the above-mentioned deal). In other words, it’s helping Maduro with a swap deal, illicitly, with assistance from Turkish friends. The crude that Iveex loaded in April was bound for the Middle East, home to the settlement bank accounts, the control over which we cannot yet prove.
And why this tiny little company? Because the company is a front for Maduro. Look no further than the Iveex owner, Perez. Not only is he president of the Venezuela Chamber of Exporters (CAVEX), among other things, but he’s also a former official of the Venezuelan Attorney General’s Office.
Iran Wins This Round: Fear of Shipping Now Rules the Day
Fear is holding shipping up right now. British oil tankers sailing through the Strait of Hormuz are now on full alert, fearing a reprisal from Iran. The Pacific Voyager recently made the trip accompanied by a UK military vessel and then picked up a NATO escort in the Gulf of Oman. BP is also keeping a tanker inside the Persian Gulf to ensure it doesn’t become a target for interception by Iran in retribution for last week’s seizure of an oil tanker near Gibraltar carrying Iranian oil. Egypt also seized a Ukrainian oil tanker carrying Iranian crude through the Suez Canal--just days after the country sentenced six people to prison terms for spying for Iran.
What happens if everyone’s afraid to transport crude? It’s only going to get worse. There is not much leverage for Iran to be gained over the Egypt seizure, but the Gibraltar seizure by British authorities in quite another story. The orders for the UK to seize the ship carrying Iranian crude came from the U.S., according to Spanish authorities. But the leverage here is with Europe, so retribution will be handed out with this in mind. It is in Iran’s interest to mete out retribution with Europe to force Europe to stop pandering to Washington.
Iraq v ISIS 2.0
Over the weekend, Iraq launched a second offensive against ISIS, trying to root out sleeper cells. The Iraqi operation combines Shi’ite militias with some Sunni tribal forces--an odd combination to the Western mind at a time when the brewing conflict with Iran is raising tensions in Iraq, which is desperately trying not to be drawn into this warring venue. For Iraq, both ISIS and a US-Iran conflict are extremely tricky. Iraq’s security forces are now host to paramilitaries that are Shi’ites, but they also need the Sunni tribal assistance (ISIS originates from the Sunni) to identify sleeper cells that survived post-Mosul almost two years ago. ISIS is never really defeated. It just pulls back and regroups. But Iraq has US air support in this. A US airstrike on Sunday in oil-rich Kirkuk killed three ISIS militants.
Is Haftar Losing Ground?
This is a game of geopolitical leverage, and Haftar may have lost some ground over the week after trying to threaten Libya’s oil production over the GNA’s use of oil revenues to pay off militias. He did not deny hitting a migrant camp in a strike that killed dozens of innocent people. Instead, he conceded his forces were aiming for a militia base nearby. He also came out to publicly recognize the Tripoli National Oil Company this week as the only legitimate NOC. In so doing, he promised not to make good on a threat to halt the country’s oil production. In the meantime, the carnage has distracted from his play to get the UN to examine Tripoli’s books for those illicit oil payments to militia forces.
Global Oil & Gas Playbook
• Oil majors are shutting in production in the Gulf of Mexico in preparation for a tropical storm, though there is not yet any indication of how much production could be affected, though oil prices were already boosted by Wednesday morning. The tropical storm could hit Wednesday or Thursday. The boost comes from the fact that evacuations and shut-ins are affecting a total of 15 offshore platforms in an area responsible for 17% of US crude oil output. (This comes on the back of a large crude inventory draw reported by the API Tuesday, to be followed by the EIA’s official data Wednesday).
• Equinor is getting a 2.6% stake in Norway’s giant Johan Sverdrup field, along with $650 million in cash, for selling its 16% stake in Swedish Lundin Petroleum AB. That brings Equinor’s stake in Johan Sverdrup to 42.6%. The giant field has between 2.2 and 3.2 billion boe and production is slated to launch in November.
• Watch out for the China fuel glut that has now pushed output curbs for the next quarter, which signals lower crude oil demand. The problem is with huge new private refineries that have ramped up production or launched initial production--all of which has unleashed a glut that is prompting a cut in output for Q3, which will translate into a cut in crude oil demand from Chinese refineries. This is despite the fact that China has recently upped yearly crude import quotas for its largest refiners (both private and state-owned).
- Italian oil giant Eni has signed a deal for exploration offshore Ghana after securing a deal with Tunisia to transport Algerian gas to Italy. First, re Algeria, Eni will transport Algerian gas to Italy, with some 5% of that going on to Tunisia. Re Ghana, Eni, in partnership with Dutch Vitol, will explore offshore in the Tano Basin. Eni is currently also exploring in Angola, Mozambique, Algeria, Libya, Morocco and Egypt.
- Ukraine just received its first-ever imports of U.S. crude in the form of 75,000 tons from the Bakken field. The oil was purchased by Ukrtatnafta and will be processed at the Kremenchuk oil refinery (7.3 million tons per year capacity). In April, Russian authorities imposed a ban on exports of oil and petroleum products to Ukraine in response to trade restrictions imposed by Kyiv.
- Chevron and Qatar Petroleum have signed an agreement to pursue development of a new petrochemical plant in the Gulf Coast region of the United States. The preliminary cost of the project is approximately $8 billion and the companies expect a final investment decision no later than 2021 for the project, which has a target of starting in 2024. Qatar Petroleum will own 49% in the project.
- A second Turkish drilling ship has arrived offshore Cyprus in the EEZ this week, as Erdogan makes good on his threat to double up on drilling in the disputed area where supergiants have already made discoveries on behalf of Cyprus. The deployment of this second drillship has promoted a statement from the US Department of State, urging Turkey to withdraw and cease provocations.