- Nigerian political analyst in Abuja
- Investigative journalist in Dubai
- Former US intelligence operative in Gulf
- A financial executive with ties to highest circles in UAE/Saudi
Saudi Arabia’s US LNG Play: It’s Real
The Saudis are, through Aramco, deep in discussions about investments in US LNG, including with Tellurian Inc (out of Houston) and Sempra Energy (San Diego). Our sources in Dubai, Abu Dhabi and London who work closely with the Saudis confirm that these two companies are the key targets of Saudi LNG investment. The Wall Street Journal has cited unnamed sources talking about these deals, alluding to the fact that they could be announced by the end of this year. Our sources say the deals are still exploratory in nature, but very serious discussions are under way. An Aramco executive told our source in Dubai that a deal could be signed within six months. And our sources believe that Aramco was the leak for the WSJ article because it is keen to let everyone know that it’s expanding its interest ahead of its planned IPO. This is the ramp-up and they’re going for a quiet build.
The Saudis have plenty of reason to be interested in US LNG, beyond what the WSJ pointed out is partly an effort to keep the Americans close at a time when relations have hit a few snags over the Khashoggi murder. But the Saudis absolutely must diversify, and they are also eyeing a foothold of some sort in the LNG game as a bulwark against Qatar’s market share. And at this point, if you’re not going for LNG, you’ll be sidelined.
In 2017, the Middle East as a whole produced over 91 million tonnes of LNG, which represents over 30 percent of the global total, with Qatar accounting for nearly 78 million tonnes on its own. (Qatar is followed by Oman, with 8.2 million tonnes and UAE, with 5.6 million tonnes).
Where Investors Should Look for Gulf Shakeups
While all the talk is about MBS’ longevity and his international reputation, little thought has been given to Saudi-UAE relations, and—more importantly—the UAE string-pulling that suggests the real powerhouse here. The real Gulf lobbying power in the US lies with the UAE. For all intents and purposes, the Saudi crown prince (MBS) is a creation of Mohammed Bin Zayed (MBZ). MBS was groomed for this role by Bin Zayed and his cronies—most notably Yousef al Otaiba. In fact, it is best for region-watchers to consider that the creation of MBS was in actual fact an off-books intelligence operation on the part of the UAE, which is no stranger to clandestine ops. What that did for UAE was create an ally that they could trust and pull him from within a family that they didn’t. MBS was no less than MBZ’s Trojan Horse, even if he has potentially become too powerful for the UAE to control him at this point. The UAE is lobbying strong in the US against Iran and sell the idea that autocrats in some parts of the world (meaning, in the Gulf Cooperation Council) are necessary. But one of their biggest lobbying coups was to sell MBS as a major reformer.
In the aftermath of the Khashoggi murder, relations between Saudi Arabia and UAE are a bit more intense because the corridors of power in the UAE are horrified at the backlash because they cannot afford to have their lobbying power in the US diminished. There can be no separation of these two Gulf countries at this point because they are knee-deep in joint operations (Yemen, for one) and joint agendas (Qatar, for one), but our sources have detected a lessening of communications and a taint of uncertainty. MBS’ relations with the US are partly beholden to what the UAE wants; after all, MBS’ friendship with Kushner is only because of Otaiba. For investors watching this unfold, it will be important to watch subtle changes in UAE-Saudi relations because the crown prince is an unnatural product of MBZ and—Khashoggi aside—he can’t fall too far from the tree. Already, there have been indications that MBZ/Otaiba are slightly backing away from their ‘product’.
Nigerian Election Campaign Plays With Privatization of NNPC
A contender for the Nigeria presidency has vowed to privatize state oil major NNPC. Atiku Abubakar is the main opposition candidate for Muhammadu Buhari’s seat at next month’s elections and is going for highly radical ideas, including handing over all oil production revenue to Niger Delta communities. He has vowed to break up what he calls the “mafia organization”—his description of the Nigerian National Petroleum Corp (NNPC) and bring in private investors to run it. The NNPC has been a slush fund for more than one government, so these vows fall on very open public ears.
Global Oil & Gas Playbook
Deals, Mergers & Acquisitions
- Total is selling its offshore gas fields in the Netherlands expecting proceeds of up to $400 million. The sale will mark the end of the French supermajor’s presence in the country where natural gas production has been steadily declining due to natural depletion. The offshore platforms are also nearing their productive lives but decommissioning credits could entice potential buyers of the assets.
- Canada’s Husky Energy dropped a hostile bid for the acquisition of sector player MEG Energy Corp. after it failed to secure the expected majority of shareholders. Husky had offered $4.8 billion for MEG and had hoped to win support from most of the company’s shareholders but failing that it was quick to abandon the bid. MEG’s stock lost over a third on the news.
- Schlumberger will drop its bid for a stake in Russian Eurasia Drilling Group if it fails to secure all necessary regulatory approvals from Russian agencies. The oilfield service giant made an offer for a minority stake in Russia’s top oil and gas driller in 2017 but winning regulatory support has proved challenging. Schlumberger now says it will make one final attempt in the next few weeks and if it leads to no approvals, it will quit the bid.
Tenders, Auctions & Contracts
- Norway awarded a record-high number of new oil and gas exploration licenses in the latest offshore licensing round of the largest oil producer in Western Europe. Some 38 companies had submitted bits and the Norwegian Petroleum Directorate awarded licenses for 83 blocks, of which 37 are in the North Sea, 32 are in the Norwegian Sea, and 14 are in the Barents Sea. Most of these went to the local state major, Equinor, which won the operatorship of 13 blocks.
- Schlumberger won a contract with Norway’s Equinor for the management of an offshore drilling rig in Brazil. The contract is worth $200 million and the work will involve well construction, drilling management, and “advanced digital technology” services.
- Italy’s Saipem won two contracts worth a total $1.3 billion with Saudi Aramco for the development of two fields, Berri and Marjan. The company will design and install subsea systems at the two fields along with associated infrastructure including pipelines. The contract is part of a long-term deal between Saipem and Aramco, which was extended in 2015 until 2021.
Discovery & Development
- BP has relinquished the exploration rights to 50% of the license area offshore Nova Scotia it was awarded after it failed to drill the four wells required during the first phase of exploration in order for the second phase to be approved. BP, however, will seek to have the first phase of the project extended by a year, to which end it will pay $1 million.
- Equinor announced a natural gas and condensate discovery just off the already producing Kristin field in the Norwegian Sea and will now evaluate the find with a view to tying the well drilled there into the Kristin field. Equinor operates the Ragnfrid North license area in partnership with Exxon, Total, and Norwegian Petoro.
- The Mexican authorities have approved state oil major Pemex as operator of the Esah offshore oil field. The development plan for the field, calculated at $1.1 billion, was also approved. The Esah field is part of a group of new discoveries offshore Mexico that Pemex hopes will reverse a prolonged decline in domestic oil production, adding 210,000 bpd in new output.
- Egypt plans to spend $9 billion in refinery upgrades over the next four years as it seeks to boost the amount of locally produced oil derivatives to 41 million tons from the current 38 million tons. Of the existing capacity, only 25 million tons is actually in use.
- Kinder Morgan reported a net profit of $483 million for the fourth quarter of 2018, a major improvement on the previous year, when the pipelines major booked a net loss of $1.045 billion.
- Woodside Petroleum reported a 43% increase in sales revenues for the fourth quarter of 2018, to $1.02 billion on the back of better production results and higher LNG prices.
- Schlumberger reported a net profit of $538 million for the final quarter of 2018, versus a net loss of $2.25 billion a year earlier, with free cash flow at $1.4 billion at the end of the year.
- Alaskan authorities are looking into the Prudhoe Bay wells of BP following a small oil and gas leak from a shutdown well.