- Deputy aid to Turkish Foreign Ministry
- High-level official in Turkish Energy Ministry
- High-level diplomatic, intelligence and banking sector sources in UAE
BREAKING: We are about to witness the next UAE/Saudi-led attack on Qatar, which has the potential to shake markets. Our network of high-level sources in the region say that the UAE is now spinning a story to its regional allies that it has proof that Qatar is supporting terrorists using its financial infrastructure. They are trying to bring down Qatar National Bank, which claims to have been hacked in 2016. The UAE story is that they found names on the QNB database that support the allegation that Qatar is financing terrorism. In other words, the UAE hacked into QNB.
Investors: Why You Should Bet on Cypriot Oil & Gas, Despite Turkish Threats
Turkey appears to be throwing down the gauntlet in terms of oil exploration and its conflict with Cyprus. But things are not always as they appear. Turkey has just announced, very publicly, that it will launch oil and gas exploration off the coast of Cyprus. To wit: The Turkey foreign minister, Mevlut Cavusoglu, said drilling will start in this area in the “coming days”—and it is a direct challenge to the Greek Cypriots, and, indeed, Exxon, which has recently started exploring in this area of the eastern Mediterranean. The Turkish foreign minister said two drilling ships would be deployed around Cyprus. The message was this, with no need to read between the lines: “Let those who come to the region from far away, and their companies, see that nothing can be done in that region without us. Nothing at all can be done in the Mediterranean without Turkey, we will not allow that,” the foreign minister said.
But Turkey’s threats—while not empty entirely—are not exactly genuine. This is an election year, and Turkey’s oil exploration rhetoric should be viewed partly in the context of these elections. Make no mistake, though, there is some substance to the threat that goes beyond mere populism.
Turkish President Recep Tayyip Erdogan, Foreign Minister Mevlut Cavusoglu and Energy Minister Fatih Donmez have repeatedly hailed drilling operations in the Mediterranean in recent weeks. Fatih, a ship that is currently drilling off the coast of Antalya, will soon be joined by Yavuz, according to Turkish officials.
As the March 31 local elections approach, the two ships' activities are more or less vessels of nationalism for the Turkish public. They are also intended to pump up optimism about the future of the economy. In recent years, before each election, Turkey's ruling party applied the same two tactics: 1) Appealing to nationalist voters with jingoistic policies and 2) Releasing fake news stories through state-run media that hail the discovery or possible discovery of energy reserves, anywhere from southeastern Turkey to the northwest.
We have access to the foreign ministry and the energy ministry in Turkey. And while they will not outright admit that this sudden renewal of pomp and circumstance over drilling off Cyprus is about election point scoring, it is clear in lengthy talks with them that populism is the key element. A top aide of the deputy foreign ministry and a senior bureaucrat at the Energy Ministry have conceded as much. Once the elections are over, this rhetoric will suddenly be dialed down. Consider the second drilling ship—the Yavuz: Our source within the Turkish Energy Ministry admitted that it is going to be withdrawn to the Black Sea for Turkey exploration there. So it may have made it to the Mediterranean in a show of populist force against the Greek Cypriots and Western drillers, but that was more of a parade-like detour on its way back to the Black Sea.
Our source in the Turkish Foreign Ministry likewise confirmed that there was "no big game plan" for now regarding the activities of the two ships. But he also made it clear that the end game here is to stop the Cypriots by being as disruptive as possible. "Regardless of these activities, one of our red lines is to stop Greek Cypriot from exploiting the island's reserves alone by sidelining the Turkish Cypriots. We will continue to oppose it," he said.
So, what can Turkey do to disrupt Cyprus’ oil and gas exploration? Behind being simply a hindrance and making a big deal about it vocally, it is not clear what the Turks can do. After all, even its foremost ally, Qatar, is participating in Greek Cypriot drilling—and that is the most important thing to remember. All of the noise coming out of Turkey serves two purposes: 1) political populism ahead of elections; 2) getting the UN’s attention for a mandated negotiation.
The timing of the government’s latest threat is significant in another way, too: On the same day last week, ExxonMobil announced a natural gas discovery off the southwest coast of Cyprus—calling it the biggest find off Cyprus so far; and one of the biggest discoveries in the world in the past couple of years. The stakes have never been higher: Exxon says the preliminary data suggests 5-8 trillion cubic feet of natural gas in place. It also follows a world-class discovery. But, again, Qatar Petroleum is Exxon’s partner in this, so that makes things a bit tricky for Turkey.
Regardless, energy is an urgent issue for Turkey, and last year’s currency crisis made it even more urgent. It also explains the need for the appearance of economic optimism ahead of elections. Turkey will need billions of dollars to stabilize its economy in the coming months and years, and large oil or gas discoveries, whether in the Black Sea or the Mediterranean or on the land, would be extremely beneficial.
But Turkish officials aren’t nearly as optimistic as their public statements would have them seem. According to our source in the Energy Ministry: "Drilling only recently started and we don't know whether it will be feasible to extract it even if we discover oil and gas reserves thousands of meters deep. It's too early," he said.
The bottom line is this: Turkey cannot stop this, and it can only go so far in even trying to hinder or threaten Exxon’s drilling off Cyprus. Qatar is far too important an ally for Turkey, who has definitively gone on the offensive against Saudi Crown Prince MBS. Without Qatar, Turkey has no Middle East allies outside of Iran. For investors, it should not make sense to bet against Exxon over Cypriot oil based on threats emanating from Turkey. Exxon knows this, and partnering with Qatar Petroleum was its human shield. Cypriot oil and gas will be huge.
Global Oil & Gas Playbook
Deals, Mergers & Acquisitions
- Warburg Pincus, KKR, and two independent energy producers are among the suitors for BP’s shale assets worth $7 billion that the company is selling to streamline its onshore U.S. operations after the $10.5-billion acquisition of BHP Billiton’s shale portfolio in the country. BP plans to sell a total $10 billion worth of assets in the U.S. over the next two years.
- Japan’s Inpex has become the latest newcomer to the U.S. shale patch after a subsidiary of the energy major, Inpex Americas, acquired a number of exploration and production assets in the Eagle Ford play from GulfTex Energy. The buyer did not disclose the size of the deal but said it will help expand its oil and gas operations and boost production of oil and gas.
Tenders, Auctions & Contracts
- Occidental Petroleum has inked a production sharing agreement with Oman for the operation of Block 72. The deal is worth $59 million and will be carried out in two phases covering exploration before production begins. Occidental has been present in Oman for three decades and operates three oil fields there.
- TechnicFMC has scored a contract for the front-end engineering design of BP’s floating production, storage and offloading vessel it will station at the Greater Tortue Ahmeyim offshore gas field spanning across the border between Mauritania and Senegal. The value of the contract is between $496 million and $1 billion, the Italian company said. The FLNG project will have an annual capacity of 2.5 million tons of liquefied natural gas.
- Essar Oil has become the first company granted a license for both conventional and unconventional gas exploration in India under a new, laxer regulation regime. Essar will explore for shale gas in West Bengal, in a coal bed methane block it holds the rights to. Previously, energy companies could explore for either conventional oil and gas, or shale oil and gas and coal bed methane.
Discovery & Development
- BP has started production from the Angelin natural gas field offshore Trinidad. This is the third gas project BP embarks on in Trinidad and Tobago in the last three years and also the third new project to begin production since the start of the year. The Angelin platform has a daily production capacity of 600 million cu ft of gas. Trinidad and Tobago are a major part of BP’s plans to boost its average daily production by 800,000 bpd of oil equivalent by 2020, accounting for a fifth of the increase.
- Bahrain is in talks with U.S. energy companies for assistance in the development of what the sultanate proclaimed the largest oil discovery in about a century. The offshore deposit is unconventional and may contain up to 80 billion barrels of oil, of which 5-15% recoverable. The government hopes it could attract a partner with expertise from U.S. shale oil extraction by the end of the year.
- The Queensland government has approved the first large-scale LNG project in several years as gas supply for the local market tightens on the back of booming exports. The $7.14-billion Surat gas project is a joint venture between Shell and PetroChina and will bring 5 trillion cu ft of natural gas into markets, both local and international. Production should start next year, using infrastructure from a nearby Shell project, QGC.
- Total has announced it will end drilling operations at an offshore project in French Guyana after failing to strike commercial amounts of oil or gas. The company had planned five drilling sessions at the deposit but only if the first one produced promising results, which it apparently did not.
- Petrobras booked its first annual profit in five years in 2018, at $6.83 billion. The result missed analyst expectations but suggested the Brazilian energy giant is on the mend after a corruption scandal and the 2014 oil price crisis shook its foundations. The company is not yet trouble-free, with a still substantial debt load that it plans to relieve through asset sales.
- Petrofac reported $106.54 million in 2018 pre-tax profits, up more than twofold on the year, thanks to a strong order book, the company said. The value of this book stood at $9.53 billion at the end of 2019.
- Tellurian reported LNG sales revenues of $5.9 million for 2018, its second year as a public company. It also booked natural gas sales revenues of $4.4 million.
- Encana swung into a profit in the fourth quarter of 2018, at $1.03 billion versus a negative result of $229 million a year earlier. The result was boosted by a $941-million one-off gain.
Politics, Geopolitics & Conflict
- Tension between India and Pakistan flared up last week when a suicide bomber attack against Indian troops led to air strikes from India.
- Venezuelan opposition leader Juan Guaido has announced he will return to Venezuela after violating a Maduro-imposed travel ban. How the incumbent in the president’s office will react may determine the outcome of the political crisis in the country. In the meantime, Maduro has managed to move another 8 tons of the country’s gold out of the Central Bank in a desperate effort to raise cash while sanctions strangle him. We don’t yet know where this gold went, though it has gone previously to Turkey and the UAE.
- Algeria is undergoing something akin to an ‘Arab Spring’ over President Bouteflika’s announcement that he would run for a fifth term, despite massive protests calling on him to step down. He’s barely alive at this point, but determined to hold on to power despite his 82 years and a stroke that has largely incapacitated him. This time around, the Algerian regime may not be able to buy its way out of an Arab Spring with generous subsidies funded by energy wealth.
- The Saudis has scored an easy few points with Washington (while Senators are still pushing for something more over the Khashoggi murder) by stripping the son of Osama bin Laden of citizenship as the U.S. offers $1 million for information on his whereabouts. Earlier this month, Hamza bin Laden released a video in what is seen as the ‘revival’ of Al-Qaeda, calling for attacks on Western targets and threatening to target Americans abroad. Other recent bones thrown to the American public by the Crown Prince include the flashy appointment of a female ambassador the U.S. (at the same time that it is rounding up female activists at home). The Crown Prince also met with Kushner for the first time since the Khashoggi murder, and Kushner is the link between the Crown Prince and Washington (via MBS’ ‘creators’ in the UAE).
- There is now, once again, talk that Libya will hold elections by the end of the year. Last week, the prime minister of Libya’s internationally recognized (tongue-in cheek) government, Fayez al-Serraj, met with powerhouse General Haftar (who controls the Libyan national army). We do not yet have any details on those talks, but the LNA is making a massive push for control and could very well make a run on Tripoli this year. Timing elections for the end of the year gives Haftar enough time to secure control.