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The Last U.S. Oil Major In Venezuela

Politics, Geopolitics & Conflict

- Chevron may have to leave Venezuela after a century in the South American country’s oil industry to avoid violating U.S. sanctions against Caracas. The supermajor received a sanction waiver from Washington early this year but it was a temporary one, in effect for six months to July 27. Others that received waivers, including all the oilfield services majors, have already left the country.

- At the moment, Chevron produces some 40,000 bpd in Venezuela from five onshore and offshore sites and is one of a handful of foreign companies still present in the country’s oil industry along with Russia’s Rosneft and French Total. Once it leaves, Venezuela may be forced to nationalize whatever oil assets remain private.

- While Chevron’s exit from Venezuela will certainly be bad news for Caracas, which desperately needs to pump more oil, it will also be bad news for Chevron as well: the company has spent billions in its Venezuelan business and if it has to up and leave, this will be money wasted. There have been reports the supermajor had applied for a waiver extension but the company has not confirmed the information.

- The Houthis have claimed a strike with a cruise missile against a power station in Saudi Arabia.

- Former Egyptian president Mohammed Morsi has died, setting the stage for another Middle East-related intrigue. While the authorities say he died of natural causes, Amnesty International is suggesting he was denied medical care, leading to his death. At the same time, a former French intelligence head has dangerously suggested (publicly) that the UAE crown prince (Mohammad Bin Zayed, MBZ) orchestrated Morsi’s death.

- Italian Eni has rejected a cargo of crude oil that is documented as Iraqi, fearing that the crude actually originated in Iran and represents another complicated loophole to get around U.S. sanctions.

- Both Greece and Cyprus are planning to push for EU sanctions against Turkey if it is proven that it has indeed started exploratory drilling for natural gas offshore Cyprus, in the Cypriot EEZ. The Greek PM made the announcement this week, clearly hoping that the vague threat of sanctions will push Erdogan to withdraw from his provocative drilling campaign. Cyprus had threatened to block any new membership bids for the EU if Brussels failed to take decisive action against Turkey. Turkey is digging in deeper here, however, announcing plans to deploy a second drilling ship to the area to begin operations in July. Politically, Erdogan would not likely survive sanctions, which are also threatening to come from the U.S. (despite the fact that they are NATO allies) over Russian weapons purchases.

Deals, Mergers & Acquisitions

- ConocoPhillips has struck a deal to buy the Nuna discovery in Alaska from Caelus natural Resources. The discovery was made in 2012 with the prospect spanning 21,000 acres. Conco will now begin appraising its potential before making a final investment decision. The process could last several years.

- Lime Rock Resources has bought oil and gas acreage in Oklahoma from a unit of BP. This is the independent company’s eighth acquisition in Oklahoma as it takes advantage of larger companies’ portfolio streamlining efforts while they focus on a few select key areas. The value of the deal was not disclosed.

- Energean, the Greek energy company, has made an offer to EDF’s Italian oil and gas subsidiary Edison. The Greek company is competing with several other bidders, including Neptune Energy and Apex International Energy, a unit of Warburg Pincus. If Energean wins, it will be its first major acquisition since it listed in London last year, raising more than $400 million.

- Glencore is selling its oil fields in Chad after a series of writedowns incurred since the acquisition of the assets years ago. Currently, these assets produce some 7,700 bpd, which is more than half of Glencore’s total oil production of 12,700 bpd. While in production the Swiss company is very minor, in trading it is the second-largest in the world with daily turnover of 5 million barrels.

Tenders, Auctions & Contracts

- Ukraine’s state oil and gas company Naftogaz has offered Gazprom an alternative to a direct transit contract in the form of gas swaps. According to a senior Naftogaz official, the swaps would mean the Ukrainian company would buy Russian gas at the border between the two and then sell the same amount of gas to Europe at the respective border.

- A Sinopec refinery is due to receive the first cargo of U.S. crude oil shipped from the Pacific terminal in Panama later this week. The move is proof that despite trade tensions there is still a market for U.S. oil in China. The starting point is significant, too: the 2-million-barrel cargo departed from a point much nearer to China than the Gulf Coast, meaning freight costs would be substantially lower.

- India has found a new location for a planned 44-billion refinery to be built by Saudi Aramco in partnership with Adnoc. The original location for the huge complex could not be used because local farmers refused to surrender the land needed for the construction site. The facility will have a capacity of 1.2 million bpd and ensure stable fuel supply for India and a long-term market for Saudi and Emirati oil.

- Norway will open up offshore acreage for floating wind power projects as part of efforts to boost its exports of goods and services including electricity. The process is in its early stages, with a hearing on the proposal scheduled for later this summer before the Ministry of Petroleum and Energy has devised the rules for the licensing process.

- A total of 12 companies have shown interest in building the country’s first onshore LNG import terminal in Bangladesh after technical and wealth-related problems with imports from a floating platform. The companies include Japan’s Mitsui, South Korean utility KOGAS, and a consortium led by Summit Corp, a unit of Bangladesh’s Summit Group. It could take more than a year to complete and award the contract for the terminal, which would handle 7.5 million tons of LNG a year.

Discovery & Development

- Anadarko has made the final investment decision on a $20-billion liquefied natural gas project in Mozambique. The facility, the first onshore one in the African country, will consist of two trains and will have a nameplate capacity of 12.88 million tons of LNG. It could turn Mozambique into the next hot spot for LNG especially since there is another project in the works: Exxon’s Rovuma. The two together when completed could turn Mozambique into a major exporter of the commodity.

- Rathlin Energy, a UK-based energy independent has announced what could be the largest natural gas discovery in the country since 1970. The West Newton field could hold at least 189 billion cu ft of gas. However, the development of the field is far from a done deal: there is considerable environmentalist opposition in Yorkshire against oil and gas drilling.

- Equinor has struck oil in the Black Vulture prospect in the Norwegian Sea with reserves estimated at between 3 and 60 million barrels at the moment. The Norwegian state major and its partners in the Snadd Outer Outer/Black Vulture prospect have yet to decide on the best approach to developing the resources but any news of a discovery in Norwegian waters is good news for the industry, which has been out of luck with discoveries lately amid steadily declining production.

- Russian Novatek, the country’s largest non-state producer of gas, has shipped its first LNG cargo to Spain from its Vysotsk plant. Vysotsk facility has a capacity of 660,000 tonnes of frozen gas per year and Novatek plans to double that.

- An interesting take on the lithium market emerged from this week’s Lithium Supply and Markets Conference in Santiago, Chile (part of the ‘lithium triangle’): To wit, lithium miners are seeing investor interest decline as money instead pours into the cannabis industry. Not only have lithium prices dropped 17% this year, but interest in the massive potential of the legal cannabis industry has overshadowed even clear future demand for lithium and battery metals in general.

Regulatory Updates

- Canada’s federal government has approved the Trans Mountain oil pipeline expansion project despite opposition from the environmentalist lobby and British Columbia. Although the move was not a surprise, it will not necessarily lead to the project finally getting started, let alone completed. B.C. has lodged a case with the Supreme Court after the provincial Appeals Court ruled it had no right to set limits on the amount of crude shipped through its territory and it may overrule the earlier ruling. Besides, the national energy regulator is up for a major overhaul and that could have consequences for Trans Mountain as well.

- Another pipeline project, however, has had less luck: Enbridge’s Line 3 replacement proposal has been hit with another delay. Two government agencies in Minnesota have postponed their decision on the project and granting it the permits it needs until problems with its environmental review are addressed. The problems were revealed in court after opponents of the project challenged it. The court ruled that the environmental impact assessment of the project is lacking in several respects including an estimation of the effects of a spill in Lake Superior.

- Pacific Gas & Electric has agreed to pay $1 billion to a group of California local governments for damages incurred from wildfires that started from PG&E power lines and destroyed several thousand homes, almost obliterating a town. In a bid to prevent a repeat of the fires, California regulators in May authorized local utilities to cut off power supply if the weather conditions warrant it.

- Keep an eye on Exxon’s exploration progress in Guyana, where it has enjoyed a major string of discoveries. The Caribbean Court of Justice (CCJ) ruled on Tuesday to uphold a no-confidence motion against the Granger government, and while elections must technically be held within 90 days, Granger insists they will be held in late November. As we have mentioned, investors are concerned that new elections may lead to a review of the generous contract terms for Exxon.

- On Wednesday, Trump replaced the EPA’s Affordable Clean Energy rule with looser guidelines for states and coal-fired plants to reduce their emissions. This is expected to draw a number of lawsuits, not only from environmental groups but also from “blue states” over the administration’s failure to address climate change and public health risks.

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