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Venezuela Is Teetering On The Brink

Politics, Geopolitics & Conflict

- Venezuela's PDVSA now has a board controlled by Maduro and another ad hoc board controlled by the opposition - and the state-run oil giant has passed its April 29 deadline for making a $71-million interest payment on its 2020 bond (it has a 30-day grace period). Opposition leader Guaido (head of the National Assembly) has just approved the payment (reluctantly) to avoid a rush to collect on Citgo collateral. Maduro won’t pay however and is refusing to protect Venezuela’s assets by going into default. Maduro is refusing to pay because Guaido controls Citgo now, and the PDVSA bond is backed by shares in the US refiner. At the same time, a US court has also stepped in to lend a hand, granting the company a 120-day stay on its legal fight with a hedge fund over an unpaid debt of over $180 million after it defaulted on four loans. In the meantime, Maduro, has threatened military escalation with Colombia after the latter complained about the entry of Venezuelan troops a couple of hundred meters into Colombian territory. Maduro also took the bold move of arresting a key opposition figure in a show of force intended to demonstrate that his power base is still secure enough.

- The formation of a unity government in South Sudan will be delayed until next year as the current government has failed to disarm all militant groups that signed the peace agreement last September.

- President Trump has imposed sanctions on Iran’s metals industry saying the pressure will continue until Tehran “fundamentally alters” its policies.

- Turkey has sent its Fatih drillship to start drilling in the Exclusive Economic Zone (EEZ) that is widely recognized as belonging to the Republic of Cyprus, but which Turkey claims as its own. Cyprus has responded by issuing international arrest warrants if the ship refuses to leave the EEZ. This is a game with dangerous consequences for Turkey’s leader. This goes far beyond its provocations earlier in the year when it sent a ship into the EEZ but did not drill and turned it around and redirected it to the Black Sea. That was for show. This time it’s still for show, but it’s a show that is likely to end disastrously for Erdogan.

- Algeria has long been ruled in the shadows by two powerful clans, a presidential clan and a military clan, and the military has now secured its power base by arresting the remaining influential members of the Presidential (Bouteflika) clan, including Bouteflika’s brother and two former intelligence chiefs.

- Noble Energy has been instructed to resume gas production from Israel’s offshore Tamar field after a ceasefire between Israeli forces and Palestinian forces in the Gaza Strip. Operations at Tamar were shuttered last Sunday over a major uptick in cross-border violence. Noble production platform in Tamar is within rocket range from the Gaza Strip.

Deals, Mergers & Acquisitions

- Kosmos Energy has had a pretty rough quarter, and its answer to that is to divest part of its stake in the Greater Tortue Ahmeyim gas prospect offshore Senegal and Mauritania, discovered in 2015 with BP. The FDI for this project was just made in December. The proceeds of that sale will be used to pay down debt. Greater Tortue Ahmeyim holds estimated reserves of some 15 trillion cubic feet of natural gas.

- Chevron withdrew its bid for Anadarko on Thursday, a day after Anadarko indicated that it favored the rival Occidental bid. Occidental now has to deal with its shareholders, who were bypassed in this deal and watched OXY shares hit a 10-year low when it suddenly chose to outbid Chevron. OXY shares were down 6.44% in Friday pre-market trading:


Chevron shares were still trading up pre-market, despite its withdrawal from the deal.


Tenders, Auctions & Contracts

- Qatar Petroleum awarded drilling contracts for eight offshore rigs at the North Field - the country’s largest natural gas deposit and also the biggest in the world. Drilling will begin in 2020, with the companies in charge of Gulf Drilling International and Northern Offshore Drilling Operations Ltd. The projects are part of Qatar’s strategy to expand production from the North Field in a bid to maintain its top spot on the international LNG market, which has recently been threatened by other producers.

- South Africa and South Sudan have agreed on a production sharing agreement for the development of an untapped oil and gas block in South Sudan. The block is one of three that a larger exploration area was divided into seven years ago. South Sudan is eager to jump-start its energy industry as it is home to substantial oil and gas reserves but their development has been hampered by one of the most devastating civil wars in Africa in recent times.

- PetroChina and the Iraqi government have signed a contract for the processing of associated gas from the Halfaya oil field. The value of the deal is $10.7 billion and comes as PetroChina, along with Exxon, is negotiating a much larger oil production and infrastructure construction deal worth in excess of $50 billion.

- Lithium Australia and Chinese battery producer DLG Battery have signed a letter of intent to establish a 50:50 JV for the supply and sale of DLG lithium-ion batteries.

- Warren Buffett’s Berkshire Hathaway posted a $377 million first-quarter charge for investment losses related to a solar Ponzi scheme connected to California-based DC Solar. The holding company revealed the loss in a regulatory filing during its annual shareholders' meeting, admitting that it was the victim of a massive Ponzi scheme. Berkshire invested a total of $340 million in tax-equity investment funds tied to DC Solar. In February 2019, DC Solar filed for bankruptcy after the FBI raided its offices.

Discovery & Development

- BP is preparing to launch the second phase of development at its Thunder Horse South field in the Gulf of Mexico, which should add 50,000 bpd in gross production at peak production rates. The company did not say how much Phase 2 would cost but said first oil from it would flow in 2021. Bp earlier this year revised upwards the reserves in place at the Thunder Horse field by as much as 1 billion barrels.

- Total will begin commercial gas production from the Culzean “mega-project” in the UK North Sea within weeks. The Culzean field is one of the largest in the UK continental shelf and could provide up to 5% of the gas needed in the country at peak production. Initially, the field will produce the equivalent of 100,000 bpd of crude oil. The field holds an estimated 250-300 million barrels of oil equivalent with its productive life estimated at a minimum of 13 years.

- Exxon has secured the funding and all necessary approvals for the second phase of development of its Liza offshore field in Guyana. Phase 2 will add 220,000 bpd to production from the Liza field, bringing Exxon closer to its stated production goal of 750,000 bpd from the whole Stabroek block by 2025. Phase 2 alone will tap 600 million barrels in reserves. The costs associated with this phase are seen at $6 billion.

- Chesapeake booked better than expected production results for the first quarter of the year, at 484,000 barrels of oil equivalent daily and the company expects this to rise further during the second half of the year. The rise will come thanks to higher production from the Powder River Basin in Wyoming—a shale formation that has seen less interest from the industry, allowing more space for companies already present there.

- After bids from outside companies came in higher than the planned $8-billion budget, the Mexican government has voided the tender for a 340,000 b/d oil refinery and ordered state-run Pemex to build and manage the project. The Dos Bocas refinery played a key role in the campaign of President Lopez Obrador, who vowed to reduce Mexico's dependence on imported refined products. Mexico’s existing six refineries are operating below 40 percent of their installed capacity.

Company News

- The National Iranian Oil Company will open an office in Iraq as part of an ongoing process of deepening cooperation between the two neighbors, notably in the energy sector. According to a company official, the office will serve to facilitate the transfer of engineering and technical services to NIOC’s Iraqi counterparts.

- Exxon plans to invest up to $100 million on research into lower-emission technologies and their development. The supermajor will work jointly with the National Renewable Energy Laboratory and the National Energy Technology Laboratory. The amount to be invested will probably spark ridicule from fossil fuel industry opponents as it represents 0.16% of Exxon’s revenues for the first quarter of 2019 alone.

- The chairman of Angolan state-run oil company Sonangol, Carlos Saturnino, and top executives have been fired by the country’s president. The executives are being blamed for severe fuel shortages. This is the second time in less than two years that President Joao Lourenco has shuffled the leadership of Sonangol. Saturnino was named chairman in 2017 when Lourenco fired Isabel dos Santos, the daughter of former Angolan president Jose Eduardo dos Santos.

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