Coming up .. what to watch in the oil patch
- Apache is gearing up to drill its first exploration well in Block 58, offshore Suriname. This is slated to be drilling sometime around mid-September. The Noble Sam Croft is the contracted drillship, and presently it is drilling off the coast of Louisiana at Gladden Deep. Suriname shares a massive basin with Guyana and is hoping to replicate Exxon’s series of 13 discoveries in Guyana. Apache’s block 58 is adjacent to Exxon’s Hairmara find.
- Right next door in Guyana, HESS has announced the arrival of the Liza Destiny at the Stabroek Block (the scene of the Exxon/Hess discoveries). This is Guyana’s first oil production vessel and is definitely worth keeping an eye on progress. This means that the development of Liza Phase 1 is on track to start by Q1 2020, with plans to produce 120,000 gross barrels of oil per day.
- Watch Kosmos Energy’s progress on an agreement to sell down stakes in projects off the coast of Mauritania and Senegal (partner is BP). This deal is expected to see some sort of agreement by the end of the year. Kosmos is looking to reduce its 30% stake in Senegal and its 28% stake in Mauritania. Kosmos would hold on to a 10% stake. The stakes are part of the Greater Tortue Ahmeyim gas project, which includes the Tortue floating liquified natural gas (FLNG) facilities, which will produce 2.5 million tonnes of LNG per year.
- Investors might also do well to keep an…
Coming up .. what to watch in the oil patch
- Apache is gearing up to drill its first exploration well in Block 58, offshore Suriname. This is slated to be drilling sometime around mid-September. The Noble Sam Croft is the contracted drillship, and presently it is drilling off the coast of Louisiana at Gladden Deep. Suriname shares a massive basin with Guyana and is hoping to replicate Exxon’s series of 13 discoveries in Guyana. Apache’s block 58 is adjacent to Exxon’s Hairmara find.
- Right next door in Guyana, HESS has announced the arrival of the Liza Destiny at the Stabroek Block (the scene of the Exxon/Hess discoveries). This is Guyana’s first oil production vessel and is definitely worth keeping an eye on progress. This means that the development of Liza Phase 1 is on track to start by Q1 2020, with plans to produce 120,000 gross barrels of oil per day.
- Watch Kosmos Energy’s progress on an agreement to sell down stakes in projects off the coast of Mauritania and Senegal (partner is BP). This deal is expected to see some sort of agreement by the end of the year. Kosmos is looking to reduce its 30% stake in Senegal and its 28% stake in Mauritania. Kosmos would hold on to a 10% stake. The stakes are part of the Greater Tortue Ahmeyim gas project, which includes the Tortue floating liquified natural gas (FLNG) facilities, which will produce 2.5 million tonnes of LNG per year.
- Investors might also do well to keep an eye on S-Cube technology company. S-Cube is getting a fair amount of media play right now because its algorithm was employed in Tullow’s recent Guyana discovery at the Jethro-1 well. S-Cube’s XWI algorithm uses data-driven earth model building with advanced automation and accuracy to reduce risk in subsurface imaging. Given the attention this is getting, S-Cube could advance in the increasingly competitive field of exploration and production, particularly in tricky stratigraphic plays such as the Guyana-Suriname Basin.
Discovery & Development
- Noble Energy has struck gas on its Block 1 offshore Equatorial Guinea, expecting to produce new gas by tapping into existing infrastructure by October. Glencore, Gunvor and Atlas Petroleum are the partners in the block.
- Brazil’s state-controlled Petrobras is gearing up for a five-year decommissioning process of 21 aging rigs in the Brazilian Campos Basin in a massive undertaking that will cost around $12 billion. Nearly half of the platforms in Brazil are over 25 years old. The average recovery factor of oilfields in Brazil in general is 21%. In the Campos Basin, this percentage is 14.
- North America is expected to add 26 new LNG liquefaction terminals through 2023, which is 73 percent of the world’s expected new-build LNG capacity. This equates to 243 million tons of capacity each year through 2023. The largest of these will be NextDecade Corp’s Rio Grande LNG project in Texas. The next largest LNG capacity boost will come from the Middle East (mainly Qatar) and then Russia.
- Canada’s largest solar project, the Travers Solar, got the construction and operation go-ahead from the Alberta Utilities Commission. Construction will start in 2020, and it will be operational by 2021. It will supply a total of 400 MW of electricity to as many as 100,000 homes.
- The Indian Oil Corporation (IOC) plans to diversify its business by investing $3.5 billion in clean energy projects like solar, wind, biomass and solar panels at its filling stations. The company also said it is expanding into the manufacture of EV batteries in partnership with Israeli start-up Phinergy
- Encana said it has closed the sale of its natural gas assets in Oklahoma's Arkoma Basin. The assets included approximately 140,000 net acres of leasehold and production of approximately 77 MMcfd. The buyer was not identified.
Deals, Mergers & Acquisitions
- One of the most exciting developments this week was over Saudi Aramco’s IPO. There have been so many rumors and updates and delays over this IPO. Now, Saudi Arabia is saying that the local part of the IPO - its partial listing on Tadawul - will actually be completed this year. This year! What’s more, Aramco has given every indication that it is giving up the idea that it may list in New York, which makes sense because it would open itself up to lawsuits over 9/11. Political uncertainty in the UK has also soured Saudi Arabia on listing there. We all know Hong Kong is out - at least for now. So it would be no surprise, then, that Aramco is now looking at listing in Tokyo - even if this is the selected location by default because of the unattractiveness of the other IPO hosts. This part of its IPO plans, however, is still not expected to happen until 2021, and until that time, anything could happen - the situation in both the UK and Hong Kong could clear up with enough time for Aramco to reevaluate its new home.
- Oil and gas producer PDC Energy has agreed to buy rival SRC Energy in a $1.7 billion deal, including SRC's debt of about $685 million. PDC Energy wants to become the second-largest producer in Colorado’s DJ Basin. This deal will put it there, and it’s expected to close in the fourth quarter. What’s interesting is that investors didn’t blink when Occidental Petroleum acquired Anadarko after a drama that saw Chevron lose out on this deal. This huge deal failed to do anything for either Chevron or Occidential’s stock. Even winning Occidental stock took a massive beating after the merger. But the PDC Energy deal is getting a completely different response, with share prices up 2.34% as of pre-market trading Thursday.
- BP is getting ready to pull up stakes and quit Alaska, trying to offload its Alaskan North Slope assets for $5.6 billion to Hilcorp Energy. The move takes us one step closer to the end of Big Oil in Alaska, as the oil majors look for lower hanging fruit in the US shale plays rather than sinking big money into developing expensive Alaskan assets as the current fields deplete.
Market Movers
- Australia and the US are gaining ground on Qatar in the LNG-titan race, While Qatar does have a major LNG project in the works, there are multiple projects that have recently come online or will soon be coming online in Australia (including Itchthys, Prelude, and Wheatstone), which will increase its LNG capacity from 2.6 bcf/d in 2011 to 11.4 bcf/d this year. US exports reached 6 bcf/d last month, giving Australia a run for its money. With new projects coming online, there will be a power shift among the LNG exporters. Germany, for example, is adding LNG import terminals to be completed within the next four years, opening the market wide for US LNG despite Nord Stream 2. The shift in power has already begun and is manifesting in strange ways. Japan - the world’s largest LNG importer - imported its very first LNG from the world’s second-largest LNG importer, China, as China’s demand slips over the summer months and it looks to capitalize on its LNG inventory.
Licenses, Tenders, Auctions & Contracts
- Brazilian investment firm Itausa Investimentos was the highest bidder for the contract to acquire state-run Petrobras’ LPG distribution unit, Liquigas. Itausa partnered with local LPG distribution firm Copagaz on the bid. Other bidders included Abu Dhabi state investor Mubadala and SHV Energy of the Netherlands. Back in 2016, Petrobras sold the Liquigas to local rival Ultrapar Participacoesfor for $687 million, but the deal was blocked by the country’s antitrust regulator.
- The Indian government put on offer another seven onshore blocks in the fourth round of its acreage and licensing policy, opened earlier this week. All seven blocks are in the little-explored Vindhyan, Bengal Purenia basin and a basin in the central Indian desert province of Rajasthan.
- Croatian government has awarded six onshore blocks in its second licensing round to two domestic and two foreign oil companies, Canadian Vermilion Energy and Hungarian Aspect Croatia, subsidiary of the US U.S. energy firm Aspect. Twenty-five new exploration wells are planned as part of the new cycle of onshore exploration. Croatia imports some 80% of its oil needs and about 60% of the gas it consumes. However, in the past few years, the country has increased efforts to revitalize domestic oil and gas production.
Regulations & Legislation
- The US is calling for an end to the Obama-era methane rules that currently require oil and gas companies to flag and fix methane leaks at their facilities. This rollback is not expected to finalize until next year. Reactions have been mixed, with some Big Oil players supporting the existing methane rules and balking at relaxing the rules. The new rules would separate out upstream wells from storage tanks pipelines - the latter two which would be exempt from the methane rules. Those who support the rollbacks argue that the Obama administration got too greedy and would unfairly penalize those ancient and low-producing wells even though they may pose less of an environmental risk. The rollback will help the industry’s lowest performers.
- Argentina’s opposition presidential candidate, Alberto Fernandez hinted that he is considering lowering taxes for oil and gas producers. His elections camp managers proposed lowering corporate income tax for oil and gas firms from 35% to 20% with accelerated depreciation. Also, during the meeting with mining industry representatives, Fernandez said that he would support the free flow of profits to improve the country's economy. He also said that his economic plan includes a decade growth plan for the mining industry with an emphasis on lithium
Politics, Geopolitical & Conflict
- While the most important aspect of the back-and-forth over control of Yemen’s port of Aden is the rift between Saudi Arabia and the UAE, and what this means in terms of a weakening of Gulf alliances that would play to Iran’s benefit, there’s a localized oil story playing out here, as well. To recap: The UAE announced it was withdrawing from the hugely expensive, entirely unwinnable proxy war against Iran in Yemen, and then the Southern separatists it backs took control of the port of Aden from Saudi-backed Yemeni government forces. This was the second break in UAE-Saudi relations. This week, the Saudi-backed government of Hadi took Aden back. Since then, clashes around the city have ensued, with more than 40 people killed as of Thursday. There is no other way to describe this that to say that Saudi-backed forces are under attack by UAE-backed forces. It’s a proxy conflict in the south of Yemen that is essentially like the proxy conflict between Iran on the one hand and Saudi Arabia and the UAE on the other in the rest of Yemen.
By all accounts, this rift is going to be hard to repair at this point. The UAE-backed separatists are the Southern Transitional Council (STC) group, which is gunning for independence for southern Yemen. But the STC didn’t just seize the port of Aden, it also seized large areas in other southern provinces. Now, it’s eyeing the oil-rich Shabwa province, which lies some 400 kilometers east of Aden. One of the STC’s militia allies in Shabwa captured several areas in this province last week, including the provincial capital of Ataq. This militia force is also a UAE creation that the Saudis don’t like. Saudi-backed government forces took back the capital this week. So this is the next front in the Yemen conflict, and like Aden, it is a brewing Saudi-UAE conflict.
- It has been revealed this week that in June, the US has hacked and wiped out computers and databases that Iran used to plan attacks on oil tankers. Iran is reportedly still struggling to recover some of the data lost in the attack. Iran has so far not retaliated for the hack.
- Despite the brewing political turmoil in Algeria following the fall from power of Algerian strongman Abdelaziz Bouteflika, Washington is still key to pursue oil cooperation, with the US Trade and Development Agency (USTDA) now said to be working on the establishment of a commercial partnership between American oil giants and Algerian state-run oil giant Sonatrach. An Algerian delegation is expected to visit Houston to this end in the early part of the New Year. But this will cost Algeria: Washington will try to leverage the commercial relationship to force Algeria to avoid influence from Chinese businesses, including Huawei (for digital transformation) and state-run China National Petroleum Corporation (CNPC), both of whom won large contracts with Sonatrach last year. The US will tempt Algeria with American shale gas production technology for the country’s massive shale patch.
- China is financing a new blending plant in Venezuela that it hopes will boost Venezuela’s oil production by 120,000 bpd. China, through CNPC, is prepared to spend $3 billion on the project that it shares with PDVSA. China also has made good on a back-payment to Venezuela for crude oil delivered to it, adding a much-needed $700 million to Venezuela’s federal reserves.
- As the world watches the Iranian tanker the Adrian Darya 1, Crimea is taking a bold stand to assist Iran in shipping its oil by allowing it to use Crimean canals and ports. The US continues to threaten US-based asset seizures for anyone who helps Iran to ship crude oil in defiance of its sanctions.
