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Geopolitical Notebook February 6th 2019

MbS

Sources

• Two Swiss bankers who know Couriol, the man behind the Venezuela gold scandal
• One former Swiss prosecutor who works as a private investigator
• Former Aramco executive
• Former British intelligence operative in GCC

What You Need To Know About Venezuela’s Gold

As we noted last week, reports emerged that someone in the UAE was cashing out Venezuela’s gold for euros, which will be used to help prop up a desperate Maduro. Now it has emerged that the latest gold-for-euros deal involved a company called Noor Capital, which has said it won’t buy any more gold from Venezuela. But there is a new twist to this brewing. The deal also involved former Credit Suisse banker Oliver Couriol. And beyond simply bailing Maduro out, there are some other suspicious elements to this deal. Couriol was also involved in a suspicious Airbus related transaction related to a gold mine in Mali. Our sources in Switzerland say that Couriol is a very low-profile financier. He has repeatedly hired reputation management firms to clean up his digital image. His specialty is exotic financial structures that involve huge amounts of physical cash—a red flag if there ever was one. He is very active in Africa, and works with politically exposed officials, including Aliou Diallo in Mali. Couriol has a Swiss lawyer trying to keep him out of trouble—a lawyer by the name of David Bitton. This affair puts the UAE in a very tense and sensitive position.

Noor Capital itself is based in Abu Dhabi, so the US will be putting heavy pressure on Mohammed bin Zayed to clear up any related mess. One speculation from a source in the Swiss financial sector is that Couriol uses the Mali gold mine to launder money. Possibly, that's part of the plan for some of the Venezuelan gold.

This Is the Real Threat to MBS’ Throne

MBS may have managed to consolidate power after his purge and may have even managed to take some steps toward repairing his image post-Khashoggi—including by freeing McKinsey partner Hani Khoja under mounting pressure, but this is not a scenario that is set in stone. Saudi Arabia is still a powder keg and there remain numerous threats to MBS’ longevity, including the US government and Islamic extremists, who ultimately could hold the Saudis hostage if they chose to. But where attention should be turning on the economic front is the mega projects that are destined to fail, and MBS would fail along with them. The first of those megaprojects is the Aramco IPO, which is only a thing because MBS voiced it out loud and everyone had to follow through with it despite the fact that no one really agreed. It should never have been a Saudi policy to begin with, and it took years to even attempt to justify the $2-trillion valuation they ended up putting on the deal. Yet, it must go through because if it doesn’t, it will be a failure that resounds for MBS around the world, and very loudly.

The only play right now is one that gets the government cash, so while the IPO has been pushed sometime into the undefined future, the government is using that pause to make Aramco buy shares of SABIC from the sovereign wealth fund (PIF). This will further harm Aramco, according to our Saudi finance sources, as well as a source close to Aramco. Basically, it gives Aramco an asset that it doesn’t need. But it’s not just the Aramco IPO that needs to be ‘saved’, it’s also the PIF sovereign wealth fund itself—it’s cash-strapped and totally illiquid. MBS’ massive solar project is also teetering on the edge of failure because there is no one to pay for it now that it has become clear that the Vision Fund can’t make it work. The bottom line is that this grandiose solar project isn’t profitable enough, and it’s running into some logistical issues that have to do with lots of sand. That means it is not as useful as MBS hoped for his public relations campaign. Finally, the third mega-project on the agenda is NEOM—the high-tech city also failing. Foreign investors aren’t interested because standard investment criteria aren’t being met. The chances are, MBS will use other opportunities in the Kingdom as bait to get investors to jump in on NEOM even when they don’t want to. In other words, the only way it’s going to get funded is by force. The only debate right now from an investment standpoint is who is going to invest—East or West—and on that issue, Riyadh is divided into two camps.

Global Oil & Gas Playbook

• Exxon is splitting its upstream operations into three separate business divisions as it seeks to boost free cash flow twofold over the next six years along with earnings. The company, which booked $20.8 billion in earnings for full-2018, up from $19.7 billion in 2017, will divide its currently monolithic upstream division into ExxonMobil Upstream Oil and Gas, which will focus on value chain management, ExxonMobil Upstream Business Development, which will deal with strategy, M&A, and exploration, and ExxonMobil Integrated Solutions, which will have a technical focus on industry-relevant skill and technology development. The restructuring is likely a response to intensifying competition across segments, with every one of the supermajors vying for a diminishing pool of untapped oil and gas reserves. Exxon has been particularly fortunate in this respect: its huge Guyana offshore find now sports ten discoveries and estimated recoverable reserves of more than 5 billion barrels of oil and gas. However, Exxon is also growing in unconventional oil and gas, as well as LNG, where competition is getting equally stiff. In such circumstances and with shareholders still wary about major investment increases, a business restructuring seems to be the most logical approach to growth.

Deals, Mergers & Acquisitions

• An Indonesia company, Medco, won over Ophir Energy shareholders with a sweetened bid that values the UK-based oil and gas explorer at $511 million. Earlier, The Indonesian company offered $437 million for Ophir but that offer was rejected. The deal will turn Medco into the seventh-largest non-state oil and gas producer in Southeast Asia. Ophir Energy has been struggling to stay afloat lately, especially after it lost an LNG license in Equatorial Guinea after it failed to fund its work there, which resulted in writedowns of $300 million.

• Petrobras agreed the sale of its refinery in Pasadena to Chevron for $350 million. The deal, part of a sweeping asset sale offensive by indebted Petrobras will expand Chevron’s Gulf Coast refining capacity at a time when local shale production is growing. The refinery has a daily capacity of 110,000 barrels of crude as well as a pipeline network to producing areas and transportation pipelines. It also includes a storage tank complex with a capacity of 5.1 million barrels of crude.

• Chesapeake has completed the acquisition of WildHorse Resource Development in a cash-and-stock deal that will see the smaller company delist from the New York Stock Exchange. WildHorse shareholders could choose between swapping their stock for 5.989 Chesapeake shares apiece, or a combination of 5.336 Chesapeake stock plus $3 per WildHorse share.

Tenders, Auctions & Contracts

• Anadarko has sealed a deal with China’s CNOOC for the sale of 1.5 million tons of liquefied natural gas from Anadarko’s Mozambique LNG project, which is yet to be completed. This will be the first onshore LNG project in Mozambique, which is turning into one of the sweetest spots for LNG globally. The project will have a nameplate capacity of 12.88 million tons per year. Anadarko is operator of Mozambique LNG with a stake of 26.5%.

• Occidental Petroleum is looking to expand its refining activities in the Middle East following the winning of the rights to exploit an offshore block in the United Arab Emirates for a period of 35 years. The company’s CEO, Vicki Hollub, told The National in an exclusive interview Occidental could also expand into oil and oil product trading in the Middle East: a segment of the industry that is seeing greater interest from the local national energy companies.

Discovery & Development

• Continental Resources expects a new project dubbed SpringBoard to bring in a 10% increase in overall production in the 12 months between October 2018 and October 2019. The field, which spans three deposits located in the Oklahoma SCOOP play, currently pumps 15,000 barrels of oil equivalent daily. This is seen to rise to 16,500 bpd in the 12 months to October this year. However, the field has a potential resource base of as much as 400 million barrels of oil equivalent.

• A Chinese gas field operated by French Total and local CNPC last year reached a record-high production level of 2.24 billion cu m, CNPC boasted. Daily production stood at 6.5 million cu m. That’s in tune with an overall increase in Chinese gas production as the country seeks to curb its reliance on imported commodities. In 2018, local fields yielded 161 billion cu m of natural gas, another record.

• Shell has no plans to completely withdraw from the North Sea, CEO Ben van Beurden said after the presentation of the company’s fourth-quarter results. The remark was prompted by sizeable divestments Shell made in the legacy producing region as part of a divestment program worth a total of more than $30 billion following its acquisition of BG Group.

Company News:

• ConocoPhillips beat analyst expectations for its fourth-quarter results, reporting EPS of $1.13, up from just $0.45 a year earlier and in spite of falling international oil prices. Analysts had expected EPS of $1.

• Baker Hughes GE booked free cash flow of $876 million for the fourth quarter of the year, also reporting revenues of $22.9 billion and an order backlog of $6.9 billion, which was the highest quarterly order backlog in nearly three years.

• Shell booked the highest net profit in four years in the last quarter of 2018, at $21.4 billion and vowed to keep its purse strings tight going forward, as the earnings increase came in spite of no notable gains in oil and gas production: that only inched up 1% on the year between October and December 2018 to 3.79 million barrels of oil equivalent daily.

Regulatory Updates:

• Two U.S. Senators have introduced a bill seeking to improve the physical security and cybersecurity preparedness of oil and LNG pipelines in the country. According to one of the authors of the bill, Senator John Cornyn, in a context where “Foreign adversaries are trying to infiltrate our critical energy infrastructure,” it is essential to improve the security level of this infrastructure.

Politics, Geopolitics & Conflict

• A UN expert panel may accuse South Korea of violating sanctions against North Korea, according to Asian media, by delivering oil products to its heavily sanctioned northern neighbor.

• President Trump said in a CBS interview he wants to keep U.S. troops in Iraq “to watch Iran.” Asked whether this meant Iraq could in the future be used as a launch pad for an attack on its neighbor, Trump said it didn’t.

• Great Britain became the latest country to recognize Venezuelan opposition leader Juan Guaido as legitimate interim president of the crisis-stricken country, with Foreign Secretary Jeremy Hunt tweeting elected president Nicolas Maduro had not called the elections the European Union and other countries insisted Caracas held.




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