Geopolitics & Domestic Politics
Bulgaria
On the election front, Bulgaria’s center-right Citizens for European Development (GERB) won snap elections last week, and will likely receive around 90 seats in the 240-seat parliament, followed closely by the Socialists and ethnic Turkish Movement for Rights and Freedoms, which will each gain around 70-80 seats. It will be very challenging to form a stable coalition under these circumstances. From the oil and gas perspective, what’s at stake here immediately is a Russian gas pipeline that would give Moscow more leverage over Europe’s energy.
Earlier this year, the Bulgarian government announced it would suspend work on Russian Gazprom’s South Stream pipeline amid strong opposition from the EU and the US, as well as because of the looming threat of sanctions against Russian firms working on the project—a threat that has since become a reality. Bulgaria will be very hard hit in the event that Russian gas supplies are cut off, and beyond Ukraine, Bulgaria is the most vulnerable to Russia’s brand of geoeconomic warfare. Over 85% of Bulgaria’s gas needs are met through Gazprom—and that goes through a single route passing through Ukraine. Bulgaria has a single oil refinery run by Russian Lukoil, which supplies over 60% of its refined fuel, with the crude coming through a Ukrainian Black Sea port. Even Bulgaria’s nuclear fuel is shipped through Ukraine. The country…
Geopolitics & Domestic Politics
Bulgaria
On the election front, Bulgaria’s center-right Citizens for European Development (GERB) won snap elections last week, and will likely receive around 90 seats in the 240-seat parliament, followed closely by the Socialists and ethnic Turkish Movement for Rights and Freedoms, which will each gain around 70-80 seats. It will be very challenging to form a stable coalition under these circumstances. From the oil and gas perspective, what’s at stake here immediately is a Russian gas pipeline that would give Moscow more leverage over Europe’s energy.
Earlier this year, the Bulgarian government announced it would suspend work on Russian Gazprom’s South Stream pipeline amid strong opposition from the EU and the US, as well as because of the looming threat of sanctions against Russian firms working on the project—a threat that has since become a reality. Bulgaria will be very hard hit in the event that Russian gas supplies are cut off, and beyond Ukraine, Bulgaria is the most vulnerable to Russia’s brand of geoeconomic warfare. Over 85% of Bulgaria’s gas needs are met through Gazprom—and that goes through a single route passing through Ukraine. Bulgaria has a single oil refinery run by Russian Lukoil, which supplies over 60% of its refined fuel, with the crude coming through a Ukrainian Black Sea port. Even Bulgaria’s nuclear fuel is shipped through Ukraine. The country has a single gas storage facility. In case of emergency, it uses a transit pipeline to Greece for reverse flow natural gas. Prior to Sunday’s elections, the ruling coalition in Bulgaria was largely viewed as pandering to Moscow—a situation that is exacerbated by the fact that about one-third of Bulgaria’s economic output is either directly or indirectly controlled by Moscow. There are also intelligence leaks indicating that Russia was directly influencing legislation in Bulgaria, particularly related to the South Stream gas pipeline project. Sofia had earlier attempted to sidestep Brussels on this (with help from Gazprom’s lawyers) by redefining the Bulgarian part of the pipeline as a simple “gas grid interconnection” rather than a full-fledged pipeline in order to circumvent EU competition regulations.
Because the country is extremely divided on this issue, Sunday’s elections were largely a barometer for whether the pipeline would go ahead. GERB, led by former prime minister Boyko Borisov, had publicly stated—ahead of elections—that if in power he would only go ahead with the pipeline if the EU approved it. The Socialists, on the other hand, are hell bent on seeing the project go through as quickly as possible. Forming a new coalition government in this case will be almost entirely about the pipeline.
Iraq
By the end of 2015, the Kurdistan Regional Government (KRG) in the Kurdish region of northern Iraq plans to boost crude output threefold. The plan is to increase production to 1 million barrels a day by the end of 2015. The current level of production is around 320,000 barrels per day, while exports are at around 200,000 bpd. While the media likes to paint a picture of repaired relations between the KRG and the Iraqi central government, this is putting an inappropriate spin on the story. The newly installed Iraqi central government in Baghdad has expressed willingness to negotiate with the Kurds, who have been unilaterally exporting crude directly to Turkey, bypassing the central authorities. But this new “friendship” is in part based on the fact that Baghdad needs the Kurds on its side to fend off attacks from the Islamic State (IS), and the IS advances have poised the Kurds to solidify their control over some oil-rich areas in the disputed territories in Northern Iraq. Recently, Baghdad said it would give the KRG $2 billion from the budget (which was slashed for the Kurds last year over the oil dispute) as a gesture of goodwill (i.e. to ensure that they fight off IS). The companies exploring for and producing oil in the KRG territory are poised now to make further gains on an already profitable market.
Cyprus
Cypriot President Nicos Anastasiades has halted talks on reunifying the ethnically divided island over Turkey’s plans to explore for oil and gas offshore Cyprus—in an area where the Greek Cypriot government has already handed out licenses for an Italian-Korean consortium (ENI-KOGAS) to start drilling. It was only a few weeks ago that momentum had been achieved in peace talks. Turkey has also deployed two warships to monitor the ENI-KOGAS rig. The geopolitical significance of this move should not be lost on potential investors in this area. A significant discovery in offshore Cyprus will aid Europe immensely, while Turkey and Russia are boosting cooperation on oil and gas.
Discovery & Development
• UK-based BG Group has announced gas discoveries of 1.03 trillion cubic feet in its Kamba-1 well, Block 4, offshore Tanzania—East Africa’s emerging gas giant. BG Group partners with Ophir Energy in this joint venture. BG is the operator of Block 4, while Ophir holds a 20% interest. This discovery represents the JV’s 16th consecutive discovery well in Blocks 1,3 and 4. The JV has also increased volumes on earlier discoveries. In total, Ophir is now looking at 17.1 trillion cubic feet of recoverable reserves in Blocks 1,3, and 4, while BG has withdrawn from Block 3.
• Norway’s Statoil has announced a non-commercial gas discovery in the Pingvin prospect in the Barents Sea. Statoil is the operator. Drilling proved a 15-meter gas column in the well path, with Statoil estimating volumes in the Pingvin to be between 30 and 120 million barrels of recoverable equivalent. Though this recent discovery is assessed as non-commercial, it is the first well drilled in the prospect and is encouraging for further drilling in this unexplored area.
• Brazil’s Petrobras has announced a new gas discovery at Espirito Santo Basin post-salt, in the Tanganika well. The well was drilled to a water depth of 1,043 meters and has reached a total depth of 2,996 meters. The consortium is operated by Petrobras (89.9%), with a Repsol Sinopec partnership carrying an 11.11% interest.
• Mozambique—another East African emerging gas giant—has raised its projection for the amount of natural gas in the prolific Rovuma Basin from 170 billion to 200 billion cubic feet. Here, Anadarko and Eni are the key explorers.
License & Tender Updates
• Greece has granted a license to the Trans-Adriatic Pipeline AG (TAP) for an independent natural gas system. The license is for the Greek section of the project and has a 50-year term. This means that TAP has the necessary approval to go ahead with the construction of TAP, which will transport natural gas from the giant Shah Deniz II field in Azerbaijan to Europe. TAP will eventually connect up with TANAP (the Trans-Anatolian Pipeline), near the Turkish-Greek border. From there it will cross Greece and Albanian and the Adriatic Sea, culminating in Southern Italy.
• Kuwait is in talks with five major oil companies—UK-based BP, French Total SA, Royal Dutch Shell, ExxonMobil and Chevron—to help boost crude production and develop its oilfields, including the second-largest in the world, Burgan, as well as for the Ratqa heavy oilfield. This is a significant development as in the past it would have not slipped by the political opposition. For a technical service agreement for Ratqa, Kuwait is hoped to conclude a contract by the first or second quarter of 2015. Opposition is waning somewhat as Kuwait is faced with losses of around $40 million per day due to falling oil prices. The price of Kuwaiti oil is said to have fallen by almost $20 in relation to its peak price this year.
• Iran has announced that it is preparing to finalize new petroleum development contracts son and present them to the government for approval, though the new contract model—which will offer Western companies 25-year deals--does not require parliamentary approval. Due do the sanctions regime, Iran has postponed a conference in London from November 2014 to February 2015, when it will offer up projects, oilfields and final investment contracts to foreign oil firms.
Deals, Mergers & Acquisitions
• Egypt has paid foreign oil and gas firms $1.5 billion in debt, made possible after obtaining $1.4 billion in loans from four banks. The Egyptian government now owes foreign oil and gas firms $4.9 billion. In 2013, Egypt had paid foreign oil and gas firms $1.5 billion in debt, promising to pay another $3 billion by 2017. While there is no confirmation of where the debt payments went, the government owes BP, BG Group, Apache Corp and Dana Gas sizable sums.
• UK-listed Dragon Oil is tentatively planning an $800 million bid for Petroceltic with the intention of boosting its holdings in Algeria, where it won two new oil and gas licenses in late September. Dragon Oil’s main production assets are in Turkmenistan.
• Norway’s Statoil, in partnership with Shell, has won a new onshore exploration license in Algeria’s southeast. The area covers about 1,054 square feet and is in the Ilizi-Ghadames Basin, where we caution against security concerns. Statoil is the operator, with a 30% interest. Shell will hold a 19% equity stake, while state-owned Sonatrach will hold a 51% stake. The first exploration phase will run until 2017 and will include the drilling of two wells and seismic.
• Chevron’s Canadian subsidiary has reached a $1.5 billion agreement to sell a 30% interest in its Duvernay shale play (in Alberta) to Kuwait Foreign Petroleum Exploration's (KUFPEC) Canadian unit. The Duvernay formation contains an estimated 443 Tcf of gas and 61.7 billion barrels of oil. The agreement creates a partnership for appraisal and development of liquids-rich shale resources in approximately 330,000 net acres in the Kaybob region of the Duvernay.
• Kosmos Energy is set to sign a $400 million farm-in agreement with Senegal's state-owned hydrocarbon firm Petrosen and Timis Corp to take a 60% stake in the Cayar and St. Louis offshore blocks that they operate. Kosmos will drill two exploration wells up to a total value of $240 million, and then a third well, or alternatively a first appraisal well, to a value of another $120 million. Kosmos will have a 60% stake in the blocks, Timis Corp 30%, and Petrosen 10%.
Latin America Briefing
from our partners at Southern Pulse
• The Mexican government established a special fund to manage revenues from oil and gas activities on 30 September 2014. The Banco de Mexico signed an agreement with the Ministry of Finance last week to establish the Mexican Oil Fund for Stabilization and Development. This fund will focus on the distribution of revenues generated by oil and gas projects. It aims to monitor revenue from oil and gas in an effective and transparent way.
• A government source said on 2 October 2014 that Honduras would sign a collaboration agreement with Transparency International (TI) to promote transparency and combat corruption in the country. The agreement will be signed by President Juan Orlando Hernández, members of the Association for a More Just Society (ASJ), and the head of TI, Huguette Labelle. The ASJ and TI will provide security and monitor the progress the Honduran government makes towards transparency.
• Venezuelan oil closed at $85.89 per barrel on 3 October 2014. According to the Ministry of Energy and Oil, the causes of the price decline are falling demand for crude on the international market and slow growth in the global economy. Venezuela exports nearly 2.5 million oil barrels a day, mostly to the United States and China.
• Brazilian elections on 5 October 2014 determined there would be a runoff for the presidency between incumbent Dilma Rousseff and opposition candidate Aécio Neves on 26 October 2014. This is the fourth time in Brazilian history that the Worker’s Party (PT) and the Brazilian Social Democratic Party (PSDB) will compete in a presidential runoff. Marina Silva (PSB) did not gain enough votes to continue her campaign.
