Global Energy Advisory 11th December 2015

Conflict Update

• We should be concerned about various new troop deployments in Iraq as the battlefield is carved up. A few hundred Turkish troops with tanks, artillery, intelligence officers and warplanes have now headed across the border, setting up camp around Mosul, which sits in the disputed territory between the Iraqi central government and Kurdistan Regional Government (KRG). We should particularly be concerned because Turkey has clearly been propping up ISIS, and Mosul is a key venue for fighting ISIS in Iraq. No one wants Turkey here, particularly when its agenda in Mosul is unclear and could work to ISIS' favor.

• Kurdish airspace is fast becoming the staging ground for a dangerous showdown, with both Turkish and Russian forces making fly overs. The Kurds have asked the Russians to avoid using their airspace for operations in Syria.

• Another cause for concern is what appears to be Russia's weapons showmanship using strategic bombers and sea-launched cruise missiles for long-distance target strikes. Brought up by the Jamestown Foundation, the overall sentiment is that Russia is taking advantage of the Syrian conflict to test new weapons systems, in part to measure the reaction of the other players in this conflict.

Tenders & Auctions

• For its 23rd licensing round, Norway has received applications on 57 blocks or portions of blocks from 26 oil and gas companies. In total, up from licensing were 57 announced blocks or parts of blocks, three of which are in the Norwegian Sea and 54 in the Barents Sea. Of the blocks, 34 are in a newly opened area in the south-eastern Barents Sea. Norway's Ministry of Petroleum and Energy plans to award new licenses from this round before summer 2016. According to the Norwegian Petroleum Directorate (NPD), some 55% of the oil and gas resources on the Norwegian continental shelf are yet to be produced. Of that, some 40% is in the Barents Sea, so we are closely eyeing who manages to win licenses in particularly in these newly opened Barents areas.

Deals, Mergers & Acquisitions

• Devon Energy has acquired 80,000 net surface acres in the Anadarko basin STACK play from Felix Energy for $1.9 billion. In a second deal, Devon has agreed to acquire 253,000 net acres in the Powder River basin for $600 million. The STACK and Powder River deals will be funded with $1.35 billion of Devon equity issued to sellers and $1.15 billion of cash on hand and borrowings. Given the potential for numerous landing zones and tighter infill spacing opportunities across this acreage, Devon has identified 1,400 risked locations, with an unrisked inventory of more than 3,000 locations. The acquired properties include production of 9,000 boe/d and estimated risked resource of 400 million boe. The surface acres are located in Blaine, Canadian and Kingfisher counties in Oklahoma.

• EnLink Midstream has agreed to acquire subsidiaries of Tall Oak Midstream for $1.55 billion. Tall Oak's assets lie in the core areas of the STACK and CNOW plays. The assets include two gathering and processing systems and will include a rich gas pipeline currently under construction that will connect the two systems. The Chisholm plant, which serves the STACK play, is a 100-MMcfd capacity cryogenic gas processing plant. The facility is currently being expanded by an additional 200 MMcfd, which is expected to be completed in third-quarter 2016. The purchase price will be paid in installments, with the first installment of $1.05 billion paid at closing and the final installment of $500 million paid no later than the first anniversary of the closing date with the option to defer $250 million of the final installment within two years.

• Tesoro Corp has agreed to acquire Great Northern Midstream for an undisclosed amount. These assets include 97-mile BakkenLink crude oil pipeline, which connects to several third-party gathering systems, as well as a proprietary 28-mile gathering system in the core of the Bakken. The deal also includes a 154,000-b/d rail-loading and 657,000-bbl storage facility in Fryburg, North Dakota, which can provide outbound deliveries to the West, East, and Gulf Coasts. The deal is expected to close in first-quarter 2016.

• Woodside Petroleum Ltd. has withdrawn from its plans to create a regional oil-and-gas giant through the acquisition of its rival, Oil Search Ltd based in Papua New Guinea. This would have been the biggest energy takeover in Asia. Woodside has reportedly informed Oil Search's board that it has withdrawn its proposal to acquire the company in an all-stock deal valued $8.4 billion. The offer was originally made in September and Oil Search had already rejected it as too low.

Discovery & Development

• Eni and Anadarko Petroleum have agreed to launch the development of adjoining Mozambique offshore gas fields, as Mozambique prepares to start its first exports. At issue here is the development of two natural gas reservoirs that overlap: Mamba and Prosperidade in Areas 1 and 4. Area 4 is operated by Italy's Eni, while Anadarko operates Area 1. China's CNODC controls an indirect 20% stake in Area 4. Each area is expected to produce around 12 trillion cubic feet of natural gas.

• Ongoing talks between Iran and India could result in the construction of an undersea gas pipeline to transport natural gas from Iran to India within the next two years. The $4.5 billion pipeline will travel between the Gulf of Oman, past the Arabian Sea, and to Gujarat on the west coast of India. If approved, it will transport 31 million m3/d. The proposed pipeline is intended to bypass Pakistan's exclusive economic zone (EEZ).

Regulations & Litigation

• Authorities in Bulgaria have discovered an illegal diesel refinery near the northern town of Letnitsa, in the Lovech region. Tanks full of diesel were found in and outside the facility which had a capacity of between 60 and 150 tons per month. The ongoing investigation will establish when the refinery started operating and what products have been sold so far. The refinery was located in a farmyard, on the premises of a former state enterprise.