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Global Energy Advisory 12th August 2016

Politics, Geopolitics & Conflict

• South Sudan now has a new Oil Ministry head, Ezekiel Lol Gatkuoth. The change of ministers involved another five ministries as well and came after the ousting of Riek Machar from his vice-presidential post, replaced by Taban Deng Gai, who then nominated Gatkuoth for the ministerial position. The civil war that has been raging in Sudan since 2013 and has led to the separation of the country into two has shrunk its daily crude oil production to around 120,000 barrels. It’s unlikely that South Sudan, which has the third-largest oil reserves in Africa, will be able to start developing its oil industry in any meaningful way while its government is so unstable. This ministerial purge comes only weeks after the newly independent country announced it would restart production.

• A resurgence of violence in Angola between the army and separatists from the oil-rich province of Cabinda has so far claimed 40 lives and there are no indications that it will subside anytime soon. The Front for the Liberation of the Enclave of Cabinda, as the militant group calls itself, has claims over a territory that hosts 50% of the country’s oil reserves. If the violence escalates, Africa’s largest exporter could face the risk of losing a substantial part of its exports.

• Despite recent ISIS attacks on Kirkuk, northern Iraq’s richest oil region, and an ongoing debate where the region’s loyalties should lie, the city and the province have proven to be firmly under the control of the Kurdistan Regional Government (KRG). This was most recently demonstrated by the latest payment made by the KRG to the city council of Kirkuk for crude exported from its fields. With this payment, the total revenues the disputed region’s hub has received from Kurdistan have reached $50 million since December 2015.

• The Kurdistan Regional Government (KRG) in northern Iraq is stalling an agreement with Tehran, which would see the Kurdish autonomous region gain access to the Persian Gulf, from where it could ship its crude oil internationally. According to people close to the deal, the KRG is delaying its final decision because of Turkey, which is the Kurdish region’s only current oil transport channel, more specifically the port of Ceyhan on the Mediterranean. It is possible that Ankara is applying pressure because it was likely that several disruptions in the transportation of Kurdish oil to Ceyhan prompted Tehran to offer Kurdistan access to the Persian Gulf as an alternative. The situation remains murky: different sources say contradictory things, with some noting that Tehran also got cold feet on the deal. Others said the KRG’s reluctance to sign the agreement was caused by its long-term agreement for shipments to Ceyhan.

• Violence in the Niger Delta continues with another pipeline blown up this week. This time the group that claimed responsibility for the attack was a formation calling itself the Niger Delta Greenland Justice Mandate. The group has warned the federal government this is just the start of its activities in the area, and has warned companies operating in the vicinity to evacuate their employees. This is a game for control over the Niger Delta’s resources, and nothing else. It should be viewed entirely from this prism. Rival groups are emerging to rival the Niger Delta Avengers for a greater share of the pie, while the NDA was the original force emboldening the idea.

Deals, Mergers & Acquisitions

• Suncor has acquired a 30% stake in the Rosebank oil and gas project in the North Sea from 50% shareholder OMV. The total value of the deal, which will leave the Austrian company with 20% in Rosebank, is $215 million, of which $50 million is to be paid up front. Chevron is the operator of Rosebank with 40%. Initial output at the field is set at 100,000 bpd of crude and 80 million cu ft of natural gas.

• NRG Energy has offered $144 million for SunEdison solar and wind assets. The seller has submitted a request for approval to the bankruptcy court that is handling its Chapter 11 procedure. The sum constitutes the floor price for the assets and the actual value of a deal could climb to $188 million if no higher bids are presented.

Tenders, Auctions & Contracts

• Uganda has issued production licenses to Total and Tullow Oil, two of the three owners of the Kingfisher field in the Albertine Basin. The third owner of the field is Chinese CNOOC, which got its license three years ago. Uganda is a relative newcomer to the international oil scene but has serious ambitions in this sector, joining forces with Tanzania to transport the crude from the Albertine Basin to the Indian Ocean coast.

• The Iraqi government has reached an agreement with three international oil majors to renew investments in the fields they are developing in the Middle Eastern country. The companies concerned are Shell, BP, and Lukoil, which had to suspend investments in the first half of the year on the back of low oil prices, which made the investments loss-making. The fresh agreements will bring in an additional 250,000-350,000 bpd for Iraq, which is OPEC’s largest producer to date.

• Netherlands-based Yuzgaz, which recently won a tender for the development of shale resources in Ukraine, has now said it is ready to invest $200 million in this project. In the first year of its arrival in the Eastern European country Yuzgaz plans to spend between $20 and $30 million on the development of the Yuzovska deposit.

Discovery & Development

• Kenya and Uganda are going to see higher costs of crude oil transportation and a lower return on investment for two crude oil pipelines whose construction was planned to facilitate the two neighboring countries’ oil business. The pipeline that will carry crude from the South Lokichar field in northwestern Kenya to the coast and the one that will transport crude from Uganda’s Hoima field to the Tanzanian port of Tanga, will have a ROI rate of 10%, according to a KPMG report, versus an initially estimated 13%. If there was just one pipeline to carry crude from Hoima and South Lokichar to the East African coast, income would have been greater. With two, transportations costs will rise by 68% for Kenya and 36% for Uganda.

• Premier Oil has struck oil in the Outer Moray Firth in the North Sea. The company drilled at 1,532 feet, of which a 41-layer of oil and gas-bearing sands. The company’s director of exploration for the North Sea said that next steps include an evaluation of the hydrocarbons discovered at the site and an assessment of the field’s economic viability.

• The European Union has set aside 187.5 million euro ($208.87 mln) for the construction of a gas pipeline between Finland and Estonia, which will unhook Finland from its gas dependence on Russia. The pipeline, dubbed the Baltic connector, can then be extended to Poland. The EU is covering 75% of the funding needed for the project, whose ultimate aim is to create a regional gas market outside the Russian sphere of influence.

• Azerbaijan’s state-owned oil company SOCAR is drilling three new wells at two offshore and one onshore field, which will add 5,480 tons of crude to its overall annual output. The daily production from the three new wells – at Pirallahi-deniz and Darwin Bank fields in the Caspian Sea, and the Saadan onshore field – is seen at between 4 and 5 tons of crude.

Company News

• ExxonMobil Egypt has fired the leader of the Independent Workers’ Syndicate, which represents its local employees. According to other syndicate members, the company gave no explanation of the move, but added that Yasser Al-Amin was leading a legal case against Exxon with a demand for the permanent employment of local Exxon employees who had spent 10 years with the company. On the other hand, the syndicate was not overly active in supporting some worker demands such as forced dismissal and complaints about inadequate safety measures. In spite of this defensive position on the part of the syndicate, it is possible that the firing might lead to a strike, which is what happened last year when Exxon fired another employee in Egypt without giving reasons for the decision.

• Gazprom booked a slight decline in net profits for the first quarter of the year under International Financial Reporting Standards. The figure was 373.3 billion rubles ($5.77 bln), down from 389.6 billion rubles a year earlier. Revenues from exports to Europe shot up by 49% in the period, contributing to the 5.4% increase in revenues to 1.74 trillion rubles.

Regulatory updates

• Ghana’s parliament has approved a proposed bill that would regulate the country’s petroleum industry. The Petroleum Production and Exploration Bill includes stipulations regarding various exploration and production aspects, including environmental protection and transparency. Energy Minister Emmanuel Armah Kofi commented that the new law should attract more international investors to Ghana’s oil and gas deposits. The Sub-Saharan African country only discovered oil nine years ago.

• Iran has finally approved its new oil contract that it’s pegging most of its oil industry development hopes on. With the new contract, Tehran said it expected to attract investments of no less than $25 billion over the next 12 months, which is when Iran will tender oil and gas fields.

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