Global Energy Advisory – 13th February 2015

Deals, Mergers, Acquisitions, Withdrawals

• China's Yantai Xinchao Industry Co Ltd is reportedly in talks to acquire Zhejiang investment firm, which has plans to acquire oil field assets in Texas.

• Gulf Keystone Petroleum is abandoning oil exports from Kurdistan over delays in payments from the Kurdistan Regional Government (KRG). This means they are abandoning exports of 40,000 bpd (average as of December) from the Shaikan field. Gulf Keystone carries $575 million in debt in high yield and convertible bonds, and must pay $26 million in April. In December it received a down payment of $15 million from the KRG, but the KRG owed it a total of $250 million. Shares in the company fell more than 17% following the decision. We note that while Gulf Keystone's position is more serious, none of the other major producers-Genel Energy, Norway's DNO-are receiving payments from the KRG despite promises of payment.

• Aberdeen Asset Management Plc has divested all of its Petrobras stocks due to the ongoing graft probe. Aberdeen is Europe's largest publicly traded money manager and held 8.4 million of Petrobras's preferred shares as of the third quarter of 2014.

• Italy's Saipem oil services company--through its subsidiary ERSAI Caspian Contractor LLC--has been awarded a new engineering and construction contract for the Kashagan field project in the Caspian Sea. The contract is worth around $1.8 billion. Saipem is contracted for the construction of two 95-kilometer pipelines to connect D island in the Caspian Sea to the Karabatan onshore plant in Kazakhstan. The construction will be completed by end of 2016. The new pipeline will replace another one Saipem built that began leaking just weeks after it went into operation.

• Nigerian Seplat Petroleum Development has acquired a working interest in two onshore Nigeria blocks from Chevron Nigeria for $391.6 million. The company now has a 40% working interest in OML 53 and a 22.5% working interest in OML 55. Nigerian National Petroleum Corporation (NNPC) holds the remaining 60% interest in OML 53. The 40% interest gives the Nigerian company an estimated net recoverable hydrocarbon volume of around 51 million barrels of oil and condensate and 17.3 billion cubic meters of gas. Block OML 53 covers an area of approximately 1,585 square kilometers and is located onshore in the north eastern Niger Delta.

Discovery & Development

• Brazil's Petrobras has met with a technical challenge in the drilling phase of a well at its biggest oil discovery in the offshore Libra field. Drilling was halted for more than a week while the well was redirected after hitting a pressure zone.

• The Reggane Nord consortium (of which RWE is a party) has begun development drilling at its gas project in the Algerian Sahara. The plan is for 26 development wells in the first phase, with gas production scheduled to go online in the summer of 2017. The consortium partners include RWE Dea AG (19.5%), Algeria's state-run Sonatrach (40%), Spain's Repsol (29.25%) and Edison (11.25%).

• Norway's Statoil has struck more oil in the Krafla area in the northern North Sea basin (the site of a significant 2011 discovery). Statoil is the operator of PL035/PL272 with a 50% interest. Sweden's Svenska Petroleum Exploration and Norway's Det norske oljeselskap each hold a 25% stake. This is Statoil's fifth discovery in the Krafla area since 2011. Total discovered recoverable resources are estimated in the range of 140 to 220 million barrels of oil equivalent.

• BP has formed a new ownership and operating model with Chevron and ConocoPhillips to focus on moving two significant BP Paleogene discoveries closer to development and provide expanded exploration in the deepwater Gulf of Mexico. BP will sell Chevron approximately half of its current equity interests in the Gila and Tiber fields. BP, Chevron and ConocoPhillips also have agreed to joint ownership interests in exploration blocks east of Gila (Gibson), where drilling is planned to launch later this year.

• Italy's Eni has made a new discovery of oil and gas in Egypt's Western Desert. The well in the West Melehia deep exploration prospect began production with an initial daily flow of 2,100 barrels. Eni holds 76% of the Melehia licence through its International Egyptian Oil Company subsidiary. Eni believes the wells will see production of around 8,000 bpd by the end of this year. Lukoil is the other partner with a 24% stake.

• US-based Anadarko Petroleum and its partners in Area 1 offshore Mozambique are negotiating the annual supply of more than 8 million tons of natural gas from Mozambique to Asian customers in the long term. Preliminary deals have been reached to sell LNG to China National Offshore Oil Corp, Japan, Indonesia's state-run Pertamina, the United Arab Emirates, Thailand's PTT and companies in India. Mozambique is believed to have over 20 billion barrels of reserves of natural gas in deep waters. The country has recently adopted well-received legislation governing this sector.

Politics, Geopolitics & Conflict

• Kurdish forces (Syrian) are said to have recaptured a large number of villages around the flashpoint of Kobani (on the border with Turkey) from IS. There are some 350 villages in this area that have been under IS control, and Syrian Kurdish forces now claim they have recaptured 128 of these villages over the past two weeks.

• Security guards on strike at the eastern oil port of Hariga (in the east, on the border with Egypt) led to the temporary closure of the port, leaving only one port left open-Brega; however, Brega does not handle exports and largely only supplies a local refinery. This put oil output at under 300,000 bpd. Hariga was shut down on Saturday and reopened on Tuesday, ahead of UN talks on Libya.

• Protests and clashes with police have been followed by a massive strike in areas of southern Tunisia, on the border with Libya over a tax imposed on non-resident foreigners crossing the border. This is a key fuel smuggling area and the tax will hit at the only source of income for many in the region.

• Poland has indicated that it would support a move by Washington to supply Ukraine with arms, which in turn could raise tensions at Poland's border with Russia. At the same time that Washington-which has released its strategy on Ukraine-is toying with direct arms for Ukraine, pro-Russian rebels have seized the town of Lohvynove, encircling the Ukrainian-held town of Debaltseve, 5 kilometers away. This puts Ukraine in a precarious position in terms of ceasefire negotiations.

Regulations & Litigation

• Brazil has frozen and seized assets belonging to former billionaire Eike Batista, including the accounts of his children, ex-wife and partner. Police have begun seizing vehicles, jewelry and other belongings for charges related to the failure in 2013 of Batista's OGX oil and gas company. The hunt is also on for any assets Batista may have hidden outside of the country.

• The CEO of Brazil's state-run oil giant Petrobras, Graca Foster, has resigned ahead of his expected firing. Five members of the seven-member board have also resigned. The new CEO is Aldemir Bendine--chief executive at state-owned Banco do Brasil--while the government is considering Planning Minister Nelson Barbosa for chairman of the board, according to local media reports. However, there is no official confirmation of this, and media also notes that Barbosa is reluctant to join the board, and the government is having a hard time finding an appropriate independent chairman. The corruption scandal has decimated the company, whose shares are down by more than 40% since October 2014. This comes amid another devastating incident on 11 February, in which three workers were killed and 10 injured in an explosion on an offshore gas platform operated by Petrobras. Another six workers are still missing, and the death toll is expected to rise.

• The United Steelworkers union (USW) has announced its strike will expand to two additional plants after initiating a strike at 9 locations last week. Walk-outs at BP Plc's Whiting, Indiana, refinery and the company's joint-venture refinery with Husky Energy in Toledo, Ohio started on Sunday.

Technology

• Petrobras is said to be developing technology to cut greenhouse gas emissions through carbon dioxide capture at its Shale Industrialization Facility in Parana. Presently, the new technology is being tested in a prototype facility that transforms heavy crude into light oil products. This is the first pre-industrial scale FCC unit in the world to use oxy-combustion technology to capture carbon dioxide.

• Norway's Statoil and partners have chosen an unmanned wellhead platform as the concept for the Oseberg Future development phase I project in the North Sea. This conceptual platform would have no living quarters, helicopter deck or lifeboats, and would be controlled from the Oseberg field center. The investment decision is expected in the fourth quarter of 2015 or the first quarter of 2016.