Global Energy Advisory 14th April 2017

Politics, Geopolitics & Conflict

• Iran's reformist Oil Minister has run into another stumbling block in terms of wooing back international oil and gas companies. The country's Supreme National Security Council is reviewing the Iranian Petroleum Contract put forwarded by the ministry to replace the decades-long buyback contracts that had chased foreign companies away. In some ways, this was more effective than sanctions. The new IPC would allow foreign companies to book reserves in Iranian fields and buy interests in local energy companies. Hardline conservatives are opposed to the move and have already caused several delays and forced amendments. As it goes up again for another review, it's very likely to be a flop as companies begin to lose interest and the uncertainty builds over the Trump administration's next move. At the same time, Iranian presidential elections are to be held on 19 May, and if a conservative candidate wins, we will be looking at new terms again for the IPC. Mayor of Tehran Mohammad Bagher Qalibaf, former prosecutor general/cleric Ebrahim Raeesi and former head nuclear negotiator Saeed Jalili have all pledged to challenge the reforms put forward by incumbent President Hassan Rouhani. And now former Iranian President Mahmood Ahmadinejad, another hardliner, has also announced his candidacy.

• Sunday will be a key day for the fate of democracy in Turkey. On Sunday, Turkish citizens will vote on a new draft constitution that will give President Recep Tayyip Erdogan significantly more power as the country's president. This was his plan from the beginning of his candidacy for president, and the consequences will be far-reaching. Erdogan has accomplished much in terms of his megalomaniac ambitions. Many times it has seemed that Erdogan and the AKP were in dire straits; but he has survived crisis after crisis of his own making, including a massive graft probe that began in December 2013 sparked by a break with his former allies, the 'Gulenists', and a coup attempt in 2016. No one wants a Turkish president that is largely accountable to himself alone, but that's what we're likely to get. This will be an authoritarian regime, sanctified by a referendum. The parliamentary government will become a presidential one, and the prime minister's office will be gone. Erdogan's power will be extended both in time and scope. He will have the power to appoint government ministers and judges and to dissolve parliament-not to mention declaring national emergencies. He will be allowed to run in presidential elections for two more five-year terms. His purge of enemies will thus be completed.

Deals, Mergers & Acquisitions

• Petronas, Malaysia's state-owned oil and gas major, has offered a 49% stake in an offshore gas block to several foreign energy companies, including Exxon, Shell, Thailand's PTT Exploration, and several Japanese players. The stake could fetch as much as $1 billion and turn into Petronas' largest oil and gas production acquisition since the oil price crash of 2014. For now, the talks are private but a bid can be expected in the next few weeks.

Tenders, Auctions & Contracts

• Saudi Arabia has shortlisted 51 companies to bid for the development of wind and solar energy projects in the kingdom, including France's EDF, Marubeni Corp., and Mitsui & Co. The bids were for a 300-MW solar installation and a 400-MW wind farm, part of a renewable energy target of 9.5 GW, to be reached by 2023. A total 128 applications were submitted and the kingdom chose 27 bidders for the solar power project and 24 for the wind project.

• Schlumberger will invest $390 million in the Vaca Muerta shale play in Argentina in partnership with local YPF. In exchange for the payment, the world's top oilfield service provider will receive a 49% stake in the Bandurria Sur concession - the place where the two will work on a two-phase pilot oil project.

• Iraq will supply 1 million barrels of crude to Egypt on a monthly basis, under a new deal between the two countries. The first cargo should reach Egypt at the beginning of May. The move represents Cairo's efforts to diversify its sources of energy products after its main supplier, Saudi Arabia, suddenly stopped shipments without citing any specific reasons. The hiatus lasted for almost six months and shipments were restarted this March. There was a belief that Saudi Arabia had turned off the tap because of differences with Cairo on issues such as Syria and Yemen.

Company News

• Shell has admitted it had dealings with convicted money launderer Dan Etete when it was negotiating the acquisition of the huge OPL 245 offshore oil and gas block in Nigeria. Shell sought access to the field jointly with Italy's Eni and was granted it by the Nigerian government, in exchange for $1.3 billion. At the time, Etete was Oil Minister and, according to emails published recently, Shell negotiated the sale with him a year before it got the exploration license from the government. Following this, $1.1 billion was transferred to a bank account belonging to Etete. The revelations are part of an Italian investigation into the matter. Eni denies it had any part in the wrongdoing.

• PDVSA has avoided defaulting on its debt with a $2.2-billion payment to bondholders. That should be good news for those that are worrying the Venezuelan state major will fail to service its debts and its U.S. division, Citgo, will be transferred to Rosneft, which is holding about half of its shares as collateral for a debt it supplied to PDVSA. Still, the company has some more payments coming over the next few years, to the tune of $62 billion in principal and interest.

Discovery & Development

• Premier Oil has signed a contract with Wood Group for engineering and construction services at Premier's Tolmount North Sea field, which the energy firm bought from E.ON for $120 million last year, along with other assets. Tolmount, in which E.ON had a 50% interest, is scheduled to start producing gas on a commercial scale in late 2020.

• Gazprom Neft has extracted four million tons of crude from its Arctic field, Prirazlomnoye, planning to pump 2.6 million tons this year, up palpably from the 2.15 million tons produced last year. Prirazlomnoye is estimated to hold some 70 million tons of recoverable crude.

• Reliance Industries will start marketing coal-bed methane from next week, after the Indian government loosened regulations on gas sales, allowing producers to set their own prices. The industrial conglomerate will start with volumes of 400,000 cubic meters daily, to be gradually increased. This will make Reliance the third coal-bed methane supplier in India, after Great Eastern Energy and Essar Oil.

• The national oil companies of Oman and Kuwait have sealed a deal for the construction of a $7-billion refinery in Oman with a capacity of 230,000 bpd. The 50/50 venture should be completed in 2019, with the partners each providing a maximum of 35% of the project funding. The remainder will come from loans with local and international banks. Oman produces around a million barrels of crude daily, while Kuwait pumps 2.8 million bpd. Both countries have been hit hard by a cash crunch due to a sharp drop in oil prices since June 2014 and they introduced austerity measures and have decided on a series of measures to boost non-oil revenues. Oman itself derives 79 percent of its revenues from oil. In addition to the joint refinery, Oman Oil Company plans to invest $1 billion in developing various upstream and downstream projects in Oman this year. Also, in February Oman and Iranian authorities have agreed to alter the route of an underwater gas pipeline planned to ship Iranian gas to Oman in order to avoid territorial waters of the UAE. The agreement on which the two countries have been working is for Iran to supply gas to Oman via the new pipeline in a deal expected to be worth $60 billion over a period of 25 years.

Regulatory Updates

• Canada's Crystallex, a miner that successfully sued Venezuela for nationalizing its assets back in the 2000s has now asked a U.S. court to issue an injunction against the state-owned company, PDVSA, on charges that it has been illegally transferring its U.S. assets out of the country to avoid paying the penalty that an international court awarded Crystallex. This amounts to $1.2 billion in compensation and another $200 million in interest. The Canadian miner alleged that PDVSA has carried out operations worth $2.8 billion via its U.S. subsidiary Citgo and has pledged half the shares in the company to Rosneft as collateral for a debt. From Crystallex's perspective, this is an attempt to avoid paying the compensation ruled by the World Bank tribunal.