Baghdad has banned three foreign oil tankers from entering Iraqi ports. United Carrier, United Dynamic and Nautilus—all of which have transported Kurdish crude and bypassed the Iraqi central authorities--have been banned. United Dynamic and United Carrier are managed by Greece-based Marine Management Services, which has previously been targeted by Baghdad in a September lawsuit over Kurdish crude. The ban is just a small hiccup in a burgeoning business of unilateral sales of Kurdish crude on international markets. This week, another tanker registered in the Marshall Islands left the Turkish port of Ceyhan with 1 million barrels of Kurdish crude. So far, Turkey says that it has exported 17 million barrels of Kurdish crude on 22 tankers since late May this year. The buyers of Kurdish crude are choosing to remain anonymous for now, while the Kurds and the Iraqi central authorities continue their dispute about export revenue-sharing. There has reportedly been an agreement between the two sides to set up a commission to monitor Kurdish exports to Turkey, and Baghdad needs the Kurds’ help in fighting back the Islamic State (IS), so the bulk of the cards here are in the Kurds’ hands.
Fighting in the town of Kikla, southwest of Tripoli, has left over 20 people dead and scores wounded as rival militias vie for control. The rival groups include the Islamist-linked Libya Dawn coalition and the Zintan militia. Zintan managed to wrest control of Kikla from Libya Dawn for a short period before they were forced to retreat. While most of the Western media focus has been on fighting in Benghazi and the fate of oilfields and ports, a longer-term problem will be the instability in and around the capital, Tripoli, where we expect more skirmishes in the coming weeks and months.
Ukraine’s Gas Dilemma
Russia has purportedly offered Ukraine a new gas deal with more favorable terms. The new gas deal, which Russia says it submitted to Ukraine on 3 October, offers to reduce the first debt payment from $2 billion to $1.45 billion—the new amount Ukraine must pay before gas deliveries are resumed. As of the time of writing, there is no indication that Ukraine is ready to accept the deal. At the same time, a vote planned for this week on Ukraine’s 2015 budget has not been realized, though we continue to monitor this situation. The new budget includes the proposal to maintain the new (double) gas tax on independent gas producers in the country, threatening Ukraine’s ability to build energy independence and lure in any new investment in the sector.
Discovery & Development
• The giant Kashagan oil project remains shut down since a gas leak in its pipelines in October 2013, and won’t restart until 2016 by current estimations. To make up for this loss, Kazakhstan is backing an expansion project to boost the output of its largest current producer, Tengizchevroil (TCO), led by Chevron with a 50% stake. TCO is developing the supergiant Tengiz onshore oilfield in the western Atyrau region. Not only is Kashagan facing major delays, but it is facing cost overruns to the tune of at least $4 billion, which puts its final price tag (assuming no additional overruns) at around $54 billion. The jump in cost is due to the need to replace two 55-mile pipelines where gas has been leaking. For now, this is going to remain a sleeping giant. And giant it is: We’re talking about an estimated 13 billion barrels of oil that aren’t going to get out of the ground any time soon. (It was supposed to be pumping 1.2 million bpd by now).
• Africa’s second-largest oil producer, Angola, plans to increase output to 2 million bpd by 2017. This puts the country two years behind target. Italy’s Eni supermajor is scheduled to launch a major project this year in the West Hub Block 15/06. If this project moves ahead as expected, it is possible that Angola could reach its goal earlier.
• Malaysian state-owned energy company Petronas may delay its planned $11 billion LNG gas plant on Canada's Pacific Coast by up to 15 years unless it can reach a favorable tax deal by the end of this month. Petronas is citing the marginal economics of the plant without a favorable tax arrangement.
• France’s Total SA will start drilling offshore in the significantly underdeveloped Bulgarian Black Sea in the second half of 2015, which will give us a better idea of sketchy estimates of hydrocarbons here. Total, OMV and Spain’s Repsol won the bid for exploration of the Han Asparuh block here in July 2012. In April 2014, OMV transferred the project to Total for the drilling phase. Even if drilling is successful, we cannot expect any production for here for a decade.
• Brazil’s OGPar has reported a 12% increase in oil production for the month of September, with production rising from 468,600 barrels in August to 525,500 barrels in September due to production in the Tubarão Martelo oil field, which increased output by 18.3%, or 433,900 barrels. Output from OGPar’s Tubarão Azul oil field fell 10.2% to 91,400 barrels in September, according to our partners at Southern Pulse.
• Sweden’s Lundin Petroleum has announced a “significant” discovery of oil and gas in the Barents Sea, estimating 85-310 million barrels of oil. The discovery was at the Alta prospect in the Norwegian sector of the Barents Sea. By way of comparison, Italian Eni’s Goliat field, which should launch production in 2015, has estimated recoverable reserves of 174 million barrels.
• Norway’s Statoil has announced its seventh discovery offshore Tanzania, in Block 2 at Giligiliani-1. The company estimates the find at 1.2 trillion cubic feet of gas in place. This puts Statoil’s total in Block 2 at 21 trillion cubic feet of gas. The discovery proves the play extends to the western portion of the block. Statoil has a 65% interest in the block, while ExxonMobil Exploration & Production Tanzania Ltd holds 35%.
• Dubai Petroleum Establishment (DPE) has announced a discovered in its T-02 deep gas exploration well in the Fateh field offshore Dubai. This was the deepest well drilled to date in Dubai.
Licenses & Tenders
• Ivory Coast is seeking investors for offshore oil acreage in the Gulf of Guinea. Among the acreage up for grabs will be seven new ultra-deep-water blocks in the Gulf. In 2012-2013, Ivory Coast signed 18 production-sharing agreements in 18 months, in a sudden flurry of activity to diversify away from cocoa and into oil and gas following 10 years of political turmoil and a short-lived civil war. There is promise here as an extension of the hydrocarbons bonanza in neighboring Ghana.
Deals, Mergers & Acquisitions
• US-based Occidental Petroleum is planning to divest its North Dakota oil assets for as much as $3 billion. The assets include 335,000 net acres in the Williston Basin. The company is concerned about rising extraction costs.
• Bulgaria and Azerbaijan have signed two gas cooperation agreements between Bulgartransgaz (the state gas transmission operator) and SOCAR (the State Oil Company of the Azerbaijan Republic). The two companies will conduct joint exploration activities for the expansion of the Bulgarian underground gas storage near Chiren. The two parties will also examine gas deliveries to Bulgaria via the Greece-Bulgaria gas grid interconnections sometime around 2017.
• OFI InfraVia, GDF Suez and PensionDanmark Holding are planning to acquire joint control of gas pipeline operator Noordgastransport B.V. The Dutch pipeline operator controls around 470 kilometers of pipelines with daily gas transportation capacity of around 42 million normal cubic meters of gas.
• Partly-French-owned GDF Suez (gas and electricity utility) has announced renewed interest in acquiring Canadian Talisman Energy’s North Sea oil and gas assets, after an initial bid in 2013 failed.
• The European Commission is proposing to eliminate a requirement to label tar sands oil as highly polluting, which will remove a major obstacle for Canada’s designs to ship more oil from tar sands to Europe. A decision on the proposal should be made before year’s end, at which point it would be send to EU Parliament.
• The Colombian governments’ proposed tax reform has been rejected by the country’s oil sector, which predicts that higher duties on corporate earnings will result in a slump in development. The proposal is hoping to raise over $26 billion over four years and would impose a 3% tax on earnings over 1 billion pesos, raising the tax rate from 9% to 12%.
• Tunisia is on track to open up its electricity production market to private investors for the first time, with a new law approved last week by Parliament. The new law will dismantle the state monopoly on this segment, but it remains controversial. With the new law, the Tunisian national electricity and gas company, Steg, will not be privatized and will maintain its energy-transport and distribution monopoly.
• The World Bank’s International Center for Settlement of Investment Disputes has ruled that Venezuela must pay $1.6 billion plus interest to ExxonMobil in compensation for its 2007 expropriation of the oil major’s goods and rights in the country. The ruling says that compensation is due for the seized Cerro Negro and La Ceiba oil fields in the Orinoco Belt. Venezuela must pay additional fees for “production and export cuts,” but the total is less than the US$10 billion ExxonMobil sought. Although Venezuela withdrew from the ICSID in 2012, 30 multi-billion dollar lawsuits had already been filed against it for various expropriations carried out by the late Hugo Chávez.