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Global Energy Advisory – 20th March 2015

Politics, Geopolitics & Conflict

• Iraqi forces (backed by Shi’ite militias) have retaken most of the towns and the area surrounding Tikrit, in central Iraq, but have made little progress taking the city of Tikrit itself from the Islamic State (IS). There are oilfields outside of Tikrit, which IS has set fire to in an attempt to distract Iraqi forces from the city. Here we have the al-Ojail oilfield. It’s not the major fields of Basra, but it does pump out around 25,000 bpd that goes on to Kirkuk refineries further north and east. It also produces about 4 million cubic meters of gas per day, feeding the Kirkuk power station. Iraqi forces are now said to control the oilfield, which has been under IS control since last June, but the damages to this field remain unknown. The taking of Tikrit will be interesting. This is a town closer to the border with Iran and this is where it becomes clearer who will get a leg up in Iraq: the US or Iran, or (as the winds are blowing) both. Right now, Shi’ite militias (Iranian leaning) are aiding in the offensive on Tikrit, and the Iraqis are calling for more help from anyone who will heed the call—either Iran or the US. So far, no one is promising aid with air strikes here.

• At the same time, as this larger geopolitical game is being played out over Iraq and Syria, Saudi Arabia is again on the anti-Iran warpath despite the fact that this will have disastrous consequences for the threat to the Saudis emanating from neighboring Yemen, which is on the brink of an all-out civil war. The Saudis are desperately trying to put together a wide-reaching Sunni alliance against Shi’ite Iran, but earlier this week, Pakistan decided not to join alliance. Yemen is foremost on Saudi Arabia’s mind; like Iraq and Syria, this is a proxy war. What the Saudis were hoping is that the Pakistani military would deploy a contingent to help defend Saudi Arabia’s southwest border, where Shi’ite Houthis are amassed in northern Yemen. The idea was to have the Pakistanis there to help ward off a possible Shi’ite move. Pakistan has helped out the Saudis in the past in a similar fashion, but not this time. It’s got its own sectarian violence to plug up, with 20% of its population Shi’ite—and helping the Saudis would certainly add to Pakistan’s own sectarian woes, and there would be reprisal attacks for such a move. The Saudis are extremely nervous. They do not have the best track record battling with the Houthis. Watch what happens next as the Saudis sweat it out, because the real story here is that much of the rest of the world is ready to accept Iran as a regional power because the US administration is indirectly forcing a consensus on this. There will be a rapprochement with Iran coming from Washington—and it looks as if nothing can derail that right now. So while most everyone else is trying to cozy up subtly to the Iranians, the Saudis are increasingly feeling the chill.

• Colombia's main oil workers' union USO threatened to launch a strike on March 19 after previously saying the nationwide stoppage could begin any time after March 26 over thousands of layoffs across Colombia's oil sector. State-run Ecopetrol—downplaying its desperation--says it has a contingency plan to deploy staff to essential positions in the field to allow it to sustain regular output if the strike goes ahead. Technically, strike action by Ecopetrol employees is illegal because Colombian law prohibits stoppages in industries or job functions considered an essential public service.

Discovery & Development

• Italian oil giant Eni is getting a lot of attention with news of a new “significant” discovery of natural gas off the coast of Libya. According to Eni, they’ve produced some 29 million cubic feet of natural gas per day from the discovery well, which has an estimated capacity of 50 million cubic feet per day. The Italian company is confident it can fast-track the development of this offshore find due to the proximity of existing production infrastructure. At least this is offshore, as onshore production is out of the question amid another round of civil war that has two parallel governments and their militias battling it out for control. But Libya is extremely important to Italy: around 10% of Italy’s gas came from Libya before 2011.

• GDF Suez E&P UK Ltd and partners have announced a new discovery in the UK Central North Sea, on Block 22/16. This block is on the Dalziel structure and flowed at rates over 8 Mboe/d. GDF is now sidetracking the well to appraise the full extent of the discovery. GDF has a 30% interest in the block, while its partners include RWE Dea UK Sns Ltd (25%), JX Nippon Exploration and Production (UK) Ltd. (25%), and Total E&P UK Ltd (20%).

• Beach Energy Ltd and Drillsearch Energy Limited have announced a new discovery at its Stanleys-1 exploration well in the Birkhead Formation of Australia’s Cooper Basin. Wireline logs indicate a 7-meter gross reservoir interval, while a drillstem test recovered 23 bbl over 117 minutes at a calculated rate of 280 bbl/d. Drillsearch has a 60% interest in the project, while Beach Energy is the operator with a 40% interest. The well will be cased and suspended as a future oil producer. This is a four-well pad drilling campaign.

• Rolling it in this week, Drillsearch has also announced another discovery in the Cooper Basin with partner Santos. Santos is the operator with 60%, while Drillsearch has 40%. This time it is a wet gas discovery on the Western Cooper Wet Gas Fairway. It is the fourth discovery out of five wells drilled by the JV. We are looking here at the Kyanite-1 near-field exploration well in PEL 513. The well was drilled to a total depth of 3,354 meters. The company said “excellent gas shows were observed across the Patchawarra and Tirrawarra Sandstone/Merrimelia Formations from 250 to 3,795 total gas units, with stacked reservoirs identified.” Preliminary analysis of wireline logs shows an aggregate estimate of 24.2 meters of net conventional gas pay over several intervals, with a gross interval of 534.3 meters in the Patchawarra Formation. In the Tirrawarra Formation, the company reported 8.5 meters of net gas pay over a gross interval of 59.1 meters.

• BP Egypt has announced a second gas discovery in the North Damietta offshore concession in the east Nile Delta. This is the Atoll-1 deepwater exploration well, which was drilled to a depth of 6,400 meters and penetrated some 50 meters of gas pay in Oligocene sandstones. The North Damietta offshore concession is estimated to contain five trillion cubic feet of natural gas.

• Italy’s Eni has completed post drilling studies on the Merakes-1 gas finding, deep offshore Indonesia in the East Sepinggan Block. The company says the findings indicate significant upside gas potential, with new studies upgrading the potential from previously estimated 1.3 trillion cubic feet up to 2.0 trillion cubic feet of gas in place.

• General Electric (GE) is planning to invest another $100 million in its Saudi Arabia research and manufacturing programs. Over the past three years, GE has committed $1 billion in Saudi Arabia. The focus will be on developing new and enhanced technologies in the upstream and downstream sectors to increase efficiency and production. We’re looking at new software solutions and next-generation downhole technology and electric submersible pumps.

• Croatia and Montenegro are planning to build a $754 million gas supply route along the Adriatic coast and tie it to the planned Trans Adriatic Pipeline (TAP) by 2020. The purpose of the project is to reduce Europe's reliance on gas imports from Russia. Croatia and Montenegro will be offering tenders for offshore oil and gas exploration this year. TAP's 500-mile route would traverse Turkey, Greece and Albania, culminating in Italy.

Deals, Mergers & Acquisitions

• Verisk Analytics has announced plans to acquire British energy consultancy Wood Mackenzie from buyout firm Hellman & Friedman LLC for approximately $2.8 billion. Verisk is a provider of risk assessment data to the insurance industry, but it has been expanding through acquisitions since 2009. The transaction is expected to be closed during the second quarter of this year.

• Kuwait Energy and state-owned Egyptian General Petroleum Corporation (EGPC) have agreed to a farm-in deal in which EGPC will farm in a 10% participating interest in Block 9, in the Basra Governorate in southern Iraq. Details are scant on this deal. Originally, Kuwait Energy and partner Dragon Oil discovered oil in this Basra field in September 2014, and this is now producing 2,000 barrels of oil per day.

• Rosneft has completed the purchase of 100% of shares of SANORS Holding Limited (Novokuibyshevsk Petrochemical Company). Novokuibyshevsk Petrochemical has an output of 1.5 million tons, which includes liquefied hydrocarbons, benzene, phenol, synthetic ethanol, catalysts and industrial gases. This an important acquisition, which will allow Rosneft to integrate its oil and gas production and refining assets with SANORS' petrochemical production facilities.

• Brazilian Petrobras’ oil carrier fleet management and logistics arm, Transpetro, is putting 23 tankers up for sale—which represents nearly half of its fleet. This is an attempt to boost Petrobras’ divestment program and generate up to $270 million.

• Canadian SNC-Lavalin is reporting that it has won two major contracts worth a total of over $500 million from a major oil company in the Middle East, without divulging the name of the oil company. SNC recently acquired oil and gas specialist Kentz for $2.1 billion.

• Russian Rosneft has terminated a $4.1 billion service order from Norway’s North Atlantic Drilling Ltd (NADL) for the West Navigator drillship. The ship was scheduled to start operations in a five-year contract with Rosneft beginning this summer. The termination of the service order reduces NADL`s contract backlog by $1 billion.

• Albanian authorities are preparing to take another swing at the privatization of state-owned oil company Albpetrol this year, and will begin offering its new oil and gas exploration blocks. The previous Democratic Party government, ousted in June 2013 elections, cancelled the sale two years ago to a private buyer (tons of politics at play here, and shady tycoons). Albania's crude oil extraction, led largely by Canadian-based Bankers Petroleum and Petromanas Energy, reached 1.4 million tons last year. A previous bid to privatize Albpetrol was cancelled after the lead bidder failed to meet the conditions of the $905-million agreement. The Chicago-based Vetro, bidding through the Singapore-registered Vetro Silk Road Equity consortium headed by a local tycoon Rezart Taci, offered a huge $905 million for Albpetrol, which was more than twice the next-highest bid from the Chinese consortium Win Business and three times the third-placed offer from Bankers Petroleum of Canada. Ask us more about Albpetrol’s value and assets.

Bankruptcy

Texas-based Quicksilver Resources and its US subsidiaries have all filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the District of Delaware. Quicksilver listed assets of $1.21 billion and liabilities of $1.35 billion. The company’s Canadian units are not included in the filing; however, Quicksilver Canada has signed an agreement with its lenders for forbearance until 16 June of any default under the agreement arising from the chapter 11 filing. Quicksilver’s assets center on the Barnett Shale in north Texas (natural gas, largely). The company also has reserves in the Horn River Basin in northeast British Columbia and the coalbeds of the Horseshoe Canyon in Alberta.

New Vessel Tech

We are closely watching the launch of a new eco-friendly vessel for deepfield oil services by Petrofac, an international oil and gas services provider. The JSD6000 deepwater oilfield services vessel integrates the latest environmental technologies. The plan is for the vessel to be operational in 2017. The vessel is equipped with the offshore industry’s first ever fuel recovery separator system that separates usable fuel from heavy fuel oil and marine gas oil, thus recycling wasted oil and reducing supply vessel usage during bunkering operations.




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