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Global Energy Advisory 21st October 2016

Politics, Geopolitics & Conflict

• The Iraqi army, with its allies from the Kurdish Peshmerga and the U.S.-led international coalition are preparing to enter Mosul, the last ISIS stronghold in Iraq, and it largest stronghold in the region at this point. The government forces have been reclaiming the territory around the city since Monday, advancing on the city from multiple directions. There are an estimated 5,000 IS militants in Mosul, some of which – the leaders – have managed to escape into Syria. If the Mosul operation ends successfully, it will largely put an end to ISIS’ official presence in Iraq—but this is not a definitive end to ISIS, which will regroup elsewhere.

• In Syria, the Syrian army and its Russian allies are on the verge of their final push into eastern Aleppo. On Thursday, a humanitarian pause was agreed, to let the civilian population evacuate before the armies “cleanse the city”. Around 900 IS members are also expected to also take advantage of the pause and will be escorted to Idlib, around 60 km from Aleppo, according to Iranian media. The Syrian-Russian operation is very likely to heighten the already substantial pressure between Moscow and Washington, especially after the declaration of “cleansing”, which will in all probability result in many civilian deaths as well. ISIS will use human shields to protect their strongholds. A humanitarian crisis is also unavoidable: Around 150,000 refugees are expected, according to the UN’s Special Envoy to Syria Staffan de Mistura. A guerilla war among various groups in the country is likely to ensue after the retaking of Aleppo by the Syrian army.

Deals, Mergers & Acquisitions

• Czech energy company EPH has agreed to sell its EP Infrastructure business to a group of investors led by Macquarie Infrastructure and Real Assets. The business division includes a 49 percent interest in Slovak gas pipeline operator Eustream, which manages gas deliveries from Russia to the EU and from the EU to Ukraine.

• OMV is selling 19 oilfields in Romania to Mazarine Energy, a company backed by Carlyle Group. The fields have been on the market since 2014, under an optimization program launched by the Austrian company. In 2015, they produced a combined 1,000 barrels per day.

• Oceaneering International has acquired the riserless light well intervention assets of Blue Ocean Technologies for $30 million in cash. The assets include three RLWI systems, of which two are under construction. Completing them will require an additional investment of $10. The acquisition will complement Oceaneering’s portfolio of subsea services.

• Exxon has sold 60 percent of its refining and retail fuel business in Nigeria to local NIPCO. The sale was conducted under a Sales and Purchase Agreement between the companies.

Tenders, Auctions & Contracts

• Greece and Bulgaria are moving on with the construction of the Interconnector Greece-Bulgaria gas pipeline as part of efforts to diversify the region’s – and Europe’s – dependence on Russian gas. The ICGB, whose construction will start in 2017, will connect to the Southern Gas Corridor, when it is completed, and the Trans-Adriatic Pipeline, also in the works. The $241-million, 112-mile reverse-flow pipeline should be completed by 2019 and will have an annual capacity of 3-5 billion cubic meters of natural gas. TAP, set to be completed a year later, in 2020, will transport Azeri gas from the Shah Deniz field to Europe, marking a vital section of the Southern Gas Corridor.

• Shell is selling 16 assets for a combined $500 million, the company said. The auction is part of a $30-billion asset sale program following the acquisition of BG Group, which saddled the Anglo-Dutch company with a huge debt load.

Discovery & Development

• Total has made a new discovery at the Martin Linge field offshore Norway, which has boosted the total reserves of the field to between 12 and 69 million barrels of oil equivalent. Martin Linge, discovered in 1975, held estimated reserves of 190 million barrels of oil equivalent before this new discovery.

• IGas Energy has estimated its recoverable shale gas reserves in the UK at 11 trillion cubic feet. The amount is sufficient to satisfy the country’s total gas demand for a period of four years. The third-party reserves assessment was conducted by DeGolyer & MacNaughton, which also said the total gas reserves in IGas Energy’s shale portfolio in the UK stand at 102 trillion cubic feet.

• Iran plans to raise its daily crude oil output to 4 million barrels before the year’s end. Over the next four years, the daily production target set by the Oil Ministry is to reach 4.28 million barrels of crude and 1 million barrels of condensate. To reach this target, Iran will need foreign investments of some $200 billion, which also includes funding for its petrochemical industry.

• Quadrant Energy has struck oil in the Bedout Basin offshore Western Australia. The Roc-2 well yielded 2,943 barrels of condensate daily and 51.2 standard cubic feet of natural gas during tests. This is the third successful well drilled by Quadrant Energy in the area, where the company holds the majority stake in four permits.

• Tullow Oil is looking for trucking companies, to transport the first commercial-scale oil output of Kenya. The eastern African country is eager to start exporting crude from its Turkana region by mid-2017. Meanwhile, it is building a 538-mile pipeline from the Turkana fields in the northern part of the country, to its coast, where an oil terminal is also in construction.

• China and the Philippines will jointly explore for oil in the South China Sea, according to reports in Philippine media. The exploration will focus on the West Philippine Sea. The move is seen as part of Philippine’s President Rodrigo Duterte’s move away from the U.S. and closer to its neighbor China.

Company News

• A Stockholm arbitration court is set to rule on a financial dispute between Russia’s Gazprom and Ukraine’s Naftogaz in March next year. Gazprom is suing Naftogaz for close to $30 billion for gas underdrawal over the period 2012-2015, under their take-or-pay contract, plus $2.2 billion in gas deliveries that remained unpaid. Naftogaz, in turn, is suing the Russian state giant for $25.7 billion under a supply contract and another for transit deliveries.

Regulatory updates

• The American Petroleum Institute has warned regulatory changes drafted by the Bureau of Ocean Energy Management will seriously affect seismic survey activity in the Gulf of Mexico. Among the proposed amendments to current rules, the BOEM has proposed halting seismic surveying in the presence of dolphins and effecting a minimum 25-mile distance between two simultaneous seismic survey operations. The API cited BOEM’s chief environmental officer as saying there had been no evidence to date that seismic surveys present a noise risk to marine animals or coastal communities, although groups such as the Center for Biological Diversity and the Natural Resources Defense Council say the air guns used in seismic surveys cause injuries in some forms of marine life. In addition, the industry body said it was worried about BOEM’s suggestion that seismic surveys in the Gulf be reduced by 10-25 percent.

• Brazil has amended its requirements for local content when deciding on which companies to award licenses for oil and gas field development. Local content requirements refer to the candidates’ willingness to purchase local goods and services. Until now, the ones that offered to buy more local content were favored over the rest.




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