Global Energy Advisory – 22nd May 2015

Politics, Geopolitics & Conflict

South Sudan

South Sudanese rebels claim to have captured a key refinery for the country's largest oilfield (Paloch) in the Upper Nile State. The rebel MO here is to target oil facilities in order to deprive the government of oil revenues-upon which the budget is entirely dependent and which represents its only way of financing the fight against the rebels in this civil war. The two-year civil war pits forces loyal to South Sudan President Salva Kiir against 'rebels' allied with Kiir's former deputy, Riek Machar. South Sudan only achieved independence from Sudan in 2011. While fighting has been ongoing for two years, there has been a recent escalation that follows a clear strategy by rebels to increase targeting of oil infrastructure. The rebels have advised oil companies to evacuate staff and halt operations in advance of the onslaught. Oil companies with operations in South Sudan include Malaysia's Petronas, China's CNPC and India's ONGC Videsh.

Not-related to the ongoing civil war, we alert oil and gas companies to a scam to park money purported to belong to rebel leader Machar in European oil and gas companies. An individual posing as an investment lawyer working on behalf of Machar is offering oil and gas companies tens of millions in investment. Given the desperate situation of a number of junior oil and gas companies operating in Europe, this is an attractive offer, but we assure you that it is a scam. For more information, please feel free to contact oilprice.com.

Syria

US Army commandos claim to have killed Abu Sayyaf, whom they describe as the Islamic State's supposed head of oil operations. A U.S. military official called Tunisian Abu Sayyaf the "emir" of the group's prosperous oil and gas transactions. This is not exactly an operation that will cut off IS oil activities. While the media is keen to say that Sayyaf's death may at least temporarily dampen IS oil revenues, we find this hard to believe. As long as there is a market for IS-hijacked oil, it will flow as usual short of some major offensive gains against the group in Syria, which have yet to materialize.

Deals, Mergers & Acquisitions

• Qatar Petroleum International (QPI) will restructure its operations as a direct result of the depressed oil market. CEO Nasser Khalil al Jaidah has said that QPI's restructuring will focus on ways to unburden the company. Earlier this year, Qatar Petroleum (QP) announced plans to absorb QPI into its structure. We are unsure if that is still on the table, but it would be in line with consolidation plans they were toying with when oil prices plummeted. QPI is relatively new, having been formed in 2007 as QP's foreign investment arm. Over the last few years, it has created 10 joint ventures in the US, UK, Italy, Singapore, and Egypt, among others.

• US-based Noble Energy will acquire Rosetta Resources, valued at $2.1 billion, plus the assumption of Rosetta's net debt of $1.8 billion. This deal will net Noble its first shale positions in the Eagle Ford and Permian Basin. During the first quarter, Rosetta produced 66,000 boepd, 60% of which was liquids. Noble Energy says it has identified in excess of 1,800 gross horizontal drilling locations for development. It estimates these new drilling locations could have resource potential of around 1 billion boe. According to Noble, Rosetta's assets could generate enough cash flow to finance the drilling necessary to increase production by 15% per year for several years.

• Brazil and China have signed a series of trade and investment deals as part of a $50 billion Chinese investment package. The package includes two finance and cooperation deals worth $7 billion for Brazil's state-owned oil company, Petrobras. They also signed a $5 billion financing deal with China Development Bank (CDB) and a $2 billion deal with China's Eximbank. These two deals will provide capital projects funding for Petrobras.

• British Gas parent company Centrica has reportedly agreed to purchase more gas from Russia's Gazprom and Norway's Statoil. In 2011, Centrica made a 10-year deal to import 5 billion cubic meters (bcm) of gas a year from Statoil, and that volume has now been increased to 7.3 bcm per year. Centrica has also extended a deal with Gazprom to take delivery of 4.2 bcm a year-up from 2.4bcm. Statoil will begin its deliveries from October and will provide a total of 73 bcm over the 10 years of the contract.

• The government of Uganda has extended deadlines for a month for oil companies to obtain exploration licenses in the country's west and north. The deadline was originally for the end of this month, and has now been extended to the end of June. So far, the government has received 10 applications from international oil companies who have bought the request for qualification documents. They are now hoping the extension will bring in more applications. The country's first competitive licensing round was opened in February. The licenses are for Albertine Graben, which has an estimated 6.5 billion barrels of oil in place and 500 billion cubic feet of gas. About 40% of this territory is already licensed out. Only three oil companies are operating here: France's Total, China's CNOOC and UK-based Tullow Oil. Uganda is hoping to start oil production in 2018. Oil was first discovered in Uganda in 2006. The Albertine rift basin straddles Uganda's border with the Democratic Republic of Congo (DRC). Production has been de
layed time and again. Potential investors beware of never-ending tax disputes and problems with infrastructure development. So far, authorities say estimated recoverable oil is at around 1.4 billion barrels, with less than half the basin explored.

Discovery & Development

• BP's unit in Trinidad and Tobago will start drilling sometime later this month at the large offshore Juniper subsea gas development off the southeast coast of Trinidad. Production capacity is expected to be around 590M cf/day, with production scheduled to begin in 2017. BP operates in 904,000 acres off Trinidad's east coast, and has two onshore processing facilities and 13 offshore platforms. It's also a major stakeholder in all four trains of Atlantic LNG-a Trinidad gas liquefaction facility. According to local authorities, the Juniper project will produce 1.2 Tcf of gas. The wells will be drilled by Diamond Offshore's Ocean Victory semi-submersible drilling rig.

• Hungarian oil and gas group MOL has announced a new commercial discovery in Pakistan from its Mardan Khel-1 exploration well in the TAL Block located in the Khyber Pakhtunkhwa Province. The well tested four formations and all flowed with high volumes of gas and condensate. The two best tested zones yielded 4,300 barrels of oil equivalent per day along with 2,100 bpd condensate and 4,000 boepd gas along with 1,840 barrels per day condensate respectively. MOL has signed a farm-in agreement for the DG Khan block, acquiring a 30% non-operating interest from Pakistan Oil Fields Limited (POL) in the block.

• A China National Petroleum Corporation subsidiary (China Petroleum Engineering and Construction Cooperation, CPECC) has signed a $330 million deal to build infrastructure at the Mender oilfield for the UAE's Abu Dhabi Company for Onshore Oil Operations (ADCO). The project will help boost ADCO's daily crude production from 1.4 million barrels to 1.8 million by 2017, according to the joint venture partners. The Mender oilfield is in a desert area more than 300 km south of Abu Dubai. Its daily production capacity is around 20,000 barrels.

Regulations & Reform

• The Danish Energy Agency (DEA) has granted France's Total SA permission to resume shale gas exploration (permits pending) after a week-long ban over the use of hazardous chemicals not approved by local authorities in the drilling process. According to DEA, Total may resume drilling for shale gas once it obtains all the necessary permits from the environmental authorities. Exploration was suspended on 6 May in northern Jutland after the authorities learned that Total was using an unapproved chemical, referred to as 'Null Foam'. Denmark is one of the few European countries alongside Britain, Poland and Romania that allows fracking. Total received the green light to drill for shale gas in Denmark last year, amid much controversy.

• Indonesia's state-run oil company Pertamina has closed down its trading division, Petral, and will take over operations. Petral will be subjected to an audit in the liquidation process that should be completed in 2016. Pertamina officials claim the company can save approximately $400 million by directly assuming control over Petral's tenders and business. This is all part of the government's attempt to root out corruption in the oil sector and thereby restore investor confidence. Indonesia is Southeast Asia's biggest crude producer, but a series of corruption scandals and the downfall of top oil officials under former president Susilo Bambang Yudhoyono have put investor confidence at an all-time low. President Joko Widodo took office in October 2014, and has hit the oil sector hard, dismissing Pertamina's board among other moves.