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Global Energy Advisory – 24th October 2014

Politics, Geopolitics & Conflict

Yemen Chaos on All Fronts

Yemen is by far our biggest oil and gas red flag this year, and the past month has seen the situation here reach a critical point. Weeks of protests by Houthi and then fighting between Houthi and rival forces in the capital Sanaa left over 200 people dead. This is a complicated conflict that has divided the Yemen security forces, half of which have sided with the Houthi. A peace deal has since temporarily ended the fighting, but sporadic, targeted attacks by the Houthi against their political enemies continue, while al-Qaeda-linked forces continue to attack Houthi and government forces.

Adding to the chaos, we have separatists in the south seeking to secede from Yemen’s north and calling on the government to evacuate all soldiers and civil servants from the region before the end of November. Also included in their demands is the immediate halting of oil and gas exports by foreign companies operating in the region. The halt in exports is intended to buy time for the separatists to appoint new technicians and set up a system for diverting revenues to a new “state bank”.

Brazil Campaign Revelations

Several polls indicate that the two candidates for the 26 October second round of presidential voting in Brazil remain tied, and Petrobras scandals are taking their toll on incumbent President Dilma Rousseff. The situation, which includes ongoing testimony regarding corruption at Petrobras—has forced Rousseff to publicly admit that the corruption scheme was real. New testimony from Paulo Roberto Costa, one of Petrobras’ most powerful former executives who cut a deal with prosecutors, has put Rousseff on the spot, which is exactly what it was intended to do at this crucial point in the campaign. Police arrested and charged Costa with orchestrating a massive bribery scheme at Petrobras, which funneled proceeds to the governing Workers’ Party (Rousseff’s party) and its allies, as well as into his own pockets.  

Attacks on Egypt’s Nile Delta

An uptick in attacks in populated areas of the Nile Delta and the specter of further attacks may bring into question a series of new Nile Delta oil and gas licenses awarded to foreign companies recently. Last week, two bombs exploded in the Nile Delta city of Tanta, wounding 11 people and targeting a Sufi Muslim religious festival. Two days prior to this, another 13 people were wounded in a bomb explosion at Ramses Street metro station. At the same time, while bombs have targeted populated areas recently, it is not out of the question that oil and gas installations in the Nile Delta could become targets. The UAE’s Dana Gas and France’s Total SA are among those to have recently won Nile Delta licenses.

Deals, Mergers & Acquisitions

•    Royal Dutch Shell has signed sales agreements for all the Nigerian oil assets it put up for sale following a 2013 review of its business. The value of the deals was not disclosed.

•    Chesapeake Energy—the US’ second-largest natural gas producer--has executed an agreement to sell assets in the Southern Marcellus Shale and a portion of the Eastern Utica Shale in West Virginia to Southwestern Energy Company for $5.38 billion. The transaction is expected to close in last quarter this year. The sale includes approximately 413,000 net acres and 1,500 wells in Northern West Virginia and Southern Pennsylvania. 435 of those wells are in the Marcellus and Utica formations.

•    Oman Oil Co is in talks with Occidental Petroleum Corp. to buy its assets in the Gulf Arab sultanate (more details as they are revealed).

•    Germany's European Energy Exchange (EEX), continental Europe's biggest power bourse, will take a majority stake in French rival Powernext as of 1 January 2015.

•    PEDEVCO Corp. (Pacific Energy Development) has acquired an additional 863.61 net acres in Weld County, Colorado, approximately 857.9 net acres of which are located in the prolific Wattenberg core area.

•    Oryx Petroleum Corporation Limited has acquired an 85% interest in the AGC Central license located in the joint development offshore area between Senegal and Guinea Bissau. This is a 3,150 square kilometer offshore license area in water depths ranging from 100 meters to 1,500 meters. Oryx will hold an 85% participating interest and serve as the operator, with the remaining 15% interest held by L’Enterprise AGC.

•    Calgary-based Encana Corp. has agreed to acquire all of the issued and outstanding shares of common stock of Athlon Energy Inc., of Fort Worth, Texas, through an all-cash tender offer of $5.93 billion. Encana also will assume Athlon's $1.15 billion of senior notes, bringing the total transaction value to $7.1 billion. The deal is expected to close by the end of this year. The acquisition encompasses 140,000 net acres in the heart of the oil-rich Midland basin in several counties including Midland, Martin, Howard, Glasscock, adding 30,000 boe/d in production, 80% of which is liquids.

•    Russian Gazprom Neft Orenburg (a subsidiary of Gazprom Neft) has completed the 100% acquisition of Yugra-Intek, which has a license to explore and produce oil in the Kuvaisky licensing area in the Orenburg region. Gazprom’s goal here is to produce 8.5 million tons of hydrocarbons by 2020.

•    Natural Resource Partners L.P. has signed a definitive agreement to acquire non-operated working interests in oil and gas properties located in the Bakken/Three Forks play of the Williston Basin from an affiliate of Kaiser-Francis Oil Company for $340 million. The assets, located in the Sanish Field in Mountrail County, North Dakota, are all held by production and operated by Whiting Petroleum Corporation.

•    KrisEnergy has finalized the take-over of Chevron Overseas Petroleum (Cambodia) Limited (COPCL), with government approval. COPCL holds a 30% working interest in and operatorship of the Block A petroleum agreement offshore Cambodia.

•    Calgary-based Mart Resources, Inc. has become a member of a consortium that has entered into an assignment agreement with The Shell Petroleum Development Company of Nigeria Limited (SPDC), Total E&P Nigeria Limited and Nigerian AGIP Oil Company Limited that will acquire a 45% participating interest in Nigerian Oil Mining Lease 18 and all associated assets, wells, pipelines and infrastructure. The remaining 55% participating interest of OML 18 will be retained by the Nigerian National Petroleum Corporation (NNPC). All of this is still subject to government approval.

Legal, Regulatory Updates

•    The UK government has blocked the $6.5 billion purchase of RWE Dea oil and gas company by Russian billionaire Mikhail Fridman due to EU sanctions against Russia. Fridman was attempting to acquire RWE Dea through his Luxembourg-based investment fund, LetterOne. The deal had been approved by the German government in August; however, UK approval was also needed as RWE Dea operates in the United Kingdom. LetterOne is the brainchild of Fridman and German Kahn, who had planned to invest $14 billion in proceeds from the sale of their stake in Russian oil company TNK-BP to Rosneft. LetterOne also has assets in the North Sea, which it acquired from RWE, but these assets are apparently safe and the UK government has no intention of seizing them.

•    Apache Corporation is suing a Garden City contractor and a former employee over a July audit of company vendors, citing fraud and illegal kickbacks in the Permian Basin. Apache was reviewing a company called Rogers Construction, one of their sub-contractors, suspected of making suspicious payments to Apache construction foreman James Carpenter. Apache is now investigating whether money paid to Carpenter reflected inflated charges on work orders. According to the lawsuit, Carpenter received more than $150,000 from Rogers Construction through a company he incorporated shortly before becoming an Apache employee. The audit revealed that additional money was also paid to Carpenter directly. Earlier this year, in April, Apache sued three other people for conspiring to fleece the company of $1.5 million in another kickback scheme. The case in ongoing.

•    Poland’s Treasury is preparing recommendations that would divide state-owned mining companies into “good” and “bad” entities. Those deemed “good” entities would manage viable mines, with the “bad” entities would see their mines restructured or closed.

Company News

•    The Chairman and CEO of France’s Total SA—Christophe de Margerie—has been killed in a plane crash near Moscow when his corporate jet collided with a snow plough and then caught on fire at Moscow’s Vnukovo International Airport. De Margerie was returning from a meeting with Russian Prime Minister Dmitry Medvedev in Gorki, just outside of Moscow.

•    Statoil CEO Helge Lund has unexpectedly announced his resignation from the company and will be moving on to the top job at BG Group. Statoil has named Eldar Saetre, current head of the company's marketing, processing and renewables division, as its acting CEO while it searches for a new top executive.

•    Australian Woodside Petroleum has seen its quarterly sales of liquefied natural gas (LNG) jump 46% and has raised its output forecast in response. Sales climbed to $1.96 billion from $1.34 billion a year ago. Production was 25.2.million barrels of oil equivalent, compared with 21.9 million barrels a year earlier. Woodside now expects to produce 93 million to 95 million barrels this year from its previous target of 89 million to 94 million barrels on stronger operational performance.

Discovery & Development Highlights

•    GDF Suez and BP have announced a major new oil discovery in the North Sea. The two companies say the Marconi/Vorlich field could produce up to 5,350 barrels of oil equivalent per day. The central North Sea find is located some 150 miles east of Aberdeen. It represents GDF Suez’s third discovery this year alone.

•    Exxon Mobil will invest $1 billion into a Belgian refinery despite concerns of poor margins due to EU green energy rules that will cut oil demand. The upgrade of the refinery in Antwerp is being dubbed as a long-term strategic investment on the part of Exxon. Later this week in Brussels, EU heads are slated to agree on a new climate and energy policy through 2030, which plans a 40% reduction in greenhouse gas emissions by 2030, compared with 1990 levels.

•    UK-Turkish Genel Energy and its partners have discovered oil off the coast of Morocco, where drilling results to date have been mixed at best. General and partners have drilled the Sidi Moussa-1 well to a depth of 3,000 meters below the sea, encountering oil. Genel’s partners here are Serica Energy and San Leon. Genel is the operator with a 60% interest.

•    The Kurds have announced another oil discovery in Northern Iraq, by British energy company Gas Plus Khalakan Ltd in the Shewashan reserve area. The new light oil discovery has been declared commercial viable, but there are as of yet no estimates of the reserve’s potential.

•    UK-based President Energy has made its first major oil discovery in Paraguay’s Chaco Basin, though details on potential commercial viability are not yet available. The find of light oil was in the Lapacho well, about 280 miles north of the capital, Asuncion. It is expected to be commercial, but for now we can only say that it demonstrates the existence of conventional oil in Chaco. It is a significant find for Paraguay, which has no proven oil reserves and where exploration has so far been unsuccessful.

•    We are eagerly awaiting a decision that should come in November from Kenya, Uganda and Rwanda to choose a consultant to oversee the building of a regional 808-mile pipeline that will transport crude oil to the Kenyan coast.

Licenses & Tenders

The US Bureau of Ocean Energy Management (BOEM) will offer nearly 44 million acres offshore Louisiana, Mississippi, and Alabama for oil and gas exploration and development in a proposed lease sale. The sale includes all available unleased areas in the Central Gulf of Mexico Planning Area. The timeline for the sale would be March 2015, and this would be the seventh offshore shale under the Outer Continental Shelf Oil and Gas Leasing Program for 2012-2017.  Estimates are that the proposed lease sale could yield the production of 460 to 894 million barrels of oil and 1.9 to 3.9 trillion cubic feet of natural gas.

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