Global Energy Advisory – 27th November 2015

Politics, Geopolitics & Conflict

• Here's what happens when you have two rival governments in a country where everyone thought forced regime change would be a good idea: You lose your oil deal if it's with the 'wrong government'. Ask Swiss-based Glencore. The 'internationally recognized' regime in Libya-that holed up in Benghazi-says Glencore's oil-export deal with Tripoli is unfortunately with the wrong government as such, doesn't exist. It also gives you a good idea about who supports which government, and why. It has less to do with the traditional elements of religion and democracy than most are conned into thinking. The Benghazi government has made it clear that it had the power to physically prevent Glencore tankers from using Libyan ports-if simply telling the company that its deal was on worthless paper wasn't enough.

• Brazil's state-run Petrobras appears to be getting a reprieve as a three-week strike by oil workers winds down after an agreement with unions; however, the strikes did cost the company almost 2.3 million barrels of oil in production. The strikes were in protest against the company's divestment plans as it seeks to get rid of $15 billion in assets by the end of next year.

• We're not going to spend too much time on the Syrian conflict this week, but we will note that there are few correct media perceptions about the Turkish downing of a Russian jet that ostensibly flew into Turkish airspace. While everyone is obsessed with whether or not this was an intentional attack, or whether the Turks gave the Russians warning beforehand, the real issue here is oil and the Turkish president's decisive stance supporting regime change in Syria, now directly pitting Russia against Turkey. Right before the downing of the Russian jet, Russia took out an ISIS-controlled refinery and petroleum tanker trucks. A lot of this oil and gas has been making its way across the border into Turkey (among other places you wouldn't believe). It's cheap oil for Turkey. Russia took it out of play. Russia is not far from the truth in saying that in many ways, Turkey is supporting the Islamic State.

Regulatory Update

• Texas-based ATP Oil & Gas Corp. has agreed to pay $41.85 million in fines to settle federal charges that it discharged crude oil and chemicals from its floating production platform into the Gulf of Mexico. The company went bankrupt in 2012. At the time of the discharge, ATP's Innovator was operating in the Mississippi Canyon area of the Gulf, offshore southeastern Louisiana. Charges were filed in February 2013. ATP is currently going through bankruptcy proceedings and is no longer operating.

• In Australia, BG Group PLC has been given the green light to begin a $1.2 billion drilling program in Queensland's Surat basin as part of its commitment to the coal seam-based LNG project in Gladstone. The federal government granted environmental approval to the project in December 2014 for the drilling of up to 400 wells in the next 2 years to maintain gas supply to the LNG plant. Leighton Contractors has won the main contract for the work. China National Offshore Oil Corp. and Tokyo Gas are partners in the group and will fund part of the work. BG will bear most of the cost because with its 73.5% interest in the gas permits.

• Federal regulators have cleared Schlumberger's $12.7 billion bid to buy Houston oil tool maker Cameron International. The deal should be able to close in early 2016. The US Department of Justice found that the transaction did not violate antitrust laws. The deal is still subject to approval by Cameron stockholders, scheduled to hold a meeting in mid-December. Schlumberger first expressed interest in Cameron in November 2014 but its offers were rejected by the Cameron management, which balked at the price offered.

• The oil ministers of Iran and Oman are discussing energy cooperation, including the possibility of Iran using Oman's installations for LNG exports. Currently, 23% of Oman's capacity for LNG production is unused. Iran plans to use this capacity to export LNG in return for paying the costs of turning natural gas into LNG. Right now the idle capacity is about 1.5 million metric tons per year. Iran has already signed a contract with Oman to deliver 10 billion cubic meters annually of gas through an underwater pipeline to Oman.

Discovery & Development

• Parkmead has achieved its first commercial gas production at the Diever West gas field in the Netherlands. Diever West, located onshore on the western edge of the Lower Saxony Basin, was discovered in September 2014 and has been tied into existing production facilities through a new dedicated pipeline with gas extraction via the Garijp treatment system. The Diever-2 well was drilled in September 2014 and recorded an excellent flow rate of 29 million cubic feet per day, approximately 5,000 barrels of oil equivalent per day.

• Shell has announced a major discovery at its Kaikias well in the deepwater Gulf of Mexico. The find is said to potentially be more than 100 MMboe. The well is located in the Mars-Ursa basin at 4575ft water depth, and is in close proximity to existing Shell infrastructure. Shell discovered Kaikias in August 2014 and has a 100% ownership/operatorship. Appraisal drilling revealed more than 300ft of net oil pay in August 2015. The Mars-Ursa is home to Shell's Mars; Mars B and Ursa platforms, which have a combined production output of around 500,000 barrels of oil per day.

• While everyone else is quitting the Arctic, Italy's Eni is braving the impossible amid depressed oil prices and planning to launch production at its Goliat oil platform before the end of this year. This is the northernmost oil platform in the world, and it's located in the Barents Sea, some 300 miles north of the Arctic Circle. The platform is expected to eventually produce 100,000 barrels per day.

Deals, Mergers & Acquisitions

• As falling oil prices threaten development in the politically charged Falkland Islands, Rockhopper and Falkland Oil and Gas join forces. Rockhopper has agreed to acquire Falkland Oil and Gas for £57 million. The will make for the largest license holder in the North Falkland Basin, where there are thought to be 1 billion barrels of oil recoverable.

• Russian Gazprom is considering divesting its 10% stake in the UK-Belgium gas link operator, Interconnector. The pipeline transports gas largely to Britain and Belgium. The link has a capacity to carry 25.5 billion cubic meters of LNGto Britain and 20 billion cubic meters to Belgium annually. Italy's Snam and Belgium's Fluxys own a majority of the link. Investment group, Caisse de Depot et Placement du Quebec (CDPQ) owns 33.5%. A Gazprom decision is expected to be made by the end of this year.

• Indonesian state-owned Pertamina has agreed to partner with Saudi Aramco to develop the capacity of Indonesia's oil refinery in Cilacap. The deal would increase the refinery's production capacity from 260,000 barrels per day to 360,000 bpd. The investment in the joint venture amounts to $5.5 billion, which includes assets and cash. The Cilacap refinery is Indonesia's largest and has been subject to several upgrades and additions since it started operations in 1976. In the JV deal with Saudi Aramco, Pertamina would own a majority stake, with 55-60%. Indonesia is expected to rejoin OPEC this month after the 12-member group's meeting in Vienna.

• ConocoPhillips has approved funding for its Greater Mooses Tooth development (GMT-1) on Alaska's North Slope. This $900-million project is expected to produce 30,000 barrels of oil per day at its peak. First oil production from the project is expected in 2018. Conoco is also eyeing a second project--Greater Mooses Tooth 2--that would start producing in 2020.