Politics, Geopolitics & Conflict
As we predicted, trouble has flooded across Saudi Arabia’s eastern border with Yemen. On 22 May, a suicide bomber blew himself up at a Shi’ite mosque here, with several killed and scores wounded. This was in the village of al-Qadeeh. The battle between Saudi forces and Yemen’s Houthi forces has significantly intensified since the Saudis launched their bombing campaign eight weeks ago, and we’re looking a lot of carnage here, with no visible results for either side. The main border crossing has been destroyed. If it goes too much farther, this proxy war between Iran and Saudi Arabia could turn into an actual war. The Saudis will use this to try to derail a P5+1 nuclear deal with Iran. The fact remains, though, that Washington has a number of grievances with Saudi Arabia that have been piling up since 9/11. In the meantime, if the Islamic State (IS) ever manages to force a regime change in Syria, the next target would be Saudi Arabia. This kingdom will eventually fall—and the desperation is increasing exponentially, as made clear by its horrendous foreign policy.
And, back to the IS … they have taken approximately one-third of the ancient Syrian city of Palmyra as of mid-last week. This is the ‘pearl’ of the Ancient Silk Road, which means it has strategic value as Syria’s central crossroads. What it means is that IS—if it manages to definitively take Palmyra—will…
Politics, Geopolitics & Conflict
As we predicted, trouble has flooded across Saudi Arabia’s eastern border with Yemen. On 22 May, a suicide bomber blew himself up at a Shi’ite mosque here, with several killed and scores wounded. This was in the village of al-Qadeeh. The battle between Saudi forces and Yemen’s Houthi forces has significantly intensified since the Saudis launched their bombing campaign eight weeks ago, and we’re looking a lot of carnage here, with no visible results for either side. The main border crossing has been destroyed. If it goes too much farther, this proxy war between Iran and Saudi Arabia could turn into an actual war. The Saudis will use this to try to derail a P5+1 nuclear deal with Iran. The fact remains, though, that Washington has a number of grievances with Saudi Arabia that have been piling up since 9/11. In the meantime, if the Islamic State (IS) ever manages to force a regime change in Syria, the next target would be Saudi Arabia. This kingdom will eventually fall—and the desperation is increasing exponentially, as made clear by its horrendous foreign policy.
And, back to the IS … they have taken approximately one-third of the ancient Syrian city of Palmyra as of mid-last week. This is the ‘pearl’ of the Ancient Silk Road, which means it has strategic value as Syria’s central crossroads. What it means is that IS—if it manages to definitively take Palmyra—will be able to launch attacks in all directions against the Assad regime. Civilians here are now either refugees in the best case scenario, or they are being beheaded.
But an even bigger game is being played out in Ramadi, the capital of Iraq’s Anbar province. While you will see various reports about Ramadi, from where we’re sitting, there is no contest here—IS has largely taken the city. This is a major defeat for Iraq; and for Washington as well. The next stop will be Karbala and Iraqi military bases and weapons depots between the two. Iraq will deploy Shi’ite militias to attempt to thwart the IS advance and retake Ramadi. (Shi’ite militias had been kept from fighting until now in Anbar Province because it’s a largely Sunni area). At the same time, those Sunnis who are against the IS were, of course, never weaponized to fight them, so this will not go down well. There was another clear message during all this: Iran and Iraq are fighting the IS, but against Saudi Arabia’s war on Yemen; so Iraq has definitively let the Saudis know they are not on their side, understanding that wealthy Saudi Wahhabis are supporting the IS. The Iraqis are also trying to drum up support (weapons) from Russia using the argument that a lot of Chechens are fighting for IS. All of this will be important to understand as the war map of the Middle East is redrawn. Allah may be setting oil prices for the Saudis, but he doesn’t seem to finding them any new friends.
In other developments …
A resolution has been found for a major fuel strike in Nigeria, which had grounded domestic airlines, dried out gas stations and closed banks. Claiming the government owed them $1 billion, major fuel wholesalers halted all distribution. It was a major strike that threatened to collapse the entire economy. According to government officials, the wholesalers were not paid, but backed down from the strike simply because there were fears that Nigerians could take up arms against them. The only ‘deal’ they offered the wholesalers was to look into subsidies and examine the alleged outstanding payments. It’s an inauspicious start to the new president’s’ regime. President-elect Muhammadu Buhari’s inauguration is this week, which of course has raised speculation that the fuel strike was politically motivated. Our take? All things are politically motivated, so there will be this element—but beyond that Nigeria’s oil refineries are horribly managed and thoroughly corrupt, and this massive producer of oil in Africa still finds itself importing petroleum products that it can’t afford.
Deals, Mergers & Acquisitions
• Indonesia’s Energy and Mineral Resources Ministry will tender 10 oil and gas blocks in a new bidding round this year. On the menu will be four conventional blocks to be tendered through open bidding; another four under a direct-appointment scheme to oil and gas contractors that have performed studies in respective areas; and two unconventional shale blocks. They are now in the preparation stage, and bidding will being ‘soon’. Earlier this year, Indonesia also secured contracts for 13 other blocks with a combined investment of $166.3 million (minus $14.5 million in total signing bonuses). In 2014, 21 blocks were tendered through open bidding.
• Germany’s Wintershall Holding GmbH has expressed an interest in buying stakes in Libyan oil-and-gas assets from Occidental Petroleum. Libyan officials claim that Occidental has sought and obtained permission from Libya’s state-run National Oil Company (NOC) to allow Wintershall access to confidential data for fields it partly owns. Late last year, Wintershall was forced to halt production from its eight onshore oilfields in Sirte basin (in partnership with Russia’s Gazprom), and evacuated expatriate staff due to the fighting. Occidental currently participates with NOC in several oilfields in Libya’s Sirte basin that have produced only insignificant volumes for the company, as well as a number of onshore exploration blocks.
• Canada-based Pacific Rubiales Energy has accepted Mexican conglomerate Alfa and Harbour Energy’s takeover offer in a deal for approximately $1.7 billion, excluding more than $4 billion in debt. The deal, which is expected to close in the third quarter, has received approval from the company’s board. Harbour Energy is an energy-investment company controlled by Noble Group and EIG Global Energy Partners. The Alfa offer takeover price is 73% below Pacific Rubiales’s high last year, which was set before oil prices began to fall in June 2014. The Colombian company’s shares have dropped 68% over the past year as low prices yielded record losses. Toronto and Bogota-headquartered Pacific Rubiales is Colombia's largest independent oil and gas producer. It pumped about 147 million barrels of oil equivalent, principally from its 63 Colombian blocks in 2014, and accounts for about a quarter of the country's crude output.
• Thailand’s largest energy firm, state-controlled PTT PCL, has put its 36% stake in Star Petroleum Refining Co. (SPRC) up for sale in an initial public offering. That leaves PTT with stakes in three other refineries. Thailand has a total of 6 oil refineries.
• India has drawn up a list of 25 state-owned companies that could sell shares to the public for the first time. The companies will be arms of Coal India and ONGC, including: South Eastern Coalfields, ONGC Videsh, Bharat Bhari Udvog Nigam, Antrix Corp. and others.
Discovery & Development
• Exxon Mobil has announced a ‘significant’ oil discovery off the coast of Guyana’s in the Stabroek Block. The well—drilled by Exxon affiliate Esso Exploration and Production Guyana Ltd—was said to have encountered more than 295 feet of high-quality oil-bearing sandstone reservoirs. Esso Exploration and Production Guyana has a 45% interest in the well, while Hess Guyana Exploration Ltd. has 30% and Chinese CNOOC Nexen Petroleum Guyana Ltd. has 25%. The red flag here is a maritime dispute between Guyana and Venezuela. Drilling began in March, and the discovery will likely bring on Venezuela’s wrath.
• And yet another red flag with Venezuela in the form of a new Falkland Islands discovery. UK-listed Premier Oil has reported a discovery at Isobel Deep, saying it found around 75 feet of oil bearing reservoir. They are comparing the discovery to the Sea Lion find. Premier has a 36% interest in the project, while Falkland Oil & Gas (LON:FOGL) has 40% and Rockhopper Exploration (LON:RKH) has 24%. Premier is the operator. Premier is banking on this as a ‘play-opening’ discovery.
Regulations & Litigation (and more strikes)
• For anyone interested in Brazil’s massive shale gas potential, keep this in mind: We’re still far away from seeing this happen because there is no clear regulatory framework in place. According to one Latin American expert, this won’t get off the ground until 2023 because most geological studies are still in their conceptual phase. In all, there were 240 potential areas available for bidding, including 110 identified as "new frontiers" in the Acre, Parecis, São Francisco, Paraná, and Parnaíba bays and 130 in mature bays of Recôncavo and Sergipe-Alagoas.
• Nigeria's main oil union has shut down the local operations of US oilfield services provider Halliburton in protest against the layoff of 46 local workers. Halliburton is providing drilling services to Shell and Chevron in Nigeria. Halliburton's staff cuts in Nigeria are part of a company-wide jobs cull announced earlier this year to counter a sharp downturn in global oil prices.
• Oil and gas workers in the UK North Sea will vote soon on whether to go on strike after talks between unions and the Offshore Contractors' Association representing employers failed. The talks largely have to do with working conditions. Cost pressures have already led to hundreds of job cuts among the larger players, including BP, Shell, and Chevron. The Offshore Contractors Association said it was "extremely disappointed" that the ballot was to go ahead and that the industrial action would only make the North Sea less attractive and jeopardize the long-term future of the industry. There is also the threat of strike in Norway’s North Sea, with talks floundering there as well. Norwegian unions Safe, Industri Energi and DSO said that rig owners had not offered their members anything substantial during the negotiations.
• The State of Oklahoma has passed a bill that would prevent the state's cities and counties from banning hydraulic fracturing or other oil and gas operations within their boundaries, taking cue from Texas. With a 33.13 vote, the Oklahoma Senate also approved bill that also prohibits local bans on wastewater disposal. Cities and towns would still be able to adopt rules and regulations concerning road use, noise, odors and setbacks and fencing requirements for oil and gas well sites.
