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Global Energy Advisory - 5th September 2014

Regulations & Compliance

A new real estate law in Egypt will require companies to pay taxes on oil fields. The law was amended in late August, but criteria are still being developed by the relevant ministries and there is a three-month deadline for this before implementation, though the Finance Ministry is hoping to speed up the process. The new real estate tax base will apply to industrial, petroleum and tourism industries, along with ports, mines, quarries and similar facilities. With the new amendments, the property tax will be set at 10% of a unit’s rental value and 3% of a unit’s capital value.  Oil fields have been tentatively included in the new tax under the justification that the screw conveyors used to extract oil and gas should be considered as “property”.  However, there has been a lot of pushback on this and as of last week, it appears that the Finance Ministry is undecided, with leaks from the Ministry suggesting there is still a chance the property tax may not be enforced for petroleum companies and oil fields. If it is enforced, we may possibly see some exemptions for oil companies and oil fields proposed. The likelihood, though, is that these exemptions will be offered for state-owned petroleum facilities and not privately owned companies. We expect more clarification on this over the coming 1-2 weeks.

The Texas Railroad Commission has proposed tightening regulations for injection wells as scientists explore a potential link between high-pressure wastewater disposal and the earthquakes rattling North Texas. Seismologists say that earthquakes are regularly recorded, though at magnitudes too small to be felt, but that existing rules for injection wells were designed to protect against groundwater contamination and not seismic activity. The commission is now proposing that applications for drilling permits include information from the United States Geological Survey and injection well operators, in some cases, be required to disclose daily injection volumes and pressures.

Auctions & Tenders

•    Jordan has issued a call for tenders for oil and gas exploration in two blocks in the country’s northeast in the Mafraq governorate. The two blocks in question are the Sarhan and Azraq blocks, about 80 kilometers northeast of the capital, Amman. The deadline for submitting tenders is 20 October, and the tenders will be production-sharing agreements with the state-owned National Petroleum Company (NPC). Jordan’s exploration has gotten off to a rocky start, with BP halting drilling operations earlier this year due to unsatisfactory results in the eastern Risha field, near the border with Iraq. NPC will continue with exploration here. Jordan has divided its oil and gas territory into nine blocks and believes Risha still contains significant undeveloped gas resources and is looking for a new exploration partner for this field.

•    Fourteen companies participated in the latest western Gulf of Mexico lease round, netting $110 million for the government. Up for grabs were 21 million acres, of which 81 blocks covering 433,823 acres were sold. The bulk of interest was focused on the Alaminos Canyon area near the maritime border with Mexico—an area that had been previously off limits due to the lack of a joint treaty governing oil development. BP bid on 31 lots and won 27.

•    BP is divesting thousands of aging natural gas well in New Mexico ahead of the launch of its US oil and gas business. The company aims to unload 6,600 gas wells (pumping some 157,000 cubic feet of natural gas per day) by the end of the year. The gas wells are in the San Juan Basin and two-thirds are not operated by BP. In addition to this, BP is selling its 50% stake in a Conoco Phillips plant engaged in extracting natural gas liquids from gas in New Mexico. In July, BP sold off hundreds of natural gas wells in the Texas Panhandle for $390 million.

•    China is preparing for its third auction of shale blocks after a one-year delay. The first auction was in 2011, and was largely reserved for state-run bidders. The second auction in 2012 was open to private investors, but an odd collection of inexperienced and inappropriate companies. This third round will see the bidding managed by local governments rather than the state Ministry. The geology of the shale blocks is extremely complex and will involve high exploration and production costs.  

•    India may auction off some unproductive oil fields run by state-owned Oil and Natural Gas Corp. Ltd (ONGC), as output falls and the state company proves incapable of developing the fields. There are, in total, 165 marginal fields, 65 of which are under production and 74 of which are undergoing some development, while 26 have seen zero activity.

•     Lebanon has yet again delayed its offshore oil and gas license auction, which was most recently scheduled to take place on 14 August. Two oil and gas decrees still must be passed in order for the auction to be held, and the prime minister has not put the decrees on the agenda. We still do not have a new date for the auction, but are not optimistic that it will be held before the end of the year.

•    The US Bureau of Land Management will resume issuing oil and gas leases in 2015 for federal lands in California after a new study found limited environmental impacts from fracking and other enhanced drilling techniques. This will end the moratorium on new licenses put in place in 2013.

Deals, Mergers & Acquisitions

•    Private equity firms Blackstone and Blue Water Energy have announced they are teaming up for an investment of up to $500 million in Siccar Point Energy, a new North Sea-focused oil company. Singapore sovereign fund GIC is also contributing funding to the project, which will first focus on opportunities in the UK Continental Shelf

•    Gambling that the US will loosen the ban on crude oil exports, oil logistics company Buckeye Partners LP will pay $860 million for control of Trafigura's oil facilities in the Texas shale hub

•    Colombia's Cabinet has authorized state-run oil company Ecopetrol SA to sell its $573 million stake in energy generator Empresa Energia de Bogota SA ESP

•    Crescent Point Energy Corp has reached a C$378 million ($346 million) deal to buy producing conventional oil assets in Saskatchewan and Manitoba, as well as undeveloped land from Lightstream Resources Ltd

•    Apache Corp's interest in two LNG projects in Canada and Australia may be included as part of a potential spinoff of the company's international assets

•    Norwegian energy firm Det Norske Oljeselskap is poised to buy Marathon Oil Corp's Norwegian business

Geopolitical & Conflict Update

Pro-Russian separatist forces have continued their advance on Ukrainian positions in the east, leading to the retreat of Ukrainian military forces from the airport in Luhansk and the nearby village of Georgiyivka. Pro-Russian separatists have also taken the town of Starobesheve, among others nearby. Ukrainian government forces are now facing the prospect of the opening of another front in this conflict from the coast of the southeastern Azov Sea. Moscow will continue to put pressure on the region, disrupting energy supplies, while steel plants will likely be the next victim in terms of disappearing supplies (after coal).

Somalia has filed a lawsuit against Kenya at the UN’s highest court, seeking to resolve a long-running dispute over oil reserves in the Indian Ocean. Somalia asked the International Court of Justice in The Hague to determine the maritime boundary between the coastal nations for exploration and revenue collection from oil discoveries. The lawsuit comes at a time when al-Shabaab militants are making another stand in both Kenya and Somalia, and at a time when the Somali government is arguably too weak to fight for authority over territorial waters that border Kenya.

Development

•    Gazprom Neft has begun drilling and exploration well at the Shakal Block in the Kurdistan Region of Iraq, with drilling on a second exploration well in the block expected to commence soon. The goal is to study two oil reservoirs in the Shakal Block and conduct flow testing, which should be completed by the end of this year or early next. Both wells will have a depth of up to 3.5km.

•    Royal Dutch Shell has submitted another plan to the federal government for exploration in the Alaskan Arctic, after years of legal and logistical delays. Shell proposes two drilling rigs operating simultaneously in the Chukchi Sea, which could produce more than 400,000 barrels of oil a day. Shell has not yet made a final decision on whether to drill next summer, pending federal approval.

VENEZUELA - Pdvsa considers importing crude oil for the first time

It was reported on 27 August 2014 that Petroleós de Venezuela (Pdvsa) is considering importing crude oil for the first time ever, aiming to increase sales of the extra heavy oil that is produced in Venezuela. Pdvsa has been buying increasing amounts of refined petroleum derivatives to mix with the heavy crude it produces in order to make Venezuelan oil a more appealing export. The high international prices at which imported petroleum products are purchased have had a negative impact on Pdvsa’s finances and drained the company’s cash reserves.




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