Africa/Middle East Oil & Gas Update
The Kurdistan Regional Government (KRG) in northern Iraq is upping the ante with Baghdad over the long-running oil question. Now Erbil is suggesting that it is prepared to discuss a new oil deal with the Iraqi central government in which Baghdad would actually buy Kurdish oil. This new innovation is the latest in the ongoing dispute between Erbil and Baghdad over the former’s unilateral exports of oil that Baghdad believes belongs to the central government and for which it previously cut Kurdistan’s share of the country’s national budget. In December, the two sides signed an agreement to end the dispute, but that has hit a few hiccups as Erbil says Baghdad is not abiding by its commitments to the deal in the form of budget payments. The December deal was that Erbil would get its 17% share of the national budget and in turn it would give Baghdad 550,000 barrels of oil daily for export. More specifically, the Kurds were to export 250,000 barrels of oil and facilitate the export of the remainder from oil-rich Kirkuk, which is located in territory disputed between Baghdad and Erbil (and under threat from the Islamic State). Erbil says it has met its oil quotas, but Baghdad is playing numbers here and says it depends on whether oil is counted monthly or annually. Baghdad still has to implement the budget law that would secure continual payments to Erbil. Overnight on 7 May, Baghdad responded to the KRG’s ‘new deal’ by issuing a tranche of the budget payment for April. The Kurds received $445 million from Baghdad—the largest payment Baghdad has made to the Kurds this year. Separately, on 30 April, KRG President Massoud Barzani signed into law a bill of 16 articles designed to promote transparency and development in KRG oil and gas policy.
Italy’s Eni, Exxon Mobil, BP and Norway’s Statoil have made a significant breakthrough in Angola—one of Africa’s emerging oil giants that is threatening to overtake Nigeria. Ahead of schedule (a miracle in itself), the partners have started the offshore Kizomba project. The Kizomba project is part of Angola’s Kakocha, Bavuca and Mondo South fields. According to Eni, the project will develop approximately 190 million barrels of oil with peak production currently estimated at 70,000 barrels of oil per day. Kizomba is a Block 15 subsea infrastructure project. With Kizomba online, this should bring total daily production at Block 15 to 350,000 barrels of oil. Exxon Mobil is the operator of the project while Eni has a 20% stake. Later this year, BP plans to bring more offshore projects online in Angola. Eni and partners have discovered more than 3 billion barrels of oil in place in Angola since they started exploring in 2006. Exxon Mobil’s ownership is through its subsidiary, Esso Exploration Angola (Esso Angola), with a 40% interest. The partners have so far invested nearly $740 million in the project. BP has a 26.67% interest in Block 15; Statoil Angola Block 15 AS has a 13% interest.
Also in Angola, BP has lifted a force majeure on exports of Angolan Saturno crude oil, issuing new loading programs for late May and June. Force majeure was declared on 30 April after a production problem on the FPSO PSVM covering the Plutao, Saturno, Venus and Marte fields.
Russia’s Gazprom is promising to support Morocco with an LNG project designed to ease Morocco’s dependence on Algerian gas. This is part of Russia’s plan to regain market share it stands to lose in Europe (see our previous briefing). In December, Morocco announced plans to spend $4.6 billion to pick up the pace of gas exploration. Morocco also plans to produce 2,700 megawatts of electricity form LNG.
Other developments on the Moroccan oil and gas scene include Australian Woodside Petroleum’s decision not to take operatorship or fund the drilling on an exploration well in the Rabat Deep Offshore permit in return for an additional 25% equity stake. Due to Woodside Petroleum’s decision, Chariot Oil & Gas will remain the operator with a 50% interest, while Woodside will retain a 25% interest, with ONHYM holding the other 25%. This means that Chariot will be seeking another partner to participate in Rabat drilling. The primary prospect of focus here is the JP-1, which is said to contain 618 mmbbls of gross mean prospective resources based on 2D seismic data analysis. The data room for Rabat Deep should be opened soon, and as soon as Chariot finds another partner, drilling should begin. The plan is for drilling to start in late 2016 or early 2017.
• US transportation regulators announced final new rules for railroads hauling crude oil and ethanol that will require trains to be equipped with expensive new brake systems. Trains carrying large amounts of crude oil will be restricted to a speed limit of 30 miles/hour if they do not have new electronic brakes installed by 2021. Other flammable liquids, including ethanol in high volumes would be speed-restricted after 2023. The cost of installing ECP brakes on an existing railcar is estimated at $8,000 to $10,000. In addition, rail cars constructed after 2015 are required to have more protection at the ends, thicker steel walls, tougher valves and other safety features to reduce the risk of punctures. Tankers currently in use would be phased out on a staggered schedule. Shipments of crude oil by rail have risen by more than 4,000% since 2009, though have recently leveled off due to the fall in oil prices.
• The state of Texas has moved to ban its own cities from imposing prohibitions on hydraulic fracturing and other potentially environmentally harmful oil and natural gas drilling activities. This is fallout from the vote to ban fracking in the university town of Denton in November 2014—where the shale boom originally began. Texas, Oklahoma, Ohio, Pennsylvania, Colorado and New Mexico have all imposed or grappled with the issue of putting limits on local municipalities' ability to regulate drilling or hydraulic fracturing. The new measure allows local communities to regulate things above ground such as noise, traffic and lighting associated with fracking, drilling and other oil and gas activities. But it forbids limits on any drilling or activity below the surface, except for some regulations, such as bans on exploration on Sundays, which are already in place.
Discovery & Development
• Chevron has announced a gas discovery in the Carnarvon hydrocarbon basin, off Western Australia's north-west coast. This is the WA-392-P permit, which Chevron Australia operates with a 50% stake. Shell Australia and Mobil Australia Resources each hold 25%. Chevron is the big player in Australia, leading two significant natural gas development projects-Gorgon and Wheatstone. Gorgon includes the development of the Gorgon and Jansz-Io gas fields, located within the Greater Gorgon area, between 130km and 220km off the northwest coast of Western Australia.
• Erin Energy has started production at its Oyo-8 well block located in OML 120 offshore Nigeria, where it has a 100% working interest. The well is expected to produce 7,000 barrels of oil per day. Last month the company has changed its name from Camac Energy following a reverse stock split. Each six shares of common stock were converted into one share of common stock. The company has an asset portfolio of nine licenses across four countries covering a total of 43,000 square kilometers, including current production and other exploration projects offshore Nigeria, as well as exploration licenses offshore Ghana, Kenya and Gambia, and onshore Kenya.
• Duke Energy has acquired a 7.5% interest in the proposed $3-billion Sabal Trail natural gas pipeline that will run across Georgia, Alabama and Florida. Duke will invest approximately $225 million in the 500-mile underground pipeline over the next seven years, and expects to invest more than 90% of that total in the first three years. The pipeline is scheduled to begin service in 2017 but still requires federal and other regulatory approval. Sabal Trail Transmission is a joint venture of the pipeline’s owners Spectra Energy, NextEra Energy and now Duke Energy. The partners are hoping to gain approval by early next year and to begin pipeline construction later in 2016. Duke Energy acquired its ownership share from Spectra Energy, resulting in a pipeline ownership structure of Duke Energy (7.5%), NextEra Energy (33%) and Spectra Energy (59.5%).
• UK Oil & Gas Investments (UKOG) in early April announced a headline-stealing ‘major’ discovery at Horse Hill near Gatwick airport in the UK. Since then, the company has gotten into a bit of hot water. Initially, the headlines were seething because the company estimated its discovery at 100 billion barrels of oil. A week later, it admitted this was an overstatement. The stated justification was this: “We said we believed there were 158 million barrels per square mile and we own 55 square miles. We think we can recover 3% to 15%--that’s 100 billion barrels.” But that was mid-April. Now, it’s saying that it has not undertaken work outside its license areas sufficient to comment on the possible oil in place. This double clarification has caused its shares to dip more than 3%.