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Global Energy Advisory January 6th 2017

Politics, Geopolitics & Conflict

• In Libya, the Deputy Prime Minister of the UN-backed Government of National Accord has handed in his resignation. Musa al-Koni told media that the GNA has proved unable to handle the numerous challenges Libya has to deal with, from widespread violence to lack of adequate healthcare. Al-Koni added that he considers the GNA responsible for the violence that has been tearing the country apart in the past year and that he acknowledges its failure to solve them. The resignation is indicative of how difficult it continues to be for Libya’s authorities to establish control over the civil war-torn country and steer it on the way to normalcy.

But it’s been a busy week for Libya all around, and for now it looks like General Haftar, leader of the Libyan National Army (LNA) is poised to continue solidifying power. Since taking back the country’s oil and then handing it over to the appropriate National Oil Company (NOC) earlier this year, Libya has been re-opening export terminals that have been shut down for more than two years and ramping up production just as OPEC agrees to cuts that exempt the North African nation. Earlier this week, Libya announced that it had reached production of close to 700,000 barrels per day and is eyeing 900,000 bpd over the next few months, with a hoped-for 1 million barrels by year’s end. At the same time, it’s also preparing to re-open the last remaining port that was shut down—Zawiya, the last of nine ports to re-open. This news follows news that the pipeline feeding crude to this port has been re-opened. Simultaneously, the Petroleum Facilities Guard (PFG), the hired militia that had been hijacking the country’s ports and terminals for over two years until Haftar pushed them out, is now withdrawing from Zawiya, where they served as ‘security’. This should be yet another indication that Haftar is consolidating his power (amid hopes that he’s not going to be another Ghaddafi at home).

• Turkey has become a major target for the Islamic State, according to defectors from the terrorist group. The New Year’s Eve attack in Istanbul that resulted in 39 casualties may be only the start, as ISIS is being pushed out of Iraq and Syria and is blaming, among others, Turkey. From the group’s perspective, Turkey is particularly guilty because it is a Muslim state but has teamed up with non-Muslim states in this fight. Turkey has long played an untenable role in the Syrian conflict, at times clearly viewing ISIS as a corridor of sorts that would help indirectly in Turkey’s renewed, embryonic empire-building aspirations. The cat-and-mouse game Turkey is playing with all parties in this conflict essentially means that all of its allies are also enemies, so we will be looking to 2017 for some significant challenges to Turkey’s security.

• Militant Arab separatists are rearing their heads in southern Iran. This week, one local organization that calls itself the Arab Struggle Movement for the Liberation of al-Ahwaz claimed to have bombed two oil pipelines in the oil-rich Kuzhestan province in southern Iran. It also claimed it had caused severe damage to the infrastructure. The Iranian Interior Ministry denied the claim but the fact remains that a separatist movement is brewing in one of the most oil-rich regions of Iran and is threatening attacks on oil infrastructure over the rest of the year.

• Nicolas Maduro, Venezuela’s President, has appointed a new Finance Minister and Economy Vice-President, a double role to be filled by a former MP, and a new Oil Minister – PDVSA’s former head of U.S. Citgo operations, Nelson Martinez. The ex-Oil Minister Eulogio del Pino will remain at the helm of the state oil company. The shuffle probably aims to solidify the troubled government’s position amid protests caused by triple-digit recession, food shortages and calls from the opposition for Maduro to step down and let someone else – the opposition – fix things.

• Finally, it should be an interesting year geopolitically for the offshore oil exploration world, as Lebanon finally passes two decrees that were languishing in purgatory for years but now will open up the playing field for exploration of the country’s part of the prolific Levant Basin—the same basin where neighbor Israel made its discovery of the supergiant Leviathan gas field and the already-producing Tamar gas field. Cyprus and Syria also share this basin, and exploration isn’t likely to go down without some maritime border battling.

Deals, Mergers & Acquisitions

• Blackstone is considering an acquisition of assets from Energy Transfer Partners, the company behind the controversial Dakota Access oil pipeline. Although nothing about the nature of the assets to be sold has been divulged, the Dakota Access project may be one of them. Energy Transfer late last year agreed to be acquired by sister company Sunoco Logistics Partners.

• Total plans to invest $1 billion in Brazil annually, under a partnership with Petrobras closed last year. The investments will cover both upstream and downstream operations and will include technology development as well as exploration and production. As part of the plan, Total will acquire stakes in two of the most promising plots in the prolific Santos Basin, where a lot of Brazil’s presalt oil and gas deposits are located.

• BP has agreed to acquire a network of Woolworths fuel stations in Australia worth $1.3 billion. The deal involves 527 outlets, complete with convenience stores, as well as 16 ones under construction. These will be rebranded and added to BP’s already existing network of 350 stations across Australia.

• Freeport McMoRan has sold $592 million worth of oil and gas assets in California. The buyer is Sentinel Peak Resources California LLC. The assets will be paid for in cash and the copper miner will have rights to additional payments of $50 million in 2018, 2019, and 2020 as long as oil prices rise to $70 a barrel or more on average for each of these years.

• S? Energy plans to sell assets worth $800 million in Eagle Ford. The assets include 37,500 acres producing 27,260 barrels of oil equivalent daily, plus related infrastructure. The buyer is Venado Oil and Gas LLC, a unit of private equity major Kohlberg Kravis Roberts.

• Israeli Delek Group will buy all the shares of Alon USA that it doesn’t already own in a deal valuing the company at $868 million. Prior to the deal, Delek had 47 percent of Alon’s stock.

• Whiting Petroleum has completed the sale of a 50 percent holding in the Robinson Lake gas processing plant and its interest in a natural gas gathering system in North Dakota, for a total consideration of $375 million.

Tenders, Auctions & Contracts

• Gazprom has awarded three contracts worth a total $654 million to Stroygazmontazh for the construction of a stretch of a gas pipeline. The Ukhta-Torzhok 2 pipeline will feed natural gas into the domestic gas distribution network as well as into the controversial Nord Stream 2 pipeline to Europe.

• Petronas has picked a new shipping site for its $27-billion Pacific Northwest LNG project in western Canada. The move is prompted by local opposition to the project as it is now, as well as efforts to lower its cost. While the liquefaction trains will be located on Lelu Island, the shipping site, where ships will dock to load the fuel, will be moved to neighboring Ridley Island, which is outside an environmentally sensitive area and where the construction of the berths will be cheaper.

• Italy’s Eni has been awarded two new exploration licenses off the shores of Cyprus. The company will get a 50 percent stake and the operatorship of one of the blocks, and 100 percent in the second one. Eni already has licenses for three exploration blocks in the area, on the Egyptian side.

• Egypt has sealed exploration deals worth $220 million with BP, Total, and Eni and concern exploration blocks in the Mediterranean. Six wells will be drilled under the agreements by the three companies.

Company News

• Three more oil and gas independents in the U.S. are about to file for bankruptcy in the next month or so: Memorial Production Partners, Forbes Energy Services, and Bonanza Creek Energy, adding to the more than 200 businesses that went under during the oil price crash. This year, however, the pace of bankruptcy filings is expected to slow down substantially and a boom in IPOs may well be on the way. Deregulation when Trump takes office as president, coupled with higher oil prices, should they last, will be the drivers behind the increase in listings.

• Oil trader Gunvor Group is suing its partner in a failed bid for Chevron assets, Cerberus Capital management, for refusing to shoulder its share of the costs, which the partners incurred when their $650-million offer failed. Guvnor says it spent $1.6 million on conducting due diligence on the assets and Cerberus was supposed to supply half of that, which it didn’t do.

Discovery & Development

• Gazprom Neft said it may suspend production at several wells this year as part of efforts to optimize production. The company also expects lower output growth at other wells, although as a whole it plans to pump 5 percent more oil this year than last. The increase is a reduction from an earlier growth rate, in compliance with the company’s commitments under the OPEC-Russia production cut agreement.

• Shell has failed to find oil in two wells drilled off the Tanzanian coast. The company has partnered on exploration in the area with Ophir Energy, which said that the wells were drilled on time and safely but failed to yield any oil or gas.

• Maersk Oil plans to stop production at Denmark’s largest gas field, Tyra, next year. The reason is that there is currently no economically viable way to extract what gas remains at the field. Tyra has been the main source of gas in the Danish part of the North Sea since 1984.

• Chevron has restarted production at its giant Gorgon LNG field off the Australian coast. It was suspended since November, for the second time in 2016, due to performance issues, according to the company.

• Indian Summit Group has signed a deal with Bangladesh’ Petrobangla for the construction of a $500-million LNG plant in Bangladesh, on Moheshkali Island. Construction should be completed within 18 months of signing the final agreement. LNG is the optimal fuel for energy demand in Bangladesh, according to government officials, due to its low cost, lower emission rate and quick to produce.

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