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Global Energy Advisory June 8th 2018

LNG vessel

President Trump has reportedly asked OPEC and Russia to increase crude oil production by 1 million barrels per day as prices at the pump in the United States have climbed to the highest in three years.

The news comes from unnamed sources cited by Bloomberg, so there is nothing official but it is interesting that the amount of increase reportedly requested by the U.S. President is the same as earlier reports suggested is being discussed by Saudi Arabia and Russia.

In fact, the number of reports about possible production raises is quite high, with all citing unnamed sources giving various figures.

While the sources that Bloomberg talked to said the Saudis and their partners from the Gulf wanted to raise production modestly, by about 300,000 bpd, which is the cut Russia agreed to make on its daily output, Russia itself wants a higher raise, of 800,000 bpd. Other unnamed sources, quoted by Reuters this time, however, said both OPEC and Russia were looking at 1 million bpd as the amount of supply to add to global markets.

Meanwhile, amid all the reports, OPEC’s oil ministers are keeping surprisingly quiet about anything to do with production. Usually, this or that minister would drop a hint that would send prices higher or lower immediately even if it is too general to make any concrete conclusions.

Saudi Arabia’s Khalid al-Falih excels at hint-dropping, while his Russian counterpart Alexander Novak is the king of vague general remarks. Now, the OPEC officials are keeping quiet and all Novak has said is that any production decisions will be made at the June 22 meeting. All this silence will likely continue to fuel uncertainty, despite growing confidence that the cartel and Russia will indeed ease the cuts, if only to appease some major oil buyers such as India and respond to Trump’s request, if such was made.

Deals, Mergers & Acquisitions

• Qatar Petroleum has inked a deal with Exxon for the acquisition of 30% in two affiliate companies of the U.S. supermajor in Argentina. One of the affiliates, Mobil Argentina S.A. holds exploration rights for seven blocks in Argentina’s shale patch together with other companies. For the Qatari company, this is the first international investment in unconventional oil and gas, and its entry into the Argentine oil and gas market.

• BHP Billiton’s unloading of U.S. shale assets could take until next year as oil companies and private equity firms teamed up to bid for what could turn into the largest shale asset sale in history. BHP received the first offers from bidders this week but it remains unclear whether it will shortlist suitors for a second bidding round or invite all of the participants to take part in it. It is not even certain there will be another bidding round or BHP will review all current offers and select the winners. The Australian mining giant was pressured into selling its over 838,000 acres in the U.S. shale patch by activist investor Elliott Management, which argued these assets are weighing down the company’s portfolio.

• ConocoPhillips may offload the Cenovus state it bought last year, media have reported, adding the selling price could be a little lower than the price at which Conoco bought it. To date, the 16.93% interest is worth some $2.1 billion. The news pressured the stock of Cenovus substantially as reports also said the sale could take place before the end of the month, with Conoco already in talks with investment banks to pick advisers on the divestment. The buyers will likely be institutional investors.

Tenders, Auctions & Contracts

• Italy’s Saipem said it had won a $1.3-billion pipeline construction contract in the Middle East, without divulging any further details as to the precise location of the project and the client. All the Italian company said was that the contract is for the construction of two 32-inch export pipelines and two 24-inch pipelines along with accompanying infrastructure and subsea structures.

• India earlier this week received the first LNG cargo from Russia under a long-term contract with Gazprom worth $25 billion. For India, the deal is a way of securing diversity of gas supply amid growing demand. The Gazprom deal will see India take in 2.8 million tons of LNG annually, in addition to more than 8 million tons coming from Qatar, 1.5 million tons from Australia, and 5.8 million tons from the United States.

Discovery & Development

• Tullow Oil has plans to expand its oil production in Ghana, with first oil from the TEN area slated to begin in the second half of this year. Two wells have already been drilled in the offshore area comprising three fields, and now a third is being drilled. Tullow and its partners in the project are also considering adding a second rig at TEN. The UK-based company operates the Ten area and the Jubilee field in Ghana.

• The Fortuna LNG project in Equatorial Guinea has run into a major obstacle as one of the partners, Schlumberger, decided to pull out citing problems with the project’s financing. Fortuna, a joint project between Ophir Energy, Golan LNG, and Schlumberger, was to be the first deepwater LNG development in West Africa. Now, the remaining partners are hoping to find a replacement for Schlumberger soon and are already in discussions with possible candidates to take its place.

• Shell has launched production at the Kaikias oil field in the Gulf of Mexico one year ahead of schedule, with peak production from the first phase of development seen at 40,000 bpd of oil equivalent. The Kaikias field is being developed as tieback to the Ursa field off the Louisiana coast and its development will consist of two phases. The field, Shell has estimated, contains some 100 million barrels of oil equivalent in recoverable resources.

• Kenya has launched a pilot oil export scheme that will see some 2,000 bpd being sent by trucks to Mombasa and from there to international markets. The East African discovered commercial oil reserves earlier this decade and plans to export these via an 800-mile pipeline that has yet to be built ahead of the start of large-scale production in the oil-rich Lokichar region in 2021-2022. Two already operational fields in Lokichar, Amosing and Ngamia, have estimated contingent reserves of 560 million barrels with peak production of 100,000 bpd.

Regulatory Updates

• A Dutch court has ordered the seizing of Gazprom assets in the country in order to collect $2.6 billion that A Stockholm arbitration court had awarded to Ukraine’s Naftogaz in the long-running money dispute between the companies. The assets include seven Gazprom subsidiaries in the Netherlands and assets of the company in Nord Stream and Nord Stream 2 AG.

• A Brazilian appeals court has suspended the sale of Petrobras subsidiary TAG, Petrobras said in a regulatory filing without providing details. The state oil major is in discussions with French Engie for the sale of the gas pipeline company with the price tag seen at more than $7 billion.

• Canadian province Quebec announced to ban fracking for shale gas provincewide. Under the new measures, which will amend Quebec's Petroleum Resources Act, passed in 2016, the government would also ban drilling for oil and gas in 13 waterways across the province.

Politics, Geopolitics & Conflict

• Israel’s Prime Minister Benjamin Netanyahu is on a tour in Europe seeking to convince national governments in the EU to join the U.S. in reimposing sanctions against Iran.

• Meanwhile, Iran’s Supreme Leader Ayatollah Ali Khamenei ordered an increase in the country’s uranium enrichment capacity.

• Venezuela has released two Chevron executives arrested amid a corruption sweep in April as the government seeks to improve its reputation following the international condemnation of the May 20 election results.

• Jordan’s King Abdullah II ordered the halt of new fuel and electricity price hikes for a month, following mass protests that swept the country’s streets in the past several days and called for the fall of the government.

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