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Global Energy Advisory September 30th 2016

Politics, Geopolitics & Conflict

• OPEC has, against expectations, agreed to freeze its oil output in a much-awaited move to do something deliberate to rebalance oil markets. However, skepticism remains rife as, first, the final decision should be made two months from now, and second, the members of the organization still need to agree individual quotas to achieve the new ceiling of 32.5-33 million bpd. That’s not a huge reduction, since the current rate at which OPEC pumps oil is estimated at around 33.24 million bpd, while the global glut is more than half a million barrels, and closer to 760,000 bpd according to OPEC estimates. The quotas will be discussed at the November 30 meeting of the cartel in Vienna, by which time Iran, which was the main opponent to a quick deal now, may have ramped up its output to 4 million bpd or above, reinforcing doubts about the point of an output freeze. Iran, Libya and Nigeria will not be among those OPEC countries who take cuts, and with new supply entering the market from all three, the suggested cuts do not seem feasible as stated.

• A referendum in Azerbaijan has extended the presidential term from five to seven years, solidifying the position of incumbent Ilham Aliev, son of the country’s long-term leader Heydar Aliev. Ilham Aliev can now theoretically rule the oil-rich Central Asian state until his death, as the rule for a set maximum number of terms in office was revoked at an earlier referendum in 2009. Other constitutional amendments that were voted at the referendum gave Aliev the power to dissolve parliament, basically giving him unlimited power. The country has crude oil reserves of some 7 billion barrels, as of the end of 2015, most of it in the Azeri sector of the Caspian Sea.

• South Sudan may be on the verge of a return to civil war after fresh clashes between the government and armed forces supporting former vice President Riek Machar were reported early this week. It’s been less than a month since the government of Salva Kiir reached an agreement with opposition formations to start transitioning the oil-rich country to peace.

Deals, Mergers & Acquisitions

• TransCanada has offered $848 million in cash for the acquisition of the remaining Columbia Pipeline Partners LP stock it doesn’t already own. The pipeline giant earlier this year bought the parent company of CPP, Columbia Pipeline Group for over $10 billion. The cash offer for CPP represents a 3% premium to the closing price of the share as of last Friday.

• Rice Energy is buying sector player Vantage Energy for $2.7 billion, of which $1.02 billion to be paid in cash, and $700 million to go towards the assumption of Vantage debt. The rest of the price will be paid with a share issue to the tune of $980 million.

• Newfield has completed the sale of oil and gas assets in the Eagle Ford and southern and western Texas to Protegee Energy III LLC and another company that remained unnamed for $380 million. Protegee Energy snapped up the Eagle Ford assets and the other buyer got the conventional oil and gas acreage ion southern and western Texas. The current daily output from the assets is 12,700 barrels of oil equivalent. They also include untapped deposits.

• Centrica, one of Britain’s leading utilities, is exiting Canada, selling all of its operations there. Together with its joint venture partner Qatar Petroleum, the company will dispose of natural gas assets that it bought from local Suncor for about $785 million three years ago. The move is part of a refocusing that will see Centrica center its attention on its European operations.

• Michigan-based DTE Energy is buying gas-gathering assets in the Appalachia for $1.3 billion. The assets include the Appalachia Gathering System and 55% in Stonewall Gas Gathering. The sellers are M3 Midstream and Vega Energy partners.

• Sunoco has agreed to purchase Vitol’s assets in the Permian for $760 million. The assets include an oil terminal in Midland, with a capacity of 2 million barrels, and an oil gathering and pipeline transportation system in the Midland basin.

Tenders, Auctions & Contracts

• Thailand’s government will organize a tender for two exploration and development contracts that are nearing expiration in September 2017 at the earliest. The contracts in question are with Chevron and PTTEP, the E&P arm of state-owned PTT. The U.S. company operates the Erawan offshore gas field and PTTEP develops the Bongkot gas field, also off the Thai shore. The two yield 2.2 billion cu ft daily, combined. The Chevron contract expires in 2022 and the other one in 2023.

• The operators of Israel’s biggest gas field, the Leviathan, have struck a deal with Jordan to export 1.6 trillion cu ft of gas to the National Electric Power Company of the kingdom annually over a period of 10 years. The $10-billion deal marks a turning point for the Leviathan project, which was slammed by politicians and the public as conducive to a monopolization of the Israeli gas market by one of the operators, Delek Group, which is partnering on the field’s development with U.S. Noble Energy.

• Brazilian oil regulator, ANP, has announced plans to auction off as many as 10 areas on 24 March 2017. These are areas with marginal accumulations of petroleum and gas, in older, declining onshore regions. Two other oil rights auctions will also be held this year. The 24 March auction will be for Garca Branca, Rio Doce and Rio Mariricu (Espirito Santo Basin/marginal); Irauna, Noroeste do Morro Rosada and Urutau (Potiguar Basin/marginal); Aracas Leste, Itaparica, Jacumirim and Vale do Quirico (Reconcovo Basin). More information on the auction areas and the rules will be made public on 21 November.

Discovery & Development

• Shell is planning to boost the output at its huge Ormen Lange gas field in the Norwegian sector of the North Sea by installing two new compressors. With them, the field will yield 70 million cu m of gas daily, up from the current 50 million cu m. Gas extracted at the Ormen Lange satisfies a fifth of Britain’s demand. In addition, Shell said it was going to increase the capacity of its Nyhamna gas processing plant, also in Norway, from 70 million cu m to 84 million cu m.

• Separately, Shell said has shut down its Trans Niger Pipeline that carries Bonny light crude to its Forcados terminal on the Nigerian coast. According to the company, the move aims to prevent any adverse consequences from a fire that Shell said it had detected at the pipe earlier this week. However, the news about the fire came just a day after an attack by the Niger Delta Avengers on a Bonny light pipeline, which Shell refused to either confirm or deny.

• The first cargo of U.S. shale gas has arrived in the UK, delivered to chemicals major Ineos. The cargo was received in Scotland, raising questions about a possible public reaction in line with the local opposition to all fracking. According to the chairman of Ineos, however, the North Sea cannot sustain the gas supplies that local industries need, hence the imports.

Company News

• Aramco’s listing is scheduled for 2018, chief executive Amin Nasser said, adding that the stock will be listed on the Saudi exchange and maybe abroad as well. The partial privatization of the energy giant is at the center of Saudi Arabia’s Vision 2030 plan to diversify away from oil.

• A Wood Mackenzie report has revealed that the oil and gas industry invested $169 billion in exploration in 2015 and so far in 2016, discovering fresh resources of 72 billion barrels of oil equivalent. Of this, 25 billion boe were discovered in shale plays. Discovery costs over the period stood at $1.78 per barrel of oil equivalent.

Regulatory updates

• The state of Maryland has proposed a ban on fracking in three watersheds in the western part of the state and stricter environmental protection measures for existing and future wells. These include encasing every new well in four layers of steel and cement in order to avoid having fracking water, gas, and other chemicals seep into the soil around the well. According to the Maryland Secretary of the Environment, these are the most stringent protection regulations in the U.S.

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