Gulf of Mexico Production Falls 50%

Discovery & Development

• Britain’s most important pipeline system, Forties, saw flows reduced to 150,000 bpd from 450,000 bpd-575,000 bpd due to repairs, which are set to be completed by Friday. Prices should not see much movement if repairs are completed during that time. Ineos had an issue with the Forties pipeline last month as well, citing nonspecific “operational issues” which resulted in a 48-hour flaring period.

• More than 60 entities took place in Portugal’s first ever solar auction saw to install 1,400 megawatts (MW) solar farms across the country. Winning bids are expected to be announced by mid-August. Portugal is looking for up to $1 billion in investment from this. Most bidders were foreign. A total of 24 locations were up for grabs, with only one lacking a bid. The winning bidders will be those offering the biggest energy tariff discounts.

• Production from the US Gulf of Mexico fell by 50% on Thursday due to evacuations of nearly 200 platforms ahead of tropical storm Barry. Chevron, Anadarko, BHP, and BP have shut in Gulf of Mexico production and have evacuated staff from drilling platforms ahead of a tropical storm. Refineries in the area, too, are being shuttered, taking some gasoline production offline. In conjunction with the Pennsylvania refinery that was recently shuttered with no immediate plans to restore production, already low gasoline inventories in the US are set for further declines.

Deals, Mergers & Acquisitions

• There are several deals coming out of Saudi Aramco this week, with Hyundai E&C winning a $2.7 billion deal to develop a gas and crude oil processing plant in conjunction with the Marjan field. Italy’s Saimpem also secured a $3.5 billion deal for the Marjan and Berri fields. US-based McDermott came away with a $4.5 billion contract as well. In total, Aramco awarded $18 billion in contracts designed to increase the Marjan and Berri’s production by 550,000 bpd of crude and 2.5 BSCFD of gas. The deals will position Aramco nicely in the long term among its enthusiastic US shale competition that Saudi Arabia hopes will not be able to maintain the pace of its rapid growth. Of the $18 billion awarded, 50% was awarded to Saudi companies.

• Some two years after acquiring it from Maersk Oil, French Total SA has agreed to sell a pool of North Sea oil assets off the coast of Aberdeen for $635 million. In total, the assets hold over 30 million barrels of oil equivalent in remaining reserves. Private equity fund HitecVision, and Oman's Petrogas will take over four fields and a share in six others. In doing so, it’s grabbing around 25,000 barrels a day.

• Three of China’s large shipbuilders are in talks to merge in a potential deal that could render it the largest shipbuilding company in the world. Merger talks include China International Marine Containers Ltd (CIMC), AVIC International Holding Corp, and China Merchants Industry Holdings Co. Ltd. (CMIH).

• A.P. Moller Holding, parent of shipping behemoth Maersk, marks its first venture into the world of renewable energy, announcing its acquisition of wind turbine supplier, Danish KK Group AS. The deal is waiting on regulatory approval, and is expected to be completed in Q3 2019.

• Miner behemoth BHP is allegedly moving ahead with plans to exit the thermal coal business, looking to divest coal assets in Australia and Colombia, which generate 4% of BHPs sales. The miner publicly supports the Paris climate agreement and has been showing signs that it is interested in a more environmentally friendly way forward.

Tenders, Auctions & Contracts

• The Dominican Republic has launched its first licensing round with 14 onshore and offshore blocks up for bidding in four basins (Cibao, Enriquillo, Azua and San Pedro). Average block size offshore is 2,500km, and 500km onshore. Licensing terms include a minimum investment of $2 million for onshore blocks and $4 million for offshore blocks.

• Qatar Petroleum awarded McDermott International a contract for FEED work to offshore wellhead platforms and pipelines associated with its North Field Expansion project. This is the second major deal McDermott has been awarded this week, the first being with Saudi Aramco. The North Field Expansion Project is expected to rake in $40 billion in export revenue for the country.

• Uzbekistan is gearing up to privatize its state-run Uzbekneftegaz oil and gas company by 2024. This would be the first major privatization in the country, and the task at hand right now is to create an environment that could potentially attract investors. Up to 49% of shares would be made available by 2024, according to a government statement.

Legal & Regulatory Alerts

• Senator Bernie Sanders and AOC are proposing to propose a resolution to the house and senate to declare the climate crisis an official emergency.

• Weld County, Colorado’s most prolific oil producing county, created its own oil and gas department to issue permits, after Colorado changed its laws in the spring to allow local governments, including county governments, the power to lay down the rules within its own jurisdiction, so long as they were stricter than state law. But Weld is the kingmaker here, with almost 90% of the state’s oil in the lucrative Niobrara formation. Weld county, largely dependant on the oil and gas industry, which generates about 60% of its overall tax dollars, was opposed to the regulations that sought to tighten regulations around drilling. With the addition of the new oil and gas department, we may see a reduction in the backlog of the thousands of drilling permits that oil companies have been waiting on.

Politics, Geopolitics & Conflict

• Venezuela’s state-run PDVSA has fallen on rather hard times, and, as a result, has had to lower its standard for customers who may or may not be able to pay. One of those lowly customers is apparently a small, private Turkish company (Grupo Iveex Insaart), brought to light by Reuters last week. This is a tiny construction company formed less than a year ago with under $2,000 in capital. Why is a tiny construction company buying boat loads of Venezuelan oil? Our sources on the ground in Turkey and our access to various documentation indicate this is a front company for Maduro. The company was founded by Venezuelan national Miguel Josue Silva Perez, who registered Iveex Insaat with Turkish partner Erhan Kap in late September 2018. Kap is a Turkish tourist guide. The registration took place one week after Maduro visited Istanbul. How does the scheme work? It’s some sort of swap deal, wherein Ivexx supplies PDVSA with refined products in return for crude, and accounts are settled with banks in Dubai, and it’s not yet clear who controls those accounts. What is clear is that based on the paper trail, they managed to clear just under 10% of Venezuela’s total exports for the month of April.

• A transcript is now floating around of a conversation that took place in October 2018 in Moscow between Italians and Russians conspiring to get Russian oil money to Italy’s right-wing Lega party of deputy prime minister Matteo Salvini. The money was to fund Lega’s European election campaign. Everyone knows Russia is pushing the far-right in Europe, trying to force a populist surge, but the transcript serves as pretty solid evidence of how they bankrolled this in Italy--with oil money. Moscow didn’t get its populist surge in the end, but it is steadily working towards that. They won in some countries, but lost ground in others.

• It’s not just contaminated oil that is hitting at Russia’s bottom line these days--it’s a heated rivalry between Transneft (the oil pipeline monopoly) and Rosneft (the biggest producer). This rivalry has led to a three-year low in production recorded for this month. Transneft is playing dirty by cutting down its oil intake from Rosneft. It’s gotten worse since the contamination that has caused weeks of disruption, which Transneft is using to pressure Rosneft and back it into a corner. It will be interesting to see how two key Putin allies war this out.

• Exxon’s incredible royalties deal for its string of 13 discoveries offshore Guyana looks safe now--at least for the time being. Investors have been waiting to see what the outcome of the latest political crisis in Guyana would be, and whether this could mean a review of that royalties deal. The wait is potentially over. Guyana has now made it clear that it will revisit royalties contracts with an eye to bigger revenues for the government, but for now, the plan is to apply that to future contracts--not existing ones. Where it concerns ongoing investigations into oil deals and potential corruption, authorities have also hinted that Exxon isn’t a target. At stake are the 4 billion barrels of oil it’s just discovered, and no one wants to rock this boat.

• Washington is mulling sanctions against China for importing Iranian oil to the tune of over $1 billion in June alone. Earlier, we noted that the State Department was potentially considering another Iranian oil waiver for China to recoup its investment in an Iranian oilfield; however, Washington seems to have now abandoned that idea, potentially over reports that ships carrying Iranian crude to China are going dark at sea to avoid loading detection.