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Russia: OPEC+ Deal Will Not Be Revised

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OPEC Production Falls Despite Saudi Production Boost

Deals, Mergers & Acquisitions

• Canadian Utilities will sell all its fossil fuel-powered generation capacity for $835 million to Heartland Generation, a company affiliated with Energy Capital Partners. The assets included in the deal comprise 11 partly or wholly owned coal- and gas-fired power plants across three Canadian provinces: Alberta, British Columbia, and Ontario. Their combined installed capacity is 2.1 GW.

• In an unsurprising update about the deal of the year in oil—Occidental’s acquisition of Anadarko—the buyer said it will dispose of some of Anadarko’s assets to reduce the debt accumulated for the acquisition. Oxy saddled itself with $40 billion in debt—four times its debt level before the deal—to win the bidding war against Chevron and now it has to appease its shareholders and fast. However, M&A activity in the U.S. energy industry has slackened off and this may hurt Oxy’s chances of a quick asset disposal and debt shrinkage.

• French Total SA has indicated that it may quit Iran because of Europe’s failure to salvage the nuclear deal and, by connection, trade between the EU and Iran. At stake is Total’s $1-million Iran gas project. The problem is that with sanctions waivers no longer being extended, European shippers and insurers (Maersk, Allianz) are already cutting the cord, leaving Total little incentive to stick it out. The Europeans have definitively lost this battle.

• Scotland-based Ithaca Energy, a subsidiary of Israel’s Delek (of Leviathan Basin gas fame) has agreed to acquire Chevron’s central North Sea assets in a more than $2-billion deal, which will give Ithaca 10 producing fields and status as the second largest independent producer in the UK North Sea, but it also suggests an exodus of American producers from this venue.

• US renewable energy developer Longroad Energy has received a tax equity investment from Facebook for around $416 million for its 379-MW solar project in Texas. For Facebook, the project represents next step toward a goal of powering its global operations with 100% renewable electricity by the end 2020.

Tenders, Auctions & Contracts

• Kinder Morgan has announced open season on an pipeline expansion project that will increase the capacity of its SPFF pipeline by 7,500 barrels of gasoline and diesel daily. If the open season ends with enough booked volume, the extension will be completed by February next year.

• Equinor has partnered with British utility Drax Group and national Grid Ventures to build the UK’s first zero carbon cluster. The cluster will feature a carbon capture and storage network and a hydrogen demonstrator. Drax Group has the ambition to become the first utility operating a carbon-negative power station some time in the next decade.

Discovery & Development

• Shell has begun commercial oil and gas production from the Appomattox field in the Gulf of Mexico, with the average daily rate seen at 175,000 barrels of oil equivalent. The startup of the Appomattox field, which together with neighboring Vicksburg field, holds 650 million barrels of oil equivalent in recoverable reserves. Eventually, Appomattox will boost Shell’s total production in the Gulf to some 900,000 bpd, the company said.

• First Solar, together with asset manager Capital Dynamics, this week inaugurated a 280 MW solar farm in California, which will produce enough electricity to supply 116,000 households, eliminating more than 109,000 tons of CO2 emissions annually. The electricity produced from at California Flats Solar Project will be sold to utilities and corporate clients under two long-term contracts.

• The State of Washington has reinstated EV tax incentives that ended last year and now will go into effect on August 1st. Washington Governor Jay Inslee reinstated the sales tax credit as part of a series of four clean energy bills that aim to see 50,000 alternative fuel vehicles on the road in the state by 2020.

• China’s National Energy Administration (NEA) has announced that the country will allocate $434.55 million worth of subsidies for new solar projects this year. Some quarter of funds will be directed to rooftop power projects while the rest will be allocated for solar stations.

Markets

• OPEC members hit 96% of their pledged cuts in the month of May, based on a Reuters survey, and Iran say a 400,000 bpd supply drop for the month, but there are no indications that OPEC, scheduled to meet this month, will raise production enough to offset Trump’s sanctions.

• China bought a record amount of Australian LNG in April, at 2.79 million tons, which represented a 61% annual increase. China’s insatiable thirst for LNG has made the country a top destination for all LNG exporters. However, the trade war escalation with Washington has put U.S. producers at a disadvantage as Beijing first introduced and then increased its import tariffs on the commodity in retaliation for U.S. tariffs.

• South Korea’s largest refiner has increased its intake of Russian and Qatari oil to replace lost Iranian supply after the U.S. refused to extend the sanction waivers it had granted South Korea and seven other major Iranian oil importers.

• Emboldened by strong prompt demand amid tighter oil supply due to the U.S. sanctions on Venezuela and Iran, the world’s top oil exporter Saudi Arabia is expected to raise the prices of the crude grades it sells on its premium market, Asia, for July, trade sources told Reuters on Thursday.

• All eyes are on whether the Saudis raise crude prices for grades sold to Asia next week, for the third month in a row. Strong demand seems to support another hike by as much as $1/barrel.

Company News

• Mexico’s government has pledged more money for heavily indebted state energy major Pemex. After providing it with a lifeline of over $5 billion and renegotiating debts also in the billion-dollar-range, Mexico now wants to provide Pemex with tax relief to the tune of $7.3 billion, to be implemented in 2020 and 2021. Pemex’s debt load stands at $106 billion and the company could soon lose its investment-grade rating.

Regulatory Updates

• In a setback for the British Columbia government, the Appeals Court it had approached in its latest attempt to stop the expansion of the Trans Mountain pipeline ruled in favor of the project, denying B.C. the right to say how much oil flows through its territory. Cross-province infrastructure projects are regulated by the federal government but B.C. had hopes it could go around this and win the right to control the flow of oil on its turf. Now, the NDP government will appeal at the Supreme Court.

Politics, Geopolitics & Conflict

• Israel is voting again in snap elections just a month after the regular vote, which failed to lead to the formation of a government amid a deepening political crisis.

• Buoyed by the UK’s Brexit debacle, Scotland is gearing up for another independence vote, potentially in the second half of 2020. This week, the Scottish government laid down new referendum rules to avoid any potential post-referendum legal battles. Last time, Scots voted down independence in a 55-45% vote, but today, the sentiment looks to be more in favor--but by no means a clear majority. Brexit, of course, has helped, because the Scots aren’t keen on the uncertainty of a Brexit future; but many also fear what the chances of a hard Brexit (with no deal) could mean for an independent Scotland. It’s a tricky time for the UK parliament to try to block this referendum, with May vowing to step down as PM in June and the battle on for succession. North Sea oil revenues will be one of the key points of negotiation between Scotland and Westminster, and there is a fair amount of argument over who actually owns the North Sea oil wealth. Scottish academics cite the UN Convention of the Law of the Sea as demonstrating that 90% of the total tax revenue from oil and gas operations is generated in Scottish waters.

• In another twist in the Anadarko asset sale, Algeria is blocking French Total SA from acquiring Anadarko’s Algeria assets, which was intended to be part of the deal when Occidental merged with Anadarko following Chevron’s withdrawal from its acquisition bid. Total was to acquire Anadarko’s assets in Algeria, Ghana, Mozambique and South Africa in a deal agreed to by Occidental. For reasons that have not yet been explained by Algerian officials, they wish the assets to remain with Anadarko, which produces over 300,000 bpd in the country. Anadarko is operator in Algeria of blocks 404a and 208 with a 24.5% stake in the Berkine basin (the Hassi Berkine, Ourhoud and El Merk fields in the Algerian Sahara). Total already holds a 12.25% stake in these operations, which produced 320,000 boepd in 2018. The move, of course, is political in nature and represents Algeria’s desire for just about anyone other than it’s colonial occupier to have control of these lucrative assets and potentially undermine Sonatrach, which itself is a reflection of the national interest. France may be meddling significantly in neighboring Libya, where it also has massive oil interests, but in Algeria, it’s playing it very cautious--despite the political chaos that would normally provide it with an open window--because of the long, bloody history between the two. Algeria’s post-Bouteflika interim military clan leadership is extremely fragile right now, and mass protests are more than a continually looming threat. The last think this interim leadership wants right now is any stronger a French foothold. Right now, protests have the ability to turn Algeria into the next Libya--only far, far messier. Algeria’s vow to block Total’s acquisition of Anadarko’s assets isn’t a message to investors--it’s a message specifically to the French.



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