Global Energy Advisory - 13th January 2017

Politics, Geopolitics & Conflict

• Civil unrest in Mexico over a substantial hike of fuel prices is escalating. The hike, enforced from January 1, was part of government efforts to liberalize the energy market in Mexico and attract foreign investments, as well as to break down the monopolistic status of state-owned major, Pemex. So far, 1,500 people have been arrested and 6 have been killed, as protest rage in 29 states across Mexico. Prices at the pump were increased by between 14 and 20 percent in one go, despite earlier assurances from the government that the rise would take place gradually. The public reaction to the price increase could eventually destabilize the government, which is fighting rising inflation and corruption allegations. Acting to quench the anger that made people take to the street, earlier this week President Pena Nieto’s administration came up with a plan that envisages keeping the prices of staple consumer goods unchanged and also cutting the salaries of senior government officials.

• Nigeria has ordered Taiwan out of the country, for all intents and purposes, in return for billions in Chinese investment. More specifically, Nigeria has ordered Taiwan to move its unofficial embassy, a trade mission, out of the capital Abuja, after China pledged $40 billion in investments and projects for the country. The authorities said that Taiwan would stop enjoying privileges granted to sovereign countries, since Nigeria has never established official diplomatic ties with Taiwan. From the Nigerian perspective, this makes complete sense: Its economic ties with China are much more important. Taiwan-Nigeria trade was just $800 million last year--only a fraction of the $6.46 billion in trade with China for the first six months of the same year. Nigeria has been asking for China’s financial support in the wake of the oil price crash and Niger Delta militancy that has further crippled the oil industry, bringing Nigeria close to a full-year recession (the first since 1991). From China’s perspective, Taiwan is just a rebellious province and, as such, cannot establish state relations with another country. Last month, China protested after U.S. President-elect Donald Trump accepted a congratulatory phone call from the president of the island. Earlier this week, Taiwan deployed fighter jets, a surveillance aircraft and Navy frigates after China sent its aircraft carrier into the waterway. The aircraft carrier was withdrawn from the Taiwan Strait on Thursday.

• President-elect Donald Trump is unlikely to extend economic sanctions imposed on Russia after the annexation of Crimea when they expire on March 7. Although Trump has acknowledged, somewhat reluctantly, the possibility of Russian hackers leaking emails from the Democratic National Committee to Wikileaks, and despite mounting opposition to his intention to warm bilateral relations with Moscow, the President-elect has insisted on improving these relations. His nominee for Secretary of State, Rex Tillerson, seems to be on the same wavelength. Exxon’s former CEO was grilled on Russia-related topics by Republican senator Marco Rubio – a rival of Trump during the Republican primaries – but did not budge on questions such as whether he would call Russia’s President Putin a war criminal because of the country’s military involvement in Syria and whether he would impose more sanctions on the country. Tillerson’s stance on these and other questions concerning Russia was that he needed more information before making a decision on future actions.

• Australia and East Timor will put an end to a treaty signed in 2006 outlining how revenues from oil and gas pumped from the Greater Sunrise reserves are divided between the neighbors. The revenues are worth $50 billion and, as per the treaty, were to be split equally between Australia and East Timor. The latter now claims Australia bugged its leaders during the negotiations that resulted in the treaty. In April 2016, East Timor initiated compulsory conciliation proceedings against Australia at The Hague-based Permanent Court of Arbitration. The court said in October that the parties and the court’s commission would hold meetings over the next year to seek a permanent solution. Since East Timor gained independence from Indonesia in 2002, Australia and East Timor were unable to establish permanent maritime borders to regulate how much each of the countries should receive in oil and gas revenues from the basin within their borders—revenues estimated at billions of dollars. The Law of the Sea and established practice say that a boundary would be settled at equal distance between two countries. This would place most of the potentially prolific Greater Sunrise oil and gas fields in East Timor’s territory. Australia, however, has always claimed that the boundary should be at the edge of Australia’s continental shelf, closer to East Timor’s land.

Deals, Mergers & Acquisitions

• Rosneft is looking to sell part of its stake in an oil and gas project in Algeria after it emerged that the project is unprofitable. The project is for the development of the 245-South Block, which includes two oil fields and one gas condensate deposit. The block, in southern Algeria, is being developed by Rosneft in partnership with the local state-owned energy company, Sonatrach, and its profitability was called into question after the price crash of 2014.

• The Israeli Petroleum Commissioner has given the green light to the acquisition of two offshore fields by Greek Energean. The deal concerns the Karish and Tanin gas fields, both in the Israeli part of the Mediterranean, and is worth $148 million. Energena said it would deploy a floating production and storage vessel in a bid to start pumping gas as soon as possible.

Tenders, Auctions & Contracts

• The decommissioning of depleted oil and gas fields in the North Sea will cost the UK budget about $29.4 billion, significantly higher than the British Treasury’s original calculation of $19.6 billion. The government’s share in the costs will likely take the form of tax relief for the North Sea field operators and at this amount is likely to turn the North Sea oil industry into a drain on the budget rather than a contributor.

• GE Oil and Gas has struck a long-term secure monitoring and maintenance deal with Transocean. The deal is worth $180 million and concerns seven Transocean rigs operated by GE.

Company News

• Saudi Arabia’s Oil Minister Khalid al-Falih said he expected Aramco’s listing to go as planned next year. Plans are to float 5 percent of the world’s biggest oil company by production. Currently, preparatory work is being done, including legal conditions, the methodology of valuing Aramco’s assets, and picking the exchanges on which the shares will be listed.

• Premier Oil said it expects its 2016 revenue to fall to $980 million from $1.1 billion for 2015, despite an increase in production to 71,400 barrels per day. On the flip side, Premier, which is focused on the North Sea, expects its 2016 financials to benefit from the slide in the British pound following Brexit, which has helped push its production costs down substantially.

Discovery & Development

• Eni has started drilling a new exploration well off the Libyan coast, next to an already operating gas well. The depth of the new one should be about 3,000 meters, located 156 meters from the coast.

• Colombia’s environmental agency ANLA has rejected a drilling license application by Canadian Gran Tierra Energy on the grounds of risks for the flora and fauna of the Garza area in the Putumayo basin. The license application was for expanding the company’s already ongoing operations in the onshore deposit.

• Norwegian DNO has announced a new oil find in Kurdistan, in the Peshkabir field. According to the company, the Peshkabir-2 well yielded a stable rate of 2,800 barrels of crude daily. The Peshkabir field is part of the Tawke license plot, of which DNO holds 55 percent. The Kurdistan Regional Government has a 20 percent stake in it, and Genel Energy has the remaining 25 percent.

• The International Finance Corporation and the Multilateral Investment Guarantee Agency have committed $517 million for an offshore gas project in Ghana. The aim of the project is to provide the African nation with a cleaner source of energy for power generation, to reduce carbon emissions. The total cost of the project, Sankofa, is estimated at $7.7 billion. It will be developed by Vital, Eni, and the country’s national Petroleum Corporation.

• Australia expects its oil and condensate production to rise to 380,000 barrels daily thanks to higher condensate output in the 2017/18 fiscal year, a 21 percent annual increase. The increase in condensate production will come from new gas fields for the production of LNG. LNG production in the country is set to exceed 80 million metric tons in 2019, double the 43 million tons produced in 2016.

Regulatory Updates

• Outgoing President Obama’s administration has denied six drilling permits for offshore blocks in the Atlantic, based on the moratorium that the administration placed on all exploratory drilling for oil and gas in the U.S. Atlantic and Arctic continental shelf. The latest decision, like the moratorium, seeks to avoid damage to marine life as a result of using air-guns for seismic surveys.

• The government of British Columbia has approved Kinder Morgan’s Trans Mountain oil pipeline expansion project, worth $5.16 billion. The project aims to expand the current capacity of the pipeline, which transports crude from Alberta’s oil sands to the Pacific coast of Canada from 300,000 bpd to 890,000 bpd. The expansion is part of efforts to upgrade the oil transport infrastructure in the country in line with rising output from the oil sands. The additional output would most likely be marketed in Asia.