Global Energy Advisory – 16th May 2014

Upcoming Auctions

Albania plans to auction off 13 exploration blocks—12 onshore and one offshore block—to local and foreign companies. The auction follows a discovery in November by Royal Dutch Shell and Petromanas Energy Inc of good quality oil and gas in test flows from their first well in Shpirag, southern Albania. Last September, there was a regime change in Albania following the botched privatization of state-owned Albpetrol. The new Socialist-led government’s Energy and Mining Minister, Damian Gjiknuri, said they would no longer be negotiating contracts one-on-one with foreign oil companies due to the “much higher interest over the past several months.” For interested parties, OP Tactical has a localized network on the ground in Albania and full due diligence capabilities.

Legal Updates

Uganda has repossessed the second oil prospect from foreign oil companies in less than two years. The government of Uganda has declined to renew an appraisal license for the three foreign companies behind the Ngasa oil discovery: UK-based Tullow Oil Plc, China’s CNOOC and France’s Total SA. According to Uganda’s Energy and Minerals Development Ministry, since Tullow’s oil and gas discovery at Ngasa in 2008, the company has failed to conduct further appraisal activity to establish the exact size of the discovery. The government’s handling of contracts with foreign oil companies is leading to continued delays in the commercialization of the country’s 3.5 billion barrels of crude oil reserves.

Law firm Patton Boggs has agreed to pay Chevron $15 million, issue a statement of regret and withdraw from its case against the oil major for environmental damages in Ecuador. Chevron has agreed to release all claims against Patton Boggs and its partners in return. Chevron had accused Patton Boggs of being involved in “extortionate” litigation in its efforts since 2010 to help Ecuadorean plaintiffs seek damages over oil spills in the Lago Agrio region. As part of the deal, Patton Boggs also agreed to abstain from a 5% interest in any damage money the plaintiffs receive moving forward. But most significantly, the deal flips Patton Boggs to Chevron’s side in this case, with the law firm agreeing to help Chevron dig up evidence against the Ecuadorians and the American lawyer who has been most fervently representing them, Steven Donziger. Chevron maintains that Donziger was part of a racketeering scheme to obtain a fraudulent judgment against the oil major.

In the US, a legislative committee has sent two bills to the House floor adding new restrictions to “legacy lawsuits” filed against oil and gas companies for the clean-up of oilfield waste and property damages. The House Civil Law and Procedure Committee approved legislation that would require courts to presume that environmental cleanup plans recommended by the state Department of Natural Resources are the most feasible solution, unless evidence can be presented in court proving otherwise.

This comes following a congressional report that claimed the US government had failed to inspect thousands of oil and gas wells it considers potentially high risks for water contamination and other environmental damage. The report highlights substantial gaps in oversight by the agency that manages oil and gas development on federal and Indian lands. Investigators cited weak control by the Interior Department's Bureau of Land Management (BLM) due to policies based on outdated science and from incomplete monitoring data. The audit also said the BLM did not coordinate effectively with state regulators in New Mexico, North Dakota, Oklahoma and Utah. In the coming months, the administration is expected to issue rules on fracking and methane gas emissions.

Politics and Geopolitics

Libya

On 9 May, a high-ranking intelligence official in Libya was assassinated in what is becoming a daily event in the country. We see lawlessness increasing exponentially over the coming months and are concerned about the continued spill-over effect this is having on neighboring countries, particularly on Algerian oil and gas ambitions, which will meet with rising security challenges. Algeria has been hinting at preparations for a potential military response to secure its borders.

Earlier this week, Jordanian Ambassador to Libya Fawaz al-Itan, who was kidnapped last month, was freed in exchange for the release of a Libyan fighter held in Jordan over a plot to attack Jordan’s major airport. The swap deal went through on Tuesday.

Libyan officials said on Wednesday that the country’s El Feel oilfield had restarted production, though the larger El Sharara oilfield remains under a state of shut-down. Currently, Libya is said to be producing around 240,000 barrels per day—compared to around 1.4 million bpd before protests that halted the lion’s share of production by closing off the western pipeline network. El Feel only has a capacity of 85,000 bpd, and while production has been restarted, it will not be operating at capacity for some time.

The country’s two main oil ports in the east remain under rebel blockade as yet another new Libyan prime minister, Ahmed Maiteeg, is sworn in. The rebels had negotiated a deal with the previous prime minister, Abdullah al-Thinni, to re-open the ports, but the change in post has the rebels refusing to negotiate. The rebels do not view Maiteeg as legitimate, and his legitimacy is also being challenged by many members of the parliament.

Egypt

We are closely monitoring Egypt’s upcoming elections on 26 May, which former army chief Abdel Fattah al-Sisi is widely expected to win. The only other candidate is Hamdeen Sabahi, who came in third in 2012 elections running against deposed president Mohammad Mursi. We are concerned about calls from an influential Qatari-based Islamic cleric, Sheikh Youssef al-Qaradawi, to boycott the vote. The sheikh, who essentially represents the Muslim Brotherhood, has stated that al-Sisi will be Egypt’s downfall. In the past, the sheikh has been successful in fomenting tensions and discord.

Al-Sisi has publicly promised to step down if Egyptians protest his rule. However, the interim Egyptian government has designated the Muslim Brotherhood a terrorist organization and sentenced 683 of its members to death. Its former members have also been banned from running in elections. As such, promises to step down in the event of a protest against his rule in reality means that protests would not be considered protests, but terrorist activities.

Turkey Incident

According to Turkish media reports, over 200 minors have been killed in an explosion and fire in a coal mine in western Turkey, while hundreds more are believed to be trapped under ground. The explosion occurred in the power unit of the Soma mine, about 2 kilometers underground, causing a fire to break out and triggering a power cut that halted operation of the elevators. At the time of writing, the fire had been contained, but smoke was filling the mine endangering the trapped miners. Prime Minister Recep Erdogan and President Abdullah Gul were at the scene on Wednesday, while tensions were high behind barricades holding back relatives of the minors and manned by security forces. By late on Wednesday, the incident had turned into something resembling nationwide protests and the specter of another Gezi Park looms large. Investors should be concerned that the reprieve Erdogan won in March local elections will be cut short prematurely. Other mines—and their owners—are likely to come under much scrutiny, and corruption allegations that Erdogan has so far managed to sideline will be rejuvenated very quickly. In addition, there is concern that the miners will present a united force to the protests, while during Gezi Park they largely sat on the fence.