Politics, Geopolitics & Conflict
Brazil: If you aren’t interested in what’s going there, you should be. It’s fascinating to the private intelligence world—and to geopolitical analysts in general—that the Western public is so unequivocally uninterested in Latin America. The imagination is instead only captured by jihadist movements that happen much, much further away, or by the Russian ‘bear’, which has not failed to tantalize and thrill for decades. But when major events are happening much closer to home, it fails to captivate. From a global economic and geopolitical perspective, you should be very concerned about what comes next in Brazil. But again, if there is no blood, no beheading, no pseudo-religious angle—major world developments fall on deaf ears. Let’s change that: Washington certainly has—even if it’s not obvious to you from media coverage. Nonetheless, this is our new strategic front line, and it’s not just about Brazil—please pay attention to what’s going on in Venezuela, as well. And it has as much to do with China as anything else. China is Brazil’s biggest trading partner, and it’s doubly important that this is in the U.S.’ back yard. What Washington definitely doesn’t want happening is China fully and irrevocably connecting up with South America, and the only way to ensure that does not happen is to make sure that Brazil (among others, but this…
Politics, Geopolitics & Conflict
Brazil: If you aren’t interested in what’s going there, you should be. It’s fascinating to the private intelligence world—and to geopolitical analysts in general—that the Western public is so unequivocally uninterested in Latin America. The imagination is instead only captured by jihadist movements that happen much, much further away, or by the Russian ‘bear’, which has not failed to tantalize and thrill for decades. But when major events are happening much closer to home, it fails to captivate. From a global economic and geopolitical perspective, you should be very concerned about what comes next in Brazil. But again, if there is no blood, no beheading, no pseudo-religious angle—major world developments fall on deaf ears. Let’s change that: Washington certainly has—even if it’s not obvious to you from media coverage. Nonetheless, this is our new strategic front line, and it’s not just about Brazil—please pay attention to what’s going on in Venezuela, as well. And it has as much to do with China as anything else. China is Brazil’s biggest trading partner, and it’s doubly important that this is in the U.S.’ back yard. What Washington definitely doesn’t want happening is China fully and irrevocably connecting up with South America, and the only way to ensure that does not happen is to make sure that Brazil (among others, but this is the lynchpin for now) is taken down a notch politically and regionally.
But for the immediate term, if you’re an oil watcher or investor—Brazil should be furiously pinging your radar. It’s not necessary to follow every step in the Petrobras scandal—which the public has already made clear it’s not interested in—but you might want to take a closer look at the ongoing efforts to impeach the president.
In the words of geopolitical analyst extraordinaire, Pepe Escobar:
“So every coup is now literally allowed in South America; indirect attacks to the Brazilian currency, the real; bribing local comprador elites with the backing of the global financial system; a concerted attempt at the implosion, simultaneously, of the top three economies: Brazil, Argentina and Venezuela. SOUTHCOM went so far as to produce a report on “Venezuela Freedom” earlier this year, signed by commander Kurt Tidd, which proposes a ‘strategy of tension’, complete with ‘encirclement’ and “suffocation” techniques and allowing to mix street action with a ‘calculated’ use of armed violence. Echoes of Chile 1973 do apply.”
The final ruling on the impeachment of Brazilian President Dilma Rousseff is probably going to be in mid-August. The coup plotters aren’t faring well, though, and the game is now anyone’s. They are implicated in scandal as well, and the tides are now shifting. August will determine what happens next in Brazil and it will have global political and economic repercussions.
Other global developments:
• The UAE is withdrawing all of its active combat troops from the Saudi-Iran proxy war in Yemen, where the Gulf kingpins have been ‘defending’ the “internationally recognized government” of President Abed Rabbo Mansour Hadi. UAE troops have been guarding the southern port city of Aden, which is the stronghold of the Sunni government. Shi’ite Houthi rebels—Iran’s proxy force—control the Yemeni capital of Sana’a.
• Iran has appointed itself a new OPEC envoy in the form of Oil Ministry senior analyst Behrouz Beik Anlizadeh, who will replace retiring Mehdi Asali.
Discovery & Development
• Angola’s state-run oil giant Sonangol has released new figures for a recent major oil and gas find in the Kwanza Basin, in partnership with U.S. Cobalt and British BP. The basin is now estimated to hold up to 813 million barrels of oil equivalent. According to Sonangol, Block 20/11 holds an estimated 313 million barrels of condensate and 2.8 trillion cubic feet of natural gas.
• Iran says it has increased capacity at its main crude export terminal on Kharg Island and can now handle eight simultaneous tanker loadings, while on additional vessel can load a ship-to-ship cargo. In all, the terminal can now store 30 million barrels of crude oil. Iran is hoping to eventually be able to handle 6 million barrels per day of exports at its terminals, and is producing now at 3.8 million barrels per day.
• Indian giant Essar Oil says it has discovered 8 trillion cubic feet of original in-place shale gas resources underneath its coal-bed methane reserves in Raniganj (East) block in West Bengal. The evaluation comes from independent U.S. firm Invenire, with the support of the U.S. Trade and Development Agency. Essar Oil officials said that considering a 20-25 percent recovery factor, they should be looking at 1.6-1.7 trillion cubic feet of recoverable resources. Essar is the largest unconventional gas producer in India and is now producing over 1 million standard cubic meters per day from its CBM block.
• Total Exploration and Production Nigeria Ltd has completed the phase 2 wellhead platforms, which is expected to increase Ofon field oil production to 65,000 barrels per day, up from 25,000 barrels per day. The extra production should also include 3 million cubic meters of gas per day.
• Rosneft and BP Plc this week signed “final binding agreements” to establish the new Yermak Neftegaz LLC joint venture. The new JV will explore onshore for oil and gas in Russia’s West Siberian and Yenisey-Khatanga basins. The exploration area of the two combined is about 100,000 square miles. The JV will be 51 percent owned by Rosneft, with a 49 percent share for BP. The first phase will see a deeper appraisal of Rosneft’s discovery in 2009 of the Baikalovsky field in the Yenisey-Khatanga basin, along with exploration in the West Siberian area. Field work should get under way in the coming winter season. Over two phases, BP will invest $300 million for exploration.
• MOL Group is saying it’s made its 8th discovery in Pakistan’s TAL Block at the Makori-Deep-1 exploration well. The well has reportedly flowed during testing at a rate of 2,020 barrels of oil per day. MOL says the find de-risks exploration in deeper fault blocks in this same play. Partners in the JV consortium are Oil and Gas Development Co. Ltd., Pakistan Petroleum Ltd., Pakistan Oilfields Ltd. and Government Holdings (Private) Ltd.
• Enterprise Products Partners plans to build a new cryogenic natural gas processing facility and associated pipeline infrastructure in the Delaware Basin. The company said it will build a 300-MMcfd cryogenic gas processing plant and add more than 40,000 b/d of NGL extraction capability. The plant should begin operating in the second quarter of 2018, but the site has not yet been determined. The processing capacity will be 300 million MMcf/d with extraction capacity of more than 40,000 barrels per day of NGL.
Deals, Mergers & Acquisitions
• Tokyo Gas Co. has acquired a 25 percent stake in an Eagle Ford Shale gas formation from VirTex Producing Co. for an undisclosed amount. Tokyo Gas Co. is the largest city gas supplier. Tokyo gas is expected to spend over $76 million for the stake and in drilling, though we do not have a breakdown here. The VirTex project is commercially producing and should supply 200,000 tons of LNG per year for 20 years. This is the second major Tokyo Gas acquisition in Texas in three years. In 2013, it scooped up a stake in Texas’ Barnett Basin from Quicksilver Resources for $485 million.
• Encana Corp. has agreed to sell its Canadian Gordondale oil and gas assets in northwestern Alberta to Birchcliff Energy Ltd for just over US$487 million. The assets include around 54,200 net acres and associated infrastructure and produced around 25,000 barrels of oil equivalent per day in the first quarter of this year. The breakdown is 35 percent liquids and 65 percent natural gas. In total, the estimated proved reserves here sit at 50 million barrels of oil equivalent. The deal should close this summer, pending regulatory approval.
• QEP Resources, through subsidiary QEP Energy Company, has inked a definitive agreement to acquire oil and gas assets in Texas’ Permian basin for some $600 million. The assets are in Martin County and would extend QEP’s Texas holdings in the northern Midland basin. The transaction is scheduled to close in September.
• As Moscow considers the sale of a 19.5 percent stake in state-run oil major Rosneft, it’s now hinting at what many have seen as the obvious for some time: it won’t be selling the company’s shares on the open market, but prefers selling them to a strategic partner to be chosen by Rosneft. That will be India or China. Rosneft could be valued at anywhere from $55 billion to $130 billion, depending on the market situation, according to the Rosneft CEO. Last week, Rosneft announced the sale of a 23.8 percent interest in Vankor to a consortium of India companies including Oil India, Bharat PetroResources and Indian Oil for $2.1 billion. This followed the sale of a 15 percent interest in the same field last month to India’s ONGC for $1.5 billion. In late May, Russian authorities greenlighted the sale of 50 percent of another state-run oil company, Bashneft after the government removed it from its list of strategically approved assets. Bashneft is Russia’s sixth largest crude oil producer, valued at $13 billion pre-oil slump. Another Russian state-owned oil-related company that is being considered for partial sale is pipeline Transneft.
• plc purchased the other 50 percent of the license covering Blocks 48/22b and 48/23a in the Southern North Sea from Alpha Petroleum Resources. As previously agreed, $2.2 will be payable to the seller on completion with deferred consideration of a further $5mn on first gas. Blythe requires no further appraisal and this transaction adds a further 17.2 BCF or 3 MMBOE to IOG's reserves.
• Wentworth Resources—listed in Oslo London--has won approval from the government of Mozambique to operate the onshore Rovuma concession for two years and to increase its participation interest in the concession from the 11 percent to 85 percent. State-owned Empresa Nacional de Hidrocarbonetos (ENH) will retain a participation interest of 15 percent as a carried partner through to the commencement of commercial operations. Mozambique’s new petroleum law was approved in August 2014, opening up the playing field to new oil and gas bids and adding a special tax break for offshore fields operated by U.S. Anadarko Petroleum and Italy’s Eni.
Regulations & Litigation
• Maryland is proposing revisions to natural gas fracking regulations following an 18-month review. A number of areas face potential changes, including those related to well construction and testing, development plans, environmental assessments and monitoring and setbacks and location restrictions. Regulations will be adopted by 1 October 2016 and there can be no drilling prior to the same date in 2017.
• The Alberta Energy Regulator is now making it more difficult for companies to acquire oil and gas assets by toughening the rules used to determine their financial capabilities. Companies must now prove that their deemed assets exceed their deemed liabilities by a ratio of 2.0 or more after the purchase. This overrides earlier regulations that allowed deemed assets to equal deemed liabilities. So far, over 200 companies that would have qualified under the previous regulations have been rejected under the new regulations. A total of 569 companies do not meet the new criteria, according to the regulator.
• Spanish oil giant Repsol SA is facing a $5.5-billion arbitration claim from Chinese state-run Sinopec related to a UK-listed Chinese-Canadian joint venture acquired last year by Repsol. Sinopec is purusing Repsol Oil & Gas Canada Inc for repayment of their investment in the JV in 2012. They are demanding compensation also for loss of opportunity, which Repsol decries as baseless. Quite simply, the UK investment decision failed to have the anticipated results. Few think there is any real risk to Repsol in this claim.
• A Wyoming federal district court has struck down the U.S. administration's regulations on hydraulic fracturing, ruling that the U.S. Bureau of Land Management’s final hydraulic fracturing rule did not have the necessary congressional authority to impose it. The agency’s rules in question include a requirement that companies drilling for oil and natural gas disclose the chemicals they use in the fracking process. The White House has vowed to fight this.
• Canadian regulators have given the green light to a proposed LNG export facility in Cape Breton for the Bear Head LNG Corporation, owned by the Australia-based Liquefied Natural Gas. The approval authorizes the company to import up to 14.2 billion cubic meters of natural gas per year. Bear Head LNG has approval from the U.S. Department of Energy to export US?sourced natural gas. The site in Point Tupper was sold to Liquefied Natural Gas by Anadardko in 2014.
