OPEC and its partners in the Vienna Club agreed to extend their oil production cuts to the end of 2018 – a widely expected move despite doubt about Russia’s willingness to support the extension. This doubt has now been cast aside and the only thing that suggests the cuts may not last until the very end of the year is the stipulation that the partners will meet to discuss progress in June. In other words, they’ve got an exit plan.
Since the extension had been factored in by traders, oil prices remained stable, so the announcement was met with a lackluster market response. One change this time around is that Libya and Nigeria, which were exempted from the initial deal, have now agreed to cap their production at current levels to support their OPEC co-members efforts to boost prices. This doesn’t really mean much. Libya would have had a hard time producing more than it’s producing right now regardless. So, for all intents and purposes, it’s still an exemption.
Prices saw a significant rally on Friday morning as bullish sentiment returned, but a new issue is now emerging: how will the Vienna Club wind down the cuts? This question seemed to be of particular concern for Russia at the meeting, according to sources close to the talks. It should be of concern to all participants, in fact: the wind-down needs to be gradual to avoid prices tanking again on oversupply worries.
Deals, Mergers & Acquisitions
• Total will…
OPEC and its partners in the Vienna Club agreed to extend their oil production cuts to the end of 2018 – a widely expected move despite doubt about Russia’s willingness to support the extension. This doubt has now been cast aside and the only thing that suggests the cuts may not last until the very end of the year is the stipulation that the partners will meet to discuss progress in June. In other words, they’ve got an exit plan.
Since the extension had been factored in by traders, oil prices remained stable, so the announcement was met with a lackluster market response. One change this time around is that Libya and Nigeria, which were exempted from the initial deal, have now agreed to cap their production at current levels to support their OPEC co-members efforts to boost prices. This doesn’t really mean much. Libya would have had a hard time producing more than it’s producing right now regardless. So, for all intents and purposes, it’s still an exemption.
Prices saw a significant rally on Friday morning as bullish sentiment returned, but a new issue is now emerging: how will the Vienna Club wind down the cuts? This question seemed to be of particular concern for Russia at the meeting, according to sources close to the talks. It should be of concern to all participants, in fact: the wind-down needs to be gradual to avoid prices tanking again on oversupply worries.
Deals, Mergers & Acquisitions
• Total will sell two stakes in Norwegian North Sea oil fields to Statoil for a total consideration of $1.45 billion. The sale is part of the French company’s review of its North Sea assets, prompted by the acquisition of Maersk Oil earlier this year: most of the Danish company’s assets are also located in the area. The assets agreed for sale to Statoil include a 51% interest in the Martin Linge field, with reserves estimated at 300 million barrels of oil equivalent, and a 40% one in the Garantiana discovery, whose resources are estimated at 50-70 million barrels of oil equivalent.
• Abu Dhabi’s ADNOC plans to spend $109 billion over the next five years on acquiring stakes in refining and petrochemical companies abroad as well as building its own capacity in the downstream segment. These will be the first international investments of the Emirati company as it follows in the footsteps of Saudi Arabia in trying to secure long-term demand for the crude oil it produces.
• Sinopec will sell its Argentine oil assets to Mexican Vista Oil & Gas for between $500 and 600 million. The Mexican company competed for the assets with Argentine state oil major YPF and private oil player Pluspetrol, along with several other companies. Initially, the assets were valued at up to $1 billion. The Chinese company—the country’s largest refiner—decided to quit Argentina as the business was loss-making and Sinopec had labor trouble. The Chinese company paid $2.45 billion for the business back in 2010.
Tenders, Auctions & Contracts
• Iraq has launched tenders for untapped oil and gas fields in nine blocks. Five of these are located near the border with Iran, three are near the border with Kuwait and one is an offshore block. All these locations have been neglected until now because of conflicts between Iraq and its neighbors that have now been settled. The tender aims to increase Iraq’s production capacity though not its actual production as the country is still bound by the OPEC production cut agreement to produce at an assigned quota of 4.35 million bpd.
• Aramco and Sabic inked an agreement for the construction of a $20-billion petrochemicals complex in Saudi Arabia that is supposed to be the largest in the world. The final investment decision, however, will only be made in two years, Aramco’s chief executive Amin Nasser said. The deal is the latest indication of Riyadh’s determination to relieve the Kingdom of its almost exclusive reliance on crude oil sales for government revenues and its diversification into other segments of the energy industry, including renewable power projects.
Discovery & Development
• Anadarko will leave New Zealand as the current level of oil prices cannot justify investments in exploration there, the company said. The U.S. company was the operator of an exploration project in the Canterbury Basin, where it partnered with Australian Lattice Energy Resources and UK-based Discover Exploration.
• Exxon announced the start of production at the Hebron offshore field in Canada, ahead of schedule. At peak levels, production should reach 150,000 bpd, with the field’s recoverable resources estimated at over 700 million barrels of oil. Exxon partners on the Hebron project with Chevron, Suncor, Statoil, and Nalcor Energy.
• Eni has won drilling rights for a block offshore Alaska. This is the first granting of drilling rights in the region in the last two years and was immediately slammed by conservationists. Drilling will be conducted from an artificial island in the Beaufort Sea and will start next month. The Italian company’s decision is seen as risky due to the high cost of Arctic exploration and also due to the vehement opposition of environmentalists to drilling operations in the region.
• Statoil will return to the Arctic next year despite a disappointing drilling season this summer, the Norwegian company said. This year’s drilling failed to hit any meaningful oil deposit but Statoil is determined to continue: in 2018, it will drill five to six new wells in the Barents Sea and another 20-25 split between the North Sea and the Norwegian Sea. Most of Norway’s undiscovered oil resources are located in the Arctic and as mature fields near depletion, it urgently needs new discoveries to keep its energy industry healthy.
Politics, Geopolitics & Conflict
• North Korea launched yet another missile, claiming it can now reach any location in the United States. U.S. Ambassador to the UN Nikki Haley threatened taking the whole thing into U.S. hands if China did not cut off its crude oil supply for the pariah state.
• Terrorists bombed a mosque in Egypt killing 305 and wounding at least 128. Egypt’s public prosecutor said the bombers and shooters were from a local branch of Islamic State, although the group is unlikely to claim the attack since it was on a Muslim place of worship.
• Libyan PM Fayez al-Sarraj will visit the White House this Friday for talks with Donald Trump on bilateral cooperation and counterterrorism partnership.
• Venezuela’s government ordered the removal of its representative in the United Nations Rafael Ramirez – an official that has grown critical of Maduro’s government in recent months. Ramirez used to be oil minister and head of state oil company PDVSA. He was seen by some as angling to be a presidential candidate as Maduro’s government grows increasingly unpopular. In other news, Former Oil Minister Eulogio del Pino and Nestor Martinez, ex-president of PDVSA, were arrested just four days after being removed by Maduro in a surprise cabinet shake-up.
