Global Energy Advisory December 8th, 2017

U.S. President Donald Trump has recognized Jerusalem as the capital of Israel and has instructed the State Department to begin relocating the U.S. Embassy to Israel from Tel Aviv to Jerusalem. President Trump’s announcement reversed decades of U.S. policy and drew dismay and criticism from both the Arab world and Western allies. The status of Jerusalem -- home to holy sites of the three major monotheistic religions – Judaism, Christianity, and Islam – has been one of the biggest obstacles to a peace agreement between Israel and the Palestinians. While Israeli Prime Minister Benjamin Netanyahu said that the “Jewish people and the Jewish state will be forever grateful,” Germany, the UK, and France said they did not support President Trump’s decision. Even Saudi Arabia, which Trump visited and has gone out of his way to praise and support, was very negative about his reversal of traditional U.S. policy on Jerusalem. Palestinian Authority President Mahmoud Abbas said that the decision marked the end of the U.S. role as mediator in the Israeli-Palestinian peace process. Hamas leader Ismail Haniyeh called for a new uprising – Intifada. Israeli-Palestinian clashes in the Gaza Strip followed President Trump’s announcement. It seems that Turkey was the loudest in criticizing the decision saying that the move will jeopardize U.S.-Turkey relations and could lead to Ankara cutting diplomatic ties with Israel. Russia saw a clear opportunity in the chaos, and Russian president Vladimir Putin promptly scheduled a meeting with Turkish authorities. Oil market watchers are keeping a keen eye on this, banking on the resultant geopolitical incidents to push prices up.

Deals, Mergers & Acquisitions

• Denver-based oil and gas firms Bill Barrett Corporation and Fifth Creek Energy Company have agreed to merge in a transaction valued at some $649 million that will create an exploration and production company exclusively focused on oil-weighted rural areas in the Denver-Julesburg (DJ) Basin. The combined company will have a total acreage position of around 151,100 net acres and an inventory of 2,865 future drilling locations, nearly all of which are suitable for extended reach lateral (XRL) development.

• Norway’s Aker BP is selling 10 percent in each of the Vallhal and Hod oil fields in the Norwegian area of the North Sea to private equity-backed Pandion Energy AS for an undisclosed cash consideration. Aker BP seeks to develop more projects in the area and to submit a plan for the Valhall Flank West project in late 2017, with first oil estimated for 2020.

• Austria’s OMV has finalized the acquisition of 24.99 percent in the Yuzhno Russkoye natural gas field in Western Siberia – one of the largest natural gas fields in Russia -- from Uniper SE for $2 billion (1.719 billion euro). The deal adds 100,000 boe/d to OMV’s production, taking the Austrian firm’s total production to more than 430,000 boe/d.

• Australia’s Arrow Energy has signed a 27-year gas supply deal with the Shell-operated QCLNG joint venture, one of the largest gas supply deals on Australia’s east coast. The deal will help to commercialize most of Arrow Energy’s gas reserves in the Surat Basin that are around 5 trillion cubic feet.

Tenders, Auctions & Contracts

• ExxonMobil has signed production sharing contracts with the government of Mauritania for three deepwater offshore blocks. Following government approval of the contracts, Exxon, as operator with a 90-percent interest in the blocks, will begin exploration activities, including acquisition of seismic data and analysis.

• The big winner of Alaska’s North Slope Areawide 2017 lease sale was Repsol USA that submitted high bids on 45 tracts. ConocoPhillips submitted high bids on 6 tracts. A total of 103 tracks were sold, for an estimated high bonus bid sum of $19.94 million. Meanwhile, the lease sale in the National Petroleum Reserve in Alaska drew just 7 bids for a total of some 80,000 acres, less than 1 percent of the 10.3 million acres offered.

• France’s Total has signed agreements with Angola’s Sonangol to launch new projects such as developing Zinia Phase 2; jointly explore a block that would restart deep offshore exploration in Angola; and extend cooperation with Sonangol to new businesses in oil product distribution and renewables.

• A total of 11 companies have applied for production licenses in the 24th licensing round on the Norwegian Continental Shelf that had offered 102 blocks, including 9 in the Norwegian Sea and 93 in the Barents Sea. The appetite to drill in the Arctic offshore Norway seems to have waned especially after a disappointing 2017 exploration campaign in the Barents Sea. The number of bidders in the round focused on Arctic waters dropped by more than half compared to the 26 bidders in the previous round. The applicant landscape could indicate that some companies are prioritizing exploration in mature areas this time around, the Norwegian Petroleum Directorate (NPD) said.

• Norway’s Statoil has been awarded the Bajo del Toro Este exploration license as operator in Argentina’s Neuquen basin in the Vaca Muerta shale formation. The Norwegian company has committed to drill one exploration well within the four-year exploration period that begins in 2018.

Discovery & Development

• Statoil has submitted its plan for development and operation for the Johan Castberg oil field in the Barents Sea with capital expenditures estimated at $5.9 billion (49 billion Norwegian crowns) and first oil targeted for 2022. Recoverable resources at Johan Castberg are estimated at 450 – 650 million barrels of oil equivalent. Statoil has halved the capital expenditures from initial estimates and says the field would be profitable at oil prices less than $35 a barrel, compared to a breakeven oil price of $80 per barrel when it first started looking into ways to develop the field.

• Maersk Oil and the Danish Underground Consortium (DUC) have approved the largest oil and gas project investment in the Danish North Sea – $3.3 billion (21 billion Danish crowns) for the full redevelopment of the Tyra gas field. The redevelopment will extend the life of Tyra for at least another 25 years, with the redeveloped field expected to deliver some 60,000 barrels of oil equivalent per day at peak—two-thirds gas and one-third oil. First production from the new Tyra facilities is expected in 2022.

• Russia’s gas producer Novatek has started producing liquefied natural gas (LNG) at the first LNG train at its Yamal LNG project. The project start-up comes four years after FID and almost a decade since the launch of Russia’s first and until now only LNG plant on the Sakhalin Island. Novatek will be transitioning from a domestic gas supplier to a global LNG player, energy consultancy Wood Mackenzie commented, adding that the questions now are how to ramp up and what the implications for the global LNG market are.

Politics, Geopolitics & Conflict

• The conflict in Yemen continues to escalate after former president Ali Abdullah Saleh, who had sided with the Iran-backed Houthis, was killed on Monday after switching sides to Saudi Arabia days before that. Saleh had helped the Houthis to win control of Yemen’s capital Sanaa in 2014, and his decision to abandon the Houthis resulted in the Houthis shooting him dead in an attack on his convoy on December 4. Saleh’s assassination is dramatically changing the Yemen civil war—effectively a proxy war between Saudi Arabia and Iran.

• Saudi Arabia’s Attorney General has made an official announcement about the Saudi corruption crackdown last month that is seen by many analysts as Crown Prince Mohammed bin Salman consolidating his power and getting rid of rivals. Currently, Saudi Arabia has 159 individuals in detention, and most detainees facing corruption allegations have agreed to a settlement, the Attorney General said. As a precautionary measure, the bank accounts of 376 individuals are frozen, all of whom are detainees or linked to their corruption allegations, he added.

• Russia’s President Vladimir Putin has said that he would seek re-election in the presidential election in March 2018. Opinion polls place him to win very comfortably, which would further extend his 17 years in power.

• Brexit breakthrough: European Commission President Jean-Claude Juncker said on Friday morning that “sufficient progress” has been made in the first phase of Brexit talks and discussions can now move onto trade. In a joint report, the parties said that they had reached agreement in principle on protecting the rights of EU citizens in the UK and UK citizens in the EU; the framework for addressing the unique circumstances in Northern Ireland; and the financial settlement.