Politics, Geopolitics & Conflict
• Tensions between Libya’s Presidential Council (PC) and the National Oil Corporation (NOC) are growing. The PC, which presently functions (that could change any day) as the head of state and military, and which is responsible for selecting members of the government, is ostensibly in control of investment decisions concerning Libyan oil. It was given this power via a resolution passed earlier this year. But the cracks in this set-up are already showing. The NOC is now accusing the PC of using the resolution to give German Wintershall a free pass in terms of compliance terms that it had agreed to with the NOC back in 2010. The NOC is now saying that the PC’s liberal stance on Wintershall is costing Libya $250 million because the dispute between the NOC and Wintershall has led to the shutdown of 160,000 bpd in production capacity. So, what does this mean for Libya? For the moment, production continues to rise. It’s now jumped to 780,000 bpd for the first time since 2014. And while elsewhere such a dispute might not rock any serious boats, in Libya this is the stuff of bloody changes in power. The NOC and PC are only hanging on to a modicum of control in the face of numerous militia factions that shift alliances with the wind. If the PC refuses to meet the NOC’s demand to revoke the resolution that gave it control over investment decisions, we could very easily see another shift in power in Libya. The NOC is bent on raising production a million bpd by the end of the year, and if it feels the PC is getting in its way, it may have the power to sideline it. The bottom line: The market responds in a knee-jerk fashion to any increase in production in Libya, but it’s important to keep in mind that Libya’s oil output on any given day is fragile at the very best.
• Trump's sudden dismissal of FBI Director James Comey has drawn massive criticism from Democrats and Republicans alike, as it appears to be a blatant attempt to thwart an FBI investigation into the Trump campaign’s alleged ties to Russia. Talk of impeachment and treachery is once again a google search-term favorite. Essentially, Trump fired the man who could have led to his impeachment, and he did so one day before meeting with Russian Foreign Minister Sergei Lavrov—a meeting from which the media was barred. Just prior to the meeting, Lavrov also met with ex-Exxon boss and US Secretary of State, Rex Tillerson, where they discussed oil drilling in Arctic. Also on Wednesday, Trump's former national security adviser, Michael Flynn, was subpoenaed by the Senate Intelligence Committee. The committee said it requested documents that members believe to be relevant to its investigation into alleged Russian meddling in the 2016 presidential election. The committee initially requested the documents from Flynn in late April but he declined to comply if he wasn't offered immunity. The Committee declined the deal and has now followed up with an official subpoena. Federal prosecutors with the FBI have also issued grand jury subpoenas to Flynn. Amid the chaos, new polls show that Trump’s reputation has hit an all-time new low with the American people. A new poll from Quinnipiac University shows Trump's disapproval rating rising to 58 percent. At the end of the day, they elected a president that isn’t making the feel safe, and indeed, national security seems to be rather up in the air. Starting a war with intelligence agencies certainly won’t help. Presidential statements about national security that add up to “I’m not telling you what we’re planning” fail to assuage growing public fear. Should we be afraid? Yes, we should. US foreign policy is close to becoming as unpredictable as North Korea’s.
• For the first time in history, Tunisia has deployed armed forces to guard its oil and gas fields in the south, under threat from ongoing protests. Protests in the south have been going on for several years now, as the North African state tries to turn its economy around in the aftermath of the 2011 Arab Spring. But so far, planned government reforms have not been met with much enthusiasm. The south of the country still feels marginalized, and high unemployment—particularly among youth—and a perceived misdistribution of resource wealth are fanning some dangerous flames. Resource wealth, by regional comparison, is pretty low, but it’s enough to get the Tunisian youth up in arms. In 2013, Tunisia’s crude oil production hit a historic low of 60,000 bpd. By the end of 2016, it had fallen to 49,000 bpd. Right now, media puts production at 44,000 bpd, and if the youth is not appeased, even this paltry resource volume could be at risk.
• Kenya’s first planned oil exports are also at risk. Residents of Kenya’s Turkana South have threatened to block the planned transportation of crude oil to Mombasa. Transportation of the oil from the Turkana fields is expected to start early next month, but locals are threatening to block it to buy time for more negotiations on revenue-sharing, job allocation and infrastructure deals. In mid-March, Kenya greenlighted a crude oil export agreement with Tullow Oil, Maersk International and Africa Oil, with pilot exports slated to start in June in a major milestone for the East African country, which was put on the oil map with a massive 2012 discovery. The companies have stored 70,000 barrels of crude oil, which will be used for part of the pilot program. Three companies announced that they will immediately begin transporting crude oil from the South Lokichar field in the prolific Turkana basin to the Kenyan Petroleum Refineries Limited (KPRL) at the port of Mombasa. From there, it will be exported to market in June—that is, unless protests get in the way. The South Lokichar field is being explored and developed by a joint venture between three companies. It is estimated that there are about a billion barrels of oil in the Lokichar area.
Deals, Mergers & Acquisitions
• ConocoPhillips is selling its mid-continent production operations, spanning across Texas and Oklahoma, with proceeds seen at more than $2 billion. The assets include more than 1 million net acres producing 100 million cu ft of natural gas equivalent. According to rumors, Conoco may also sell its assets in the Barnett shale play in north Texas.
• Exxon and Petrobras are negotiating a strategic partnership that could see the U.S. giant expand its foothold in Brazil and overseas. The deal, according to sources close to the negotiations will be similar to the one Petrobras struck with Total last year, when the French company undertook to spend $2.2 billion on the acquisition of stakes in Brazilian fields and infrastructure. Shell and Statoil are the other two companies that have recently secured a piece of Brazil’s oil and gas wealth – Statoil through the purchase of a 66% stake in the giant Carcara field and Shell by inheriting the Brazilian operations of BG Group.
• Petrobras is meanwhile looking for a buyer for its refinery in Texas, which cost it $1.2 billion to acquire back in 2006. According to sources close to the company, the Brazilian major is ready to sell the facility for less than $200 million, not least because its acquisition is part of an investigation into graft practices at Petrobras. The investigators claim that the refinery was worth much less than Petrobras paid for it and bribes may have been involved in the deal.
Tenders, Auctions & Contracts
• Austria’s OMV is looking forward to taking part in Iran’s oil and gas industry but before that it would need more details about the new International Petroleum Contract, promoted by the reformist government as a tool to attract vital foreign investment in the energy industry. However, according to OMV, there is not enough information about the contract and the company needs this information before making its investment decision. This would be a come-back for the Austrian company, which operated the Mehr block between 2001 and 2006, when sanctions came into force.
• Malaysia’s Petronas is looking for new LNG export opportunities in the regional Asian market, focusing on India, Japan, Pakistan, Bangladesh, and Southeast Asia. The company is in the process of closing deals with several buyers in the region. Also, Petronas sent the first cargo from its PFLNG Satu project to India, pinning special hopes on Asia’s third-largest economy, which is also the world’s fourth-largest LNG market.
• Eni has signed a preliminary contract with the Nigerian government for the construction of a $15-billion refinery in the Niger Delta. The facility will have a daily capacity of 150,000 barrels of crude and will also include a power plant. The value of the deal is uncharacteristically high for a project of this scale. To compare, Nigerian Dangote Group is building a 650,000-bpd refinery featuring a fertilizer and a petrochemical unit in Lagos for an investment of $9 billion.
Discovery & Development
• Repsol and Sinopec plan to pump up to 50,000 bpd in the North Sea under the Montrose Area Redevelopment project, which will link three untapped fields to the Montrose Alpha platform. The original operator of the platform, Canada’s Talisman Energy, ran into difficulties amid the oil price crash and eventually sold 49% in the project to Sinopec. The Canadian company was then bought by Repsol. The partnership now has 58.97% in the Montrose Area Redevelopment project, with the rest in the hands of Japan’s Marubeni.
• Suncor is preparing to launch a new oil sands project in Alberta with a production capacity of 160,000 bpd later this year. Construction of the Lewis project will probably start in 2024. Suncor plans it as an economical operation, where it will use electromagnetic heating and vaporized solvents to reduce the amount of energy and water needed for the extraction of the bitumen.
• The North Alexandria gas fields in Egypt that are operated by BP could boost the country’s overall output to 5.1 billion cu feet daily from the current 4.45 billion cu ft. Egypt has been eager to boost its gas output in a bid to become independent of imports within the next two years. The fields are part of BP’s West Nile Delta project, which comprises five offshore fields that should start yielding 1.5 billion cu ft daily by 2019.
• Production from Iran’s South Azadegan field, shared with Iraq, is set to double by the end of March 2018 when Iran’s current fiscal year ends. Daily output should reach 160,000 bpd, an official from the company that operates the field, the Petroleum Engineering and Development Company, said. This will be the second major output boost at Azadegan, after last month it hit 80,000 bpd, up from an average 50,000 bpd for the last ten years, since production began.
• UK’s oil major BP said on Monday that together with its joint venture partner Kosmos, it had made a major gas discovery offshore Senegal off the West African coast. BP and U.S.-based Kosmos Energy commissioned the drilling of Yakaar-1 exploration well in the Cayar Offshore Profond block. Kosmos Energy estimates Yakaar-1 discovered a gross P mean gas resource of around 15 trillion cubic feet (Tcf), in-line with pre-drill expectations. Both BP and Kosmos believe that the Yakaar discovery, coupled with the Teranga discovery made last year, have enough resources to support the creation of another LNG hub in the basin. The gas discovery offshore Senegal adds to a crude oil discovery off the Senegalese coast made earlier this year by Australian exploration company FAR, which said that it had discovered more than 1.5 billion barrels of crude as a result of a 3D seismic study.
Regulatory Updates
• Colorado will tighten regulation on oil and gas wells across the state following the April explosion caused by a leaky underground pipeline that killed two people. The state’s governor has ordered inspections of all oil and gas pipelines that are in proximity to residential and other buildings. Oil companies have up to 60 days to locate and test those among their pipelines that are within 1,000 feet from buildings, map them and made this information public. There is already a draft law obligating energy companies to make this information public and it has passed a House committee but now it has to pass the full House and then the Senate. Energy industry groups and the Republicans in the Colorado parliament are against it.
• The Nigerian Senate will launch a probe into Chevron’s local operations following allegations that the oil giant was involved in tax fraud worth $4.926 billion. The announcement follows a petition from the CEO of a local company, George Uboh, which he submitted to the Senate last year. Uboh alleged Chevron had committed tax fraud but later withdrew from his petition, raising suspicions that he had struck a deal with the company he’d accused of wrongdoing.
• The U.S. Senate voted against the removal of a regulation approved by the Obama administration regarding the flaring, venting, and waste of methane on public lands. With 49 votes for the removal of the regulation and 51 votes against it, the proposal failed to save the oil and gas industry money that they will now have to spend on equipment that curbs methane emissions at oil and gas fields and infrastructure facilities. According to the previous administration, the regulation would cut the waste of natural gas by 41 billion cu ft annually and increase royalties for states and Native American communities by $330 million.
• Azerbaijan’s President Ilham Aliyev greenlighted a bill ratifying the risk-service contract on exploration and development in the Azerbaijani sector of the Caspian Sea. The offshore blocks include the Umid gas field and the promising Babek structure. The contract was signed between Azerbaijan’s state oil company SOCAR and SOCAR Umid Oil and Gas Ltd. Earlier, SOCAR President Rovnag Abdullayev said that this contract will be presented to financial institutions and companies, which can then join in financing the project. SOCAR announced the opening of the Umid field in 2010. According to the results of the drilling of the first exploration well, the volume of the field reserves hit over 200 billion cubic meters of gas and 40 million tons of condensate. Reserves of the Babek field may be 400 billion cubic meters of gas and 80 million tons of condensate.
