PETROL & ENERGY 22.05.2014


Over the last decade, the oil majors have spent many billions on upstream exploration activity, hoping to find new gushers to replace their mature assets. But gone are the days when oil companies would take on new mega projects with tens of billions of dollars in exploration costs.

With the shadow of low oil prices looming large over the oil majors, mergers and acquisitions are now considered to be the best bet to increase revenues and market reach. The potential merger of Royal Dutch Shell and BG group will be the biggest oil and gas merger in over a decade, thereby making Shell the largest producer of liquefied natural gas in the world. It will hand Shell several projects that already have cash flow.

But Shell may not be the only one. According to latest industry sources, Norway’sStatoil is another major player that is actively hunting for an acquisition opportunity.

Statoil’s chief financial officer Torgrim Reitan recently admitted, “[a]cquiring barrels might be cheaper than exploring for barrels, so we are monitoring it very closely. There are a lot of assets for sale. But I think it’s fair to say that high-quality assets are still not cheap.” There was speculation this march that Statoil would target US based driller EOG in a deal that could exceed $50 billion, but neither company has confirmed these rumors.

In the past few months, Statoil has substantially increased its investments in renewables (especially wind energy) by forming a consortium called Forewind with RWE, SSE and Statkraft. 

 

Africa

Angola: The Angolan Vice President, Manuel Domingos Vicente, last Wednesday in Havana manifested interest in the gas development project implemented in Cuba. Manuel Vicente expressed such interest in the end of a visit to a power production plant, generated from a combined cycle gas source, which belongs to the Cuban firm Energas. The Vice President wrote in the book of honour that that is a modern unit with an advanced model that can be implemented in Angola. According to the Energas supervisor of operations, Rubem Perez, the firm utilises gas from oil wells to produce electricity, at the same time it contributes to the elimination of atmospheric contamination and decrease the emission of sulphur in the environment. He informed that currently the firm produces about 320 megawatts of power per hour, corresponding to 14 per cent of Cuba's electricity production. Rubem Perez assured that the firm does obey the norms on the protection of the environment and underground water in the exploration areas. ANGOP has learnt that the undertaking is considered to be a low cost power production plant. 

Egypt: Egypt has given the private sector a green light to import natural gas or liquefied natural gas (LNG), a government official said, a step that could encourage private investment in the energy sector while easing energy shortages. Declining energy production, held back by a lack of investment, has helped turn Egypt from an energy exporter to a net importer over the past few years and contributed to a persistent energy crisis. Egypt has tried to address energy shortages by signing a raft of LNG import deals this year, but allowing the private sector to import gas as well could further boost supplies of gas, which is used to power most Egyptian homes and factories.The chairman of state gas board Egyptian Natural Gas Holding Company (EGAS) said officials had decided to allow private companies to import gas through state infrastructure. 


Nigeria: Erin Energy reported that its Oyo-8 well offshore Nigeria has exceeded expectations by producing a stable rate of 7,080 bpd. The company is currently undertaking drilling and completion operations on its Oyo-7 development well and expects to achieve first oil production from the site in the next few weeks. Erin Energy senior VP of Exploration and Production Segun Omidele commented in a company statement: “We are pleased with the Oyo-8 well’s performance and delighted that well parameters are stable. We plan to continue this very cautious well management approach and expect to bring Oyo-7 on production in a similar manner. We are advancing both our development and exploration work offshore Nigeria and look forward to an exciting second half of 2015.” 


Nigeria: Mart Resources reported that drilling operations have concluded to side-track and deepen the UMU-8 well on the Umusadege field in Nigeria. Operations included the cementing off of existing intervals and recovering the upper and lower completions. The primary purpose of the side-track was to assess the deep potential in the UMU-8 area of the field. The deep sands XVIIIa through XXI were previously found to be hydrocarbon bearing in the UMU-9, UMU-10, and UMU-13 wells. The UMU-8 side-track well reached a TD of 9,506 ft, and preliminary analysis of the wireline logs indicate that the well encountered 562 ft of gross hydrocarbon pay in 23 zones. Of the hydrocarbon pay encountered, six zones (XVIIIa, XVIIIb, XIX, XXa, XXb, XXI) with 139 ft of gross pay do not currently have any reserves allocation in the central accumulation of the field where UMU-8 is located. The company said that the pressure and fluid samples over the zones of interest are currently being taken. Once analysis of the pressure and fluid samples is concluded, plans are to run a 7-inch liner and complete the well in the appropriate intervals, followed by extensive testing. 


South Africa: South Africa's power utility Eskom, which has been battling a power supply shortfall, said it would shut off up to 1,000 megawatts of electricity from the national grid on Friday from 0400 GMT to 2000 GMT.


Sudan: Staff at South Sudan’s largest oil hub are returning to work after fighting between the army and rebel forces forced some to temporarily evacuate, the East African country’s government said. Some workers were removed from the Paloch fields in Upper Nile state as a precautionary measure on Wednesday, an oil ministry official, who asked not to be identified in line with policy, said by phone from the national capital, Juba. Rebels loyal to former Vice President Riek Machar said earlier this week that the fighters took control of the state’s oil facilities, a claim denied by the government. There is no danger now and staff have returned with the support of extra government troops, the official said. Army spokesman Philip Aguer said his forces recaptured the nearby town of Melut on Wednesday, removing the threat to Paloch. South Sudan has sub-Saharan Africa’s biggest oil reserves after Nigeria and Angola, according to BP Plc data. Its low-sulfur crude is prized by Japanese buyers as a cleaner-burning fuel for power generation. 
 

Middle East

Jordan: Jordanian cabinet on Sunday gave the green light for signing a memorandum of understanding (MoU) with Canada’s Questerre Energy Corp to exploit shale oil in southern Jordan, reported official Petra News Agency. The deal is part of the government's endeavour to develop unconventional, local energy resources in order to reduce dependence on imported oil. The Canadian company has expressed its interest to develop the shale oil distillation project in the southern Jafr region, which has estimated reservoirs of two billion barrels of crude shale oil,Petra said. The firm will carry out an initial assessment of the area of interest and offer proposals about the stages of the project as well as technical details, including geology, mining, etc. 

Oman: Salalah LPG Extraction Project, which is to extract all of propane, butane and condensate associated with the natural gas pipeline from Salalah area, is likely to start actual production run sometime in 2019. One of the most ambitious projects in Dhofar, the Salalah LPG Project is the result of Oman Gas Company's (OGC) efforts to find ways for optimising the added value of gas chain. The analysis for the project found a location in Salalah Free Zone most suitable, as the very idea was conceptualised way back in 2012. The OGC introduced this project to a gathering of businessmen and local stakeholders through a workshop on Wednesday. Representatives from two major contracting companies -- CB&I and Petrofac -- were also present during the event. 

UAE: Abu Dhabi National Oil Co (ADNOC) is seeking 240,000 tonnes of gasoline for delivery in July, adding to an earlier tender seeking cargoes for June, a tender document showed on Friday. This is expected to further boost Asian gasoline margins, which hit a record high earlier this week on firm Indonesian and Indian spot demand. GL92-SIN-CRK ADNOC is seeking 8 cargoes of 30,000 tonnes each of 95-octane gasoline for delivery into Jebel Ali and Ruwais and loading from within the Gulf. The tender closes on May 26 and is valid until May 31. ADNOC earlier this week issued a tender to buy two 30,000-tonne cargoes for June 10-12 and June 22-24 arrival, respectively, at any port in the United Emirates or Ruwais. It is unclear if that tender has been awarded. ADNOC's July requirements indicate that its 127,000 barrels-per-day (bpd) residual fluid catalytic cracking (RFCC) unit at its expanded Ruwais refinery might still be shut, a Singapore-based trader said. The refiner lowered its operating rate at the refinery to about 50 percent after the unit encountered start-up problems. Once gasoline production from the RFCC unit is stable, ADNOC will no longer need to import gasoline and the country might even have small volumes to export, sources have said. 


UAE: Abu Dhabi-based International Petroleum Investment Co (IPIC), which sold its controlling stake in a South Korean refiner in 2010 for more than $2 billion (Dh7.3 billion), has filed a request for arbitration, seeking compensation for a tax payment stemming from the sale, according to a South Korean official. Two subsidiaries of IPIC sold their 70 per cent stakes in Hyundai Oilbank in 2010, paying sales tax in South Korea, Park Jae-hyung, a director at the National Tax Service of South Korea told Reuters by phone. He declined to disclose the tax amount. “They say they as Dutch companies don’t need to pay sales tax in South Korea according to an agreement between the Netherlands and South Korea. But we consider them as paper companies in the Netherlands,” Park said. The filing, dated May 20, was made with the International Centre for Settlement of Investment Disputes (ICSID), according to its website, which gave few details on the case. A spokesman for IPIC was not immediately available for comment. IPIC sold its controlling stake in the refiner to companies including Hyundai Heavy Industries. 


UAE: The Abu Dhabi National Oil Company (Adnoc) will spend more than $100bn over the next four years on new facilities and infrastructure to increase production capacity, according to a senior executive. Speaking at the Al Gharbia Development Forum in Abu Dhabi, Al Hosn Gas CEO Saif Ahmed Al-Ghafli said that in order to meet its production target, Adnoc will have to invest $32.67bn in 2016, $32.39bn in 2017, $19.6bn in 2018 and $17.96bn in 2019. He added that the oil company is on track to hit its target of raising sustainable oil production capacity to 3.5mn barrels per day (bpd) in 2017. He added that work has started on an Adnoc housing complex in Liwa, which is scheduled for completion in 2017 and when ready will accommodate 1,350 people. Al Hosn Gas, a 60-40% venture between Adnoc and Occidental Petroleum, operates the Shah Sour Gas field, which came online in January. Estimated cost of the field has been put at $10bn and when fully developed the field will produce 10% of the UAE’s total gas output, excluding sulphur and LNG. 


UAE: Emirates National Oil Co. proposed to buy the shares in Dragon Oil Plc it doesn’t already own, valuing the Dubai-based producer at about 3.6 billion pounds ($5.6 billion). ENOC, owner of 53 percent of Dragon, said it intends to offer 735 pence a share, a premium of 44 percent from March 13, the day before talks were initially disclosed. It plans to meet with Dragon Oil’s shareholders to discuss the proposal. Dragon Oil jumped as much as 8.8 percent in London and was up 5.1 percent at 678 pence by 4:32 p.m., valuing it at 3.3 billion pounds. A spokesman for Dragon declined to comment. ENOC has been seeking new oil supplies. Dragon produced an average of 78,790 barrels of oil a day last year with sales of $1.09 billion. The company, which has wells in Turkmenistan and is exploring in Iraq, Algeria and Egypt, is seeking to increase that to 100,000 barrels a day by 2016. While focused mostly on Turkmenistan, Dragon has sought to expand outside of Central Asia and last year signed a deal with Egyptian authorities to explore in the Gulf of Suez. The company withdrew a 492 million-pound offer for Petroceltic International Plc in December following the collapse in crude prices. 
 

Rest of the World

Australia: BG Group on Thursday announced that operational control of Train 1 at its Queensland Curtis LNG plant has been formally transferred to QGC, BG Group’s Australian subsidiary, from Bechtel Australia, which constructed the facility. In addition, the company said that approval for the sale of its QCLNG gas pipeline has been received from BG Group’s Train 1 equity partner, the China National Offshore Oil Company(CNOOC). “As a result, the preconditions for sale of the QCLNG pipeline to APA Group have been satisfied in full. The sale of the pipeline remains on track for completion in the second quarter of 2015,” BG said in a statement. The transfer of operational control of Train 1 marks the start of commercial operations at QCLNG.  First production from Train 1 occurred in December 2014, with 16 cargoes shipped to date. QCLNG’s Train 2 is currently under construction, and is expected to start operations in the third quarter of 2015. 


Australia: MEO Australia has farmed-out 30% stake in WA-488-P exploration permit in Western Australia to Rex International Holding. Post transaction, MEO holds 70% operated interest while Rex holds the remaining 30%. The farm-out agreement also includes the option for Rex to obtain additional 10% in return for procuring full funding of a 3D seismic survey over the Beehive prospect, which Rex can increase to 20% if it commits by 30-Jun-2015 to fund the 3D Seismic Survey and pays $500,000 cash to MEO. Rex has a further option to increase its participating interest in return for procuring full funding of the proposed Beehive-1 well. If this option is exercised by Rex or its nominee, MEO will have a full carry through a Beehive-1 well for its residual 20% participating interest.


Brazil: Brazilian President Dilma Rousseff’s strategy of turning to fellow BRIC member China to finance the country’s prized state-controlled oil company is paying off as she and Premier Li Keqiang unveiled $10 billion in Chinese credit. The fresh funding comes as Rio de Janeiro-based Petrobras seeks to leave behind the biggest crisis of its almost 62-year history. Petroleo Brasileiro SA, as it’s known formally, has been at the center of a corruption scandal that sent shudders through the country’s business and political elites and all but closed access to bond markets, while ill-conceived projects prompted $15 billion in writedowns. 


Canada: Husky Energy has started commercial steam operations at the 10,000 barrels per day (bbls/day) Rush Lake heavy oil thermal project in Saskatchewan, approximately eight weeks ahead of schedule. Like the Company's other thermal projects, Rush Lake is expected to ramp up to full production in a short time period. Current production from thermal projects is approximately 44,000 bbls/day. Including Rush Lake, heavy oil thermal production is expected to add another 34,500 bbls/day over the next 18 months. The 10,000 bbls/day Edam East project is scheduled to come onstream in the third quarter of 2016. The 3,500 bbls/day Edam West thermal development has been reconfigured to a capacity of 4,500 bbls/day and is set to begin production in the fourth quarter of 2016. The 10,000 bbls/day Vawn project is expected to start up in the fourth quarter of 2016. The projects build on the Company's strong track record of using proven thermal technologies and modular, repeatable construction templates to access heavy oil deposits in the Lloydminster region. With low operating costs, good netbacks and low execution risk, these projects offer good returns even in a low price environment. 


Canada: Canada will see increased energy mergers and acquisitions in the next 5 to 10 years as cheaper oil forces producers to cut costs, Bank of Montreal’s Brian Belski said. Crude oil prices remain about 44 percent lower than in June even after rebounding somewhat from a six-year low in March. The lower prices have led oil-sands producers in Western Canada to reduce spending by billions of dollars and cut thousands of jobs. Belski said the industry is entering a prolonged period of slower global growth and lower prices that will mean companies will need increased cash flow to invest in the technologies that make them more efficient. That will translate into oil companies buying each other. Suncor Energy Inc., Canada’s largest producer, was able to produce a barrel of oil-sands crude for C$28 in the first quarter, compared with C$40 five years ago, said Chief Executive Officer Steve Williams, who in January announced 1,000 job cuts and trimmed spending by about C$1 billion. 


China: CNOOC Gas and Power Group, a subsidiary of China National Offshore Oil Corporation(CNOOC), is expected to commission a small-scaled skid-mounted LNG facility in Ezhou inChina's Hubei province, reported Xinhua Finance Tuesday citing local media. The LNG facility has the ability to process 30,000 cubic meters of natural gas each day. CNOOC Gas and Power Group also plans to build a 300,000-cu.m/day LNG project at the same place, Xinhua Finance added. Meanwhile, the company would build a LNG transfer project along the Yangtze river with annual capacity of 700,000 tonnes in the first phase and 2 million tonnes of capacity in the second phase. CNOOC Gas and Power group would execute the investment through a joint venture with Wuhan Sanjiang Space Yuanfang Science and Technology Company, Xinhua Finance added. 


China: China produced 9.8 billion cubic meters (bcm) of natural gas in April down 2 percent year on year, according to latest data issued by the National Development and Reform Commission,Xinhua Finance reported Thursday. Imports stood at 3.8 bcm, down 20.3 percent on year. Natural gas consumption declined 5.9 percent to 12.7 bcm in the month, the data showed,Xinhua Finance reported. During Jan-Apr, country’s natural gas output and natural gas consumption stood at 45 bcm and 62.9 bcm, up 4.7 percent and 2.4 percent, respectively. Imports of natural gas grew 7 percent to 19.8 bcm in the first four months of 2015. 


Guyana: ExxonMobil has made a significant oil discovery in Liza-1 well on Stabroek Block, approximately 120 miles off Guyana. The well was drilled to 17,825 ft in 5,719 feet (1,743m) of water, and has encountered more than 295 ft (90m) of high-quality oil-bearing sandstone reservoirs. Ownership of Stabroek Block: ExxonMobil (45%, operator), Hess (30%) and CNOOC Nexen Petroleum (25%). 


India: India's oil ministry has set interim rules that exempt state-run upstream companies from giving any discount on crude and refined fuel sales if global oil prices average up to $60 a barrel this quarter, two sources with direct knowledge of the matter said. Oil and Natural Gas Corp, Oil India and GAIL (India) sell crude and fuels like cooking gas at discounted rates to partly compensate retailers for losses they incur on selling fuels at government-set cheaper rates. Under the new rules, which are applicable only for the three months to June and would need finance ministry approval to be extended, upstream firms will not have to pay any subsidy as long as crude prices average $60 or less, the sources said. For prices between $60 and $100 a barrel, the companies will have to give a discount of 85 percent of the incremental price, said the sources who declined to be named as they are not authorised to speak to media. Last quarter, the government had exempted ONGC, Oil India, and GAIL from paying a subsidy after a crash in global crude prices. Currently global oil prices are hovering at about $66 a barrel. 

Indonesia: Indonesian energy firm Medco has signed a preliminary agreement to purchase 200 million standard cubic feet per day (mmscfd) of gas from state energy firm Pertamina. The contract would last for 30 years, with the gas used to supply a 1,600 MW power station in West Java that Medco hopes to be operational by 2019, Medco CEO Lukman Mahfoedz told reporters at an industry conference on Friday. Over the next three years Medco hopes to increase its total power production to 2,100 megawatts (MW) from 1,600 MW at present, as part of Indonesia's ambitous programme to build 35,000 MW of new power stations by 2019, Mahfoedz said. 


Indonesia: NuEnergy Gas (NGY) on Wednesday signed a conditional agreement to acquire 100 percent of the issued share capital of Dart Energy (Indonesia) Holdings. Dart Indonesia, through its group controlled companies, has a participating interest in the following production sharing contracts (PSC) and joint evaluation (JE) covering 1,559 and 482 sq kms: 45 percent participating interest in Tanjung Enim CBM PSC, South Sumatra; 50 percent in Muralim CBM PSC, South Sumatra; 100 percent in Bontang-Bengalon CBM PSC, East Kalimantan; and rights to the JE of Bungamas CBM, South Sumatra. The acquisition of Dart Indonesia is for a cash consideration of $1million to be funded from NuEnergy Gas’ available cash, the company said. NGY currently has PSCs in South and Central Sumatra, Indonesia, covering 4,819 square kilometres. NGY is the operator of all three, Muara Enim (40 percent participating share); Muara Enim 2 (30 percent participating share) and Rengat (100 percent participating share). 


Italy: The Italian Government has today announced that it has granted Trans Adriatic Pipeline (TAP) its Single Authorisation Permit. The Single Authorisation is a key permit that allows TAP to move ahead with the start of pipeline construction in 2016. TAP would like to thank the Italian Government and all those involved in the process for granting the Single Authorisation permit. This allows TAP to now move ahead with the start of pipeline construction in 2016. TAP will also continue to respect local needs and work closely with local communities to ensure they remain fully informed of the process as the project moves forward. TAP will be ready to transport gas from Shah Deniz II to Europe in early 2020. 


New Zealand: New Zealand Energy Corporation (NZEC) has relinquished PEP52976 (East Cape) in the East Coast Basin of North Island, New Zealand. James Willis, Chairman of NZEC, said: “NZEC is focused on its Taranaki Basin permits that offer near-term production potential. The Company does not consider that exploitation of the East Cape permit area is viable in the current commodity price environment.” (Selected by SPTEC Advisory from 1derrick, May 21)

Norway: The Norwegian Petroleum Directorate (NPD) has granted a drilling permit to Suncor Energy for the 25/10-13 S wildcat in PL571, North Sea. The well will be drilled by the Borgland Dolphin drilling facility. Ownership of PL571: Suncor (60%, operator) and Statoil (40%). 


Russia: Russia's Gazprom said on Thursday it received a payment of $30 million for gas supplies from Ukraine's Naftogaz, Interfax news agency reported.

Trinidad & Tobago: Range Resources has signed an amendment agreement with Niko Resources to acquire its full interest in the Guayaguayare Block, Trinidad. As per the agreement, Range will acquire 32.5% interest in the Shallow and 40% in the Deep Production Sharing Contracts (PSCs). Following completion of the agreement, Range will hold 65% interest in the Shallow PSC and 80% interest in the Deep PSC. Range will pay Niko upon certain production milestones being achieved from the two PSCs, with the maximum payable of $19 million based on production in excess of 10 MMbbl. There is no change to the existing drilling commitments, and Range will fulfil its obligations by drilling two onshore exploration wells in 2015. Range's estimate of the best case prospective resources of the Guayaguayare block is 129 MMBOE. Post-transaction ownership of Shallow PSC: Range (65%, operator) and Petrotrin (35%). Post-transaction ownership of Deep PSC: Range (80%, operator) and Petrotrin (20%). 

United Kingdom: GMB announced Thursday that a strike ballot will go ahead after talks failed to resolve a dispute over changes to terms for offshore workers in UK waters. The union, along with Unite officials, held talks Wednesday with the Offshore Contractors' Association about changes to employment conditions for workers covered by the Offshore Contract Agreement, including changes to offshore workers' shift rotations. GMB National Officer David Hulse commented in a union statement: "We did make some progress… but sadly not enough to enable us to go back to members with proposals to resolve this dispute. We will now have to proceed with organizing an official ballot for industrial action as the members asked us to do in a consultative ballot earlier this year. 
 
Energy Prices

Crude Oil ($/BBL)
Brent: $ 66.34 +1.45%

WTI: $ 60.57 +2.23%
OPEC Basket: $ 60.91 -0.33
%
 
Natural Gas ($/MMBTU)
Henry Hub: $ 2.95 +0.68%

Steel ($/MT)
Steel Billet: $ 305.00
(LME Official – 3 months Buyer)

Euro/USD
€ 1 = $ 1.1167 +0.55%

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