PETROL & ENERGY 28.05.2014


Four months into oil’s rebound from a six-year low, the tanker market is sending a clear signal that the rally is under threat.

A sudden surge in demand for supertankers drove benchmark charter rates 57 percent higher in the two weeks through May 20. OPEC will have almost half a billion barrels of oil in transit to buyers at the start of June, the most this year, while analysts say about 20 million barrels is being stored on ships in another indication the glut has yet to dissipate.

The Organization of Petroleum Exporting Countries is pumping the most oil in more than two years, determined to defend market share rather than prices. A record cut to the number of active U.S. drilling rigs and billions of dollars of spending reductions by companies since last year’s price plunge has yet to translate into a slump in barrels produced. The world is producing about 1.9 million barrels a day more crude than it needs, according to Goldman Sachs Group Inc.

“Supply of oil continues to build,” said Paddy Rodgers, the chief executive officer of Antwerp-based Euronav NV, whose supertanker fleet can haul 56 million barrels of crude. “All of this oil needs to go somewhere,” he wrote in an e-mail May 19.

Daily rates for supertankers on the industry’s benchmark route reached $83,412 on May 20, from $52,987 on May 6, according to the Baltic Exchange in London. While rates since retreated to $69,594, they’re still the highest for this time of year since at least 2008.

Brent crude futures advanced almost 40 percent from this year’s low on Jan. 13, and traded at $62.58 a barrel on the London-based ICE Futures Europe exchange at 12:53 p.m. Singapore time Thursday. 

 

Africa

Algeria: Algeria is ready to build the proposed Galso gas pipeline to bring Algerian gas to Italy, Prime Minister Abdelmalek Sellal said on Wednesday during a visit to Rome. "This is a project that we intend to relaunch as part of this new vision of security for Italy and Europe through alternative sources of energy supply from Algeria," he said. The Galsi project has been in limbo after years of repeated delays but Italy, heavily dependent on energy imports from Russia, has been interested in securing alternative supplies in case the crisis with Ukraine escalates. Algeria used to be Italy's biggest gas supplier but, as the North African country has earmarked increasing amounts of production for domestic use and shipped more gas to more remunerative Asian markets, volumes have declined.

Angola: Total has achieved the significant milestone of producing a cumulative two billion barrels from its operated deep offshore Block 17 located 150 km off the coast of Angola. With the recent start up of CLOV, Block 17 has become Total’s most prolific site with production of over 700,000 barrels per day. The Group operates four Floating Production Storage and Offloading (FPSO) units on the major production zones of the block: Girassol, Dalia, Pazflor and CLOV.


Cameroon: Victoria Oil & Gas Plc today announces that its 100% owned subsidiary, Gaz du Cameroun S.A., has made payment in full for the purchase of the Logbaba gas processing plant from Expro Worldwide BV. The Plant currently processes gas extracted from the GDC wells, producing condensate which is sold to a local refinery and clean natural gas which is distributed to customers through the 33 km pipeline network in Douala, Cameroon. The Plant has been purchased from Expro for US$2.578m, using cash generated from GDC operations, and the Board believes that this purchase will deliver significant cost savings. GDC is evaluating proposals for a long term contract for the operation and maintenance of the Plant with specialist service companies, including Expro. 


Egypt: Egypt is getting closer to adding shale gas to its energy mix with the news that Shell and Apache Corp. will start production from the Apollonia field in the Western Desert early next year, with a second coming onstream in H2 2016. Apache’s JV in Egypt, the Khalda Petroleum Co., is carrying out operations for both companies. Khalda Petroleum will start drilling two experimental wells, data and pilot wells, in the Apollonia field. Core samples and logging will be taken to study and evaluate the field, said Tarek El Molla, Chairman of the Egyptian General Petroleum Corp. (EGPC), in an interview with Daily News Egypt. Drilling operations are expected to start on the first well by the end of May, with the second well to start upon completion of the first if the study of core samples and well logs indicate positive results. The two companies will start drilling the horizontal wells in November. The first well will be drilled and completed and the same will take place for the second one by H2 2016, according to El Molla. 


Egypt: Emirati company Crescent Petroleum is studying entering the oil and natural gas research and exploration field in Egypt, according to Abdulla Al-Qadi, Director of Exploration and Production at the company.In a statement to Daily News Egypt, Al-Qadi said the company will soon start discussions with the Ministry of Petroleum to understand the available opportunities for entering the Egyptian market. He added that Egypt is of the best places the company has worked in, through a partnership with Dana Gas. The company targets expansion in the coming period through investing in the research and exploration field for oil and natural gas. Dana Gas signed agreements worth $350m during the Economic Summit in March to invest in the energy and natural gas sector. The agreements are being implemented in partnership with the government. Al-Qadi pointed out that investments in Egypt are challenging, but in the long run, will be very positive and of benefit to all parties. 


South Africa: South Africa, which sets gasoline prices that fuel producers can charge, needs to ensure companies can recover the cost of upgrading their facilities to handle cleaner fuels, Chevron Corp.’s local unit said. Upgrading Chevron’s facility in Cape Town to meet planned clean-fuel standards will cost as much as $1 billion, Mbuyisa said last month. Refiners are refusing to invest in production of cleaner fuels without a subsidy, Rod Crompton, a member of the National Energy Regulator of South Africa, told lawmakers Tuesday. About 40 billion rand ($3.3 billion) will be needed over five years to upgrade South Africa’s six refineries to meet new fuel specifications that will reduce vehicle emissions, the National Treasury said in its 2013 budget review. It said basic fuel prices would be adjusted to accommodate the cost recovery. 


Tanzania: Beach Energy reported that Woodside Energy has decided not to enter into the next phase of the exploration program of Lake Tanganyika South Production Sharing Agreement (LTS PSA) in Tanzania. Beach Energy will now be the operator and retain 100% working interest in LTS PSA. 
 

Middle East

Iran: The National Iranian Gas Company (NIGC) has hiked the price of natural gas supplied to household, commercial and state owned sectors by 15 percent, Shana News reported Tuesday. Prices remain unchanged for industrial sector, petrochemical plants, power plants and agricultural sector. The new price of 920 rial per cubic meter came into effect Wednesday, Shana reported. “Since the administration was aware than natural gas accounts for 70 percent of the country’s energy basket, it decided not to raise natural gas price too steeply,” Managing Director of the NIGC Hamid Reza Araqi said Tuesday. Araqi noted that gas consumption in Iran amounts up to 180 billion cubic meters (bcm) per year. 


Iran: Iran has started indirect talks with Spain over the export of liquefied natural gas (LNG), according to a senior official. Speaking to Tasnim News Agency, the managing director of the Iranian Gas Commercial Company Mohammad Ali Barati said that the company is seeking to export liquefied gas to European countries but is being deterred by Western sanctions. "Currently, we have no exports to the European Union but we are holding indirect talks to export gas to Spain," Barati said. "After the (removal of) sanctions, relations with European countries will be expanded" he said. Iran has an estimated 33.6 trillion cubic meters gas reserves making it one of the world's largest gas holders. Back in April, Iran's ambassador to Turkey said Tehran was working out details of a project to export its natural gas to Europe through Turkey. 


Iran: Iran has announced plans to increase its oil production levels by 170,000 bpd, by the end of the current Iranian year, according to IRNA. Soltan Kamali, managing director of Arvandan Oil and Gas Company, a subsidiary of the state's National Iranian Oil Company (NIOC), said the "additional output will be available once the initial phases of North Azadegan and Yadavaran oilfields come into operations," IRNA reported. The OPEC producer aims to boost crude exports by up to 1 million bpd if Tehran and six major powers finalise a nuclear agreement by a June 30 deadline.


Jordan: The first liquefied natural gas (LNG) tanker docked on Monday morning at Jordan's Aqaba New Terminal, marking the first shipment of LNG to the Kingdom, the government said on Monday. The steamship, which can hold up to 160,000mn cubic metres of LNG, was rented from an international company in 2013 and will be used as a storage facility. The carrier came from Singapore and was laden with Qatari gas. The LNG  will be processed and pumped into the Arab gas pipeline before being sent to power plants. Aqaba Development Corporation CEO Ghassan Ghanem said the LNG port was officially inaugurated and started operations on Tuesday. The shipment marks a turning point in the history of Jordanian ports industry as LNG will be turned into gas and then be pumped through the Arab gas pipeline to electricity generation stations, he added. Ghanem previously told The Jordan Times that the LNG terminal which built to receive LNG imports as an alternative to the costly heavy oil used to generate electricity.



Kuwait / Saudi Arabia: An jointly-operated onshore oilfield between Saudi Arabia and Kuwait will remain shut until difficulties to operate are resolved, a spokeswoman for US oil major Chevron said on Wednesday. Chevron operates the Wafra onshore oilfield on behalf of Saudi Arabia. “While efforts continue with all appropriate parties to resolve the issue, Saudi Arabian Chevron and Kuwait Gulf Oil Company have stopped production at the onshore Partitioned Zone. Production will remain shut in until the situation is resolved,” Chevron spokeswoman Sally Jones said in a statement. The field was shut for maintenance on May 11 for two weeks, a move apparently aimed at giving the Gulf Opec allies more time to solve a long-standing dispute.


Oman: Initial development of a deep-water pipeline carrying natural gas and potentially even crude oil and other petroleum products from Oman to India could begin as early as before the end of this year, according to the lead promoter of the multi-billion dollar venture. Dr Ajay Kumar, Chairman & Managing Director of India-based Fox Petroleum Group, which is spearheading the proposed scheme, said all of the critical elements encompassing the planning, technology, engineering design, pipeline supply, execution, and financing aspects of the ambitious development have been worked out in anticipation of an early commencement of the implementation phase. "We at Fox Petroleum have been working on the Oman-India Deep-water Multipurpose Pipeline Project (OIDMPP) since 2009.Our goal now is to obtain the necessary approvals from the governments of Oman and India before we can get started with the construction of this venture. The estimated investment of $5.6 billion for this dream project will be provided entirely by Fox Petroleum and its partners," Dr Kumar stated. 



Oman: Oman will spend almost $5.2bn on infrastructure work in the Duqm free zone by 2020 as part of its plans to diversify the economy away from oil, The National has reported. The special economic zone located in the south will include an oil refinery, a port, an airport and other facilities by the start of phase one in 2020, according to Yahya Al Zadjali, the head of planning and engineering of the Special Economic Zone Authority Duqm. The 230,000 barrels per day refinery will be operational by 2018. The refinery is a joint venture between the state-owned Oman Oil Company and Abu Dhabi’s government-owned International Petroleum Investment Company (Ipic). A petrochemicals complex will also be built in the second phase of the refinery. The port’s first phase will have a capacity of 7mn twenty foot equivalent units when it starts operations in 2019. 


Saudi Arabia: Al Waha petrochemicals is set to restart its propylene and polypropylene plant after a period of planned maintenance, according to its parent company Sahara. Al Waha Petrochemical had closed its propylene and polypropylene plant in Jubail for 30 days from April 1. The plant has annual production capacity of 460,000 tonnes of propylene which serves as feedstock to make 450,000 tonnes of polypropylene, according to its website. The company completed maintenance work on Thursday, Sahara said. Any financial impact will be reflected in the company's second-quarter results.

 

Rest of the World

Australia: Orica Limited has decided to make the first pre-payment of A$7.5 million to Strike Energy under the terms of the 250PJ gas sales agreement, Strike said Wednesday. The decision by Orica to proceed follows the completion of an independent review of the project by DeGolyer and MacNaughton, Strike said adding that independent review defined a significant contingent gas resource and a clear pathway towards commercial development. It also validated the significant progress Strike has made in de-risking the Southern Cooper Basin Gas Project since July 2013. Strike has earlier announced that it has accelerated phase 3 of the flow testing program – the Klebb pilot test, including the fracture stimulation and flow testing of the Klebb 2 and Klebb 3 wells. The fracture stimulation of the wells will be undertaken in June with flow testing of the upgraded wells continuing through the September quarter. The objectives of this phase of testing are to accelerate achievement of commercial gas flow rates and initial gas reserve certification, Strike stated. The company will now progress to phase 4 of the program - the drilling, fracture stimulation and completion of additional wells at the Le Chiffre location. These activities are planned to follow completion of the phase 3 program. 


Brazil: Brazil’s state-controlled oil company Petroleo Brasileiro SA abandoned exploration at the Caramba prospect in a deepwater region that holds the country’s biggest discoveries. Petrobras has returned the BM-S-21 concession, where Caramba is located, to Brazil’s National Petroleum Agency, the Rio de Janeiro-based producer said in an e-mail Wednesday. The company operated the concession in the so-called pre-salt region with an 80 percent stake. Galp Energia SGPS SA was its partner with a 20 percent stake. The decision to return the area underscores how exploration in the deepwater region where Petrobras has had its most success finding and producing oil still carries risks. Output at pre-salt fields, which are deposits trapped below a layer of salt in the Atlantic seabed, has surged to more than 800,000 barrels a day, about a third of Brazil’s total output, since extraction started in 2010. Petrobras returned the concession on April 29 after finishing evaluations, the company said in the e-mail, without disclosing the reasons for the decision. 


Brazil: The government of Brazil hopes to sell utility CELG, controlled by state-run Centrais Elétricas Brasileiras SA (Eletrobras), in the fourth quarter of this year, Energy Minister Eduardo Braga said on Wednesday. Braga also said the government had ruled out the possibility of energy rationing and aimed to add 6,200 megawatts to Brazil's energy grid this year.


Canada: A Chinese buyer has entered into an arrangement agreement with New Star Energy to acquire all of the issued and outstanding common shares of New Star for a total cash consideration of C$215 million (US$174 million), including the assumption of debt. Under the terms of the agreement, each New Star shareholder shall receive C$1.25 in cash for each share held. New Star Energy is a Calgary based, light/medium crude oil and natural gas company with operations in Alberta, Canada. 


China: CNOOC Limited has made a discovery in Liuhua 20-2, Eastern South China Sea. The Liuhua 20-2 structure is located in Northern Slope Belt of Baiyun Sag in the Pearl River Mouth Basin of the South China Sea with an average water depth of about 390m. The discovery well, LH20-2-1 was drilled and completed at a depth of about 2,970m and encountered oil pay zones with a total thickness of 35.2m. The oil production of the well tested around 8 Mbbl/d and the crude oil density is approximately 0.75. 

China: China imported 1.5 million tons of LNG in April, up 12 percent on year, Platts reported Tuesday citing General Administration of Customs data. The April imports were higher by 15 percent when compared with imports recorded in March. Gas imports via pipeline stood at 2.14 mt, up 18 percent on year, the data showed. Delivered LNG prices averaged $8.15/MMBtu over the month, 25 percent lower than levels seen a year previous, as recent falls in the crude oil markets were now being passed on to LNG consumers, according to Platts. 


Mexico: Mexico's National Hydrocarbons Commission (CNH) has pre-qualified 26 companies and consortium to bid for 14 shallow water exploration blocks offered in the first phase of Round 1. Of the 26 selected bidders, 19 are individual companies and seven are consortium. The individual companies included oil majors like ExxonMobil, Chevron, Total and other companies. The consortium pre-qualified for the bidding included BG and Galp Energia consortia, consortia between Eni, Noble Energy and CASA Exploration and many more. To qualify for the bidding round, companies had to have knowledge and experience of working in shallow waters in at least three exploration and production projects, or alternatively in one or in two large-scale projects, which together involve capital investments of $1 billion. Additionally, a company keen to be the operator of a project was required to have equity of $1 billion and assets of $10 billion. In the case of consortia, the operating company was required to hold at least a third of the equity. 


Myanmar: Myanmar is looking at importing gas to meet rising domestic demand, reported Myanmar Timeson Tuesday. LNG is one option, according to Daw Wah Wah Thaung, an executive engineer at state-owned Myanma Oil and Gas Enterprise (MOGE). The Southeast Asian nation is rich in hydrocarbons but lack of technology and investment in the energy sector has led to oil and gas resources being grossly under-exploited. On the other hand, demand for gas in local economy has been growing steadily in last few years, creating a supply-demand gap, which the government is finding hard to fill. LNG imports could provide a possible short-term solution to Myanmar’s energy shortage problems, the MOGE official said. Companies from China, Korea, Japan, Norway, Singapore and Thailand have already proposed investment into LNG development projects in Myanmar, and feasibility studies have been completed, the official said. Currently state-owned and privately run gas-fired plants are operating with limited natural gas, as the Ministry of Energy is only able to supply around one-third of the 500 mmcfd of gas needed, the newspaper added. 


Norway: The current recoverable volume of oil in fields and discoveries exceeds the estimated figure in 2005, and it is also presumed that more oil remains to be discovered. This is the result of the Norwegian Petroleum Directorate’s (NPD’s) review of the resource basis in a select number of fields and discoveries on the Norwegian shelf between 2005 and 2014. The background for the review is the NPD’s ambitious goals from 2005, to achieve an oil reserve growth of 800 million Sm3 or five million barrels over ten years. Now that the figures are in, the reserve growth turned out to be somewhat less, but the goal would have been reached with flying colours if the development plan for Johan Sverdrup had been submitted before the end of 2014. In addition to producing fields, the NPD has reviewed 62 discoveries for which development decisions had not been made in 2005. Over the course of this ten-year period, 28 of them have been developed, and their oil reserves have nearly doubled. This is due to new information, better reservoir understanding and optimisation of development solutions and drainage strategies. 

Pakistan: Jura Energy Corporation (TSX:JEC) announces the post stimulation testing results of development well Reti-2, in the Reti lease, earlier completed in the Pirkoh Limestone Formation of Eocene age. During a short duration test on 48/64 inch choke, the well flowed gas at the rate of approximately 6.22 MMcf/d (net to Jura 0.66 MMcf/d) at a wellhead flowing pressure of 400 psi. Jura holds a 10.66% working interest in the Reti lease, which is operated by Oil and Gas Development Company Limited. 

South Korea: South Korea's SK Energy International will import two cargoes of U.S. condensate over the next two months and is also looking at shipments of the light crude from Iran as part of efforts to diversify its sourcing, its top executive said on Thursday. SK Energy International, a trading arm of South Korea's largest refiner SK Energy, will take two 450,000-barrel cargoes of U.S. condensate, one each in June and July, and is "actively considering" imports from Iran, Kim told reporters in a press meeting. Exports of condensate from the United States resumed in 2014 thanks to the softening of a 40-year export ban on crude, and SK Energy imported one cargo last year, Kim noted. For the June and July imports, SK Energy has already bought two U.S. condensate cargoes from Mitsui & Co, traders said. Reuters shipping data shows one loaded on May 2 onboard tanker Hafnia Australia and is expected to arrive at Ulsan in early June. The refiner is also looking at buying condensate out of the United States for trading purposes, Kim said. If sanctions on Tehran over its disputed nuclear programme are lifted soon, SK Energy is expecting more business opportunities with the OPEC member such as importing fuel oil, Kim also said. 


Ukraine: Ukrainian state energy firm Naftogaz paid Russia's Gazprom another $30 million in prepayment for gas supplies, the Ukrainian company said on Wednesday.


United Kingdom: The U.K. aims to maximize domestic oil and gas production and curb the spread of onshore wind farms as the government leans toward maintaining energy security over cutting carbon emissions. The measures form part of an Energy Bill announced by Queen Elizabeth II in a speech to Parliament in London on Wednesday that outlines the first legislative program of Prime Minister David Cameron’s majority Conservative government. U.K. oil production was enough to meet about 56 percent of domestic demand last year, with a similar proportion for gas, according to the government. Even so, a drop in oil prices of more than 40 percent in the past year rendered as much as a third of U.K. fields uneconomic, BP Plc Chief Executive Officer Bob Dudley said in February. That’s led to government tax cuts to shore up the industry amid warnings that thousands of jobs may disappear. The draft law will outline plans to hand over powers to the Oil and Gas Authority from the government, allowing it to become an independent regulator of the industry. 


USA: Jericho Oil Corporation ("Jericho" or the "Company") (TSX-V: JCO; OTCQX: JROOF), a growth-oriented oil company engaged in the acquisition, exploration, development and production of overlooked and undervalued oil properties in the U.S., has signed a purchase and sale agreement to acquire a 50% working interest in producing wells and leaseholds in northeastern Oklahoma for a total cash consideration of $762,500 from Chaparral Energy. The 2,500 acre acquisition represents Jericho's second in the northeastern Oklahoma region since the beginning of 2015 and brings its total acreage position across Kansas and Oklahoma to over 8,300 acres.  The asset, which produces approximately 80 gross barrels of oil equivalent per day (to the 100% WI), is in areas complementary to Jericho's existing operations in northeast Oklahoma.  The acquisition allows Jericho to purchase production (97% Oil, 3% Gas), reserves, cash flow and equipment at an appreciable discount from the underlying value of the asset. 


USA: Magnum Hunter Resources has signed an agreement with an independent exploration and production company to sell certain non-core undeveloped and unproven leasehold acreage located in Tyler County, West Virginia, for approximately $41 million. The property to be sold consist of ownership interests in approximately 5,210 net leasehold acres. The sale is scheduled to close on 28-May-2015. (Selected by SPTEC Advisory from 1derrick, May 27)

USA: Riley Exploration Group LLC has acquired 90% equity interest in Cinco Resources, effective 19-May-2015. Riley also received an investment from funds managed by Yorktown Energy Partners to acquire a working interest in a new 25,000 acre horizontal oil play in the Permian Basin. These acquisitions will provide Riley with growth opportunities in the Texas Gulf Coast, Permian Basin and the Oklahoma Arkoma Basin. Post-acquisition of Cinco, Riley’s 2015 net production will increase to 1.6 MBOE/d. 

USA: Ring Energy has signed an agreement to acquire producing wells and leaseholds located in Culberson and Reeves Counties, Texas, for $75 million. The property consists of approximately 14,000 net acres, located in the Delaware Basin. As per the agreement, Ring will be the operator and have an approximate 98% working interest and average net revenue interest in excess of 78%. The current net daily production from the properties is approximately 1,300 BOE/d (80% oil). Mr. Kelly Hoffman, CEO of Ring Energy, said: “This acquisition represents an ideal complement to our existing core area in west Texas. Not only does it immediately add reserves and increase our current production, but offers excellent upside through the drilling of new vertical wells with multiple pay zones and the reworking of existing wells.”


Venezuela: Venezuela and Russia's top oil producer, Rosneft, have agreed on around $14 billion in investment in the South American OPEC country's oil and gas sector, President Nicolas Maduro said on Wednesday evening. Maduro said he met with the chief executive of state-owned Rosneft, Igor Sechin, earlier on Wednesday, in the company of PDVSA President Eulogio del Pino and National Assembly boss and Socialist Party No. 2 Diosdado Cabello. "We had a great meeting and agreed on investment of over $14 billion," said Maduro during a televised broadcast, adding the funds would go toward doubling Venezuela's oil production. PDVSA has formal ambitious targets to double national production to 6 million barrels a day by 2019, with 4 million of that projected to come from the Orinoco Belt, but few industry experts or foreign investors expect those goals to be met. Speaking at a Socialist Party event broadcast on state television, Maduro did not provide a breakdown of the investment plan, and it remained unclear who would fund it. PDVSA and the Venezuelan Oil Ministry did not immediately respond to requests for details. It was not immediately possible to contact Rosneft. Fresh investment would be a boon for cash-strapped Venezuela, which is seeking to ramp up oil output to counter an economic crisis and the recent tumble in oil prices.
 
Energy Prices

Crude Oil ($/BBL)
Brent: $ 62.53 -4.68%

WTI: $ 57.75 -3.56%
OPEC Basket: $ 60.73 -1.83
%
 
Natural Gas ($/MMBTU)
Henry Hub: $ 2.84 +0.00%

Steel ($/MT)
Steel Billet: $ 290.00
(LME Official – 3 months Buyer)

Euro/USD
€ 1 = $ 1.0907 -0.26%

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