Geopolitics & Oil
Let the games begin in Cuba …
As the US and Cuba work to restore diplomatic relations, keeping in mind that we are doubtful the US trade embargo on Cuba will be lifted until after the 2016 presidential elections, Cuba is flaunting what it says are billions of barrels of oil in its offshore Gulf of Mexico territory. So far, there isn’t a great amount of excitement over Cuba’s announcement. In 2012, three exploration wells came up dry and, at present, most are eyeing new opportunities in Mexico since it opened up its oil and gas to foreign companies and ended state-run Pemex’s monopoly on the industry. Depressed oil prices will also keep interest in Cuba to a minimum. Still, a recent study does claim to confirm what Cuba has long said was a potential oil and gas bonanza—20 billion barrels of undiscovered crude, more specifically. The most recent US Geological Survey data estimates around 7 billion barrels. For now, Venezuela’s state-run PDVSA is one of two companies that still has exploration rights in Cuba, but at the same time, Cuba would love to reduce its dependence on Venezuela all around. The other company is Russia’s state-run Zarubezhneft.
Cuba’s oil production right now is sparse. It produces 40% of its oil needs from an onshore/offshore heavy oil belt, but this is poor quality fare.
But while interest appears to be lacking, contradictory reports have emerged that France’s Total SA is pursuing something in Cuba. Some reports…
Geopolitics & Oil
Let the games begin in Cuba …
As the US and Cuba work to restore diplomatic relations, keeping in mind that we are doubtful the US trade embargo on Cuba will be lifted until after the 2016 presidential elections, Cuba is flaunting what it says are billions of barrels of oil in its offshore Gulf of Mexico territory. So far, there isn’t a great amount of excitement over Cuba’s announcement. In 2012, three exploration wells came up dry and, at present, most are eyeing new opportunities in Mexico since it opened up its oil and gas to foreign companies and ended state-run Pemex’s monopoly on the industry. Depressed oil prices will also keep interest in Cuba to a minimum. Still, a recent study does claim to confirm what Cuba has long said was a potential oil and gas bonanza—20 billion barrels of undiscovered crude, more specifically. The most recent US Geological Survey data estimates around 7 billion barrels. For now, Venezuela’s state-run PDVSA is one of two companies that still has exploration rights in Cuba, but at the same time, Cuba would love to reduce its dependence on Venezuela all around. The other company is Russia’s state-run Zarubezhneft.
Cuba’s oil production right now is sparse. It produces 40% of its oil needs from an onshore/offshore heavy oil belt, but this is poor quality fare.
But while interest appears to be lacking, contradictory reports have emerged that France’s Total SA is pursuing something in Cuba. Some reports claimed that Total earlier this month signed an agreement to explore offshore oil with Cuba’s state-run CubaPetroleo (Cupet). This has been confirmed by Cuban state media, but denied by Total, which has previously explored in Cuba but left in 1995. There may simply have been a misunderstanding on the part of the media as to the nature of the agreement signed by Cuba and Total.
And then we have reason to believe that Russia is eyeing a re-emergence in Cuba, with Russian officials indicating that Cuban oil is high up on the agenda in the Kremlin. Moscow will seek to keep Cuba in its orbit in the face of a change in diplomatic relations between Cuba and the US. Russia’s Gazprom Neft acquired a 30% stake in four Cuba blocks in 2011.
For the purposes of this report, however, we are most interested in what will happen when the trade embargo is lifted. What we expect is that some savvy US or Canadian junior oil companies will hit this scene before the supermajors build up enough interest. They will develop some new exploration projects and then set themselves up to be taken over by a supermajor. It could be another story similar to what’s going down with Argentina’s shale right now.
Saudi Arabia: Good news for oil investors—Allah is setting oil prices
We’re not going to spend too much time on this because it’s more amusing than anything else, but it does speak volumes on the arrogance of the oil-rich Saudi kingdom. Just remember that Saudi Arabia can get away with pretty much anything and that statements such as ‘Allah will set oil prices’ would be digested much differently coming from Russia or Iran, for instance. It is also indicative of where the Kingdom is headed under King Salman. On one hand, King Salman pays homage to the US through new Foreign Minister Adel al-Jubeir (who is not a member of the royal family, but who has a track record of wooing Washington), with the other he makes it clear that nothing will be done about oil prices, which are entirely in Allah’s hands.
Discovery & Development
• Guyana is holding out hope that the Esso offshore exploration well in the Atlantic Ocean will lead to a major commercial discovery. So far, they’ve encountered hydrocarbons 120 miles offshore Guyana in a project operated by Exxon Mobil, but this is not a commercial hydrocarbon discovery. Exxon launched exploration in March as part of a $200-million project. The exploration area covers 26,806 square kilometers and Exxon will drop to a depth of 1,750 meters. We’re also watching this one closely because the territory in which Exxon is exploring on behalf of Guyana is a maritime area disputed by Venezuela, which has threatened to disrupt exploration activities. The optimism of a find here comes from the US Geological Survey’s statement that the Guyana-Suriname Basin has the second largest unexplored oil potential in the world after Greenland.
• An oil discovery in Tunisia has been announced by Mazarine Energy and ETAP. The partners discovered 38 meters of net oil-bearing reservoir in the Cat-1 well in the Zaafrane permit, which was the first discovery in this permit. A production test showed a flow rate of 4,300 barrels of oil per day and 395,000 cubic meters of natural gas per day. Mazarine says the discovery upgrades the resource potential of a string of prospects in this large permit, and particularly for the next well in the company’s sequence (DGH-1). Mazarine Energy is the operator of the Zaafrane permit.
• Circle Oil Plc (AIM:COP) has published the results of preliminary testing of its SAH-W1 well in the Sebou Permit, onshore Morocco, and has released its rig from this well and it is now on its way to the Lalla Mimouna concession to drill the first well on that concession, LAM-1. The SAH-W1 well is located about 3.2 kilometers south of the main gas gathering station here. The well was drilled to 1,263 meters in June last year. Gas shows were encountered at different levels within the target Guebbas sands. Production will start from the lowermost zone and work up. According to Circle’s test results, the lowermost zone has 3.6 meters of net pay and the test over this interval flowed at a sustained rate of 4.94 MMscf/d on a 24/64” choke during a period of 5 hours. The highest pressure will be at the upper levels.
• Iran’s 20th International Oil, Gas, Refining and Petrochemical Exhibition of Iran has come to a close this week, with more than 1,200 domestic and 600 foreign companies from 29 countries in attendance. Companies attended from France, Belgium, the UK, Singapore, Monaco, South Korea, Ukraine, Spain, Austria, China, Kazakhstan, Switzerland, Italy, Germany, the United Arab Emirates, India, Turkey and Russia. What Iran is hoping to attract is interest in its giant offshore South Pars gas field, which it shares with Qatar. The South Pars gas field is divided into 29 development phases and contains 40 trillion cubic meters of natural gas. The field covers an area of 9,700 square kilometers, 3,700 square kilometers of which are in Iran’s territorial waters in the Persian Gulf.
Regulations & Arbitration
• Ukraine is seeking more than $16 billion from Russia's Gazprom in an appeal to a Stockholm arbitration court, challenging the price of Russian gas and billions in debt which Moscow says it accrued. Gazprom and Ukrainian state gas firm Naftogaz are locked into a 10-year gas agreement, which was signed in 2009. Gazprom says Ukraine owes over $170 million for gas supplied to eastern Ukraine since the beginning of the year. Previous gas disputes between Ukraine and Russia have affected the European Union, where Gazprom meets a third of gas demand.
• Sete Brasil—a company associated with state-run Petrobras—will be deprived of a $9 billion loan that it was expecting to be doled out by the Brazilian Government´s Development Bank. This comes at a bad time for Sete Brasil, which will be forced to downsize. The company manages the Brazilian NOC’s billion-dollar construction projects as well as the delivery and chartering of 29 new drillships for pre-salt oil and gas development projects. Now it is looking for new partners in Asia. The fate of the 29 new drillships is now in question. When completed, the vessels were to be leased to Petrobras for more than $500,000 a day.
• Mexican state-run Pemex has announced it will seek compensation from the federal government for assets lost due to the implementation of energy reforms. The fields that were not assigned to Pemex in Round Zero were an expense incurred, according to the logic used here. Pemex is bemoaning its new, slimmer portfolio of assets to exploit on its own or in partnership with international companies. The company was assigned 21% of the country's prospective resources, but had sought at least 31%.
Deals, Mergers & Acquisitions
• UK-based Expro oilfield services company has secured a $45-million contract offshore Canada with Statoil in the Flemish Pass Basin. The deal will include the provision of surface well testing and subsea safety systems, drill stem testing tools, downhole sampling, tubing conveyed perforation and on-site chemistry services. The deal will see Expro delivering a range of well testing services on Statoil’s massive Bay du Nord discovery on the Flemish Pass Basin offshore Newfoundland. It is the firm’s second significant deal with the Norwegian oil giant in recent months. In January, Expro said it had won a $200-million contract to provide services to Statoil on the Norwegian Continental Shelf.
• Canada’s Pacific Rubiales Energy E&P company has been approached for acquisition by Mexican conglomerate Alfa and Harbour Energy. If it went through, the deal would be worth $4.97 billion, including debt. Alfa SAB and Harbour Energy have made an all-cash offer that values Pacific Rubiales at about $6/share. Pacific Rubiales operates Colombia’s largest oil field. On news of the potential deal, its share price jumped 18% to $5.50 at the close in Toronto, giving the company a market value of about $1.74-billion. The company has debt of about $4.7-billion. Harbour Energy is a joint venture between Noble Group Ltd and private equity firm EIG Global Energy Partners.
