Politics, Geopolitics & Conflict
We spend a lot of time on Kurdistan because, while it’s not huge in the oil patch, where its oil ends up and how it gets there is of significant geopolitical consequence for the Middle East. And this past week has seen a lot of interesting activity in and around this venue. Most significantly, the authorities of the Kurdistan Regional Government (KRG) are believed to be fast-tracking talks with the Iranians to potentially set up an alternative route with a pipeline that would direct Kurdish oil to Iran. This idea has been bandied about rather half-heartedly over the past couple of years, but now it appears to be more serious, and the Kurds would love to have a more stable alternative to the pipeline that currently runs from Kirkuk, in Northern Iraq’s disputed territories, to the Turkish port of Ceyhan. That would give the Kurds two pipelines, so when something goes wrong with the Kirkuk-Ceyhan pipeline—as it did in February when it was offline for a month over mysterious sabotage—it will have the Iranian option. The Iranians would then process the Kurdish crude in one of two refineries: Kermanshah or Tabriz. The Kurdish oil could then be exported through Iran’s Persian Gulf terminals. The Kurds would also, then, get Iranian gas. Later this month, an Iranian delegation will be in Erbil to discuss this month, though we’re not sure exactly when. The talks are still just preliminary, but the overall sentiment is that either they are really…
Politics, Geopolitics & Conflict
We spend a lot of time on Kurdistan because, while it’s not huge in the oil patch, where its oil ends up and how it gets there is of significant geopolitical consequence for the Middle East. And this past week has seen a lot of interesting activity in and around this venue. Most significantly, the authorities of the Kurdistan Regional Government (KRG) are believed to be fast-tracking talks with the Iranians to potentially set up an alternative route with a pipeline that would direct Kurdish oil to Iran. This idea has been bandied about rather half-heartedly over the past couple of years, but now it appears to be more serious, and the Kurds would love to have a more stable alternative to the pipeline that currently runs from Kirkuk, in Northern Iraq’s disputed territories, to the Turkish port of Ceyhan. That would give the Kurds two pipelines, so when something goes wrong with the Kirkuk-Ceyhan pipeline—as it did in February when it was offline for a month over mysterious sabotage—it will have the Iranian option. The Iranians would then process the Kurdish crude in one of two refineries: Kermanshah or Tabriz. The Kurdish oil could then be exported through Iran’s Persian Gulf terminals. The Kurds would also, then, get Iranian gas. Later this month, an Iranian delegation will be in Erbil to discuss this month, though we’re not sure exactly when. The talks are still just preliminary, but the overall sentiment is that either they are really being taken more seriously, or they are just hanging this idea over Baghdad for more leverage over the Iraqi central government in this ongoing dispute. But the other aspect here is that such a deal with Iran, which wields substantial influence in Baghdad, might mean that Iran is taking over the mediation process in this dispute, and it would have much more success in coming up with a resolution than will Erbil and Baghdad on their own.
In the meantime, there’s also been a fair amount of positive movement for the foreign producers in Kurdistan, who have been languishing under the dual discomfort of low oil prices and unpaid arrears from the KRG. Share prices have rallied nicely on the news of a new round of payments to these companies. All told, the KRG paid out $55 million last month, for March exports.
• Genel Energy, one of the largest producers and the operator of the Taq Taq field, said it and its partners have now received $19.88 million from the KRG for March oil sales. That works out to $10.93 million for Genel.
• Gulf Keystone has received $15 million from the KRG for its Shaikan field exports in March. (It wasn’t, however, enough to keep Prudential (PRU) Fund management division to dump its 5% stake in Gulf Keystone. But share prices still went up—someone was happy to scoop up this 49.2 million shares.)
• Norwegian DNO received $20.1 million for March deliveries from the Tawke field.
The Output Game
• Iran has been shipping record levels of crude to India but now it’s cutting India off from free shipping, putting an end to an old sanctions-era agreement that has seen Iran get paid half in Indian rupees. As of, 2013 Iran has been delivering crude oil for free to Indian refiners as sanctions crippled its exports. Iran used its shipping line for the delivery and did not charge for transportation Now Iran wants euros for the oil its sells to Indian refiners, and is seeking $6.5 billion worth of past dues in euros. Earlier this month, Indian officials said that they might invest as much as $20 billion in Iran’s energy industry and increase imports of crude from the if it gets favorable terms.
• Just ahead of the 17 April output freeze meeting that is more of a game for volatility trading than anything else, Kuwait Oil Company has announced it will soon offer contracts for offshore rigs and support services as it prepares to drill its first subsea wells, eyeing a boost in production that will be bigger than anything it’s seen in four decades. Kuwait is hoping to be producing 3.165 million barrels by 2017, or before.
• For OPEC-member Angola, low oil prices are a disaster that has forced the country for the first time to seek aid from the IMF (along with the World Bank). Angola depends on oil exports for 95% of its revenue. An Angolan delegation arrived in Washington for talks earlier this week. On Monday, Moody’s said that the financial support provided by the IMF is expected to be US$500 million. That said, it’s not all bad. According to the latest OPEC report, Angola has overtaken Nigeria and the biggest producer in Africa.
Discovery & Development
• Premier Oil has launched production at its Solan field west of Shetland (Scotland) and is targeting 20,000 to 25,000 bpd for the second half of this year. It’s been a rough ride with Solan because the North Sea is expensive to produce. Last year, Premier had to lower Solan’s valuation by $385 million, and re-negotiate debt. Excitingly, the Solan field will use a subsea oil storage tank, which is a first. The subsea tank can hold 10,000 tons.
• Scottish Cairn Energy and partners had discovered more reserves offshore Senegal. We’re looking at three wells, which were initially estimated at 330 million barrels, and are now expected to hold 20% more. Cairn Energy holds a 40% working interest in three offshore blocks, while the partners include ConocoPhillips with, FAR Ltd and Senegal's National Oil Company Petrosen. Despite the news, shares in Cairn Energy fell as much as 4.6 per cent because some investors appear to have expected a larger increase.
Deals, Tenders, Mergers & Acquisitions
• Indonesian state-owned Pertamina has $2 billion to spend on mergers and acquisitions in the oil and gas patch this year. It will be eyeing Russia, Iraq, Saudi Arabia and the South China Sea. The goal here is to boost production by 14,000 bpd for 2016 and 117,000 bpd by 2017.
• Marathon Oil will sell off its Colorado and Wyoming assets. Dallas-based Merit Energy will scoop up assets in the Big Horn and Wind River basins in Wyoming for $870 million. The deal should close this summer. We’re looking about about 16,500 boe/d of production in first quarter of this year in these basins. Marathon will also sell $80 in natural gas assets in the Piceance basin in western Colorado. All told, Marathon will have sold $1.3 billion since last August once these sales go through.
• Iran has announced the launch of Iran-Shell talks on supplying oil to Shell’s refineries in South Africa. The National Iranian Oil Company (NIOC) said it will likely sell 100,000 bpd to Shell. NIOC says it has also had talks with BP and Petronas related to exporting oil to South Africa.
Regulations, Litigation & Bankruptcy
• Houston-based Energy XXI filed for bankruptcy protection after spending $5 billion on acquisitions in recent years. The company listed $1.8 billion in assets and $3.6 billion in debt and saying it has reached a restructuring agreement with noteholders. The company has operations in Louisiana, Texas and the Gulf of Mexico.
• As low oil prices eat away at dividends and worry investors, shareholders in BP have voted in protest at the company’s move to hand CEO Bob Dudley a 20 percent salary increase. The move didn’t go down well with shareholders, who are befuddled at a pay raise at a time when BP is reporting record losses and making tons of job cuts.
