Mexico awarded 10 of the 15 oil and gas offshore blocks it tendered this week, with the results of the tender exceeding expectations amid increasingly weak oil prices. Winners included Italy’s Eni, Shell, Total, Spanish Repsol, Lukoil, and Ecopetrol, as well as local major Pemex.
The Italian oil and gas giant was the biggest winner, securing licenses for the development of three blocks, two of them in partnership with a Mexican independent, Citla Energy, and one together with a unit of Cairn Energy. Colombia’s Ecopetrol won the licenses to two blocks, in partnership with Pemex on one, and with Malaysian Petronas on another. Shell and Total jointly won the license for another block, and Russian Lukoil was awarded one block. Repsol was awarded a block in partnership with Mexican Sierra Oil & Gas, while Pemex partnered on another block with German DEA Deutsche Erdoel.
According to Mexico’s Energy Minister, the combined output from the blocks could reach 170,000 bpd. Mexico’s total for this year is planned at 1.944 million bpd. Crude oil production in the country has been falling steadily over the last 12 years due to falling investments and depleting fields. Without any new significant finds, Mexico’s current reserves would only last for 9 years, according to the local oil and gas regulator, which makes new tenders rather urgent.
Because of its rather precarious situation with oil reserves, Mexico has been unwilling to join OPEC’s efforts to prop up falling…
Mexico awarded 10 of the 15 oil and gas offshore blocks it tendered this week, with the results of the tender exceeding expectations amid increasingly weak oil prices. Winners included Italy’s Eni, Shell, Total, Spanish Repsol, Lukoil, and Ecopetrol, as well as local major Pemex.
The Italian oil and gas giant was the biggest winner, securing licenses for the development of three blocks, two of them in partnership with a Mexican independent, Citla Energy, and one together with a unit of Cairn Energy. Colombia’s Ecopetrol won the licenses to two blocks, in partnership with Pemex on one, and with Malaysian Petronas on another. Shell and Total jointly won the license for another block, and Russian Lukoil was awarded one block. Repsol was awarded a block in partnership with Mexican Sierra Oil & Gas, while Pemex partnered on another block with German DEA Deutsche Erdoel.
According to Mexico’s Energy Minister, the combined output from the blocks could reach 170,000 bpd. Mexico’s total for this year is planned at 1.944 million bpd. Crude oil production in the country has been falling steadily over the last 12 years due to falling investments and depleting fields. Without any new significant finds, Mexico’s current reserves would only last for 9 years, according to the local oil and gas regulator, which makes new tenders rather urgent.
Because of its rather precarious situation with oil reserves, Mexico has been unwilling to join OPEC’s efforts to prop up falling international oil prices although it did hail them. This makes the outcome from this latest tender all the more important, suggesting international and state oil companies still have appetite for investment despite the falling prices. Total investments in the ten blocks could reach $8.2 billion throughout their productive lives.
Deals, Mergers & Acquisitions
• Occidental Petroleum is selling non-core assets in the Permian, hoping to pocket some $600 million. The land for sale is 13,000 acres. At the same time, Occidental will increase its core acreage in the star basin, including raising its interest in a CO2 enhanced oil recovery project. The value of the EOR deal is also $600 million, and the seller is Hess.
• EQT Corp. has agreed to buy the Marcellus shale gas assets of Rice Energy for $6.7 billion. This will make EQT the largest natural gas producers in the U.S. The cash-and-share deal also includes EQT assuming some $1.5 billion of Rice Energy’s net debt plus preferred shares. Over the first quarter of this year, the combined gas output of EQT and Rice Energy stood at 3.1 billion cubic ft. daily.
• Australia’s Woodside Petroleum announced that the Energy Minister of Senegal has confirmed its right to operatorship of the SNE offshore oil and gas project, after it bought a 35% interest in the project from previous operator ConocoPhillips. Another shareholder in the project, FAR Ltd., had contested Woodside’s rights to assume operatorship, arguing it should have had pre-emptive rights to the purchase of the Conoco stake.
Tenders, Auctions & Contracts
• Eni and the National Iranian Oil Company signed a preliminary agreement for feasibility studies at two fields – the Kish gas field and the third phase of the Darkhovin oil field. The Italian company has six months to present the results of the feasibility studies. The Kish field has reserves estimated at 66 trillion cubic ft. of natural gas, which makes it the fifth-largest offshore gas field in the world. The Darkhovin field is estimated to have in-place reserves of more than 5 billion barrels of crude.
• The tender for Iran’s giant Azadegan field has been delayed for several months to give interested companies enough time to study the deposit. Azadegan, which Iran shares with Iraq, holds some 37 billion barrels of oil on the Iranian side. The tender was first launched at the end of May but no results from it were announced. The bidders for the field’s development include Japan’s Inpex, French Total, and Malaysia’s state-owned energy major Petronas.
Discovery & Development
• BP and Reliance Industries will jointly invest $6 billion in the development of new offshore gas fields that will cut India’s reliance on imports by a tenth. As part of their deal, Reliance and BP will also cooperate on fuel trading, as well as carbon emissions trading.
• Exxon, Hess Corp., and CNOOC will pour $4.4 billion into the development of their jointly operated Liza oil field off the coast of Guyana. A senior Exxon executive noted the field’s low production costs, which determined the company’s and its partners’ decision to accelerate its development. The first phase of Liza will see daily production of 120,000 barrels starting in 2020. This phase will unlock 450 million barrels in oil reserves from 17 wells.
• French Total has committed $1 billion to the development of the giant South Pars gas field offshore Iran after Washington extended a sanctions waiver that had made the French major delay its decision on the project. South Pars is now awaiting its 11th phase of development that has been estimated to cost a total of $5 billion, although Total’s estimate puts the price tag at below $3 billion. It is the biggest Iranian gas field, with reserves of 14 trillion cu m of gas, accounting for 40% of the country’s gas reserves, and 7.5% of the global total.
• Exxon, in partnership with Synthetic Genomics, has announced a breakthrough in a project for extracting oil from algae. Algae are considered a theoretically viable source of biofuel but extracting sufficient amounts of oil without limiting their growth has proved to be a challenge. Now, according to the two companies, this challenge has been overcome: Synthetic Genomics has managed to boost the oil content of a species of algae to over 40% from 20% without affecting its growth rate, which makes it potentially viable commercially.
• Nigeria plans to export more than 2 million bpd of oil in August thanks to the reopening of the Forcados terminal and also due to delays in July loadings of Nigeria’s three main blends. At 2.02 million bpd, August loadings will be the highest since March last year and are bound to weigh on crude oil prices internationally.
Regulatory Updates
• A group of 11 large companies, among them Exxon, BP, Shell, and Total, have declared their support for a proposal to impose a carbon tax on U.S. businesses as a means of combating climate change. The group, which also has backing from prominent figures such as Stephen Hawking, Michael Bloomberg, and Walmart’s Rob Walton, joined the Climate Leadership Council, set up in February this year, as founding members.
• The U.S. Supreme Court upheld a New York court decision to not impose a fine of $8.6 billion on Chevron following allegations of oil pollution in Ecuador. The plaintiffs in the case, a group of Ecuadorian villagers, were represented by attorney Steven Donziger, who was found by the appeals court to have engaged, with his team, in a “parade of corrupt actions”, including offering half a million dollars to an Ecuadorian judge to present a ghostwritten opinion as his own. After the New York court ruled in favor of Chevron, Donziger took the case to an Ecuadorian court, which in turn ordered Chevron to pay up. The company then appealed the ruling at the Supreme Court.
Politics, Geopolitics & Conflict
• Saudi Arabia’s King Salman has named his son Mohammed bin Salman as the Crown Prince, replacing his nephew Mohammed bin Nayef. The move reverberated around the world as it overturns the traditional succession process of the Saudi royal family. Mohammed bin Salman is already the second most powerful man in Saudi politics, the driver behind the Vision 2030 economic diversification program and also the spearhead of the Saudi-led military intervention in neighbor Yemen.
• Ethiopia’s Oromia state is planning to set up a private oil company as part of efforts to stabilize the political environment – the state has seen a string of anti-government protests over the last two years. The company, Oromia Petroleum Share Co., will compete with state-owned National Oil Ethiopia.
• Papua New Guinea will hold general elections over the next two weeks with expectations that the incumbent PM, Peter O’Neill, will keep his seat. Securing a parliamentary majority for his party, however, is uncertain. This could deepen the volatility of the gas-rich country further – volatility caused by excessive government spending and dangerously low foreign exchange reserves.
• A U.S. Senate bill on the extension of anti-Russian sanctions has sparked anger in Germany and Austria, as it targets, among other things, the Nord Stream 2 project, in which German and Austrian energy firms hold significant interests.
• The Philippines, Malaysia, and Indonesia have joined forces to fight back against rising militant activity in the three countries from a group affiliated with the Islamic State. The three neighbors said they will work together to stop the movement of militants, the flow of weapons, and the spread of extremist propaganda in the region.
