Week in Review: February 27 – March 5

By Alexander Geysman

This week’s review looks at how European oil majors are cutting costs and selling their assets in sub-Saharan Africa, while the US oil sector is booming. Some topics never disappear from our discussions here at ENERPO, so we touch upon the Russian developments as well.

European Majors in downturn

French oil group Total announced Monday the sale of activities in Gabon to the French-British company Perenco, for 350 million dollars. The agreement includes the sale of the group’s 100 percent-owned affiliate Total Participation Petrolières Gabon, which holds interests in 10 fields and represent a production of 13,000 barrels per day. Arnaud Breuillac, president of Total Exploration & Production, said: “In a context of volatile Brent prices where reducing the breakeven of our operations is a top priority, this agreement demonstrates our ability to capture value through the disposal of mature assets while benefiting from the synergies generated by the transfer of operatorship.” Meanwhile, Eni is about to sell a multi-billion stake in its Mozambique operations. Eni needs strong financial and technical support in order to develop gas fields in Area 4 block off the coast of Mozambique and the LNG facility onshore. Eni holds 50 per cent in the Area 4 block. The other half is shared between CNPC of China, Galp Energia of Portugal, Kogas of South Korea and Empresa Nacional de Hidrocarbonetos of Mozambique. ExxonMobil is the presumed buyer as it already has exploration licences in the southeast African country. Another major, BP, is finally making profits again after the years of stagnation following the Deepwater Horizon accident. Profits are indeed small and the company’s debt rose dramatically during 2016. Brexit, though not even started, already promises new projects, devoted to ensure energy security of Ireland, by now up to 60% dependent on British gas supply.

More on the topic:

Tsvetana Paraskova. Total, Shell Sell Oil Assets In Gabon. OilPrice.com, February 27, 2017.

Andrew Ward. Eni poised to sell multi-bullion stake in Mozambique. March 1, 2017.

Heiko Yessajan. BP boekt magere winst in vierde kwartaal. Financieel Dagblad, February 7 2017.

Alissa de Carbonnel, Karolin Schaps and Susanna Twidale. EU readies cash to help Ireland cut energy dependence on Brexit Britain. Reuters, March 5th, 2017.

 Things are much better in the New World

The United States of America is not only an important oil buyer and consumer, but since recently also a big seller. Currently the amount of crude shipped out of the US is about 1.2 billion barrels a day, which is more than some of the OPEC states together (namely Algeria, Ecuador and Qatar). Reasons are: oversupply on local market, rebound in global oil prices resulting in revival in shale drilling, and maintenance works on major refineries in the Mexican Gulf, which decreased the demand by 1mb/d. One reason stays aside as it is not of seasonal nature: shipping costs. Now it is extremely cheap to rent a supertanker at the US coast, otherwise it is sailing back to the Middle East empty. If the country were to start exporting on a large scale, the only thing that can limit exports growth is indeed the record level of domestic demand.

More on the topic:

Andrew Meyer. Surging exports propel US to bigger impact on global oil market. Financial Times, February 28, 2017.

Matt Piotrowski. U.S. Shatters Record in Gasoline Consumption. Energy Fuse, February 28, 2017.

 

Gazprom and Rosneft

Both legs of Russian colossus have been successful this week. Rosneft wants to sell all of its assets in Chechen republic of Russia for as high as 12.5 billion rubles. Company possesses 51% in GrozNefteGaz, whose daily capacity is 300,000 barrels. Most likely the deal will be welcomed on all levels: Rosneft does not want to invest in Chechnya due to high institutional risks and local authorities, following the example set by Putin on a larger scale, want to get full control over the republic’s subsoil. Still unknown is who will finance the deal.

There might be light at the end of the tunnel in Gazprom’s battle with the EU concerning the financing plans of Nord Stream II and its de facto monopoly status. Gazprom will reveal a financing package for the $11bn gas pipeline to Germany by the end of this month as the Russian energy company seeks to draw a line under the cost of a series of political battles with European regulators.

More on the topic:

Olga Mordyushenko. Rosneft Evaluated its Assets in Chechnya. Kommersant, February 27, 2017

СМИ узнали о желании «Роснефти» продать активы в Чечне за 12,5 млрд руб. RBC, February 27, 2017.

Don Weinland. Gazprom close to revealing financing for $11bn pipeline. Financial Times, March 2, 2017.

 

Alexander Geysman is a student at ENERPO Program, European University at Saint Petersburg. He can be contacted via email ageysman@eu.spb.ru

Stories are weekly collected by the reporting team: Timothy Abraham, Alexander Geysman, Elisabeth Nguebana, Sophie Nguebana, Daniel Tsvetanov, Alberto Perego.

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