Keystone kills bipartisan energy bill

• The Energy Savings and Industrial Competitiveness Act was proposed by Rob Portman, a Ohio Republican
• The bill had aimed to reduce energy needs and cut emissions by offering incentives for adopting energy-saving technology such as water heaters with smart meters
• More importantly, the bill had bipartisan support
• As the bill neared the vote, some Republicans tried to attach amendments to the bill to approve Keystone
• Harry Reid (Democrat), Senate Majority Leader, refused the amendment and the amendment's supporters retaliated by blocking the main bill
• TransCanada submitted plans for Keystone six years ago for the US to review
• The pipeline was proposed as a conduit connecting Alberta's oil sands with US Gulf Coast refiners
• TransCanada's Energy East project which would export the oil sands crude to the Atlantic Coast (New Brunswick) may be an easier option as US approval would not be required
• Proponents argue that exporting from the east coast is a valuable option with access to the growing Indian markets and the crude would also support Canadian jobs by supplying refineries in Eastern Canada
• It is also clear that the US no longer needs Canadian crude to help achieve energy independence, a big change since the Keystone plans were submitted

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Statoil divests its 5% WI in 15/06 Angola to Sonangol

• Statoil announced on 12 May 2014 that it is divesting its 5% WI in Eni-operated Block 15/06 to Sonangol for USD200m
• Statoil's remaining licences in Angola are Blocks 17, 15, 31, 4/05, 22 (pre-salt), 25 (pre-salt) and  40 (pre-salt)
• Statoil is also operator of pre-salt Blocks 38 and 39
• In April 2014, Statoil also farmed down a 15% WI in Block 39 to WRG, a 50/50 JV between White Rose and Genel. Post transaction, interests will be Statoil (40%), Sonangol (30%), Total (15%) and WRG (15%)
• WRG also acquired, concomitantly, a 15% WI in Block 38 from China Sonangol. Post transaction, interests will be Statoil (55%), Sonangol (30%) and WRG (15%)
• Exploration on Blocks 38 and 39 will commence during 2014 with the first prospect
• Dilolo-1 is the first high-impact prospect that will be drilled on Block 39; this will be followed by the second commitment well on Block 38
• Angola is Statoil's largest contributor to production outside of Norway with 2013 production of c.200mboepd, c.28% of total international output

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Egypt: the gas conundrum

• LNG exports have dwindled as domestic consumption has increased and upstream production has declined, primarily driven by the decline in the mature offshore fields in the Nile Delta which account for the majority of Egypt’s gas production
• The declines have been exacerbated by the IOCs moderating capex due to increased political uncertainty and build-up of outstanding payments from the Government
• Increasing investment in growing gas production is critical but unattractive fiscal terms have discouraged investment
• Although in 2010, BP and RWE secured better fiscal terms for the North Alexandria gas development (60%, 40% WI respectively) with a revised gas pricing structure incorporating a floor of USD3/mmbtu and ceiling of USD4.1/mmbtu
• Egypt has now become an LNG importer with an estimated USD1bn of imports estimated to be required to satisfy summer demand in 2014
• In October 2013, Egypt issued a tender for a floating regas terminal and this was awarded to Norwegian firm Hoegh LNG – however, the contract was not finalised as the financial guarantees offered by EGAS to underpin the project were not acceptable
• Aid has provided temporary relief for Egypt, but subsidy reform will form an important part of a longer term solution. However, any newly elected government will be unlikely to instigate radical subsidy cutbacks due to avoid increasing social unrest
• Aid packages includes:
• Qatar offered five LNG cargoes as a gift through the summer months of July-September 2013
• Saudi Arabia has announced a USD5bn package before the Egyptian elections on 26-27 May
• Egypt is currently receiving USD700m in petroleum aid every month from Arab countries

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Tunisia E&P activity to slow amidst increased regulatory scrutiny

• Tunisia's new constitution, passed in January 2014, includes Article 13 which requires natural resource agreements to be ratified by the National Constituent Assembly rather than the Industry Minister
• Proponents of Article 13 include President Marzouki's party, and is part of a trend towards growing scrutiny of decision making in the country's upstream sector
• This will add a new layer of approvals for investments, extension of permitting timelines and routine permission held back
• Tunisia's upstream industry is characterised by a large number of smaller companies and independents, often working in consortia - these are often reliant on farm-in and farm-out activity to manage exposure and costs
• These companies may be deterred from entering the country if permitting delays become worse and proposals for regulatory/contract reviews go ahead
• A number of approvals are currently outstanding including:
• EnQuest/PA in Didon and Zarat permits
• Extension of Sonde's Joint Oil licence
• ADX/Gulfsands asset transfer
• Cygam sale of Sud Tozour to YNG

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Further Kashagan delays

• Discovered in 2000; project partners are Eni, Total, Shell, XOM (each with 16.8%), KMG (16.9%), CNPC (8.3%), INPEX (7.6%)
• USD50bn spent on Phae 1; production originally expected to start in 2006 but has been plagued by delays and cost overruns
• Production commenced in September 2013, but subsequently shut down due to leaks of hydrogen sulphide from the extensive gas network
• Kazakhstan environment ministry will fine the Kashagan companies USD735m for burning gas emptied from the pipeline - the companies have said they will appeal the fine
• Production not expected to resume until end 2015/early 2016 as much of the pipeline network will need to be replaced due to corrosion
• Phase 1 proven reserves estimated at 3.3bnboe (c.80% oil). Including future phases, total recoverable estimates of 9-13bnboe
• Kashagan partners have said they will need extension to to PSC (expiring 2041) to warrant further investment to lift production to >1mmboepd - Phase 1 production is expected to be at c.450mboepd

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Cobalt makes Orca discovery in Kwanza Basin

• Cobalt has 40% WI in Blocks 9, 20 and 21 offshore Angola
• In the company's Q1 results (1 May 2014), Cobalt announced that it had successfully tested the Orca-1 well which flowed at a constrained rate of 3,700bopd + 460mcmpd
• Orca-1 lies in Block 20 and is the largest discovery to date in the Kwanza Basin; Orca is estimated to hold 400-700mmboe
• On Block 21, Cobalt recently began drilling the Cameia-3 well with the field expected to reach first oil in 2017
• The Cameia-1 discovery was drilled made in 2012 and the Cameia-2 appraisal was drilled in 2013
• On Block 9, Cobalt has received a two-year extension where it plans to drill the Loengo-1 exploration well after Cameia-3

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Libya plans "smart cards" to stop fuel smuggling

• Gaddafi introduced subsidies on items from fuel to bread and airline tickets to discourage opposition
• The subsidies, together with public salaries take up more than half of the national budget
• Citizens have been subsidised buying fuel and smuggling into Tunisia for resale at higher prices
• With shutdown of oil fields and ports since mid-2013, crude export revenues are drying up and the government is proposing a fuel card system to parliament that will limit the amount of subsidised fuel that can be bought
• Egypt has recently implemented such a fuel card system

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