Iranian sanctions supports Chinese cause for the Petro-Yuan

Iran is not short of heavyweight supporters following the decision to re-impose strong sanctions on the country by the US. Although Europe works to salvage what it can of the JCPOA, most likely going down the ex-US route, President Trump’s decision on 12 May will still likely cause a retrenchment of European investment into Iran given the far reaching implications for any company (US or not) with a connection to the country.

The Chinese and Indians see the sanctions as a massive opportunity to strengthen ties with Iran. Both countries had negotiated waivers under previous sanctions under a US diplomatic push. However, with trade tensions now in the mix, especially between the US and China, the latter could use this opportunity to secure additional oil supplies from Iran at improved pricing – an economic decision, but also to send a message to the US. Indian refiners have also agreed to double imports to 500,000 bopd under improved terms.

In April, China (re)launched its long awaited Petro-Yuan – Yuan priced oil futures. An experiment which China tried before and abysmally failed when retail punters had so much sway on volumes and caused such volatility in pricing, that the government had to step in and close it down. The story is different this time as the Petro-Yuan hopes to attract serious institutional traders. Iran should also be on board, having stated a desire to settle its trade in currencies outside of the US Dollar.

As a result, the sanctions may not have the full intended effect of fully taking Iranian crude off the market, especially if it can find willing buyers in the likes of India and China for its oil. The current oil price highs, hitting USD80/bbl on 17^th May, may be short lived as the markets have priced in foamy speculation and geopolitical risk, and not looked beyond alternative buyers for Iranian oil or the ability of the other OPEC members to step up and compensate for any lost Iranian barrels.

Iran currently exports c.2mmbopd. The members to the JCPOA, the P5 + 1, comprises China, France, UK, USA, Russia plus Germany

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Total to pull out of Iranian mega gas project if sanction waivers not granted

Total has warned that it will pull out of the giant South Pars development offshore Iran if it is unable to secure sanction waivers. The imposition of sanctions would be crippling for Total as it would completely lock it out of any US related activity including the ability to access the capital markets.

Should Total pull out, partner CNPC will take over Total’s 50.1% stake and operatorship of the project under a previous agreement which was entered with the foresight that Iranian sanctions may be re-imposed.

Source: Al Jazeera

Full press release from Total:

Paris - On 4 July 2017, Total, together with the other partner Petrochina, executed the contract related to the South Pars 11 (SP11) project, in full compliance with UN resolutions and US, EU and French legislation applicable at the time. SP11 is a gas development project dedicated to the supply of domestic gas to the domestic Iranian market and for which Total has voluntarily implemented an IRGC-free policy (Islamic Revolutionary Guard Corps) for all contractors participating in the project, thereby contributing to the international policy to restrain the field of influence of the IRGC. 

On 8 May 2018, President Donald Trump announced the United States’ decision to withdraw from the JCPOA and to reinstate the US sanctions that were in force before the JCPOA’s implementation, subject to certain wind down periods. 

As a consequence and as already explained before, Total will not be in a position to continue the SP11 project and will have to unwind all related operations before 4 November 2018 unless Total is granted a specific project waiver by the US authorities with the support of the French and European authorities. This project waiver should include protection of the Company from any secondary sanction as per US legislation.

Total has always been clear that it cannot afford to be exposed to any secondary sanction, which might include the loss of financing in dollars by US banks for its worldwide operations (US banks are involved in more than 90% of Total’s financing operations), the loss of its US shareholders (US shareholders represent more than 30% of Total’s shareholding) or the inability to continue its US operations (US assets represent more than 10 billion dollars of capital employed).

In these circumstances, Total will not take any further commitment related to the SP11 project and, in accordance with its contractual commitments vis à vis the Iranian authorities, is engaging with the French and US authorities to examine the possibility of a project waiver.

Total confirms that its actual spending to date with respect to the SP11 contract is less than 40 million euros in Group share. Furthermore, considering the various growth opportunities which have been captured by Total in recent months, Total confirms that a withdrawal from SP11 would not impact its production growth target of 5% CAGR between 2016 and 2022.

Original link: https://www.total.com/en/media/news/press-releases/us-withdrawal-jcpoa-totals-position-related-south-pars-11-project-iran

South Pars development scheme

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Tullow: An African update

Tullow provided a trading update today which gives an overview on progress across a selection of Africa's key fields and developments.

Ghana

• Production in Q1 2018 at Jubilee averaged 63.8 mbopd - there were 19 days of shut-ins throughout the period. An updated shut-in/maintenance schedule plans for three weeks of downtime in May and one week at year end for a total of 47 days. Tullow’s production is insured at c.USD60/bbl, but with Brent to date hovering above USD70/bbl the company is incentivised to minimise down time.

• TEN production performed strongly at 68.6b mbbl/d.

Equatorial Guinea

• Ceiba and Okume in Equatorial Guinea performed "particularly well".

• These fields are under new ownership with Kosmos and Trident Energy's entry in October 2017, acquiring Hess' stake for USD650 million.

Uganda

• FID on Lake Albert is now expected in H2 2018 and the JV continues to await approval of the farm-out to CNOOC and TOTAL.

Kenya

• The appraisal campaign continues to be positive with the project slowly moving forward.

• The FEED contract is expected to be awarded imminently, and trucking for the Early Oil Production Scheme is scheduled to commence in the coming months.

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Oryx farms down Congo asset: Haute Mer B

Oryx has entered into a farmout agreement with Total for its 30% interest in the Haute Mer B exploration licence offshore Congo (Brazzaville) for a cash consideration of USD8 million. Total has an existing 34.6% alongside Chevron (20.4%) and SNPC (15%).

The farmout is effective from 1st January - Total will reimburse for any costs incurred year-to-date, estimated to be c.USD5 million. The deal is anticipated to close before the end of June and is subject to the waiver of partner pre-emptive rights and government approval.

Two prospects and eight leads have been identified on Haute Mer B with unrisked prospective resources of 160mmbbl.
Oryx's remaining asset offshore Congo is a 20% participating interest in Haute Mer A, which is a deepwater exploration licence operated by CNOOC (45%). The other partners are CPC (20%) and SNPC (15%).

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SDX makes a play opening discovery in Morocco – Lalla Mimouna

SDX has made a gas discovery in Morocco at the LNB-1 well on its Lalla Mimouna licence.

The well successfully drilled into two targets:

• Lafkerena (deeper)
• Upper Dlalha (shallower)

The well is being completed as a producer in the Upper Dlalha and the deeper Lafkerena is being suspended until the appropriate equipment can be mobilised.

The Lafkerena target is significantly larger than previously encountered on the nearby Sebou licence. Management estimate unrisked mid-case volumes of 10.2bcf of gas and 55,000bbl of condensates.

Full press release below:

SDX Energy Inc. the North Africa focused oil and gas company, is pleased to announce that a conventional natural gas discovery has been made at its LNB-1 exploration well on the Lalla Mimouna permit in Morocco (SDX 75 %).

The LNB-1 well was drilled to a total depth of 1861 meters. The primary target was in the Lafkerena sequence, where 300 meters of gas bearing horizons were encountered in a significantly over-pressured section. The mudlog obtained through the section showed elevated gas readings of more than 20% with multiple sections above 50%. This section could not be logged using conventional methods due to hole conditions.

The gas shows in this section contained heavier hydrocarbon components throughout, which is indicative of a thermogenic hydrocarbon source rock. These types of shows have not been seen to date in other parts of the basin and indicate that a new petroleum system has been encountered in this area. Based on the mudlog shows, reservoir quality information from the formation cuttings, analogue fields (outside the Gharb basin), and the size of the feature as currently mapped, a preliminary recoverable gas volume has been estimated by management. This results in an un-risked mid-case volume of 10.2 Bscf of conventional natural gas and 55 thousand barrels of condensate. This is significantly larger than the traps typically encountered in Sebou and would exceed the size required to justify development and connection to the existing infrastructure in the Sebou area.

Additionally in the secondary target, the Upper Dlalha, 2.6 meters of net conventional natural gas pay sands were encountered with average porosity in the pay section of 33%. This pay section is similar to the Guebbas targets, from which SDX successfully produces on the Sebou permit.

The well is now being completed as a conventional gas producer in the Upper Dlalha with the deeper Lafkerena section being suspended until the appropriate equipment can be mobilized, to test and produce from this over-pressured section. The timetable to test this section has not been finalized and will be the subject of a future update.

The drilling rig will now move to the LMS-1 exploration well in the Lalla Mimouna Nord permit, which will be the last well of the current drilling campaign.

Paul Welch, President and CEO of SDX, commented:

“We are very excited about the results of this exploration well. It was a higher risk exploration prospect than previous drilling in Sebou, as it was a sequence that had not been previously penetrated in a similar structural location. We had anticipated a higher-pressure section, based upon offset drilling in the area, but the actual pressures encountered, the thickness of the section, and the type and amount of shows significantly exceeded our expectations.”

“We are currently in the early planning phases of determining how best to complete and test this

section. The estimated volume potential is very encouraging and I look forward to updating the market further on our activities in due course. Meanwhile, we have one more exploration well to drill on the permit in this campaign and I am looking forward to some more positive results based upon our success in LNB-1.”

Source: http://www.sdxenergy.com/~/media/Files/S/Seadragon-Corp/press-release/press-release-2018/20180420_SDX%20Press%20Release.pdf

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Kurdistan E&Ps get paid for January sales

Genel has announced that the Tawke and Taq Taq partners have received payment from the KRG for January oil sales.

• The Tawke partners (DNO 75% and Genel 25%) have received USD56 million and will also share in a USD13 million overriding payment

• The Taq Taq partners partners received USD8 million this month

The continuing payments by the KRG is constructive for sentiment and critical in bringing interest and investment back into the region. Many E&Ps have held off investing in the country with payments being a big concern. While the continuing payments are clearly positive, questions remain on the longer term ability of the KRG to pay producers given loss of crucial income following the referendum with the taking back of the Kirkuk area by Baghdad. For now the KRG is managing, largely with the help of investment/cash injection by Rosneft at the end of large year.

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SDX has made a gas discovery on its South Disouq licence

SDX made a gas discovery with the Ibn Yunus-1X well on its South Disouq licence. The well is planned to be tied into nearby infrastructure being constructed to commercialise the original gas on the block (SD-1X). First gas on the licence, which will now be from both wells, is targeted for H2 2018.

SDX has a 55% operated stake in the licence, having farmed out 45% to IPR in February 2015. SDX made the SD-1X discovery in 2017 which tested successfully and now being developed through an Early Production System. The gas price is understood to be under negotiation which could be above the country’s historical domestic price of USD2.65/mmbtu.

Further exploration on the licence is now planned targeting the estimated 1.3tcf of resource potential (P10).

Press announcement

SDX Energy Inc. (TSXV, AIM: SDX), the North Africa focused oil and gas company, is pleased to announce
that a gas discovery has been made at its Ibn Yunus-1X exploration well at South Disouq, Egypt (SDX 55%
working interest and operator).

The Ibn Yunus-1X well was drilled to a total depth of 9068 feet and encountered 100.8 feet of net
conventional natural gas pay in the Abu Madi horizon, which had an average porosity in the pay section of 28.5%. The well came in on prognosis but with a reservoir section that was of better quality and thicker than pre-drill expectations.

The well will be completed as a producer in the Abu Madi section and then tested after the drilling rig has moved off location. The testing is anticipated to commence between 30 and 45 days after the rig departs, depending on the availability of testing equipment. After a successful test, it is anticipated that the well will be connected to the infrastructure located adjacent to the original SDX discovery in the basin, SD-1X, where production start-up is anticipated in the second half of 2018.

Paul Welch, President and CEO of SDX, commented:
“We are extremely encouraged with today’s discovery, our second consecutive discovery at South Disouq.

This highly positive drilling result further demonstrates the very significant natural gas potential the
licence holds. Combined, these two successful wells confirm our views of the subsurface geology and
demonstrate that we are on course to realise the full potential of the licence. We look forward to updating shareholders on future developments at South Disouq in due course.” 

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