Clean Energy Acquisitions Pick Up

Deals, Mergers & Acquisitions

• US shale player Carrizo Oil & Gas is selling over to Callon Petroleum for a total of $3.2 billion, which includes $1.2 billion in stock and the rest in debt. This is a merger deal for Texas shale, specifically for the Permian Basin and Eagle Ford. The deal is expected to close in Q4. The merger will produce a company with around 200,000 net acres in both basins, with average production of around 100,000 boepd in Q1 2019.

• BlackRock has announced it will acquire a majority stake in a solar and storage solutions business, Distributed Solar Development, owned by the renewables arm of General Electric. GE Renewable Energy will retain a 20% interest in the new venture.

• If you’re looking for deals in the wind energy sector, look for those companies who haven’t been able to keep pace with market disruption. One of those is India-based wind turbine maker Suzlon Energy, which has failed to make principal payments on its bond issuance of $546.91 million. Rumor is now that it’s targeted for acquisition and that Canadian Brookfield Asset Management is planning a majority stake offer.

Discovery & Development

• We’ve just seen the first LNG freight derivatives trade using Baltic Exchange spot price assessments. This was brokered by Affinity Shipping between Total Gas & Power and trading giant Glencore. Why is this important? Because we’ve seen charter rates for tight vessels increase by four times and that has affected LNG spot trading. Essentially, those rates determine how LNG is transported. There is a significant amount of volatility with respect to freight rates. So this is the first we’re seeing that a brokerage is hedging forward price risks with freight derivatives.

• Output in Norway’s offshore Gudrun field will be extended with a $280-million water injection investment, courtesy of Equinor. Gudrun produces from seven wells, but production has been declining. The water injection will extend the life of the field for three additional years, to 2032. Equinor is the operator with a 36% stake; Neptune has 25%; OMV has 24%; and Repsol has 15%.

• A fire at the oldest refinery on the US East Coast will shut down its remaining units on Monday, following a fire on June 21st. Pennsylvania has no plans to bail out the aging refinery, saying that it cannot compete with newer, more efficient refineries. Crude supplies have been used up, and remaining crude shipments will be diverted elsewhere. The refinery is owned by Philadelphia Energy Solutions and handles 335,000 bpd. Some 1,000 workers are expected to be laid off.

• The conflict between Libya’s GNA and General Haftar has brought any prospect of Libya increasing oil output to a standstill--until one or the other sides fully control it. But the Tripoli-based NOC has a new trick up its sleeve: It’s going boost what’s available for export by converting a large power station to natural gas, freeing up 15,000 bpd for export.

• There’s been a lot moving Tesla stock this week. The EV giant’s move to cut Model 3 prices led to downward pressure earlier in the week because it signalled fear of slacking demand. But Tesla ended the week on a high note from Morgan Stanley, which all but decreed that Tesla would end up being the biggest EV supplier in China, and that production of the model three at Tesla’s Shanghai Gigafactory 3 would start as soon as November this year. It was a decidedly bullish verdict for Tesla.

Tenders, Auctions & Contracts

• McDermott International has sealed two big contracts with Saudi Aramco’s offshore Marjan project worth $4.5 billion. One deal worth $3 billion will see McDermott handle engineering, procurement, construction and installation of the Marjan offshore gas-oil separation plant. The second contract worth $1.5 billion will see McDermott provide the same for offshore gas facilities and pipelines. Engineering will launch in Q3 and completion is set for the end of 2022.

• Shell and Exxon are eyeing a return to Somalia ahead of an oil block auction scheduled for later this year, according to Somali official sources. This would mark the first interest by any supermajors since Somali descended into chaos in the 1990s. Shell and Exxon operated five offshore blocks here until the fall of dictator Mohamed Siad Barre. Shell has noted that it has accrued “rentals” to the government since then. Earlier this year, Somalia passed a new petroleum bill, and that has set the ball rolling again, with talks ostensibly taking place to revisit these old contracts. Somalia’s oil sector has been paralyzed by anarchy and terrorism for decades. And getting back in this game won’t be a cake walk. In many ways, though, Somalia is the last offshore frontier for oil. Only two exploration wells have been drilled offshore, and even those have been in the “nearshore” areas and not even 100 meters deep. There’s a ton of exploration and de-risking to do here.

• Colombian authorities are gearing up for a second oil and gas bid round that includes 50 blocks. At the first round in June, Colombia accepted bids from six companies for 10 oil contracts. The country expects to receive some $1.5 billion in oil investment over the coming months.

• The US Bureau of Ocean Energy Management (BOEM) is gearing up to offer 77.8 million acres in a region-wide lease sale that kicks off on August 21st. This auction (Lease Sale 253) includes all available unleased areas in the federal waters of the Gulf of Mexico. The auction will be live-streamed from New Orleans. There will be a total of 10 region-wide lease sales by BOEM in total, with two each year. The August 21st sale will include over 14,500 unleased blocks located between 3 and 231 miles offshore. Water depths range from 3 to 3,400 meters.

• Saudi Arabia is looking at licensing new stock market operators in what may be step 1 of transforming Tadawul into a private exchange, which has so far progressed at a glacial pace. When--or if--successful, Saudi is hoping the move may attract more foreign investment and shrink the country’s dependence on crude. Despite the Tadawul reforms, its ultimate diversification hopes lie in the Aramco IPO.

• India’s ministry of petroleum and natural gas has revealed awards for 32 blocks in the latest two exploration licensing rounds, with most of the takers domestic companies. State-owned Oil India Ltd picked twelve blocks followed by private resources major Vedanta Ltd with 10. A consortium of Reliance Industries Ltd and BP Plc were awarded one block. The authorities are hoping to attract more than $1 billion of investments in exploration and production blocks awarded under new rules.

• It’s not Ghana, but it’s garnering even less interest from the world’s supermajors: Israel’s offshore Mediterranean bidding saw only two groups throw their hat in the ring for exploration. One group includes British Cairn Energy, SOCO International and Israeli Ratio Oil. The second group is Energean and Israel Opportunity. There are 19 blocks available, and these two groups bid on 16 of those.

• BP and Reliance will spend $5 billion on three gas development projects in India’s Bay of Bengal, in the Krishna-Godavari basin, by 2022. The projects are aimed to help reverse the falling gas output from what was once the biggest gas-producing block in the country.

• The Russian government has allocated nearly 50 billion Russian rubles ($800 million) to construct liquefied natural gas (LNG) carriers for the Arctic LNG 2 project, expected to start in 2023. Russia, as a leading global producer and exporter of conventional natural gas, intends to grow its LNG potential amid the escalating pressure coming from Washington reflected in sanctions. Earlier this month, a consortium of Japanese companies has signed an agreement for a 10 percent interest in the Arctic LNG 2 project. The project envisages constructing three LNG trains at 6.6 million tons per annum each.

• Oman has launched a tender process for two independent power projects with a combined output of 1.1GW. Each will have a capacity of between 500MW and 600MW and are expected to be commissioned in 2022 and 2023, as Oman aims to add 5GW of solar capacity by the end of 2024.

• Canadian Solar has won a 51.1-MWp solar project in Brazil as the result of a tender process launched in late June. The company will build and install some 130,000 of its modules in the state of Minas Gerais to generate some 107,748 MWh of electricity per year. But keep your eye on this company: This is the Canadian-based, Chinese-owned company whose CEO was just replaced under mysterious circumstances that have kept hedge funds guessing as to what’s really going on. CEO Shawn Qu was replaced recently, with the company saying only that he was recovering in the hospital after an apparent car accident in Beijing. The lack of details makes investors very nervous.

Regulations & Compliance

• Italian Eni is trying to extricate itself from possible involvement in a shipment of Iraqi crude oil that may have contained Iranian crude. This week, Eni filed a fraud complaint against its former head of oil trading over the shipment. The former head of trading, Alessandro Des Dorides, is accused by Eni of misleading parties to the deal and holding the role in the deal of another, small trading firm, Napag. The incident goes back to May, when this crude shipment arrived at an Eni-owned refinery in Sicily. Eni rejected the shipment because the oil was not Iraqi Basra Light crude, as expected.

• The California Department of Conservation has ordered Chevron to take immediate action to stop the flow of an oil and water mixture of 19,000 barrels from its Kern County Cymric oilfield. The oil portion of the spilled mixture equates to about 5,700 barrels of oil, 90% of which has already been cleaned up. California has been trying to quash oil and gas, and that means Kern County--so, this incident is likely to provide more ammunition for industry opposition.

• Brazil’s Petrobras, after making a deal with a Brazilian antitrust regulator, has agreed to offload 27 stakes in natgas transportation and distribution companies, opening up competition in Brazil’s gas industry that has so far been stifled by Petrobras’ effective monopoly. This increased competition will come from interested parties looking to get their hands in Brazil’s energy sector, and could include Engie, Repsol, GALP, and others. Concerns remain about the current regulatory challenges that opening up the market would create, which Brazil has so far not had much need for.

• Pakistani authorities arrested former Prime Minister Shahid Khaqan Abbasi in a multimillion dollar case related to the award of a liquefied natural gas (LNG) import contract. Authorities are investigating Abbasi's role in the awarding of a contract to a liquefied natural gas company in Qatar in which Abbasi was a shareholder. He denies any wrongdoing and says the probe is driven by political victimization. Country’s anti-graft body was probing alleged corruption in the contract to import LNG from Qatar when Abbasi was a Minister in former Prime Minister Nawaz Sharif’s Cabinet. Sharif is in prison himself. Last year, he was handed a seven-year sentence for failing to account for his overseas assets.

• Russian authorities have arrested Dmitry Mazurov, former owner of the Antipinsky refinery, Russia’s largest independent oil refinery, in a case that is potentially about embezzlement. While prosecutors have not released specific charges, Russian media say Mazurov is accused of embezzling $600 million that had been allocated for refinery construction. In May, the refinery filed for bankruptcy--some $5.5 billion in debt--and a Sberbank JV acquired an 80% stake in the refinery.

• There is a dangerous nuclear debacle unfolding in the US state of Ohio. This week, the state managed to pass a budget to save two nuclear reactors after the owner threatened to close them down without financial support. The owner is FirstEnergy Solutions, and the utility is bankrupt. On Tuesday, the Ohio Senate approved a bill to subsidize nuclear, solar and coal power, while lowering monthly surcharges that would support clean-energy and renewable energy mandates. That would bail out FirstEnergy’s nuclear reactors. But on Wednesday, a vote on the bill in the House was delayed. If it passes the House, this corporate bailout program would end up charging utility customers hundreds of millions of dollars to subsidize the nuclear power plants. They’re likely to pass because of the threat by the owner to close them down without financial support.

Politics, Geopolitics & Conflict

• Unknown attackers have taken out a gas pipeline in Syria linking the al-Shaer gas field with Ebla Gas Factory in the eastern Homs area. The pipeline transports 2.5 million cubic meters of gas daily to Ebla Factory and onward to power plants.

• The US is sending additional troops to Saudi Arabia as tensions heat up between the US and Iran. However, this also comes as Trump taps Senator Rand Paul as US liaison for Iran, which suggests a softening in stance and a sign that Washington finally understands that this game has been misplayed. Oil prices fell 1% on the idea that the ongoing tensions with Iran may soon be over. That does not mean that tensions have ceased to simmer, especially with the Iranian seizure of a foreign oil tanker and its crew of 12 in the Persian Gulf. Iran initially said that it led the vessel into Iranian waters in order to assist it in distress; however, Iranian statements later said the vessel had been smuggling some 264,000 gallons of fuel to foreign customers. In other words, Iran claims that Iranian smugglers were using the vessel. How this is interpreted going forward will play further into the game of creating fear in global shipping lanes. This then led to the unclear drone incident, which intends to keep tensions high for a singular aim: To get back to the nuclear negotiating table. Both sides are after this, rather than conflict. Iran has offered come concessions to get back to the negotiating table as of late Thursday.

• A senior Turkish diplomat and an Iraqi civilian have been killed in Erbil, in the territory of the Kurdistan Regional Government (KRG) in northern Iraq. This was an assassination, and the motive remains unclear. .This is an unusual form of attack in Erbil, which by Iraqi standards is a relatively peaceful city. There were three gunmen who opened fire on the targets in a restaurant in the Kurdish capital. (We will continue to follow this with sources on the ground).

• Prepare for yet another phase in the Libya conflict, as rumors mount that the UAE is setting up a military base in neighboring Niger to more readily aid Haftar in his push to take over Tripoli. This conflict went external noticeably earlier this month with Turkey’s direct involvement in helping the GNA retake a key base from Haftar, south of Tripoli, and then Haftar responded by shooting down a Turkish drone and detaining a handful of Turkish sailors, while promising to target Turkish assets in the country. The natural response is for someone on the other side of this game to reach out in kind--to Haftar--to rebalance.

• Afghan military forces say they have freed two oil tanker trucks hijacked by the Taliban in an operation in the Chashma-e Sher area of Baghlan province. Five Taliban fighters were killed in the operation. There have been a number of similar incidents over the past few months in this province, with the Taliban intercepting tankers and demanding payments for safe transit. Oil tankers enter Afghanistan via the Hairatan port in Balkh and transport fuel onwards by truck to other provinces.

• An American-Israeli business has been accused of facilitating the sale of oil from the Kurdish-controlled area of Syria to the Israelis. But while denying the facilitation of those sales, he also noted that he was trying to keep this oil from getting into Iranian hands, while also decrying that he’s not on any side in this conflict. Each of these three things contradict the other. The middleman here, Moti Kahana, says he’s an American who does not serve Israel. The Syrian Kurds have also denied selling oil to the Israelis. If the Syrian Kurds can’t sell their oil to Iran, there aren’t many options because their only outlet is through Turkey, which is closed off to Kurds of any brand at this point. So, the only pathway is through the Iraqi Kurds and then on to Iran. In question are 11 oil wells that the Syrian Kurds control, which also represents the lion’s share of Syria’s oil production. This is how a middleman launches another phase of warfare--by selling that oil to the Israelis, which rather changes Israel’s role in this game.