Politics, Geopolitics & Conflict

– Clashes have broken out between Syrian Kurds and Turkish forces today, disrupting a shaky ceasefire that Trump announced as a victory yesterday, and as permanent. That announcement also came with the lifting of US sanctions against Turkey for its incursion into Syria. Russian military police deployed in the northeast border town of Kobane on Thursday under a deal with Turkey to drive out Kurdish fighters. After having stepped aside and announced a mass withdrawal from Syria to allow the Turks to pour across the border and attack the Kurds, US foreign policy is now confused at best. Late yesterday, talk again arose of a US rethink that may see tanks and heavy equipment deployed to keep the area’s oilfields from falling into the hands of Assad (and Russia) or ISIS. This is not, at this point, realistic: As soon as the US stepped aside and betrayed the Kurds who have controlled this oil, it was destined to go back to Assad. This will be a highly dynamic flashpoint in the coming weeks and months, particularly if foreign policy out of Washington continues to waiver and backpedal.

– BP and Eni have decided to postpone further oil exploration in Libya as the security situation worsens. The project being postponed – rather indefinitely for now – is a sizable one that included 3 major exploration blocks. It is a blow to Libya, which has tried and mostly failed so far, to attract foreign oil companies to develop its significant oil riches amongst the chaos. Libya is also wooing Suncor and Equinor, but no formal agreement to bring in these foreign oil companies has been reached.

Market Movers

– Union strikes at Brazil’s state-run Petrobras are scheduled for Saturday, as workers from 17 unions unite to protest the company’s suggested wage increase. Workers fear the proposed wage increase will come in lower than the estimated inflation rate, which fell to 2.89% in September. Right-wing Brazilian President Jair Bolsonaro is known for his anti-union sentiment. He’s moved to lower the country’s minimum wage and has spoken out against unions in general. The strike comes just weeks before what is expected to be Brazil’s largest oil auction, with Petrobras expected to be the recipient of payouts from winning bidders who must agree with the state-run oil giant on a payment schedule to compensate it for the work it has done already to the areas that will be auctioned off. The payments are expected to total as much as $45 billion.

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– Rosneft has officially made the switch to euros instead of dollars for its oil contracts in order to steer clear of US sanctions. But while the dollar is unattractive at this time for Russia, euros aren’t a magic bullet due to their negative interest rates. Russia is now faced with more sanctions on top of those related to actions in Ukraine, this time for its dealings with sanctioned Venezuela. Russia is one of Venezuela’s only oil buyers, and it is not only purchasing Venezuelan crude but is reselling some of that oil to India, who then gets the benefit of Venezuelan crude without risking response from Washington. For the dollar, Rosneft’s switch to euros, if complete as it contends, could affect $89 billion in annual oil and oil product exports. But it is not expected to have a significant impact on the dollar in the long run. Meanwhile, rumors are still circulating about Rosneft’s planned takeover of PDVSA in exchange for wiping the slate clean for Venezuela’s debt. Both PDVSA and Rosneft have denied the allegations.

Deals, Mergers & Acquisitions

– Michigan-based DTE Energy has purchased a Louisiana pipeline and natural gas gathering system from Houston-based Momentum Midstream and Indigo Natural Resources for $2.25 billion. The gathering system will also include a 150-mile pipeline under construction and to be serviced by the second half of 2020. The deal will enhance DTE’s subsidiary DTE Midstream’s access to Gulf Coast markets. DTE Energy has previously said that it plans to invest up to $5 billion in the Midstream business from 2019 through 2023.

– Italian Eni has acquired Edison’s 70% stake in Egypt’s Block 12 of the offshore Habi gas concession in the eastern Mediterranean. This adds to Eni’s huge footprint offshore Egypt, where it made the Zohr field discovery–the largest ever in the Mediterranean Sea. As of August, Zohr had reached production of 2.7 bcfd and is producing ahead of plans.

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– Russia this week sealed a number of energy deals with Africa. Rosatom is currently in talks with Ethiopia to build a nuclear power station, while Russia’s VEB and Russian export center signed two deals: one, an investment deal on an oil product pipeline in the Republic of Congo, and two, an MOU with Morocco MYA Energy to refinance a Moroccan refinery. Russia’s Rosegeo exploration signed a deal with Equatorial Guinea, South Sudan, and Rwanda to explore oil and gas reserves. The deals increase Russia’s footprint in Africa.

– Walmart has signed two virtual renewable power purchase agreements (VPPAs) with Engie US Wind that would build more than 366MW worth of wind projects across different US energy markets. The deal is part of Walmart’s plan of powering half of its operations using renewable energy by the end of 2025. In May, the company reported that 28% of its electricity needs were supplied by renewable sources.

Discovery & Development

– BP is working on potential revolutionary technology that could help solve one of crude oil’s long list of pressing environmental problems – the environmental toll that plastic PET containers have on the earth. The technology, if successful, would allow PET containers to be recycled repeatedly, unlike the current practice of landfilling the material after first use, or at most, one recycle per container before landfilling. The current amount of PET in use each year is 27 million tons – 23 million tons of which are bottles. BP will build a prototype plant at a cost of $25 million to test the viability of the project, which it calls BP Infinia.

– A new company, Qilak LNG, plans to partner with Exxon to ship LNG from Alaska’s North Slope to Asian markets on ice-breaking tankers. The company’s CEO is former Republican Alaska Lt. Governor Mead Treadwell. Qilak’s management said that its project would be much cheaper than the proposed Alaska LNG pipeline project.

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– Nigerian Agip Oil, owned by Italian ENI, has announced a shut-in at its Aggah oilfield following pipeline leakage to forestall further damage to the environment. The authorities are still investigating the cause of a damaged pipeline and possible volume of leaked crude oil.

Legal & Regulatory Alerts

– Maduro isn’t getting his hands on Citgo via creditors just yet. Yesterday, the US Treasury blocked the seizure by creditors of the refiner, allowing Venezuelan opposition forces to maintain control–for the time being–of the refinery subsidiary of state-run PDVSA. The Treasury ruled that no transfers for sales of Citgo shares linked to PDVSA could take place prior to January 22nd.

Q3 Earnings

– Schlumberger (NYSE: SLB): While Schlumberger beat analyst estimates of $0.40 per share, coming in at $0.43, it’s not all roses, and is down from $0.46 this time last year. Russia and Australia were a boost for sales, but SLB saw a slowdown in Argentina and depressed prices in North America, where it saw more conservative capital spending by customers in this region.

– Halliburton (NYSE: HAL): HAL’s net income was as expected, at $0.34 per share. North America’s activity in Q3 declined, but its international activity is strong, and it is expected that customers outside North America will boost their spending.

– CNOOC Ltd: Chinese state-run CNOOC reported a 27.9% jump in capital spending in Q3 to $2.76 billion as China moves to increase oil and gas exploration and production in order to keep up with demand. CNOOC’s Q3 production was 100 million barrels, with nat gas production coming in at 143 billion cubic feet. This is up from 91 million barrels and 132 billion cubic feet in the same quarter last year. Still, its sales revenue was up just 0.8% due to lower oil and gas prices, which were $60.89 per barrel in Q3–a 15% drop year over year, and nat gas prices down 8.8%.