One of the largest share this year offering has just gotten bigger.  Petrobras, the giant Brazilian deep water supremo, has just increased its share offering to $ 79 billion (dwarfing AgBank’s IPO earlier this year by 3 and half times) – this is on the back for the Government – Petrobras Oil for share deal.  The FT asks what is going on ?

There are three theories: the first, a pessimistic one in that share offering demand is low and Petrobras needs to sell extra shares to finance its $224 billion investment plan.  There is also an optimistic scenario in that a big Soverign Wealth Fund (perhaps the Chinese, Iranians or possibly Qatar) has expressed interest and this is backed by some of the chatter coming out of some of the fund managers on the ground and close to the roadshow. The third is brinkmanship in that the company is bluffing but as one analyst is quoted in the FT Energysource says “would be a dangerous game to play”.      Why has Petrobras increased its share offer? | beyondbrics | FT​.com.

According to Bloomberg, Asian Refinery losses on production of Fuel oil widened as imports jumped by 25% this month to 4 million metric tons due to more Russian refinery production is diverted from US to Singapore as well as slowing demand for bunker fuel.

Algeria, the Middle East largest gas producer, is starting to look for unconventional gas. Algeria produced a total of 81 Billin CM and exported 21.3 BCM to Italy by pipeline and another 8 BCM to Spain and Portugal (Total Algeria gas exports according to BP Energy Statistics of 52.67 BCM). This comes in wake of its neighbors, Morocco & Tunisia already stating their shale gas ambitions. Algeria goes unconventional – No Hot Air.

Saudi Aramco revealed that the Kingdom has large unconventional gas reserve and will speak to its partners in brining some of their expertise in unconventional gas exploration in North America to the country.  Nevertheless, the new method and technology utilized in North America such as water injection to crack rocks and allow gas to flow, may not be suitable for the deserts of Saudi Arabia.

Although Saudi is the world’s largest oil producer, its gas reserves are minimal when compared to its giant oil reserves. Saudi need for gas is paramount in order to meet its domestic electricity demand and large petrochem industry.  FT​.com / In depth – Saudi reveals large unconventional gas reserves.

Cheng Siwei, a leading Chinese economist said that China will reduce its reliance on fossil fuel from current 91% of energy mix to 85% in 2020.  Improvement in energy efficiency and costing of pollution via Carbon Credit will enable China to reduce consumption of fossil fuel.   China Daily

Al Neft >  Assuming China continues to grow at 8% a year, China will need to replace 1.12 million bbl / day via alternative clean energy.  This translate to 22,000 wind farms of 100 MW capacity.

New research report by Goldman Sachs indicates that unlike the US market, Global oil market conditions are constructive. It points to recent IEA report that shows draws on floating storage continuing in August with World oil demand exceeding supply by 600k bbl/day.  In addition, China data demonstrate strong industrial rebound with implied oil demand of 950k bbl/day.  Although GS sees oil prices touching $85 – 95 this fall, they view increasing US production as a risk.

Barclays Capital has downgraded Qatar’s estimated total LNG production forecast for 2010 by as much as 27% owing to a large number of maintenance stoppages in the first half of the year and the delay of two LNG mega-trains.

Analysis: Qatar’s LNG delays affect 2010 forecast | ArabianOilandGas​.com.

Repot by Commodity Weather Group, LLC for a significantly warmer winter in the US will only add cold water to Gas Bulls.  As the article states; we could be looking at gas prices below $4 in middle of winter, adding more pressure on Gas Industry that is wrecked by over-supply and weak prices. Natural Gas and the Bulls of Summer – Oilpatch Online.

WSJ reports that the UAE is asking Banks in the country to declare remittance sent to Iran on a monthly basis.   U.A.E. Studies Impact of Iran Sanctions – WSJ​.com.

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Petrobras, Brazil’s largest Oil & Gas company, is preparing to raise US$ 32 billion from minority shareholders to fund development of offshore “pre-salt” oil fields as part of $ 224 capital expenditure.  This is part of Oil for shares swap between the Government and the company. Many analyst, predict that the Governments stake will rise from 29.6% to 38% in the company as a way of supporting the share issue.

Al Neft Commentary:

Petrobras has built its reputation as an able operator and deepwater expertise at home and abroad.  The discovery of “pre-salt” fields has added billions of barrels to its fortune. More production and more revenues to be expected. Nevertheless, the increasing Government shareholding will mean more interference by Brasilia – committing the company to use local companies and labour and potential influence on strategic decisions.  So while the company’s days as an oil production giant are about to begin, its time as one of the world’s more independent NOCs may be over.

Petrobras prepares to raise up to R$55bn (FT)

The lack of strong and clear legal framework in Saudi is putting pressure Saudi’s business credentials.  Legal cases can drag on for years and enforcement is difficult.  As one Legal analyst in quoted in Bloomberg:

“Enforcement is really, really difficult,” Pump said. “If you can get anything, 10 cents on the dollar, I really recommend taking it.”

Bloomberg.

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By Muhannad Mansour

On Tuesday 17^th August Lebanese parliament passed a law which allows offshore oil and gas exploration in the country’s Mediterranean waters. This comes ahead of two offshore gas discoveries in the eastern Mediterranean by Noble Energy Inc. and Israeli companies, which Noble estimates contain as much as 24 trillion cubic feet.

Petroleum Geo-Services ASA, the Norwegian oil and gas surveyor, described the region as “exciting”, and said it had explored Lebanese waters and retrieved “valuable information” on potential gas reserves. Although at the moment Lebanon has no official oil or gas deposits, it is keen to protect its national interest by accelerating natural resource exploration policy.

The need for energy security in Lebanon is paramount in a country that is still facing power cuts, war inherited poor infrastructure, rising population and water & electricity shortage.  The country still relies financially and energy-wise on support of Gulf Countries like Saudi, Qatar and Kuwait in particular.

The practicality of the law depends on the Lebanese governments’ progress at drawing its maritime borders. Gibran Bassil Lebanon’s energy minister said that the government is close to an agreement with Cyprus, and that it is working unilaterally to outline borders with Israel. The latter has the potential of being a major stumbling block as Israel and Lebanon are technically in a state of war. Israeli minister of national infrastructure Uzi Landau said the Israeli government is willing to use force to protect its resources.

The pursuit of natural resources in a region plagued by conflict, ideology, and militarism, will no doubt add further variables to an existing complexity which for the foreseeable future sees no practical or theoretically agreed upon solution. It is in this writers’ opinion that should further exploration yield more discoveries, communication, be it direct or indirect, between nations of the eastern Mediterranean becomes mandatory rather voluntary. Yet this is should not favour optimism over pessimism. Should policymakers from the respective parties bring practicality ahead of political unreason then there may genuinely be a glimmer of light in the darkness. If the opposite be true, then this will only further deteriorate an already volatile political situation following the 2006 war not to mention religious hardliners on both sides.

Related articles

• Lebanon-Israel tensions grow over gas find dispute (reuters​.com)

By Muhannad Mansour

Dallas-based Kosmos Energy LLC has terminated plans for the $4 billion sale of the Jubilee Oil fields located offshore Ghana to Exxon after government opposition to the deal. The Jubilee Oil Fields located offshore Ghana in the West Cape Three Points Block has proven to be one of the biggest oil finds in West Africa in the last decade.

Kosmos will now focus on further exploration and development of the West Cape Three Points Block. Brian Maxted COO of Kosmos commented: “First oil from the Jubilee Field phase one development is fast approaching. Moreover, we are very encouraged by our recent exploration results, other discoveries we are appraising, and additional developments being planned. We will continue to work with our block partners and the Government of Ghana to develop these resources that we believe offer multiple near-term opportunities to significantly enhance the value of these world-class assets.”

Kosmos holds a 30.875% working interest in the West Cape Three Points Block, with Anadarko holding an equal working interest, and Tullow Oil plc holding 22.896%. Minority partners include E.O. Group and Sabre Oil & Gas Limited with a 3.5% and 1.854% respectively, whilst GNPC (Ghana National Petroleum Corporation) owns a 10% participating interest.

With final installation of the floating production, storage and offloading vessel (FPSO) underway, preliminary production from the field is expected to begin late in the fourth quarter of 2010. Optimal production from the field is expected begin in the first half of 2011 at an estimated 120,000 barrels of oil/day.

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For Kosmos this represents a new direction and departure from a strategy focused on exploration. For Ghana itself though financial analysts believe that the termination of the deal due to government refusal has dealt a blow to the confidence of potential investors in Ghana, whether this claim materializes in the future remains to be seen. On the other hand, it can be a clever ploy on behalf of the Government to use its pre-emption rights to obtain a richer offer most probably from the Chinese who have made it clear that financial prudence come second to China’s energy security.

Related articles

• GNPC says still keen to increase Jubilee stake (reuters​.com)
• Kosmos Ends $4 Billion Sale of Ghana Fields to Exxon (businessweek​.com)

By Muhannad Mansour

Cairn Energy will sell a majority stake in its subsidiary Cairn India to London based Vedanta Resources pending on government approval. Vedanta announced on Monday it would buy a 51-60% of the subsidiary for 8.5 to 9.6 billion dollars.

Sir Bill Gammell CEO of Edinburgh based Cairn Energy, flew to New Delhi to meet Oil Minister Murli Deora and other energy officials to discuss and finalize the deal. Government approval is required as Cairn India’s partner, state-owned ONGC (Oil & Natural Gas Corp) has the right of first refusal.

Sir Gammell appears confident of securing government approval, ahead of the meeting with government officials, saying that only ownership of Cairn India will change. Vedanta chairman Anil Agarwal shared Sir Gammell’s confidence in securing government approval to create an ‘Indian natural resources champion’.

Cairn India operates in the Rajasthan block where it owns a 70% stake in the Mangala area located in the Barmer district, as a majority partner with ONGC. Cairn energy bought the block from Royal Dutch Shell for $7 million in 2002 after Shell concluded it contained no major reserves.

After further exploration and analysis, Cairn India CEO Rahul Dhir said “We estimate that the fields (Barmer block) have a potential to produce 240,000 barrels of oil per day”, and “We have done a comprehensive internal review of the block. We had also asked a US firm DeGolyer and MacNaughton to conduct an independent estimate and it was in line with our own estimates,” Dhir said. “We understand that there is 6.5 billion barrels of oil equivalent to be found and extracted (in Barmer block, Rajasthan).”

Cairn’s decision to sell a majority stake in its subsidiary has been hailed by some financial analysts, citing the company’s shift of focus from production and field maintenance to exploration, will reduce its exposure to risks associated with well management and sustainment, and allow it to focus and allocate more resources to its drilling and exploration operations. Richard Griffith of Evolution Securities said “Capturing value now and sidestepping the technical risks shows Sir Bill hasn’t forgotten some of his old skills.”

Cairn will use the proceeds to pay investors in the form of a special dividend, and to provide further capital to its exploration and mapping operations in Greenland. Cairn’s subsidiary Capricorn Greenland Exploration Ltd. has interests in eight offshore blocks south and west of Greenland covering approximately 72,000 km².

Vedanta’s acquisition of a majority stake in Cairn India marks the firms first venture into the energy markets. The venture has caused concern amongst some financial analysts citing Vedanta’s lack of experience in the energy sector could prove to be problematic and add an extra element of risk. Matthew Fernley an analyst at GMP Securities Europe claims “This acquisition will heap more leverage on (Vedanta) and soak up a lot of its excess cash reserves at a time when the market looks shaky and may be poised for a correction”. Vedanta’s operations include zinc, aluminium, copper and iron ore mines.

Related articles

• UPDATE 3-Regulatory issues could delay Vedanta-Cairn deal (reuters​.com)
• “Vedanta enters oil prospecting with $8.5-$9.6 bn Cairn deal (Roundup)” and related posts (taragana​.com)
• Cairn Energy sells Indian oil stake to Vedanta Resources for up to $8.4bn (telegraph​.co​.uk)

The man that shorted Enron says next bubble is China Real Estate and the biggest threat to global economic recovery. He estimates that 50% of the economic activity in China is related to construction and real estate.  Price appreciation is not supported by fundamentals and the usual defense that China has $ 2 trillion of foreign reserves is no defense at all when it comes to domestic bubble. He points that US in 1929 and Japan in 1987 had at the time the largest foreign reserves.  Chanos is short China.

Charlie Rose – James Chanos, President, Kynikos Associates.