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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.