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    Few Foreign Bids Expected for Petrobras $1 billion Natgas Project (Tuesday, 22 August 2017)

    22 Aug 2017, 11:00 pm

    Taking aim at local corruption, Brazil is trying to get competition among global players to build a $1 billion natural gas plant, but the number of foreign bids will be smaller than anticipated due to more stringent requirements, sources said.

    Brazil's state oil company Petroleo Brasileiro SA excluded large local engineering firms implicated in a devastating corruption scandal from bidding on the project meant to be a model of clean contracting.

    However, of the 30 foreign firms that Petrobras invited to bid on the new processing plant, only around five will participate in consortia submitting bids by the Aug. 28 deadline, three sources with knowledge of the matter said.


    According to the sources, units of Spanish companies Acciona SA and Sener Ingenieria y Sistemas SA, Italy's Maire Tecnimont SpA , Japan's Toyo Corp and China Aluminium International Engineering Corp , known as Chalieco, are readying bids.

    Adolfo Giaretti, head at Tecnimont in Brazil, confirmed the company will bid. Other companies did not comment immediately.

    Amid concerns they had little recourse if Petrobras cancels the contract, construction and engineering giants Bechtel Corp, Areva SA, Tecnicas Reunida SA, Larsen & Toubro Ltd, SNC-Lavalin Inc, Thyssenkrupp AG, Hatch Ltd and Chicago Bridge & Iron Co were among those that declined to bid, six sources with knowledge of the process said.

    The companies did not immediately comment.

    The effort to drum up foreign competition underscores the lengths to which Petrobras is going - and how much further it has to go - to move beyond a sweeping corruption probe that revealed billions of dollars in kickbacks and rigged contracts at the national oil giant whose massive deep water-oil discoveries once seemed to embody Brazil's future promise.

    To sanitize the process, Petrobras is now videotaping all meetings with bidders and requiring at least four people in the room, according to people familiar with the talks.

    Petrobras is also requiring detailed technical proposals to avoid the delays and cost overruns that haunted the site of the new gas plant - a petrochemical complex known as Comperj, which was one of the company's most corruption-plagued projects.

    In response to questions about the bidding, Petrobras said construction of the gas unit should begin early next year and declined to comment further on the process.

    The oil company needs to complete the plant by 2020 or it will be forced to reduce production at highly productive pre-salt oil fields. When the gas extracted with the oil is not processed, it is usually reinserted in the wells. But limits to the re-injecting the gas in the wells will be reached by 2020.

    A clean and competitive international bidding process would be a victory for Chief Executive Pedro Parente, who has made tackling cost overruns on major investments a priority.

    "The continued delivery of cost reduction is key in building confidence in the turnaround process at Petrobras," Itaú BBA analyst Diego Mendes wrote in a note to clients earlier this year.

    Success at the Comperj site could also serve as a model for drawing foreign investors and contractors to infrastructure projects throughout Brazil - a cornerstone of President Michel Temer's economic agenda.

    "There is a big opportunity for Brazil to innovate in projects to close the infrastructure gap," said Norman Anderson, CEO of consulting group CG/LA Infrastructure.


    Still, the more stringent requirements for Petrobras contractors have come at a cost.

    Contracting executives, who requested anonymity to protect professional relationships, say the bidders may spend up to $10 million in detailed engineering designs required by Petrobras for the gas unit and uncertainty in the contracts has kept many from committing to a bid.

    One aspect of the contract to build the natural gas plant that raised red flags with potential bidders: a clause allowing Petrobras to terminate the contract at any time without cause and without paying penalties or agreeing to arbitration.

    Suppliers seeking damages if the contract is broken would have to count on the notoriously slow Brazilian courts.

    After protests, Petrobras included specific reasons that would allow it to terminate the contract unilaterally. Even so, most international bidders considered conditions too risky.

    The handful that have gone ahead with bids have also formed consortia to dilute the risks, including Chalieco's partnership with mid-sized Brazilian group Método Potencial. Other foreigners are also choosing Brazilian partners which have not been implicated in previous scandals. In those cases the foreign firms invited by Petrobras remain the prime contractors.


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    Apache Corp. Completes Strategic Exit from Canada (Tuesday, 22 August 2017)

    22 Aug 2017, 10:00 pm

    Apache Corporation has announced that it has completed the previously disclosed sale of its Apache Canada Ltd. subsidiary to Paramount Resources Ltd., which consists of properties located principally in the provinces of Alberta and British Columbia.


    Apache also completed the previously disclosed sale of its Provost assets in Alberta to an undisclosed privately owned company. Together, with the June 30 sale of its assets at Midale and House Mountain, these transactions constitute a full country exit for the company from Canada.


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    NXG Drilling Services Expands with move to Aberdeen (Tuesday, 22 August 2017)

    22 Aug 2017, 8:00 pm

    NXG Drilling Services has invested more than £2 million in two new northeast operations to cope with increased demand for its tools and equipment solutions.

    The business, launched at the start of 2017, has moved from its city centre offices, to 30,000-sq-ft premises at Altens Industrial Estate in Aberdeen. This adds to the existing operations that the company has already set up in Holland and the Middle East. The drilling services company has also agreed a lease on a three-acre site for a welding, machine shop and ‘make-and-break’ facility within the IOS Longside Supply Base, near Peterhead, United Kingdom. The investment follows the acquisition of tools and equipment from Hunting Equipment Management Services (HEMS) Ltd earlier this year. NXG now has contracts in place with all the major service companies and, as a result, operates in more than 50 countries. The company is on track to record turnover of £4m by the end of the year.

    The firm currently employs 15 people but is looking to add a further 18 before the end of the year, with most new recruits based at the Longside operation.


    NXG supplies a range of bottom-hole assembly (BHA) equipment including stabilisers, subs, drill collars, hole openers and reamers. In addition, the business also has a large stock of non-magnetic tools.

    The company has streamlined costs by partnering with in-country oil service firms, and introduced smarter logistics and innovative sales and rental models to respond to cost-conscious requirements in the drilling phase of exploration and production programs. Its clients also have the option of adding cost-effective products from its research and development arm, OILSCO Technologies, which can deliver a range of solutions for drilling operations.


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    Brent Oil Steals Show as Hedge Funds Leave U.S. Crude Aside (Tuesday, 22 August 2017)

    22 Aug 2017, 6:00 pm

    While enthusiasm in the U.S. oil market dwindles, things are looking a little brighter across the pond.

    For a second week, hedge funds refrained from making big bets on West Texas Intermediate prices stuck below $50/bbl in New York as American output keeps rising. Meanwhile in London, Brent surged to a 12-week high as global physical markets tighten. The gap between the two benchmarks hasn’t been so wide in almost two years.

    “You still have fairly strong and resilient production in the shale sector, so there is a lot of light oil around in the U.S.,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.


    Crude output at major shale fields like the Permian in Texas and the Bakken in North Dakota is set to reach a record next month. Despite seven straight weeks of U.S. stockpile declines, the latest weekly report from the government showed supplies at Cushing, Oklahoma, the delivery point for WTI, expanded by the most since March.

    That has kept the U.S. oil benchmark trading at a discount to its longer-dated futures. This market structure, known as contango, is typical of a glut because some buyers are willing to pay more for future deliveries to avoid storage and insurance costs for barrels they don’t immediately need. Those who are able to hoard the crude at low costs, on the other hand, seek to buy it at a cheaper price now to sell it for a profit later.

    With Brent, the opposite is happening. Demand for delivery sooner is increasing, so the benchmark that’s most used around the world is selling at a premium to its longer-term contracts -- a situation know as backwardation that signals a shortage. The last time Brent’s second-month contract was this much more expensive than its third month was about three years ago, when prices were above $100.

    The North Sea oil market is being supported by traders booking shipments to rare destinations such as Chile, Uruguay and Thailand. The volume of oil being stored in floating tankers there is falling.

    Divergent paths

    WTI rose 14 cents to $48.65/bbl at 8:24 a.m. on the New York Mercantile Exchange Monday, while Brent traded little changed at $52.65/bbl on the London-based ICE Futures Europe exchange. Brent gained 1.2% last week, while WTI fell 0.6%. Brent for October delivery ended Friday at a $4.06 premium to WTI for the same month, the widest gap since September 2015. The spread narrowed to $3.93 on Monday.

    Hedge funds decreased their WTI net-long position -- the difference between bets on a price increase and wagers on a drop -- by 2% to 274,441 futures and options in the week ended Aug. 15, data from the U.S. Commodity Futures Trading Commission show. Longs slipped 2.2% and shorts fell 2.6%.

    Whatever position investors have “the uncertainty has increased, so they are losing some of their conviction,” Brian Kessens, a managing director and portfolio manager at Tortoise Capital Advisors LLC, who helps manage $16 billion in energy-related assets, said by telephone.

    As for Brent, the net-long position on the global benchmark doubled over the six weeks through Aug. 8, according to data from ICE Futures Europe. Net-long positions in Brent rose again in the week ended Aug. 15, with speculators’ wagers on the grade, the global benchmark traded in London, increasing by 18,309 contracts to 418,912, the highest since April, data from ICE Futures Europe showed.

    Fuel bets

    In fuel markets, the net-long position on the benchmark U.S. gasoline contract declined 16 percent. The net-long position on diesel jumped by 31%, with longs rising to the highest level in more than four years.

    With the summer driving season drawing to a close soon in the U.S., there are still lingering doubts in the minds of investors over whether supplies only dropped due to seasonal factors.

    “The inability of the market to really push through $50 suggests that the buyers don’t have confidence to continue to try to build positions above that level because of the uncertainty about our fundamental picture right now,” said Gene McGillian, market research manager at Tradition Energy in Stamford, Conn.


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    North Sea's First FPSO Ready for Brazil Deployment (Tuesday, 22 August 2017)

    22 Aug 2017, 2:00 pm

    The North Sea's first floating production, storage and offloading vessel (FPSO), the Petrojarl I, has been delivered to owner Teekay after a two and a half year project to make it ready for its next deployment.

    The Petrojarl 1, a Tentech 685 design vessel, delivered in 1986 by NKK in Japan, has worked across a long list of North Sea fields and is now set to work on its 14th field, Atlanta, offshore Brazil.


    It will be working for a consortium led by Queiroz Galvão Exploração e Produção (QGEP). The field’s water depth, 1535m, will be the deepest in which the vessel has worked.

    The post-salt Atlanta field, in the Santos Basin, is also a heavy crude oil field, estimated to contain about 190 MMboe recoverable, with a production life in excess of 15 years.

    Petrojarl I will be used as an early production system (EPS) on the field, some 185km offshore Brazil, on a five-year contract.

    Previous fields the vessel has worked on include Oseberg, Troll, Lyell, Fulmar, Balder, Fife, Fergus, Flora and Angus, Hudson, Blenheim, Kyle and, most recently, Glitne, in the Norwegian sector, from which it was removed in 2013.

    Damen Shiprepair Rotterdam performed the vessel's redeployment overhaul. After extensive engineering (over 450,000 engineering hours), more than 50% of the process equipment was removed and replaced with new and additional equipment, required to treat heavy oil at the Atlanta field.

    Damen says the available deck space presented major challenges during engineering and execution of the work on board, which was done by Damen and its subcontractors.

    “The Petrojarl 1 project fits within the strategy of Damen to expand further into the repair and conversion of complex offshore vessels and operating units. The recent acquisition of the Damen Verolme Rotterdam yard (DVR), located in the Botlek area of the Port of Rotterdam and holding an extensive track record of successfully refurbished offshore vessels, further complements us in this ambition.” says Mark Witjens, Director with Damen Shiprepair & Conversion responsible for the project.

    The FPSO spent 14 months in Dock no. 8 (300x50m) undergoing refurbishment of its marine systems, underwater hull, seawater system, crane booms, heating coils in the cargo tanks and specialised steelworks in the upper and lower turret areas, which needed to be completely revised and adapted to suit the 1500m deep mooring location. Simultaneously, new designed high quality, prefabricated equipment skids containing heating, cooling, separation, compression, boilers, centrifuges as well as a new E-house with electrical equipment were placed on board. Interconnecting piping and cabling was subsequently installed to complete the topsides and connect it to the remaining facilities.


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    Total deepens North Sea Exposure with $7.5 billion Maersk Oil Deal (Tuesday, 22 August 2017)

    22 Aug 2017, 12:00 pm

    Total (TOTF.PA) is buying Maersk's oil and gas business in a $7.45 billion deal which the French major said would strengthen its operations in the North Sea and raise its output to 3 million barrels per day by 2019.

    For Danish company A.P. Moller Maersk (MAERSKb.CO), the sale of Maersk Oil, with reserves equivalent to around 1 billion barrels of oil, fits with a strategy of focusing on its shipping business and other activities announced last year.

    The world's top oil companies have been back on the takeover trail over the last year, helped by signs of a recovery in the oil market.


    Total expects its biggest oil deal since it acquired Elf in 2000 to generate financial synergies of more than $400 million per year, in particular by combining assets in the North Sea. It also said the acquisition would boost earnings and cash flow.

    Expected to be completed in the first quarter of 2018, the deal could see some job cuts particularly in Britain where there are overlaps, Total said, adding that it could make additional cost savings of about $200 million per year.

    Total has been betting on new rather than mature fields in the North Sea and the acquisition gives it further economies of scale by making it the second largest player in the region with production of about 500,000 barrels of oil equivalent per day.

    The move illustrates Total's strategy of using a strong balance sheet to acquire attractive assets from struggling competitors having emerged from the prolonged oil downturn stronger than some of its rivals.

    "It was time for us to do what a real oil and gas company would do in a period such as this when prices are lower and costs are down. Either launch new projects or acquire new reserves at attractive prices," Total Chief Executive Patrick Pouyanne told reporters.

    The purchase also signals some oil majors are prepared to invest to replenish reserves and boost production, anticipating an oil price recovery. With current prices of $50 per barrel most majors are simply struggling to balance their books.


    Pouyanne said that Total had proposed a deal to Maersk as an alternative to floating the business.

    "There was a debate within Maersk and they finally accepted given that it was attractive and also the fact that an IPO in a tense oil market would not be a right move," he said, adding that no other oil major was bidding for the assets.

    Under the terms of the deal, A.P. Moller Maersk will get $4.95 billion in Total shares and Total will assume $2.5 billion of Maersk Oil's debt.

    Maersk said it plans to return a "material portion of the value of the received Total S.A. shares" to shareholders in 2018 and 2019 in the form of extraordinary dividend, share buyback or distribution of shares in Total.

    Analysts from Raymond James said the value of the deal appeared fair with Total paying $13.4 per barrel of reserves – in line with what Royal Dutch/Shell paid to acquire its rival BG in the biggest oil transaction of the past decade in 2015.

    Soren Skou, who took charge of Maersk last year, has embarked on a major restructuring to concentrate on its transport and logistics businesses and separate its energy operations in the face of a drop in income.

    Consultancy Wood Mackenzie said Total was also rebalancing its exposure to industrialised countries after having gone heavy on investments in higher risk regions such as Iran or Qatar.

    "It will further shift Total's weighting towards OECD regions, a core strategic driver for the company as it looks to balance the portfolio away from areas of high above ground risk," said a WoodMac director Valentina Kretzschmar.

    The Danish oil company has access to high-quality fields in the Norwegian and UK North Sea, which Pouyanne said would help boosts Total's output to 3 million barrels of oil equivalent (boe) as soon as 2019 from 2.5 million boe now.

    AP Moller Maersk shares were up 2.8 percent by 1450 GMT while Total shares were little changed.


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    Aker BP Granted Drilling Permit for Wildcat North of Frøy Field (Tuesday, 22 August 2017)

    22 Aug 2017, 10:00 am

    Now that its oil and gas unit has been sold, A.P. Moller-Maersk A/S is planning separate divestments for the three remaining bits of what used to be a combined energy division, with estimates valuing those businesses at $7.5 billion in total.

    The Norwegian Petroleum Directorate has granted Aker BP ASA a drilling permit for wellbore 25/2-19 A, cf. Section 8 of the Resource Management Regulations. Well 25/2-19 A will be drilled from the Maersk Interceptor drilling facility, at position 59°52'28.37" north and 02°37'45.61" east.

    The drilling program for well 25/2-19 A relates to the drilling of a wildcat well in production licence 442. AkerBP ASA is the operator with an ownership interest of 90.26%. The other licensee is Lotos Exploration and Production Norge AS (9.74%). The area in this licence consists of a part of block 25/2 and a part of block 25/3.


    The well will be drilled about 15 km north of Frøy field in the North Sea and about 140 km from the coast. Production licence 442 was awarded on June 15, 2007 in APA 2006 on the Norwegian shelf. This is the seventh well to be drilled in the licence. The permit is contingent upon the operator securing the other permits and consents required by other authorities prior to commencing the drilling activities.


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    Maersk Stands to Get Another $7.5 billion for Energy Divestments (Tuesday, 22 August 2017)

    22 Aug 2017, 8:00 am

    The owner of the world’s biggest container shipping line said on Monday it agreed to sell its oil and gas unit to Total S.A. for a combined $7.45 billion, with two-thirds of the amount being paid in the form of shares in the French company. Maersk said in June last year it was looking for ways to divest all of its energy business, which also comprises drilling, tankers and supply service units.

    “We’re looking at each of these businesses individually,” Maersk CEO Soren Skou told Bloomberg Television’s Francine Lacqua on Monday. “I don’t think there’s a case for combining them and selling them off as one.”

    According to David Kerstens, an analyst at Jefferies in London, the three remaining energy assets could bring in $7.5 billion, he said in a note. He estimates the drilling unit might fetch $4.7 billion, with the tankers division likely to generate $1.3 billion and the supply service unit $1.4 billion. Kerstens says the units “are expected to be separated through listings, mergers or joint ventures” before the end of next year.


    Maersk ended up getting more for its oil and gas business than most analysts had expected. In a June 14 note, Jefferies estimated the value of Maersk Oil at about $7.1 billion. Analyst estimates compiled by Maersk showed the consensus view was the business would be sold for about $6.27 billion.

    Monday’s announcement shows Maersk might also be ready to accept equity as payment for its other energy units, according to Frode Morkedal, managing director at Clarksons Platou Securities AS. That model may help it achieve better prices than in some previous transactions, he said in a note to clients. In a number of recent divestments, including the sale of its liquefied gas tankers, Maersk struck a deal just before the market recovered, according to the analyst.

    “The willingness to accept shares as compensation in M&A transactions indicates to us that the remaining energy businesses could also be sold earlier rather than later without giving up the potential upside in these segments,” Morkedal said.

    “We are impressed by the speed of execution to simplify Maersk Group and unlocking the previous conglomerate discount,” he said. And while the company said it was still waiting for the usual regulatory approvals, Danish Energy Minister Lars Chr. Lilleholt said in an interview in Copenhagen he predicts the deal will go through.

    Pending approval

    “I expect it to succeed,” Lilleholt said. “Maersk wouldn’t find a buyer that isn’t able to meet the obligations” that come with such a transaction, he said.

    Skou said Maersk’s management is “working hard” to find ways to separate the other energy units from the conglomerate. He also signaled it was unlikely the company would redirect any proceeds from divestments into new acquisitions. Maersk has yet to integrate Hamburg Sued, which it agreed to buy in December.

    “I don’t see us doing any other large or significant acquisitions in the foreseeable future,” Skou said.

    Shares in Maersk soared as much as 5.7% on Monday, and traded 3.9% higher at 13,300 kroner at 3:31 p.m. in Copenhagen. Skou said “a material portion” of the almost $5 billion Maersk is getting in Total share capital will go to the Danish company’s equity investors as an extra dividend, with the distribution timeline set to run through 2019.

    Finding buyers

    Management has given itself until the end of 2018 to divest all its energy units, after deciding in the middle of last year it wanted to focus on its transport operations. Skou said he looked at “various options” for the oil and gas unit, including “everything from IPO and also other possibilities.” He also said demand for such assets is growing.

    “There’s been lots of energy assets for sale, in the North Sea in particular,” Skou said. There haven’t been “so many transactions, but they are starting to come,” he said. “So more is happening, clearly.”

    But Maersk may struggle to find buyers for its remaining energy operations, according to Morten Imsgard, an analyst at Sydbank.

    “An acceptable solution for the rest of the energy activities could take a very long time,” he said in a client note. “The market conditions for these units are, generally speaking, very challenging at the moment. So we have a hard time seeing how Maersk will achieve an acceptable price for its shareholders for the remaining businesses.”

    Maersk last week reported second-quarter earnings that missed estimates after it booked a writedown at its Tankers division, which is part of the energy unit the company is selling. It kept its outlook for the full year, despite booking a charge of as much as $300 million after the company was hit by a cyber attack at the end of June.

    Maersk founded its energy unit in 1962 when the conglomerate obtained a 50-year contract to explore and produce oil in Denmark. It started production in 1972 and has since expanded to the UK North Sea, Norway, Kazakhstan and Algeria.


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