Newsbase global energy research daily 110316

Friday • 11 March • 2016

Today’s coverage

v DanPower Baltic JV finalises purchase of Marivas

p3

v Petroceltic shares suspended p4

v Chevron fires up Gorgon p5

v US firms face worst-ever conditions for capital procurement p6

v Daily oil price call p7

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Friday • 11 March • 2016

DanPower Baltic JV finalises purchase of Marivas DanPower Baltic, a 50:50 joint venture set up by German and Lithuanian investors, has completed the purchase of three biomass heating plants in Vilnius and Kaunas biomass plants. “The size of the projects in Lithuania fits After securing approval for the deal from the Lithuanian into our business model,” he commented.

Competition Council, it purchased a 100% stake in DanPower Baltic is working to expand its business in Marivas, the operator of the plants.

Lithuania. The venture began work in the Baltic state in Arturas Kliukevicius, the CEO of DanPower Baltic, said October 2014, when it started construction work on a 25last week that the venture had bought the stake within MW biomass combined heating and power (CHP) station the framework of a deal with Green Environment Fund I, in Kaunas. This facility is due to be commissioned before the Dutch investment fund that owns Marivas. He did not the end of 2016. disclose the value of the transaction but Then in December 2014, DanPower indicated that the acquisition was likely to w w w. N E W S B A S E . c o m Baltic began work on a 25-MW biomass benefit Dan- Power Baltic. heating plant in Vilnius. It brought this Kliukevicius noted that Marivas facility, which was built at a cost of 10 controlled two biomass heating plants million euros (US$10.57 million), on line in Vilnius – a 45.8- MW facility and a last November.

23.8-MW facility. The company’s third CEE/FSU Power Monitor Subsequently, in January 2015, biomass plant is a 48-5-MW unit in Click here to trial Energo the venture bought a working biomass Kaunas, he noted. heating plant in the Lithuanian town of Marivas operates its plants via two Joniskis. This facility, which uses wood chips as fuel, has subsidiary companies. One of these subsidiaries manages a thermal capacity of 4 MW.n the two plants in Vilnius, and the other operates the Kaunas facility.

DanPower, the German company that is one of the Richard Lockhart, Editor, Energo: shareholders in the joint venture, said late last year that CEE/FSU Power Monitor, NewsBase Ltd. Marivas’ operations were in line with its own decision Any questions? Please get in touch to focus on the operation of small and medium-sized Email: richardl@newsbase.com

Energo

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Richard Lockhart, Editor, Energo • Email: richardl@newsbase.com Ryan Stevenson, Editor, Euroil • Email: ryans@newsbase.com Ed Reed, Editor, GLNG • Email: edreed@newsbase.com Anna Kachkova, Editor, NorthAmOil • Email: annak@newsbase.com

NewsBase Ltd. 108 Dundas Street, Edinburgh EH3 Tel: +44(0)131-478-7000 Email: research@newsbase.com Web: www.newsbase.com

Friday • 11 March • 2016

Petroceltic shares suspended Time appears to be running out for Petroceltic after dissident 29.6% stakeholder Worldview asked the Irish High Court to appoint an examiner for the company “I can certainly understand why they’re not interested Worldview subsidiary Sunny Hill on February 26 in entertaining Worldview’s offer,” he said. “It’s just how mounted an opportunistic GBP6.4 million (US$9.08 long they can hold on for before Worldview [increases its million) hostile bid for the London-listed company, which offer], or forces them into administration.” is equivalent to GBP0.03 (US$0.04) per share.

Worldview has now lodged a petition requesting court In order to proceed, the offer needs approval from protection for Petroceltic, which will be 90% of Petroceltic’s share capital heard by the Irish High Court in Dublin on not owned by Worldview. The bid is w w w. N E W S B A S E . c o m April 4. significantly less than the GBP0.44 Petroceltic said it was unable to finalise (US$0.63) target price set by BMO an extension to its waivers on March 4 as Markets, based on the value of a result of the petition, and was seeking Petroceltic’s Ain Tsila gas project in legal advice because Worldview had moved Algeria, which is scheduled to launch Europe Oil & Gas Monitor without prior consultation. in 2018.

Click here to trial EuroOil On March 7, Petroceltic suspended The company’s second largest trading on the London and Dublin stock exchanges with shareholder, Skye Investments, which controls a immediate effect, maintaining Petroceltic’s nominal value 19.2% stake and is owned by Petroceltic non-executive of GBP0.07 (US$0.09) per share. chairman Robert Adair, confirmed its intention to reject “It just seems to go from bad to worse,” Kelty said. the bid last week.

“They managed to fend off various attempts to oust the Petroceltic currently owes around US$230 million board over the last couple of years, although the bond under its bank facility, but only holds US$7 million in issue they wanted … was scuppered by Worldview, and readily convertible cash balances. The company failed that has contributed to the parlous financial state they to push through a US$175 million bond issue in August are in.”n 2015, after opposition from Worldview.

Cenkos analyst Ashley Kelty told NewsBase he thought Petroceltic would agree waivers with its lenders, Ryan Stevenson, Editor, EurOil: but that the Worldview bid was “ludicrous” given that Europe Oil & Gas Monitor, NewsBase Ltd. “Ais Tsila is certainly worth more than 3p a share on an Any questions? Please get in touch NPV basis.”

Email: ryans@newsbase.com

EurOil

Testing at Petroceltic’s Ain Tsila gas field in Algeria

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Richard Lockhart, Editor, Energo • Email: richardl@newsbase.com Ryan Stevenson, Editor, Euroil • Email: ryans@newsbase.com Ed Reed, Editor, GLNG • Email: edreed@newsbase.com Anna Kachkova, Editor, NorthAmOil • Email: annak@newsbase.com

NewsBase Ltd. 108 Dundas Street, Edinburgh EH3 Tel: +44(0)131-478-7000 Email: research@newsbase.com Web: www.newsbase.com

Friday • 11 March • 2016

Chevron fires up Gorgon Chevron has announced first production from its Gorgon project, in Western Australia it said, while the final development has added a third train The development, the world’s most expensive LNG plant and costs have reached an anticipated US$55 billion. at a cost of around US$55 billion, is late and over budget, Work on Gorgon was “badly managed”, TPH said, but it and the start of production will provide further supply to a now offers attractive cash flow. region already grappling with a gas glut.

Contracts have been struck at attractive rates, it The US company celebrated the start on March 7. A continued, royalties are only 10%, shipping costs to Asia first cargo will be shipped next week, it said. Gorgon, which are low and tax should not be payable for some years, is based on Barrow Island, off the northwest coast, will based on the huge investments made. As such, TPH reach production of 15.6 million tonnes per year of LNG. said at a price of US$60 per barrel, the The project also includes around 20,000 w w w. N E W S B A S E . c o m netback from Gorgon should be around barrels per day of condensate production.

US$4 per 1,000 cubic feet (US$113 per The next two trains will start up at six1,000 cubic metres). month intervals, the company said.

There has been speculation about the The development includes the addition of a fourth train at Gorgon. While liquefaction plant, a carbon dioxide there appears to be enough gas in the region injection project and a domestic gas plant Global LNG Monitor to make such a plan feasible, economics do that will be able to provide 300 terajoules Click here to trial GLNG not currently support such a plan. Chevron (8.1 million cubic metres) per day of gas has said another 5.2 million tonne per year train could be to Western Australia. Feedstock comes from the Gorgon built, using the 11 trillion cubic feet (311.5 billion cubic and Jansz-Io fields, which are 130-220 km offshore. metres) of gas at the Chandon and Geryon fields.

“We expect legacy assets such as Gorgon will drive LNG production is ramping up, in Australia and long-term growth and create shareholder value for beyond. Australia Pacific LNG (APLNG) shipped its first decades to come,” said Chevron’s chairman and CEO, cargo in January 2016. Two trains at Queensland Curtis John Watson. “The long-term fundamentals for LNG are LNG (QCLNG) were brought on stream in 2015. attractive, particularly in the Asia-Pacific region, and this is Chevron also recently confirmed that its Angola a significant milestone for all involved.”

LNG project would be restarted in the second quarter of Chevron also holds equity in the Wheatstone LNG this year, while the first of the US LNG export projects, project, with the company saying that more than 80% of Cheniere Energy’s Sabine Pass, started in February. its equity gas from these two developments was covered Wheatstone LNG is due to reach first LNG by mid-2017, by sales and purchase agreements (SPAs) and heads of while Shell’s Prelude project should also begin next year. agreements (HoAs) with regional customers.

The US company’s enthusiasm for megaprojects has been Chevron has a 47.3% stake in Gorgon and is the dented, at least in the near term. As such, more big-ticket LNG operator. ExxonMobil and Royal Dutch Shell each own projects from Chevron are unlikely in the near term.n 25%, while Osaka Gas has 1.25%, Tokyo Gas has 1% and Chubu Electric Power has 0.42%.

While project economics are daunting for Gorgon, Ed Reed, Editor, GLNG: Tudor Pickering Holt (TPH) struck a bullish stance on the Global LNG Monitor, NewsBase Ltd. megaproject. A two-train plant had been expected to start Any questions? Please get in touch up in 2009 and cost US$10 billion under the initial plan, Email: edreed@newsbase.com

GLNG

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Richard Lockhart, Editor, Energo • Email: richardl@newsbase.com Ryan Stevenson, Editor, Euroil • Email: ryans@newsbase.com Ed Reed, Editor, GLNG • Email: edreed@newsbase.com Anna Kachkova, Editor, NorthAmOil • Email: annak@newsbase.com

NewsBase Ltd. 108 Dundas Street, Edinburgh EH3 Tel: +44(0)131-478-7000 Email: research@newsbase.com Web: www.newsbase.com

Friday • 11 March • 2016

US firms face worst-ever conditions for capital procurement US oil and gas companies faced the worst-ever conditions for obtaining cash last month, Moody’s rating agency has said in a new report worldwide. Some analysts are now predicting that Moody’s Oil & Gas Liquidity Stress Index (LSI) surged crude prices could drop as low as US$20 per barrel in to a record high of 27.2% on the back of depressed oil the near future. prices, the agency said. That compares with a surge of Sliding oil prices have resulted in many companies 24.5% during the last recession. tightening their belts by cutting back on investments, February marked the “biggest month ever” for especially riskier ventures, in the last liquidity downgrades, with 17 exploration w w w. N E W S B A S E . c o m year. Companies have also cut back and production companies out of a total of workforces and restructured debt, 25 downgraded, the agency added. Moody’s all in an effort to avoid insolvency. downgraded a total of 19 energy companies However, the number of bankruptcies during February. is rising.

The liquidity ratings of ten E&P Analysts have noted that for companies were cut to SGL-4, which is the North America Oil & Gas Monitor most independent explorers, cash agency’s lowest liquidity rating, along with Click here to trial NorthAmOil flows have been severely dented by one oilfield services company. “The prolonged the decline in oil prices. It has affected those companies weakness in energy sector credit conditions is driving the that do not have other assets like refineries or retail petrol sustained increase in the LSI,” said Moody’s senior vice stations the most. president John Puchalla.

Ratings agency Standard & Poor’s also cut the credit “Energy liquidity downgrades came as part of our ratings of some leading US oil and gas companies last ongoing review of oil & gas companies globally in light of month. Chevron, the second largest oil and gas firm in the the weaker price environment,” he added.

US, and Apache were among the companies to see their The agency’s composite LSI surged to 8.9% last ratings cut. n month, from 7.9% in mid-January, and is now at its highest level since November 2009. “This progression signals that the default rate will continue to rise as the Anna Kachkova, Editor, NorthAmOil: year progresses,” Puchalla said.

North America Oil & Gas Monitor, NewsBase Ltd. Crude prices have slid more than 70% since June Any questions? Please get in touch 2014, putting pressure on oil and gas companies Email: annak@newsbase.com

NorthAmOil

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Richard Lockhart, Editor, Energo • Email: richardl@newsbase.com Ryan Stevenson, Editor, Euroil • Email: ryans@newsbase.com Ed Reed, Editor, GLNG • Email: edreed@newsbase.com Anna Kachkova, Editor, NorthAmOil • Email: annak@newsbase.com

NewsBase Ltd. 108 Dundas Street, Edinburgh EH3 Tel: +44(0)131-478-7000 Email: research@newsbase.com Web: www.newsbase.com

Friday • 11 March • 2016

Daily oil price call WHAT Volatility returned to crude prices for a short while March 10 on the back of two events. Firstly, news that the March 20 OPEC + non-OPEC meting may not be going ahead after all, due to Iran not yet being onboard with ‘cuts’, which is hardly a surprise, and secondly after the ECB went all in with their latest monetary easing move, which saw them go deeper in to NIRP (negative interest rates policy) to -0.4%, and more importantly expanding their asset purchase programme to include non-bank corporate bonds.

On the surface, direct monetisation of such bonds could drive down borrowing costs for European oil and gas companies, but if the Japanese experiment with money printing is anything to go by, such actions will not be a cure for structural economic woes, and will in fact bring unintended consequences of dramatic and negative effect to the continent.

WHY Possibly the most important datapoint out March 10, and one that went largely unreported was the climb

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Richard Lockhart, Editor, Energo • Email: richardl@newsbase.com Ryan Stevenson, Editor, Euroil • Email: ryans@newsbase.com Ed Reed, Editor, GLNG • Email: edreed@newsbase.com Anna Kachkova, Editor, NorthAmOil • Email: annak@newsbase.com

in Saudi rig count, signalling they have no intention beyond cursory jawboning and headline making to actually stem production. To the contrary, the rig count is just short of an all time high reached a couple of months ago, and suggests the Saudis are planning for higher, not lower production in the near term. Hardly a bullish sign for crude.

WHAT NEXT Brent is trading almost exactly where it was this time March 10, just short of its short term resistance at US$40.7. There is still a reasonable chance of a move to the US$42-43 range, with initial support still at US$40 and more importantly US$39.3. A break above US$41 will likely see a strong spike upwards, and for the near term this looks more likely than a sudden collapse, albeit with Brent looking increasingly overbought.

WTI is currently outperforming Brent, and looks set to stage a move to or near US$40. Trading just short of US$38.6, there is some resistance at US$38.90, but from there we suggest a move to US$40 or so can come in no time, and quite possibly during the day ahead.

NewsBase Ltd. 108 Dundas Street, Edinburgh EH3 Tel: +44(0)131-478-7000 Email: research@newsbase.com Web: www.newsbase.com