June 14, 2019

Iran says it is in charge of security of Strait of Hormuz later in the day. - state Radio Tension between Iran and the has risen since May last year, when U.S. President Donald Trump Iran said on Friday it was responsible for maintaining the pulled out of a 2015 nuclear deal between Iran and major security of the Strait of Hormuz in the Gulf, state radio powers that aimed to curb Tehran's nuclear ambitions in reported, adding that blaming Tehran for attacks on two exchange for sanctions relief. oil tankers in the Gulf of Oman was alarming. Iran has repeatedly warned it would block the Strait of "We are responsible for ensuring the security of the Strait Hormuz if it cannot sell its oil because of U.S. sanctions. and we have rescued the crew of those attacked tankers Tensions have increased further since Trump reimposed in the shortest possible time," Radio quoted Foreign sanctions on Iran and acted at the beginning of May to Ministry spokesman Abbas Mousavi as saying. force Iran's oil customers to slash their imports to zero or "Obviously, accusing Iran for such a suspicious and face draconian U.S. financial sanctions. unfortunate incident is the simplest and the most Iran's oil exports, its economy's lifeblood, have dropped convenient way for (U.S. Secretary of State Mike) to about 400,000 bpd in May from 2.5 million bpd in April Pompeo and other U.S. officials. These accusations are last year. alarming." Meeting on Friday on the sidelines of a regional summit in The United States blamed Iran for attacks on two oil Kyrgyzstan, Chinese President Xi Jinping told Iran's tankers in the Gulf of Oman on Thursday that drove up oil President Hassan Rouhani on Friday that China will prices and raised concern about a new U.S.-Iranian promote steady development of ties with Iran no matter confrontation. how the situation changes, the official Xinhua news It was not immediately clear what caused the explosions agency reported. that forced the crews to abandon ship and leave both the Norwegian-owned Front Altair and Japanese-owned IEA cuts 2019 estimate for oil demand growth on Kokuka Courageous adrift in waters between Gulf Arab global trade worries states and Iran. The blasts, south of the Strait of Hormuz, followed last The outlook for oil demand growth in 2019 has dimmed month's sabotage attacks on vessels off the Fujairah due to worsening prospects for world trade, the emirate, one of the world's largest bunkering hubs. Iran International Energy Agency (IEA) said on Friday, has distanced itself from the attacks. although stimulus packages and developing countries Almost a fifth of the world’s oil passes through the Strait - should boost growth going into 2020. some 17.2 million barrels per day (bpd). Consumption The Paris-based IEA, which coordinates the energy was about 100 million bpd in 2017, data from analytics policies of industrial nations, revised down its 2019 firm Vortexa showed. demand growth estimate by 100,000 barrels to 1.2 million Brent crude futures rose 0.6% to $61.69 per barrel in barrels per day (bpd), but said it would climb to 1.4 million Asian trade on Friday, having gained 2.2% the previous bpd for 2020. day, though at one point they had surged as much as "The main focus is on oil demand as economic sentiment 4.5% in the wake of the attacks. weakens ... The consequences for oil demand are Iran's key regional rival Saudi Arabia said that Riyadh becoming apparent," the IEA said in its monthly oil report. was committed to providing reliable oil supplies to global "The worsening trade outlook (is) a common theme markets. across all regions", it added. One source said the blast on the Front Altair, which The oil demand growth forecast assumes the caught fire and sent a huge plume of smoke into the air, maintenance of U.S. and Chinese tariffs imposed on may have been caused by a magnetic mine. The firm that goods in 2018, but the IEA said it had not factored in chartered the Kokuka Courageous tanker said it was hit further U.S. tariffs announced in May. by a suspected torpedo, but a person with knowledge of The IEA also attributed lacklustre demand growth in the the matter said torpedoes were not used. first half of the year to a slowdown in the petrochemicals The U.S. military released a video late on Thursday that it industry in Europe, warmer than average weather in the said showed Iran's Revolutionary Guard (IRGC) removing northern hemisphere and stalled U.S. gasoline and diesel an unexploded mine from the side of the Japanese- demand. owned oil tanker. Demand growth was likely to pick up to 1.6 million bpd in The U.S. military's Central Command also released the second half of the year on government measures to photographs showing the apparent mine, which attaches mitigate the economic slowdown and robust consumption to the side of a ship magnetically, before it was removed in the non-developed world. June 14, 2019 (continued)

"Stimulus packages are likely to support growth in the sales, a French diplomatic source was straightforward: short term. In addition, the major central banks have "We want to save the nuclear deal because it helps stopped or slowed interest rate increases, which should peace in the region, but we have always had a historical support growth in 2H19 and 2020," the IEA wrote. relationship with Saudi Arabia so why would we U.S. sanctions on Iran and Venezuela, an output cut pact jeopardize this?" by the Organization of the Petroleum Exporting Countries The sharp drop-off in Iran's ability to sell its oil (OPEC) plus its allies, fighting in Libya and attacks on internationally has hit the economy hard, delivering tankers in the Gulf of Oman added only limited exactly the impact the Instex system is designed to uncertainty to supply, the IEA said. prevent in the long-term. Iran's production plunged by 210,000 bpd in May to 2.4 French finance ministry data shows France bought 2.2 mln bpd, the IEA said, its lowest levels since the Iran-Iraq billion euros ($2.49 billion) of Iranian light crude between war in the 1980s. Exports fell 480,000 bpd to 810,000 April 2017 and March 2018, making it France's third bpd. largest supplier. Surging U.S. supply as well as gains from Brazil, Canada But over the following 12-months, that figure fell 57% to and Norway would contribute to an increase in non-OPEC 936 million euros, with imports from Iran stopping supply of 1.9 million bpd this year and 2.3 million bpd in altogether from September 2018 onwards, as sanctions 2020. bit. In contrast, French purchases of Saudi oil jumped 50% to As Iran nuclear deal flounders, France turns to Saudi 3.7 billion euros between March 2018 and April 2019. for oil Industry sources say Saudi and Iranian crude oil have very similar properties that make them good substitutes. Over the past year, France has led a European push to Over the same period, Paris also substantially increased keep trade with Iran alive after the United States tore up its purchases of Russian and Iraqi crude, which are also the nuclear deal with Tehran and re-imposed sanctions. similar. But over the same period, data shows France has cut All countries had to reduce oil imports from Iran as purchases of Iranian oil and sharply increased imports sanctions mounted, although China and India continued from Iran's arch-enemy Saudi Arabia. to buy after initial U.S. waivers, although they have now In recent weeks, France has used its energy needs to also cut purchases. justify a surge in arms sales to the kingdom, even if there CLOSER SAUDI TIES is no evidence the 50 percent increase in Saudi France has nurtured close ties with Saudi Arabia. But the purchases of French arms last year was conditional on nuclear deal in 2015 between Iran and six world powers - France buying Saudi oil. the United States, France, Britain, China, Germany and The surge in France's buying of Saudi oil shows Paris is - eased sanctions in return for Tehran curbing its doing less business with Iran even as it publicly nuclear programme, providing an economic lifeline for encourages European partners to find a way to keep Riyadh's rival. trade with Tehran flowing via the Franco-German-British France, with business ties in Iran, moved quickly to Instex trade system. capitalise, and some of its biggest corporations followed. It also underscores how difficult it is for a global power Total was the first international oil company to return to and permanent U.N. Security Council member like France Iran, while other French firms such as carmakers to stand up against the United States and its closest Arab PSA and Renault also moved back. -world ally when they are determined to put the squeeze Between 2016 and early 2018, French purchases of on Iran. Iranian crude oil soared to more than 2 billion euros a Last month, Defence Minister Florence Parly said trade year. ties with allies like Saudi Arabia were essential to However, U.S. President Donald Trump, who arrived in safeguarding France's security and energy interests. the White House as Iran's economy was reaping the "(Weapons) exports make it possible to forge close ties benefits of the deal, called it "the worst ever negotiated". with states that are strategic for the security of France," He pulled the United States out, re-imposed tough she told parliament, one of the first times a senior official sanctions, including on Iran's oil sector, and threatened has linked arms sales to France's broader economic punishment for allies like France who kept doing business relations with Saudi Arabia. "It puts us at the heart of the with Tehran. Middle East, a key region for our security interests and The U.S. decision was always likely to tighten French ties our energy supplies." with Saudi Arabia, said Jalel Harchaoui, fellow at Asked about the link between oil purchases and arms Clingendael Institute in The Hague.

2 June 14, 2019 (continued)

"The U.S. unilaterally walking away from the JCPOA The alliance, known as "OPEC+", was due to meet on (nuclear deal) forced France to reduce its economic June 25-26 or in early July to decide whether to extend transactions with Iran. That development is seen as yet the pact. another reason to tighten the closeness between Paris A proposal to create a formal body was abandoned and the Gulf capitals," he said. earlier this year after the U.S. Congress started moves to Saudi Arabia backs the United States' tough line on Iran legislate against cartels in the oil industry. and has sought to broaden the anti-Iran front. France But the Nikkei said the group was trying to make OPEC+ shares concerns over Iran's ballistic missile programme a permanent framework under an accord to be signed at and meddling in the Middle East, but says engagement is the next meeting. preferable to isolation. The report did not say whether Russia is willing to agree to extend the agreement on output reduction. FROM WEAPONS TO ENERGY SECURITY OPEC on Thursday cut its forecast for growth in global oil The shift to buying more Saudi oil comes at a sensitive demand due to trade disputes and pointed to the risk of a time for France and its relations with the kingdom. further reduction, building a case for supply restraint In particular, President Emmanuel Macron is under fire through the rest of 2019. from political rivals and human rights organisations over Crude oil prices jumped 4% on Thursday after suspected French weapons sales to Saudi and the United Arab attacks on two oil tankers in the Gulf of Oman sparked Emirates. Both states have used the weapons in the war tensions between the United States and Iran and raised in Yemen, where a Saudi-led coalition is fighting Iranian- concerns over the safety of oil shipments through one of backed Houthi rebels. the world's busiest sea lanes. Foreign Minister Jean-Yves Le Drian has urged Riyadh to Prior to this latest scare, some OPEC members had been end the "dirty war" in Yemen, but also accused Iran of worried about the recent steep slide in prices, which have supplying the Houthis with weapons they have used tumbled to $62 a barrel from April's 2019 peak above against Saudi territory. $75, due to concern over the U.S.-China trade dispute He and Macron have defended arms sales to Saudi and and a global economic slowdown. the UAE as necessary in the global fight against OPEC said, in a monthly report published on Thursday, terrorism. that world oil demand would rise by 1.14 million barrels Saudi Arabia has been France's top arms buyer over the per day (bpd) this year, 70,000 bpd less than previously last five years, with sales jumping 50 percent to about 1 expected. billion euros in 2018. Rather than avoiding the issue, Macron's government has Gushing European energy IPO pipeline faces muted sought to draw a link between energy and security in investor appetite answering criticism over the weapons sales. "Maintaining economic relations with these countries Europe's oil and gas sector is building up a crowded means keeping a presence in key regions for our security pipeline for stock market flotations, but investor appetite interests and our energy supplies," Parly said. is limited given painful experiences after the last oil price crash and a backlash against fossil fuels. OPEC, Russia nearing accord on long term oil supply Norway's Okea, Britain's Neptune, Chrysaor, Siccar Point coordination - Nikkei and Spirit Energy are all either actively preparing or expected to plan an initial public offering (IPO) in the OPEC and other producers including Russia are in final short term, as are recently merged German-Russian talks for an agreement, that may be signed in early July, Wintershall Dea and Israeli-owned Ithaca Energy. to cooperate on oil supplies on a long-term basis, Japan's Oil and gas companies with a combined value of around Nikkei reported, citing Russian energy minister Alexander $41 billion are seen as candidates for listing in the Novak. coming years, according to estimates by energy Novak also told the Nikkei that discussions with OPEC on consultancy Wood Mackenzie. moving the date of the meeting to early July from the Shares of oil and gas companies historically rise after a originally-planned dates of June 25-26 were nearly crash in oil prices as investors bet on a recovery in finalised. prices. The Organization of the Petroleum Exporting Countries But the recovery following the 2014 downturn, the worst (OPEC), Russia and other producers have since Jan. 1 in decades, has been slow and bumpy amid surging U.S. implemented a deal to cut output by 1.2 million barrels shale production and wider uncertainty over long-term oil per day to support prices. demand as the world transitions to cleaner energy.

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"IPOs tend to come when markets are sizzling hot and Unlike any other time, investors are likely to question a valuations are high – that is not the case for the energy company seeking to list on its role in the transition to a sector currently," said Bertrand Born, portfolio manager lower carbon economy following the 2015 Paris climate for global equities at German asset manager DWS. agreement to limit global warming. Listed oil and gas companies have struggled in recent "Sentiment in the market is not necessarily as strong as it years, underperforming in many cases oil prices and used to be for oil and gas assets... we're moving towards other sectors, and offering a tough backdrop for any a lower carbon economy," said Les Thomas, chief company contemplating a public listing. executive of Ithaca, owned by Israel's Delek Group which In a sign of the challenging conditions, Okea on Thursday last month acquired most of Chevron's North Sea assets lowered its offered price per share and delayed its listing for $2 billion. on the Oslo stock exchange. Greek group Energean was one of a handful of energy Sam Laidlaw, executive chairman of Neptune, backed by companies to list in London in recent years, betting on private equity firms Carlyle Group and CVC Capital Israeli gas production and long-term offtake agreements. Partners, said he saw no time pressure for his company's Its shares have risen over 90% since listing last year. IPO. "Oil price upside is not enough anymore. You have to "Lower returns at $100 a barrel than at $60 raised offer investors at least partial, if not complete, security of concerns among capital markets. There is less appetite a return on their investment regardless of commodity from generalist investors. We don't see anything that's prices," Energean Chief Executive Mathios Rigas said. IPO ready yet," he told Reuters this month. "It's not enough to say I have this amazing geologist or "Some will consolidate, some will never make it to market, knowledge of a basin or promise to find oil in frontier some will take longer. If we wanted to be first, there's areas. To continue investing as an energy company only plenty of time still." in oil, from an ESG perspective, is suicidal." Many of the IPO candidates, including Neptune, were set up in the wake of the 2014 crash by private-equity funds EXCLUSIVE-Business and pleasure: how Russian oil seeking to buy cheap and sell high when the oil price giant Rosneft uses its corporate jets recovers. But nearly five years on, the going is still tough for the Jets used for corporate travel by Russian state-owned oil sector. major Rosneft flew at least 13 times to Mallorca, Ibiza, In the first quarter of 2019, European IPOs slumped to Sardinia and the Maldives when CEO Igor Sechin or their lowest since the aftermath of the 2008 financial people from his social circle were in the same vacation crisis, as uncertainty over Brexit and the U.S.-China trade spots. dispute left companies not wanting to take their chances. Using publicly available data, Reuters tracked 290 UNIQUE STORY Rosneft flights between January, 2015 and May, 2019. Of To succeed, companies will have to offer investors those round trips, 96 took place during Russian public something unique, says Jon Clark, regional transaction holidays or between Friday lunchtime in and leader at EY. Monday morning. "The European oil and gas IPO landscape looks like it will Since the start of 2015, Rosneft corporate jets travelled shift from famine to feast and the potential IPO eight times to Sardinia's Olbia airport, 15 times to the candidates need to think how they will best position Maldives and seven times to Spain's Palma de Mallorca, themselves," Clark said. according to the flight tracking data from planefinder.net, Wintershall-Dea is the largest producer of the group, flightaware.com, opensky.network.org and flight- aiming to boost its output by around 30% to at least data.adsbexchange.com. 750,000 barrels of oil equivalent per day by 2023, in a Reuters found no public information released by Rosneft portfolio stretching from Brazil to Europe and Russia and or the Russian authorities about official events at those the Middle East. destinations, although the company does not always Chrysaor, backed by Harbour and EIG, is the largest oil disclose information about its meetings. and gas producer in the North Sea after acquiring large For some of the flights to vacation spots, Sechin's portfolios from Royal Dutch Shell and ConocoPhillips. associates, including his wife before their divorce and Neptune has assets in a number of regions and is mutual friends, posted photos on social media placing focused on gas, seen as the least-polluting fossil fuel. them at the same location as the Rosneft aircraft at the In addition to returns, environmental, social and same time. governance (ESG) issues are an ever-growing concern Sechin, a close ally of President Vladimir Putin and head for fund managers and their clients. of the world's largest listed oil company by production,

4 June 14, 2019 (continued) has not appeared in social media posts from the holiday The photograph Reuters believes is of Sechin shows him resorts. boarding a Rosneft-operated Bombardier 6000 aircraft at But Reuters did photograph a man closely matching his Palma de Mallorca airport on Aug. 6, 2018. The description boarding a Rosneft plane at Palma da photograph was taken from a public thoroughfare. Mallorca airport on Aug. 6 last year. The same jet - with tail number M-YOIL - flew into Palma Overall, Reuters found public information from Rosneft or de Mallorca six times between mid-July and late-August, the Russian authorities about official events 2018, according to flight tracking data and photographs corresponding to 42 of the 290 flights. taken by Reuters at the airport. In a statement issued on Tuesday in response to Reuters Over that period, the aircraft was on Mallorca or nearby questions, Rosneft said that as a global company it works for 27 days, not including the day of arrival or departure. in all parts of the world, and that expenditures on On July 15, the day a Rosneft flight landed in Palma de corporate aircraft are "carried out in accordance with the Mallorca, the singer and Sechin family friend approved corporate standards." It did not give details. Anita Tsoy posted on Instagram that her family's long- Rosneft declined to answer detailed questions from awaited vacation had begun. Reuters, saying the news agency was conducting On July 19, she posted a photograph on Instagram, "information sabotage in the service of the intelligence tagged as having been taken on Mallorca, of her, her 26- services of interested states." year-old son and her husband, Sergei Tsoy, a senior Among the questions the company declined to address Rosneft executive. were whether Sechin's employment contract entitled him On Aug. 1, the day after the Rosneft jet landed back in to use corporate jets for personal purposes or whether Moscow, she posted a photo tagged Moscow. "The Sechin reimbursed the company for private flights. holiday has come to an end," she wrote. In a reply sent in April to previous Reuters questions Neither Anita Tsoy nor Sergei Tsoy responded to about the use of corporate aircraft by the friends or family requests for comment. Rosneft did not respond to members of Rosneft employees, the company said: "No questions about the flights to Palma. private transport of family members was carried out at the expense of the company." A source close to the Rosneft board of directors said no CODE OF CONDUCT clause in Sechin's contract allowing private flights had Rosneft's corporate code of conduct, a public document, been put before the board for approval. states that "we do not use the company's property and Sechin's use of corporate aircraft for travel to holiday assets not for the purposes intended, or to personal ends destinations - regardless of whether his contract permits it or with the aim of extracting personal benefit." or not - is part of a pattern of wasteful spending by The full cost of the flights is not available, but Reuters Rosneft, said Vladimir Milov, Russian deputy energy found documents showing the costs of running one of the minister until 2002. private jets in 2016. Milov is now a critic of the Kremlin, arguing that Putin's The jet with tail number M-YOIL is operated by a circle is using Russia's natural resources wealth for their Singapore-registered company called AV Asia own benefit. Developments Pte Ltd, according to Eurocontrol, an inter- He also cited a 2017 order placed by a company governmental aviation body. subsidiary to buy tableware including caviar dishes and A 2016 financial report for AV Asia Developments, 100 silver spoons with a total value of $83,000. percent controlled by Rosneft, stated the company After Kremlin critic Alexei Navalny disclosed the order on received $1.86 million for the charter of the sole jet it YouTube on May 22, 2017, it was cancelled the next day, operated at the time, and more than $2 million for according to Rosneft's website. services related to the same plane. The office of Kremlin spokesman Dmitry Peskov declined AV Asia Developments did not respond to a request for to comment on the Rosneft flights, saying it was an comment. internal, corporate matter. The Russian government's Flight tracking data showed that during 2016, the plane spokesman did not respond to a request for comment. carried out 12 flights totalling around 96 hours in the air. SIX FLIGHTS TO MALLORCA IN A YEAR When set against the figures in the AV Asia Between January 2015 and May 2019 Rosneft used a Developments report, that works out at an hourly cost – a fleet of six business jets registered in Austria and the Isle standard industry measure of the cost of private jet of Man. They were owned by Rosneft subsidiaries, services - of about $40,000, or about $19,000 excluding chartered by Rosneft, used for official Rosneft corporate services costs. trips, or in most cases all three. A return business class flight from Moscow to the

5 June 14, 2019 (continued)

Maldives with Russian carrier Aeroflot, departing June 28 they took off for Moscow. and returning July 4, costs $3,770 according to the There is no public record of Rosneft executives having Aeroflot booking website. any business meetings in the Maldives in the last three "EMERALD COAST", MALDIVES FLIGHTS years. Sechin's then-wife Olga Sechina spent part of the Sechin's ex-wife and Anita Tsoy did not respond to summer of 2015 at Costa Smeralda in Sardinia, questions about their trips to the Maldives. according to her posts on social media tagged with the location, and posts of her friend Olga Tonkikh. China's May crude runs drop from peaks, but natgas Sechina's first post from there was on June 30, and the output surges last social media record of the vacation was an Aug. 21 post on one of Tonkikh's social media accounts, featuring China's crude oil throughput rose 2.8 percent in May from Sechina. a year earlier, but eased from record levels struck the Around that period, a Rosneft Bombardier Global 6000 jet month before, government data showed on Friday. with the tail number OE-IRS was recorded three times at Crude throughput last month climbed 2.8 percent from a Sardinia's Olbia airport: on July 26, Aug. 16 and Sept. 9, year earlier to 51.9 million tonnes, or 12.22 million barrels according to flight tracking data. per day (bpd), data from the National Statistics Bureau On Aug. 14, the Cala Di Volpe hotel at the Costa showed. That compared to an all-time high in April of Smeralda resort hosted a private concert by British pop 12.68 million bpd. singer Robbie Williams, according to the hotel's Facebook But with new production from two massive private posts. refineries, crude throughput is set to reach new peaks in The same day, Olga Tonkikh posted a photograph on the coming months. Instagram showing both women with hashtags including Privately owned Hengli Petrochemical ramped up its new #robiwilliams. 400,000-bpd refinery to full operation in late May, Neither Tonkikh nor Olga Sechina responded to requests while similar-sized Zhejiang Petrochemical also started for comment. Rosneft did not reply to questions about trial runs last month. flights to Sardinia. For the first five months of the year, Chinese crude On the night of Dec. 24, 2016, a Rosneft Boeing business throughput rose 4.4 percent on-year to 259.49 million jet with tail number OE-IRF took off from Moscow's tonnes, the NSB reported. Vnukovo airport in the direction of the Indian Ocean, flight The NSB data also showed China's crude oil production tracking data showed. in May climbed 1% from a year earlier to 16.23 million Two days after the flight departed, Tsoy, the pop star, tonnes, or about 3.82 million bpd. That was flat from April. posted a picture of herself on Instagram from inside an Output in the January to May period increased 0.7% from aircraft that matches the interior of a Boeing business jet. a year earlier to 79.29 million tonnes, buoyed as national "And here the long-awaited moment has arrived: oil majors stepped up drilling amid a government call to VACATION," she wrote next to the photo. boost domestic supply security. On Jan. 3, 2017 she posted a picture of herself on a golf Natural gas output was 14.4 billion cubic metres (bcm) in course that matched publicity photos for Velaa Private May, 12.9-percent higher than a year earlier. Island, an exclusive Maldives resort. Output in the first five months expanded at a robust 9.8% On Dec. 28, 2016 and Jan. 4, Sechin's then-wife Olga from a year ago to 72.5 bcm. Natural gas output posted photographs on Instagram of herself in a room increased faster than crude oil as state companies that matches publicity material of Velaa Private prioritised increases in spending on the cleaner burning Residence posted on the resort's website. fuel to meet strong demand growth. Sechin and his wife divorced in June 2017, according to court documents seen by Reuters. Norway approves project to boost oil recovery at There have been Rosneft flights to the Maldives since Gullfaks then. Flight tracking data showed two Rosneft private jets flying Norway has approved Equinor's project to boost oil into the international airport in the Maldives on Dec. 28 recovery from the Gullfaks field in the North Sea by 17 and out again hours later. The same two planes flew back million barrels, the energy ministry said on Friday. to the Maldives on Jan 9. and returned to Moscow on The project, which aims to produce oil from the Shetland/ Jan. 12. Lista dense lime reservoir located above the field's main Reuters saw photographs of the aircraft taken while they reservoir, is estimated to cost 2.2 billion Norwegian were at Velana International Airport in January before crowns ($254 million) and is profitable at an oil price

6 June 14, 2019

above $27 a barrel, it added in a statement. "We don't comment on single companies," said a Equinor, the field's operator, has a 51 percent stake, state spokesman for the fund, which has previously said any -owned Petoro 30 percent and OMV 19 percent. divestments would take place gradually and over time. The finance ministry said the fund's exclusions would Norway wealth fund must ditch ConocoPhillips after track FTSE Russell's classification. index review The fund's stake in Hess, which was not immediately available for comment, was 0.85% and worth $102 million Norway's wealth fund will have to divest its holdings in at the end of 2018, when it also held $40 million of its ConocoPhillips and Hess after both U.S. oil companies bonds. were added to a list which effectively excludes them from Wednesday’s decision by Norway, which also included a the Nordic country's portfolio. tightening of rules regarding the way the fund can invest As part of Norway's efforts to shift its $1 trillion "rainy day" in coal, is the biggest single divestment from fossil fuels fund away from oil, the country's parliament on ever at an estimated $14 billion, environmental Wednesday adopted a plan to drop all dedicated oil and campaigners said. gas explorers and producers, as defined by stock market The next big one is a planned commitment by insurer Axa indices provider FTSE Russell, from the fund's to divest 3.5 billion euros from coal and oil sands by benchmark index. 2020. ConocoPhillips and Hess were both added to the list of "It makes sense that the Norwegian Oil Fund divests from those classified as "exploration and production" this oil majors like ConocoPhillips, which have become month, FTSE Russell said, with the change coming into increasingly speculative with a weak future outlook," effect on June 24 after a regular review. Kathy Hipple, a financial analyst at the Institute for Further changes to the list are possible in the next few Energy Economics and Financial Analysis, said. weeks as FTSE Russell is making alternations to its so- "The poor risk-return profile of the oil and gas sector no called Industry Classification Benchmark (ICB) longer fits the fund's objectives." framework, with those changes expected to take effect on Norway's central bank, which manages the fund, called in July 1. 2017 for the removal of all oil and gas stocks from its Norway's wealth fund data shows it held a stake in benchmark index to reduce its exposure to the risk of a ConocoPhillips of 1%, worth $714 million, at end-2018, as permanent drop in oil prices. well as $64 million worth of corporate bonds issued by the This proposal, which would have affected some 6% of the oil major, which was not immediately available for fund's holdings, worth around $37 billion, was rejected by comment. the Norwegian finance ministry which instead put forward Selling out of this would mark the first divestment from the plan adopted this week by lawmakers and affects just one of the world's oil majors by the fund, which can still 1.2% of the fund's overall equity holdings. invest in those that have refineries and other downstream ConocoPhillips continues to produce oil from Norway's activities, so-called integrated companies such as Royal Ekofisk field, which Phillips Petroleum discovered in 1969 Dutch Shell and ExxonMobil. and was the first oil discovery made off the Norwegian Norway has said the decision is to reduce the exposure of coast, kickstarting what has become the Nordic country's the country's wealth to the risk of a permanent drop in oil top industry. prices, but environmental campaigners have seized on it Hess sold its own Norwegian offshore assets to Aker as example of an investor turning away from the oil BP in 2017. industry. Total, other foreign firms seek to renew Libya licences. "This is of course great news for Norway since this means another big egg out of the Norwegian oil basket, but other Canadian oil output growth forecast halved to 1.4% oil companies should see the writing on the wall: annually -industry body transform or die." Martin Norman, Sustainable Finance Campaigner at Greenpeace in Norway, said of the move Canadian oil production will grow by 1.4% annually until by Norwegian lawmakers. 2035, the Canadian Association of Petroleum Producers 'WEAK FUTURE OUTLOOK' (CAPP) forecast on Thursday, halving its estimate from Norway pools its revenues from oil and gas production five years ago due to constraints by a lack of new into the sovereign wealth fund, which declined to say on pipelines and inefficient regulation. Thursday what its stakes in ConocoPhillips and Hess The Calgary-based industry body said output will were now worth or whether it had already sold them. increase to 5.86 million barrels per day by 2035, a rise of

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1.27 million bpd from current levels, representing a 1.4% partners in seven onshore areas for state oil company annual increase. That growth rate is less than half what Pemex, which is struggling to reverse more than a CAPP projected in 2014. decade of falling crude output. Even so, it is higher than CAPP's forecast last year, which The move represents a fresh blow to the flagship energy said Canadian oil production would reach 5.6 million reforms of Mexico's previous government that had barrels by 2035. Most of the growth comes from thermal allowed Pemex to partner with private oil companies for oil sands projects in northern Alberta. the first time in an effort to boost production. Canada holds the world's third-largest crude reserves but The news confirmed a Reuters report. its energy industry has struggled to recover from the Joint ventures aimed at developing oil and gas projects, 2014/15 global oil price crash. or "farmouts," have been seen as a way to help reverse a CAPP forecast capital investment in the Canadian oil and nearly 15-year slide in output by luring significant outside gas industry would fall to C$37 billion ($27.76 billion) in investment from private partners. 2019, compared with C$81 billion in 2014. Other oil auctions to offer exploration and production Lengthy delays in getting new export pipelines built have rights were previously canceled by Mexican President led to congestion on existing pipelines and crude getting Andres Manuel Lopez Obrador, who has criticised former stranded in Canada's main oil-producing province Alberta. President Enrique Pena Nieto's reforms. That pushed the discount on Canadian crude versus The leftist has instead focused on downstream global benchmarks to record levels last year and investment, including a plan to build an $8-billion refinery. prompted the Alberta government to impose oil He has also pledged to engineer a turnaround for Pemex, production curtailments. the world's most indebted oil company that is increasingly "We need pipeline capacity and more efficient regulatory grappling with investor skepticism. policy to help bring investment back to the oil sector and Last week, Fitch became the first major ratings agency to drive growth," CAPP Chief Executive Tim McMillan said in downgrade Pemex's bonds to "junk" status. This week, a statement. central bank governor Alejandro Diaz said Mexico should CAPP compared the constrained growth outlook in reinforce Pemex's creditworthiness. Canada to a larger-than-expected increase in U.S. oil production, which the Energy Information Administration Petrobras receives highest bid for offshore oilfields said will hit 13 million bpd by the end of 2019. from Brazil Ouro Preto -sources CAPP's forecast comes amid close scrutiny of the Canadian government's treatment of the energy industry. Brazilian energy company Ouro Preto Oleo e Gas On Wednesday, Canada's Liberal government rejected delivered the highest bid to acquire a pair of Brazilian oil the majority of amendments that would have diluted a bill clusters from state-run oil company Petroleo Brasileiro designed to overhaul environmental assessments for SA two sources with knowledge of the matter said. major projects like pipelines, disappointing many in the Petrobras, as the oil company is known, said earlier on energy industry. Thursday that bids for the Pampo and Enchova shallow "There is a simple reason why Canada is losing ground to water fields surpassed $1 billion but did not disclose the the United States and that is market access and absent highest offer or winner. leadership," said Mark Scholz, chief executive of the Ouro Preto, led by Rodolfo Landim, former president of Canadian Association of Oilwell Drilling Contractors said OGX, a now bankrupt oil and gas company led by one- on Thursday. time billionaire Eike Batista, has stakes in several basins Next week, the federal government will decide whether to throughout Brazil. approve the Trans Mountain pipeline expansion, which It was competing against at least one other bidder: was delayed after a Canadian court overturned the Trident Energy, a Warburg Pincus-backed firm government's 2016 approval of the project. Trans specializing in mid-life oil assets, which delivered an Mountain will nearly treble the volume of crude shipped offer in March. from Alberta to the British Columbia coast. Together, the fields produce almost 39,000 barrels of oil equivalent per day, according to July 2018 figures, Mexican oil regulator cancels Oct auctions to pick making them the largest mature production asset Pemex partners in Petrobras' divestment portfolio. Both are located off the coast of Rio de Janeiro. Mexico's oil regulator announced on Thursday the Petrobras has been in talks with potential buyers for cancellation of October auctions to pick joint-venture these oil clusters for roughly one year.

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In July 2018, it entered exclusive talks with Ouro Preto, Petrobras has put dozens of assets up for sale in a bid to but the unlisted company later lowered the reduce debt and refocus the firm on deepwater bid, allowingTrident to take the lead. Under Petrobras' exploration and production. divestments rules, however, it was required to open a Ouro Preto and Petrobras did not immediately comment final bid on June 5. on the matter.

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(Inside Oil - Americas Edition is compiled by Jesse Vinay A in Bengaluru) Refinitiv 3 Times Square, New York, NY 10036 For questions or comments about this report, contact: [email protected] Please visit: Refinitiv for more information. To subscribe to Americas Oil newsletter, click here. Privacy statement

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