National oil company monitor Volume III

Transcription

1 National oil company monitor 2008 Volume III

2 For further information, contact: Wendy Fenwick +44 [0] Andy Brogan Don Painter don.painter@sa.ey.com National oil company monitor, 2008, Volume III Time-sensitive material Based on information from 22 May 2008 to 28 October 2008

3 NOC monitor introduction Q308 Navigating through uncertain times During the second half of 2008, we witnessed unprecedented instability in the global financial system, the effects of which have been compounded by the looming threat of recession in some of the largest developed economies. At the same time, oil prices have fallen from their record level achieved in July of last year to reach a four and a half year low. This shifting environment has created both challenges and opportunities for National Oil Companies (NOCs). NOCs are a varied group motivated by a range of different political and social factors. Their responses to the credit crisis have been similarly diverse. Some NOCs are being cautious and are reassessing their investment plans for Petrobras has delayed announcing its long-term strategic business plan due to the uncertain market conditions, while Pertamina has postponed plans to raise US$1 billion to finance field developments choosing instead to fund the development of the Cepu block from its own funds. Final investment decisions on some projects are likely to be delayed until the market stabilizes and development costs subside. The International Energy Agency (IEA) has emphasized the need for oil companies to maintain investment through the credit crisis to prevent a supply crunch. PetroChina has announced plans to increase investment in 2009, including possible acquisitions, in order to strengthen its core exploration and production business. After a year long hiatus, reserves seeking NOCs are becoming more active again in the M&A market now that targets are more affordable. India s ONGC is in the process of acquiring Russia-focused independent, Imperial Energy. We are also increasingly seeing NOCs partnering together on projects during the crisis, without the involvement of IOCs. South American neighbours Petrobras and PDVSA are partnering on the construction of a refinery in Brazil. PetroVietnam has signed strategic co-operation agreements with CNOOC and Gazprom. Table of contents Partnerships and alliances 2 North and South America 2 Europe, Middle East and Africa 3 Asia and Oceania 3 Privatizations/consolidation 5 North and South America 5 Europe, Middle East and Africa 5 Asia and Oceania 5 Government policy developments 6 North and South America 6 Europe, Middle East and Africa 6 Asia and Oceania 7 NOC strategy 8 North and South America 8 Europe, Middle East and Africa 9 Asia and Oceania 10 The credit crisis has certainly created new challenges for oil and gas companies. However, it also presents opportunities for well-capitalized companies. The long-term industry fundamentals remain favorable. NOCs are well placed to ride out the credit crisis and position themselves for future growth. Wendy Fenwick Global Oil & Gas Leader, Ernst & Young Key passages are highlighted. All figures shown in US$ unless otherwise noted. National oil company monitor - Volume III 1

4 Partnerships and alliances North and South America Venezuela increases involvement in ventures globally Petroleos de Venezuela SA (PdVSA) has entered into a number of alliances including the following: A $5.73 billion investment in the Delta Caribe West LNG project in the Blanquilla and Tortuga areas of the Caribbean Sea, with partners Gazprom (15%), Eni (10%) and Energais de Portugal (5%). A 60% stake in the $6.41 billion development of a 4.7 million tonnes per year liquefaction train for Chevron and Statoil s Deltana Platform project with partners Galp Energia (15%), Chevron (10%), Qatar Petroleum (10%) and Mitsubishi (5%). (The train will be supplied by the offshore Mariscal Sucre fields that are 100% owned by PdVSA). A 60% stake in the construction and supply of a $5.2 billion second train for the Deltana Platform project With partners Galp Energia (15%), Ituchu of Japan (10%), Enarsa (10%) and Mitsubishi (5%). A stake in the third train for the Deltana Platform project with partners Gazprom (15%), ENI (10%), Petronas (10%) and Energias de Portugal (5%) 1. Brazil and PdVSA partner to build new refinery Brazilian state oil company Petrobras and PdVSA have entered into a 60:40 joint venture agreement for the development of a new refinery in Brazil. The $4 billion Abreu e Lima refinery will have a capacity of 200,000 barrels per day (bpd) of heavy oil and is scheduled for completion in The facility is the first new refinery to be built in Brazil since Joint venture will be the first to explore waters in Argentina Argentina s state-run company, Enarsa; Chile s state-owned oil company, Enap Sipetrol; and Spain s Repsol-YPF will begin exploration of offshore Argentina over the next few months. The joint venture will be the first drilling project in offshore Argentina in 30 years. Enarsa will contribute financially only if initial explorations show that the project will be commercially viable 3. Peru seeks alliances in spite of government scandal Peruvian state oil company Petroperú has joined an alliance with India s Reliance Industries to explore in blocks with oil or gas prospects as it seeks to expand its presence in the upstream business. Some analysts believe the alliance is a strategic partnership model that Petroperú may follow when forming other alliances with other foreign companies. The Peruvian government also signed 17 new exploration concessions, both onshore and offshore, including awards to Petroperú, China National Petroleum Corp (CNPC) and to private companies. The Peruvian government expects investments of $1.8 billion in local projects in Some industry observers question whether Petroperu s exploration strategies will be impacted by the recent oil contract scandal where Peruvian prosecutors laid charges against 14 people over allegations of bribes in oil contracts awarded. The situation led the entire Cabinet to step down in October. Although 10 of the 17 ministers have been reinstated, Peru s prime minister was among those replaced 4. Europe, Middle East and Africa Alliance to explore Kazakh portion of the Caspian Sea Kazakhstan s state-owned oil company, KazMunaiGaz, has signed a memorandum of understanding with ConocoPhillips and Mubadala Development Company for the exploration and development of an offshore field in the Kazakh section of the Caspian Sea. KazMunaiGaz will hold a 51% stake, while the other two companies will split the remaining 49% 5. Adnoc increases alliance activity Abu Dhabi National Oil Co. (Adnoc) continues to increase alliances to assist domestic energy operations. Adnoc signed a 25-year agreement with Dolphin Energy Limited, allowing Dolphin to lease and operate Adnoc s Eastern Gas Distribution System (EGDS) in the Emirate of Abu Dhabi. EGDS supplies gas to Adnoc s customers in Abu Dhabi and Dubai. Adnoc prepared a project tendering round with partner ConocoPhillips for the $10 billion Shah field sour gas project. The company is planning to enter into a strategic alliance with Abu Dhabi s International Petroleum Investment Company to explore domestic upstream opportunities 6. 2

5 Kingdom of Saudi Arabia awards Chevron a long-term agreement The Kingdom of Saudi Arabia has extended and amended an agreement with Chevron Corporation. The amendment gives the super major the right to operate on behalf of the Saudi government for its 50%, undivided interest in the petroleum resources of the Partitioned Neutral Zone (PNZ), which is located between Saudi Arabia and Kuwait, for a period of 30 years. Under the agreement, Chevron subsidiary Saudi Arabian Chevron (SAC) will continue to explore for and produce crude oil and natural gas on behalf of Saudi Arabia in the onshore PNZ. The field operations are jointly managed by SAC and Kuwait Gulf Oil Company 7. Iraq and Shell enter multibillion dollar gas joint venture Royal Dutch Shell and the Iraqi oil ministry have signed an agreement to launch a joint venture with state-owned South Oil Company (SOC) to gather and monetize associated gas that is currently being flared. The deal is considered to be worth $3 $4 billion. The joint venture (Shell: 49%, SOC: 51%) will own and operate the existing gas gathering, treating and processing facilities, and will invest to repair nonfunctioning assets and develop new facilities. Iraq currently flares around 700 million cubic feet per day from its southern fields, although full production of associated gas in SOC s three regions Basra, Missan and Dhi Qar is estimated to potentially yield five billion cubic feet per day. Some analysts forecast that on development, the associated gas production in southern Iraq could reach up to four billion cubic feet per day, opening up the possibility for future liquefied natural gas (LNG) exports 8. LNG facility will be the largest FDI in Angola s history The Sonagas unit of Sonangol, Angola s state-owned oil company has entered into a deal with Chevron Corp., Total SA, BP PLC and Eni SpA to construct a new LNG export facility near Soyo in Angola. The processing facility will be designed to handle 1 billion cubic feet of associated gas per day, resulting in annual production of 5.2 million tonnes of LNG and related products. Most of the gas is expected to be exported to the US. The deal is believed to be the country s largest foreign investment project and is scheduled for completion in São Tomé and Principe support energy alliance The government of São Tomé and Principe has sold a 35% stake in its oil marketing company Empresa Nacional de Combustíveis e Óleo to Sonangal. The government has entered into strategic agreements with Sonangal and earlier, with Portuguese oil and gas company Galp Energie to encourage oil exploration in the country 10. Uzbekneftegaz and CNOOC to develop Uzbekistan oil and gas CNPC has signed a deal with Uzbekistan s state oil company, Uzbekneftegaz, to jointly explore an oil field in Uzbekistan. The Mingulak oil field has an expected annual production of two million tonnes and currently has oil reserves of approximately 30 million tonnes. The deal will help Uzbekistan meet the growing demand for oil and will help to boost the development of the natural gas upstream business in China and the Central Asia-China natural gas pipeline project 11. Asia and Oceania CNOOC and Total agree to supply LNG to China Total Gas and Power Limited and China National Offshore Oil Corporation (CNOOC) have signed a cooperative agreement to enhance existing and promote future joint upstream, downstream and new energies activities. The first initiative that the two firms will focus on will be able to deliver one million tonnes of LNG to CNOOC in CNOOC already has a 45% stake in the Akpo project in Nigeria, which is operated by Total 12. CNOOC and CPC may increase efforts in East China Sea CPC Corporation Taiwan (CPC) is in discussions with CNOOC to increase cooperation on oil exploration and production projects in the East China Sea 13. PTTEP and ship owner pursue FLNG opportunities Thailand s state-run PTT Exploration and Production (PTTEP) and Golar, an owner of LNG ships, have signed a memorandum of understanding to jointly pursue floating LNG (FLNG) production opportunities globally. The joint venture partners plan to study stranded offshore or close-toshore gas fields that could deploy FLNG technology to commercialize reserves. The joint venture combines PTTEP s upstream experience in exploration and production and gas market access with Golar s expertise in LNG technology and services 14. National oil company monitor - Volume III 3

6 Alliance launches oil storage project for South Korea State-run Korea National Oil Corporation (KNOC) has entered into an agreement with SK Energy, GS-Caltex Corporation, Oiltanking GmbH and Glencore International AG to develop a new petroleum terminal in Yeosu, South Korea. The new joint venture company, Oiltanking- KNOC Yeosu Co. Ltd., will build 57 oil tanks and three new docks as part one of a three part deal. KNOC (with a 29% stake) and Oiltanking (with a 35% stake) will jointly run the terminal. SK Energy and GS-Caltex will hold 11% each, while Glencore will own the remaining 14% 15. PetroVietnam strengthens cooperation with Chinese partners Vietnam National Oil & Gas Group (PetroVietnam) and CNOOC have signed an agreement of strategic cooperation, wherein both sides have agreed to expand cooperation in both countries and also in other countries. PetroVietnam also reached two agreements in principle with the China Merchants Group to build and operate the port of Sao Mai-Ben Dinh in the southern province of Ba Ria-Vung Tau and to invest in an oil and gas services industrial zone in the Mekong Delta province of Tien Giang 16. Crude oil production from Block Junin 2 in Venezuela A seven million metric ton oil refinery joint venture, Long Son, in Vietnam. An oil transport joint venture PdVSA also plans to open an office in Hanoi to accelerate cooperation between the two countries 17. PetroVietnam and Gazprom strengthen cooperation PetroVietnam and Russia s state gas monopoly, Gazprom, have entered into a 30-year oil and gas exploration agreement. The joint venture company, Vietgazprom, will develop four blocks off Vietnam s continental shelf, while Gazprom will finance the initial exploration work. In addition, the two companies have signed initial provisions for setting up a new joint venture called Gazpromviet, which will work in Russia and other countries. The agreement builds on the existing joint venture, Vietsovpetro. Petrovietnam is also hoping to receive government approval to buy a $614 million, 49% stake in the Russia-based oil exploration venture headed by Zarubezhneft. The project is forecast to start producing oil in 2011 and to peak at 6.4 million tonnes of crude oil per year by Vietnam and Venezuela build bilateral agreements As Vietnam and Venezuela continue to build their bilateral agreements, PetroVietnam and PdVSA negotiated a number of cooperative oil and gas projects including the following: 4

7 Privatizations/ consolidation North and South America Ecopetrol to trade ADS on the NYSE Ecopetrol SA, Colombian state-owned oil company, announced plans to list American Depositary Shares (ADS) on the New York Stock Exchange (NYSE) under the symbol EC. Each ADS will represent 20 ordinary shares of Ecopetrol common stock. The NYSE listing is part of Ecopetrol s strategy to become a global energy company. The Colombian government has authorized Ecopetrol to sell up to 20% of the company. In 2007, a 10.1% stake was sold via an initial public offering through which Ecopetrol raised $2.8 billion. Javier Gutierrez, Ecopetrol s CEO, reported that the company does not have any current investment needs, as it has $7 billion to finance its expansion plans 19. Europe, Middle East and Africa Nigeria does not plan to privatize oil and gas assets The Bureau of Public Enterprises (BPE), Nigeria s privatization agency, has had to issue reassurances that there are no immediate plans to sell any enterprises in the oil and gas sector. The BPE took this step after union workers at the Nigerian Gas Company (NGC), a subsidiary of the Nigerian National Petroleum Corp (NNPC), and the Pipeline and Products Marketing Company (PPMC) threatened to go on strike if there was no clarification of government plans. The BPE had earlier announced plans to privatize NGC and PPMC during 2008 or ARMO acquisition completed The Albanian parliament approved the sale of ARMO, the state-owned oil refining company, to a US-Swiss consortium for $183 million. The consortium (i.e., Refinery Associates of Texas, Mercuria Energy Group and Anika Enterprises) plans to invest $250 million in Albania over the next five years. In the first three years, $50 million will be spent on environmental considerations. ARMO owns two refineries, 11 depots, a chain of service stations and a research center 21. KazMunaiGaz mulls selling Georgian subsidiary KazMunaiGaz indicated that it was open to offers for its Georgian subsidiary, KazTransGazTbilisi. The gas distributor was acquired in 2005 and supplies the city of Tbilisi and surrounding areas with 300 million cubic meters of gas a year. According to CEO Kairgeldy Kabyldin, if the company received an interesting offer it would be willing to sell. Strategic assets, such as the Batumi Oil Terminal and the Batumi Sea Port, are not considered candidates for divestment, as leaders consider these assets key to Kazakhstan s plan to export crude oil 22. Asia and Oceania CPC acquires a stake in RasGas supply Government-owned CPC has acquired a 5% stake in the RasGas II fifth liquefaction train, part of a the major RasGas II LNG project, for $47 million. CPC exercised an option acquired when the company finalized its LNG purchase contract with RasGas II to import 3 million tonnes per year of LNG for 25 years. RasGas is a joint venture partnership between Qatar Petroleum and ExxonMobil Corp. As domestic demand for gas is expected to grow in Taiwan, CPC is expected to look for further opportunities to secure natural gas supply 23. KNOC and KORES not to be privatized The Korean government has decided to expand state-run energy companies, rather than privatize them. The government will increase its investments in KNOC and Korea Resources Corporation (KORES) by 1.9 trillion won and 3 trillion won, respectively. The government aims to establish KNOC as the 60th largest oil company in the world by The government also announced plans to improve management efficiencies at both corporations 24. PVFC plans $900 flotation PetroVietnam Finance Corp. (PVFC), the financial arm of the state owned oil group PetroVietnam, plans to raise $900 million by listing on the Ho Chi Minh Stock Exchange. Morgan Stanley has been advising the company on a planned listing on the Singapore Stock Exchange. Morgan Stanley has a 10% interest in PVFC 25. National oil company monitor - Volume III 5

8 Government policy developments North and South America Mexico approves budget Mexico s Senate has approved the new national budget, which includes a measure to grant investment independence to national oil company Petroleos Mexicanos (Pemex). Pemex contributes about 40% of its revenues to the national budget, which has limited its investment capacity. This new status is considered a first step toward allowing private capital in the company 26. Venezuela makes changes at PdVSA, expands financing ties President Hugo Chavez has overhauled the board of directors of PdVSA, bringing in six new directors but leaving oil minister Rafael Ramirez as President of the company. Another change is the creation of a state-run subsidiary of PdVSA to handle liquid fuel transportation. The new company will deal in road and water fuel transport and will take over assets of private companies that are developing market concentrations to secure the continuity of liquid fuel transportation. As credit markets tighten, Venezuela is expanding its financial ties with allies, such as Russia, Iran and China, from which the country borrowed $8 billion in 2008, as it seeks to diversify its financing mechanisms. The country has made extensive use of capital markets, with PdVSA alone issuing $7.5 billion in bonds. In 2009, the country is expected to borrow $5.6 billion, according to the finance minister. With Venezuela dependent on oil revenues to fund social programs, Chavez has indicated that the falling price of oil will likely lead to curbed spending and possible austerity. The new federal budget shows reductions in spending programs and is based on oil prices of $50 $60 per barrel in Observers say that the government needs prices around $90 a barrel to avoid running a deficit. The gasoline subsidy, which is practiced by many Latin and South American governments, is one area in which the Venezuelan government loses money. Retail pump prices are the cheapest in the world at $0.14 a gallon. Car sales have been setting records almost every year since 2003, jumping over 43% in 2007, and fuel demand is growing at 5% per year. Industry watchers believe that Venezuela gave up almost $10 billion in revenues in 1H08 by selling oil domestically for $8 a barrel instead of the $96 it would have fetched overseas 27. Europe, Middle East and Africa Iranian oil minister removed from post Mohammad-Reza Nematzadeh has been removed from his post as Iran s Deputy Minister of Oil and head of the National Iranian Oil Refining and Distribution Company without explanation. However, Nematzadeh s efforts to curb Iran s over-consumption of and over reliance on petroleum by implementing an unpopular rationing scheme is seen as the most likely cause. Nematzadeh has been replaced by Noureddin Shahnazi Zadeh, Managing Director of the National Iranian Oil Products Distribution Co 28. Iran looking for investments for refinery expansion As Iran proceeds with the gradual elimination of gasoline and gasoil subsidies, required to be completed by 2012, it is looking for investment money for a major expansion of its refining capacity. Iran plans to spend approximately $16.2 billion over the next five years on its refining investment program. The country s nine refineries will be upgraded and six new ones will be built, resulting in a doubling of refining capacity from 1.6 million bpd to 3.3 million bpd. Since March 2008, $30 billion has been in the Iranian oil and gas sectors invested by foreigners 29. Nigerian energy reforms looming Legislation will soon come before the Nigerian National Assembly to reform the country s oil industry. The Oil and Gas Implementation Committee made recommendations that the national oil company, NNPC, be transformed into an independent limited liability company. A considerable number of laws will need to be repealed and extensive changes made for the proposed transformation to occur. The National Petroleum Company of Nigeria and five new institutions will replace the NNPC and will share its responsibilities. Of major importance to the plan is the need for Nigeria to convert its joint ventures with foreign oil companies into corporations in order to reduce the government s funding problems and gain access to capital markets 30. 6

9 Asia and Oceania Turkey lags on natural gas import portfolio sell off In 2001, Turkey passed a gas market law that required state-owned oil and gas pipeline company Botas to sell off 80% of its natural gas import portfolio to the private sector by To date, only 4 million cubic meters per year of the total available 52 billion cubic meters per year has been transferred to four private companies. Most of the lots being offered are from contracts signed under intergovernmental agreements, and the supplying countries have to agree to the transfer to multiple individual companies, resulting in a lack of interest from buyers. Botas is waiting for guidance from Turkey s energy regulator as to whether or not it should continue to try to sell off more portions or if it should instead try a volume release program. A second condition of the gas law was that after Botas transferred its import contracts, the company would be divided into three parts dealing with importation, transmission and pipeline operations. Opponents say that Turkey needs to merge Botas with state-owned national oil company Türkiye Petrolleri Anonim Ortakligi so that the country has one integrated major player in the global oil and gas industry 31. China s private oil firms threaten lawsuit against state-owned companies Sinopec and CNPC may face an antimonopoly lawsuit from China s private oil firms that allege that the two companies failed to provide adequate amounts of crude oil, pushing the companies to the brink of bankruptcy. In March 2008, CNPC and Sinopec were ordered to provide oil to small and independent retailers at prices lower than the state-set level but failed to do so. The retailers are hoping to use the antimonopoly law passed in August 2007 to prevent state-owned enterprises in the petroleum industry from abusing their market dominance by disregarding public interest. Since independent exploration was banned in 1998, all private downstream players have been at the mercy of China s three national oil companies for supplies. The three companies, including China National Offshore Oil Corporation, have seen margins reduced by government windfall taxes and control of oil product prices, despite revenues that have risen over 40% 32. National oil company monitor - Volume III 7

10 NOC strategy North and South America Ecopetrol continues pursuit of international strategy Two years ago, Colombia s statecontrolled oil firm, Ecopetrol, decided to internationalize the company, expand its overseas operations and diversify supplies. To that end, the company has an ambitious investment plan for 2008, projected to reach $4.185 billion, more than double that of The longer-term plan calls for $60 billion in investments through 2015, at which point the company expects to reach more than 1 million bpd of production. The company is exploring in Brazil, Peru and the US. Ecopetrol has spent $510 million on acquiring production block rights in the Gulf of Mexico from Union Oil Company and $120 million to explore with BP plc in the same area. In March 2008, Ecopetrol signed six new contracts with Brazil for exploration in that country. The company has also invested in an ethanol plant project in Colombia as part of its strategy to expand its footprint in the ethanol and biodiesel markets by In 1Q09, Colombia will recertify its reserves, which is expected to show that recoverable crude is as high as 4.5 billion barrels, up from the current 1.5 billion barrels. Ecopetrol and private firms plan to drill up to 100 new oil wells this year. Because of the current global financial situation, Ecopetrol plans to carefully review its 2009 capital spending program. However, it should be noted that the company has $5 billion in cash 33. Petrobras delays announcing strategic plans Brazilian state-owned oil company Petrobras has decided to postpone announcing its business plan until the end of 2008 so that it can analyze each project in the face of the current global credit situation. With dropping oil prices, Petrobras may postpone investments in the Gulf of Mexico to instead focus on areas in which returns are more certain. Drilling projects may be delayed as a lack of access to capital keeps contractors from building new rigs. The company had planned on receiving 56 rigs between now and 2017 but expects that the orders will not be finished on time. Petrobras also plans to expand its refining capacity from 1.9 million bpd to 3 million bpd by In addition, the company s transportation shipping group, Transpetro, has just begun a major fleet modernization program to support the company s huge offshore exploration plans over the next 10 years. The company has an ambitious development strategy that is expected to see Petrobras become one of the top five energy companies in the world. The new business plan will include investment strategy up to 2020 in order to include plans for developing the presalt layer oil reserves found by the company 34. PdVSA investing in gas projects Venezuela s PdVSA is investing almost $5 billion a year in gas projects with associates in domestic hydrocarbon production. The company is working on the construction of Cigma, an industrial gas complex, and also on the building of 800 km of pipelines that will bring gas from the northern peninsula of Paria where Cigma is located, to the interior. The pipeline is expected to be completed by In addition, a gas liquefaction train is scheduled to start operation in late 2013, with a second train to come online six months later 35. Mexico needs refining capacity State oil firm Pemex believes that $50 billion needs to be invested by its refining subsidiary by 2017 both to reconfigure existing refineries and to expand capacity. A plan to construct a new 300,000 bpd heavy crude refinery has been proposed and sent to Congress. President Felipe Calderón has proposed an energy reform package that would allow private companies to supply refining services to Pemex. Mexico, despite being a net crude exporter, at present imports 40% of its refined products. Pemex will boost output from its offshore Golden Lane fields in 2009 as part of a redevelopment strategy prompted by recent successful exploration work in the area. Currently, the fields produce 13,000 bpd of light oil, but output should increase to 20,000 bpd in 2009 once a new gathering platform is installed. Pemex s petrochemical subsidiary PPQ will be implementing a strategy to develop business lines that will give it a competitive advantage as part of the company s program to increase operating efficiency. PPQ will modernize its industrial and management processes through thirdparty alliances or investments, and will generate synergies with Pemex s other subsidiaries to add value to the production chain a necessity if PPQ is to compete internationally. To improve planning, PPQ will study its supply chain, review its operating performance and analyze costs 36. 8

11 Europe, Middle East and Africa Adco plans escalated drilling program According to its business plan, Adu Dhabi Co. for Onshore Oil Operations (Adco) plans to increase its drilling activity in the next few years. The company expects to drill close to 1,500 wells, with numbers climbing from 189 wells in 2009 to 339 in The plans are part of a strategy to push output from 1.4 million bpd to 1.8 million bpd 37. Russian pipelines affected by credit crunch State pipeline giant Transneft has been promised project finance assistance from the Russian government in the face of the global credit crisis. A draft proposal from the Federal Tariff Service (FTS) and the finance and economic ministries is forthcoming. Two major projects to be considered are the 2,700 km East Siberian Pacific Ocean (Espo) crude oil pipeline and the Baltic Pipeline System-2, which should be completed by In August 2008, FTS raised crude transport tariffs 19.5% to help Transneft raise money needed to pay interest on the loans it took out to build Espo. A private placement of 8.7% notes due August 2018 for $1.05 billion in proceeds was also recently transacted by Transneft 38. Ukrainian government bails out Naftogaz Ukrainian President Viktor Yushchenko has signed a decree ordering the government to give $1.7 billion to state-owned oil and gas company Naftogaz Ukrayiny for reasons of national security. The order will provide Naftogaz with a combination of cash and tax credits. Due to its poor credit rating, the company has had trouble borrowing money on international markets. Russian gas imports pass through Naftogaz pipelines at a price higher than domestic gas prices, so Naftogaz has been posting large losses and has been near bankruptcy. Ukrainian gas prices are slated to rise until 2012 when they will match European market prices. Naftogaz is currently in default of a $500 million Eurobond due in 2009, since it has not yet submitted audited financial results for 2007, and at a recent bondholders meeting called in October 2008 to obtain a waiver, the vote did not achieve a quorum. Deutsche Bank had offered credit for the purchase of gas to fill storage facilities, but Naftogaz recently refused to sign the loan due to conditions that the bank had attached. Naftogaz has signed a long-term deal with Russia Gazprom to become the sole importer of Russian gas to the Ukraine (55 billion cubic meters per year), bypassing intermediary companies that usually manage the gas trade. Conditions attached to the agreement include Naftogaz paying off all of its debt and allowing Gazprom subsidiaries to operate in the Ukrainian market 39. National oil company monitor - Volume III 9

12 Oman expands shipping program Oman Shipping Company (OSC), the country s state shipping firm, plans to raise $4 billion by the end of 2008 to finance its proposed fleet expansion. OSC wants to add refined product tankers, including 10 very large crude carriers costing $1.54 billion, to its fleet to meet the demand for energy transportation. Financing of the new ships will likely come from north Asian institutions or European banks BNP Paribas and Société Générale 40. Iranian gas projects on schedule The new head of the National Iranian Gas Export Company, Reza Kasaisadeh, has said that Iran s three major gas projects will be completed by The first project, the Iran LNG project, financed wholly by Iranian capital, will be ready by 2012 and will have an initial production capacity of 5.1 million tonnes of gas per year. The Pars LNG project is expected to produce 10 millions tonnes of gas per year, and the Persian LNG project, a joint venture between Shell, Repsol and the National Iranian Oil Company, will have a capacity of 16 million tonnes per year 41. Asia and Oceania PT Pertamina delays plans Given the current credit situation, Indonesian state oil company PT Pertamina is delaying plans to raise $1 billion to develop oil and gas fields in Java. The company s financial director says that the restrictions imposed by the banking industry, which is asking for high interest rates and guaranteed oil sales, are too strict. PT Pertamina will wait until the markets are stable before executing loans. The government has tasked the company with achieving increased production targets of 126,000 bpd, with a future target of 225,000 bpd by South Korea to submit updated reserves estimates In 2005, a task force was formed by KNOC, Korea Gas and the Korea Institute of Geosciences and Mineral Resources to begin a 10-year program to explore for and develop gas hydrates lying off the country s eastern coast. In November 2008, the group will submit updated findings from 2007 drilling tests with detailed data to the Ministry of Knowledge Economy. The block being focused on lies 90 km west of Dokdo, near two rock islets that are claimed by both South Korea and Japan. As both countries lack natural resources, a hydrocarbon find in this area could inflame tensions between the two countries. The task force, which has invested $13 million so far in 2008, plans a second round of drilling in 2011, with production expected in Pakistan power industry in trouble Pakistan State Oil (PSO) is seeking to recover outstanding debt of $635 million that it is owed by Pakistani power producers and by the country s Water Resources and Power Development Authority. The debt is reportedly a long-standing problem and is adversely affecting PSO s liquidity, undermining its ability to supply products to its customers and causing delays in the payment of local refineries. The government has pledged $246 million to PSO and is anxious for the company to resume operations given the recent disruptions to the electricity supply. Severe water and oil shortages have hydro and thermal electric sources functioning at only 25% 30% of capacity, the lowest in Pakistan s history. PSO is one of Pakistan s largest petroleum retailers, supplying over 60% of the domestic market, so any stoppage in supply would have a national impact 44. PetroChina increases oil, gas investments PetroChina Company Limited still plans to increase investment in its oil and gas business from 60% to 70% in 2009 despite risks associated with the current global financial downturn. PetroChina is reportedly considering acquisition of energy companies that have suffered financial losses. The company has also agreed to pay $11.8 billion for the 50% stake owned by parent company China National Petroleum Corp. in international joint venture, CNPC Exploration & Development Co 45. PNOC updates Philippine National Oil Company (PNOC) subsidiary PNOC-Exploration Corp. (PNOC- EC) says that it is ready to enter into a joint venture with a contractor to develop the Camago-Malampaya Oil Leg (CMOL). The CMOL project has estimated reserves of 40 million barrels of oil and is awaiting guidelines for contract bidding to be released by the Philippines Department of Energy. PNOC-EC expects to produce the first oil from the CMOL by the end of Various delays since April 2007 have kept a joint venture partner from being named. PNOC- EC was mandated to take the lead on the project after the consortium formerly operating the CMOL project relinquished its rights based on subcommercial reserves findings. Petron Corp., which is 40% owned by PNOC, is an oil refiner and retailer. Recently, Aramco Overseas Corp. put its 40% stake in Petron on the auction block, and PNOC chose not to purchase any part of the offering. Petron Chairman Nicasio Alcantara says that there will be no change in the company s business strategy under the new share ownership 10

13 as it is a stand-alone company with solid fundamentals. Petron has a long-term diversification strategy and recently commissioned the Philippines first petrochemical feedstock units, which will enable the company s refinery to convert black products into high-value fuels such as diesel and gasoline. Petron is also building a benzene-toluene-xylene unit, which will produce propylene 46. Thailand s PTTEP plans investments As part of its investment plans, PTTEP, a subsidiary of Thailand s state-owned PTT Pcl, has expectations of being part of energy ventures in 14 countries by In addition, PTTEP expects to sign an agreement with Myanmar for another operation. At present, PPTEP focuses its investments in Cambodia, Vietnam, Indonesia and Myanmar due to the ease of transportation from those locations. As demand for heavy oil and liquefied natural gas is expected to increase in the future, the company also plans to invest in fuels and in locations such as Canada and Venezuela 47. Clearer focus for India s ONGC R. S. Sharma, the recently appointed Chairman of Oil and Natural Gas Corp. (ONGC), has overturned his predecessor s plans to create a vertically integrated company and has taken the company back to its original core operations of exploration and production. Retail expansions have been put on hold and three refinery projects have been cancelled. Internationally, ONGC has stopped its strategy of aggressive overseas bidding in support of a more targeted approach. For the past three years, OGNC has been interested in investing in Canada s oil sands, but falling oil prices and stringent regulations have made such investments more difficult than before. Instead, the company claims to be focusing on three main geographic regions the former Soviet Union, the west coast of Africa and South America, thereby avoiding high cost areas like the North Sea and North America. Sharma s priority has been to stop production declines at ONGC s aging fields and to push development of small and marginal fields. The company continues to bid aggressively for domestic licenses, but feels that greater potential can be found in the alliances Sharma is making with international companies, especially for deepwater drilling. ONGC plans to double its in-place reserves of 45 billion barrels of oil equivalent by Currently debt-free and having a $5 billion cash reserve, ONGC plans to increase its acquisition plan to take advantage of the global liquidity crisis and the reduced value of oil. In addition, after finding traces of radioactive material in almost 9,500 oil wells across the country, OGNC plans to search for uranium in collaboration with the Uranium Corporation of India Ltd. The company also plans to enter into the solar and geothermal industries to add to its wind power investments and is in talks with various companies about setting up a photovoltaic cells unit. ONGC is also exploring the possibility of using shale gas technology to extract liquid hydrocarbons from rock, something new to Indian companies. In order to gain access to deepwater technology and offshore rigs, OGNC is considering entering into a joint operations agreement with its foreign strategic partners for three deepwater blocks Petrobras (Brazil), Statoil Hydro (Norway) and Rocksource ASA (Norway) 48. National oil company monitor - Volume III 11

14 Index Venezuela, Petroleum Intelligence Weekly, 29 September 2008, via Dow Jones Factiva, 2008 Energy Intelligence Group; Venezuela signs LNG MOUs with Eni and Gazprom, Energy Economist, 1 October 2008, via Dow Jones Factiva, 2008 McGraw-Hill, Inc.; Venezuela signs multi-billion JVs, International Gas Report, 6 October 2008, via Dow Jones Factiva, 2008 McGraw-Hill, Inc. Frank Nieto, Petrobras, PdVSA sign final agreement for refinery, World Refining, 3 October 2008, via Dow Jones Factiva, 2008 Hart Energy Publishing, LP. Argentina announces $150 mln offshore oil exploration project, Dow Jones Emerging Markets Report, 27 August 2008, via Dow Jones Factiva. Juliette Kerr, Petroperu agrees to alliance with Reliance, Global Insight Daily Analysis, 8 July 2008, via Factiva; Angel Páez, Corruption-Peru; officials charged in oil-contract scandal, Inter Press Service, 23 October 2008, via Dow Jones Factiva, 2008 Global Information Network. KazMunaiGaz, ConocoPhillips, Mubadala sign upstream MOU, Platts Commodity News, 6 October 2008, via Dow Jones Factiva. IPIC pursues upstream U.A.E. development work with Adnoc, Global Insight Daily Analysis, 25 August 2008, via Dow Jones Factiva; Dolphin Energy and Adnoc sign 25 year gas system lease agreement, Middle East Company News, 17 June 2008, via Dow Jones Factiva, 2008 AME Info FZ LLC. Kingdom of Saudi Arabia and Chevron extend PNZ operating agreement 30 Years, Business Wire, 10 September 2008, via Factiva. Shell signs agreement with Iraq for multi-billion-dollar gas deal, Global Insight Daily Analysis, 23 September 2008, via Dow Jones Factiva. Firm advises Sonangol in $7 billion natural gas transaction, Business Wire, 27 October 2008, via Dow Jones Factiva. Thomas Pearmain, New oil minister appointed in São Tomé and Principe, Global Insight Daily Analysis, 20 October 2008, via Dow Jones Factiva. China s largest oil producer to tap Uzbek field, Agence France Presse, 20 October 2008, via Dow Jones Factiva. 12 Total and CNOOC strengthen their partnership and sign an agreement to supply LNG to China, Company Reports, 16 August 2008, via Dow Jones Factiva, 2008 Elsevier Engineering Information. 13 CPC Corp. in talks with CNOOC to extend oil exploration and production in East China Sea, Global Insight Daily Analysis, 3 September 2008, via Dow Jones Factiva. 14 KimFeng Wong, Thailand s PTTEP joins Golar in FLNG joint venture, Platts Oilgram News, 18 August 2008, via Dow Jones Factiva, 2008 McGraw-Hill, Inc. 15 South Korean refiners sign deal for storage hub, Platts Oilgram News, 5 September 2008, via Dow Jones Factiva, 2008 McGraw-Hill, Inc Petrovietnam signs deals with Chinese partners, Asia Pulse, 27 October 2008, via Dow Jones Factiva. Industry: Vietnam, Venezuela negotiating for five oil, gas projects, Vietnam News Brief Service, 26 August 2008, via Dow Jones Factiva, 2008 Toan Viet Limited Company. NOC Monitor Introduction Q308 Petrovietnam to invest $614 mln in Russia oil venture, Reuters News, 29 September 2008, via Dow Jones Factiva; Andrew Neff and Tom Grieder, Russia and Vietnam ink oil and gas deal, Global Insight Daily Analysis, 28 October 2008, via Dow Jones Factiva. Ecopetrol to begin trading ADSs on NYSE, Dow Jones International News, 18 September 2008, via Dow Jones Factiva, 2008 Dow Jones & Company, Inc. 20 Nigeria privatization body: no plan to sell oil, gas cos now, Dow Jones International News, 16 October 2008, via Dow Jones Factiva. 21 ARMO acquisition completed, World Refining, 19 September 2008, via Dow Jones Factiva, 2008 Hart Energy Publishing. 22 KazMunaiGaz open to bids to sell Georgian subsidiary: CEO, Platts Commodity News, 6 October 2008, via Dow Jones Factiva. 23 Samuel Ciszuk, Taiwan s CPC buys 5% stake in Qatar s RasGas II, Train 5, Global Insight Daily Analysis, 19 September 2008, via Dow Jones Factiva. 24 Government to expand energy sector public corporations. Maeil Business Newspaper, 11 August 2008, via Dow Jones Factiva. 25 Update1 Vietnam s PVFC plans $900 million flotation, Reuters News, 22 October 2008, via Dow Jones Factiva, 2008 Reuters Limited. 26 Mexico Senate gives Pemex autonomy in 2009 budget, Agence France Presse, 21 October 2008, via Dow Jones Factiva. 27 Venezuela to set up liquid fuel transport subsidy of PdVSA bill, Latin America News Digest, 27 August 2008, via Dow Jones Factiva, 2008 All Data Processing Ltd.; Venezuela s Chavez changes PdVSA board of directors, Dow Jones International News, 5 September 2008, via Dow Jones Factiva; Venezuela expects $5.6 bln in 2009 borrowing, Reuters News, 21 October 2008, via Dow Jones Factiva; Chavez sees an age of austerity, BMI Industry Insights, 16 October 2008, via Dow Jones Factiva; Raul Gallegos, Venezuela spends big on gasoline subsidy as world growth weakens, Dow Jones International News, 9 October 2008, via Dow Jones Factiva; Latin American fuel subsidies promote demand, Petroleum Intelligence Weekly, 16 June 2008, via Dow Jones Factiva, 2008 Energy Intelligence Group. 28 Riani, Gala Top oil official sacked in Iran, Global Insight Daily Analysis, 16 October 2008, via Dow Jones Factiva; Iran replaces deputy minister products refining, distribution, Platts Commodity News, 14 October 2008, via Dow Jones Factiva. 29 Iran s oil, gas sector US$30 bln of foreign investment: NIOC, Asia in Focus, 16 October 2008, via Dow Jones Factiva, 2008 Asia Pulse Pty Limited; Iran seeks investment for refinery expansion, BMI Industry Insights Oil & Gas, Middle East & Africa, 16 October 2008, via Dow Jones Factiva.

15 30 Nigeria privatization body: no plan to sell oil, gas cos now, Dow Jones International News, 16 October 2008, via Dow Jones Factiva; Thomas Pearmain, Energy reforms taking shape in Nigeria, Global Insight Daily Analysis, 15 October 2008, via Dow Jones Factiva. 31 Botas awaiting guidance from regulator on contract selloff, Platts Commodity News, 8 October 2008, via Dow Jones Factiva. 32 Tom Grieder, Private oil firms to bring anti-monopoly lawsuit against CNPC and Sinopec, Global Insight Daily Analysis, 13 October 2008, via Dow Jones Factiva; Xu Yihe, Windfall tax hits China s big three, Upstream, 29 August 2008, via Dow Jones Factiva. 33 Ecopetrol evaluating planned 2009 capex, Business News Americas, 17 October 2008, via Dow Jones Factiva; Ecopetrol enters ethanol project in Columbia, Latin America News Digest, 16 October 2008, via Dow Jones Factiva, 2008 All Data Processing Ltd.; Jeremy McDermott, Ecopetrol buys Chevron assets in Gulf of Mexico, Platts Oilgram News, 4 September 2008, via Dow Jones Factiva, 2008 McGraw-Hill, Inc.; Columbia s Ecopetrol to explore Gulf of Mexico gas, Reuters News, 22 October 2008, via Dow Jones Factiva; Juliette Kerr, Ecopetrol acquires assets in US GOM, Global Insight Daily Analysis, 3 September 2008, via Dow Jones Factiva; Ecopetrol investment in 2008 to exceed $5bn: Columbia, BNAmericas Oil & Gas News, 29 August 2008, via Dow Jones Factiva, 2008 Elsevier Engineering Information. 34 Juliette Kerr, Petrobras delays release of new business plan, Global Insight Daily Analysis, 20 October 2008, via Dow Jones Factiva; Brett Clanton and Lynn Cook, Economy throws Petrobras a curve/credit crunch may crimp oil giant s projects, Houston Chronicle, 21 October 2008, via Dow Jones Factiva; Mike Hood, Petrobras unveils fleet modernization plans, Lloyd s List, 16 October 2008, via Dow Jones Factiva, 2008 Informa PLC. 35 PdVSA invest USD 5bn a year in gas projects, Latin America News Digest, 3 October 2008, via Dow Jones Factiva, 2008 All Data Processing Ltd. 36 Juliette Kerr, Pemex proposes construction of new refinery, Global Insight Daily Analysis, 4 August 2008, via Dow Jones Factiva; PPQ outlines operating efficiency program, Business News America, 17 July 2008, via Dow Jones Factiva; Pemex: refining $50 bn from : Mexico, BNAmericas Oil & Gas News, 10 June 2008, via Dow Jones Factiva, 2008 Elsevier Engineering Information; Fresh strategy to give Golden Lane a polish, Upstream, 6 June 2008, via Dow Jones Factiva. 37 Adco drilling plans show shift in timing, International Oil Daily, 22 August 2008, via Dow Jones Factiva, 2008 Energy Intelligence Group Inc. 38 Moscow aids Transneft funding, International Oil Daily, 7 October 2008, via Dow Jones Factiva, 2008 Energy Intelligence Group Inc.; Transneft completes private placement of $1,050 million, Global Markets Direct Financial Deals Tracker, 31 July 2008, via Dow Jones Factiva. National oil company monitor - Volume III 39 Gazprom and Naftogaz agree trade terms, BMI Industry Insights, 24 October 2008, via Dow Jones Factiva; Ukrainian president orders $1.7 bil bailout for Naftogaz Ukrayiny, Platts Commodity News, 6 October 2008, via Dow Jones Factiva; Andrew Neff, Naftogaz Ukrainy seeks default waiver of US$500-mil. Eurobond, rejects Deutsche Bank loan plan, Global Insight Daily Analysis, 16 October 2008, via Dow Jones Factiva; Naftogaz refuses to sign loan agreement with Deutsche Bank, Ukrainian National News Agency, 14 October 2008, via Dow Jones Factiva; Naftogaz gets permission to set up UkrAvtoGaz, Ukrainian National News Agency, 15 October 2008, via Dow Jones Factiva. 40 Oman to raise $4 bln for ship fleet by year-end, Reuters News, 7 August 2008, via Dow Jones Factiva. 41 Head of NIGEC says three major gas projects will be completed by 2014, Asian News International, 20 October 2008, via Dow Jones Factiva, 2008 HT Media Limited. 42 Pertamina delays seeking US$1 billion fund, BIsnis Indonesia, 26 September 2008, via Dow Jones Factiva. 43 South Korea seeks to unlock energy potential of gas hydrates, The Oil Daily, 27 August 2008, via Dow Jones Factiva, 2008 Energy Intelligence Group Inc. 44 Government in the dock over power crisis, Business Recorder, 22 October 2008, via Dow Jones Factiva; Tom Grieder, Pakistan state Oil to recover outstanding dues from power producers, Global Insight Daily Analysis, 21 October 2008, via Dow Jones Factiva. 45 David Winning, PetroChina to buy out venture, The Wall Street Journal, 26 August 2008, via Dow Jones Factiva, 2008 Dow Jones & Company, Inc.; PetroChina to invest more in oil, gas despite financial crisis, Asia Pulse, 22 October 2008, via Dow Jones Factiva. 46 Donnabelle L. Gatdula, PNOC-EC allots P2.4B for 2008 capital expenditures, The Philippine Star, 11 June 2008, via Dow Jones Factiva, 2008 Philstar Global Corporation; Petron chairman sees no need to change business strategy, Philippine Daily Inquirer, 13 May 2008, via Dow Jones Factiva, 2008 Inquirer Interactive, Inc. 47 PTTEP to invest Bt287billion in ; Q1 net profit soars 32%, Thai News Service, 9 May 2008, via Dow Jones Factiva. Profile: OGNC s clearer focus, Energy Compass, 5 September 2008, 48 via Dow Jones Factiva, 2008 Energy Intelligence Group Inc.; OGNC plans to increase acquisition programme, The Hindu Business Line, 18 October 2008, via Dow Jones Factiva; Uptal Bhaskar, ONGC fights investment cap, may miss 2012 target, Mint, 1 September 2008, via Dow Jones Factiva, 2008 HT Media Limited; Darshan Mankad, ONGC to search for uranium in Guj, DNA Daily News and Analysis, 6 October 2008, via Dow Jones Factiva, 2008 Diligent Media; Maulik Pathak, ONGC to enter solar energy business; after unveiling its plans to harness wind energy Business Standard, 17 September 2008, via Dow Jones Factiva; Darshan Mankad, OGNC keen to employ shale gas technology, DNA Daily News and Analysis, 6 October 2008, via Dow Jones Factiva, 2008 Diligent Media; OGNC plans operations pact with foreign partners, The Hindu Business Line, 26 September 2008, via Dow Jones Factiva. 13

16 Ernst & Young Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. For more information, please visit Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. EYG no. DW EYGM Limited. All Rights Reserved. In line with Ernst & Young s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. DPD8650.indd (UK) 11/08. Artwork by Ernst & Young London DPD.