Friday, August 19 2016
In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.
Let’s take a look.
1. Banks cutting energy exposure
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- The eight largest banks have cut their lending to the oil and gas industry by an average of 6.3 percent in the first half of 2016, Bloomberg recently reported. Total lending through the first two quarters dropped from $2.34 trillion to $2.19 trillion from the same period in 2015.
- Morgan Stanley has cut its energy exposure the most, slashing lending by 22 percent.
- Wells Fargo says that the volume of energy loans that might not be repaid has ballooned from $35 million to $2.55 billion.
- Bloomberg Intelligence found that more than a dozen oil and gas companies have used up 90 percent of their credit lines. With traditional lending turning its back on oil and gas, private equity is filling the void (see below).
2. Private equity jumping into oil patch
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- Over $100 billion has been raised by private equity to scoop up distressed oil and gas assets since 2014.
- Many oil companies turned to new debt and equity issuance over the past two years, and banks were willing to keep credit lines open. But with loans no longer easy to come by, private…
Friday, August 19 2016
In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.
Let’s take a look.
1. Banks cutting energy exposure
(Click to enlarge)
- The eight largest banks have cut their lending to the oil and gas industry by an average of 6.3 percent in the first half of 2016, Bloomberg recently reported. Total lending through the first two quarters dropped from $2.34 trillion to $2.19 trillion from the same period in 2015.
- Morgan Stanley has cut its energy exposure the most, slashing lending by 22 percent.
- Wells Fargo says that the volume of energy loans that might not be repaid has ballooned from $35 million to $2.55 billion.
- Bloomberg Intelligence found that more than a dozen oil and gas companies have used up 90 percent of their credit lines. With traditional lending turning its back on oil and gas, private equity is filling the void (see below).
2. Private equity jumping into oil patch
(Click to enlarge)
- Over $100 billion has been raised by private equity to scoop up distressed oil and gas assets since 2014.
- Many oil companies turned to new debt and equity issuance over the past two years, and banks were willing to keep credit lines open. But with loans no longer easy to come by, private equity is stepping into the fold.
- Apollo, WL Ross and EIG Global Energy Partners has acquired more than $1.6 billion in distressed debt from Permian Resources, Bloomberg reports. Blackstone spent $500 million to acquire assets in the Permian.
- With less and less credit available, more defaults can be expected. But private equity will ensure that the oil taps remain open, even if that means a change of ownership.
3. Largest weekly rig count increase in a year
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- Baker Hughes reported a jump in the rig count by 17 for the week ending on August 12, the largest weekly increase since July 2015. Drillers are focusing on the oil patch, however, with an increase of 15 oil rigs and just 2 gas rigs.
- Since bottoming out in May, the oil rig count has surged by 80 to 396 by August 12.
- The overall rig count is now at its highest level since March 2016.
- Still, production continues to fall. U.S. oil output is down to about 8.5 million barrels per day, and the EIA expects the major shale basins to continue to decline in September, predicting another loss of 85,000 barrels per day. The Eagle Ford once again is expected to lose the most, with a drop off of 53,000 barrels per day expected between August and September.
4. Heat wave leads to spike in natural gas demand
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- The U.S. has endured a few heat waves this summer, leading to above-average demand for air conditioning, which means more electricity demand. July claimed the mantel for the hottest month on record worldwide.
- Natural gas inventories are still well above the running five-year average. But at the same time, inventories are building remarkably slow this summer, even posting the first weekly decline in ten years earlier this month.
- Tudor, Pickering, Holt & Co. revised up its forecast for natural gas prices in 2017 by 10 cents to $3.75/MMBtu because of the surprise tightening in natural gas markets this summer.
- The autumn months could present a soft period as demand falls, but by winter, when drawdown season begins, natural gas prices will face upward pressure.
5. Oil and refined product inventories coming down slightly
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- Oil price surged this week as hopes that an unscheduled OPEC meeting could lead to a production freeze. The announcement sparked a short-covering price rally.
- But crude oil and refined product inventories continue to weigh on the market.
- U.S. gasoline stocks have declined in recent weeks as refineries go into maintenance. However, that has led to a corresponding increase in crude oil stocks as refineries cutback on purchases.
- The problem is a global one. The latest data from OPEC shows that OECD stocks fell by 28.9 million barrels in June, but still stand at 3,045 million barrels, which is about 311 million barrels higher than the five-year average.
- The hope is that inventories continue to draw down as global oil production stagnates. But the adjustment will take time.
6. U.S. exports increasing
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- The lifting of the ban on U.S. crude oil exports has led to an uptick in exports beyond just Canada. In fact, exports to other countries exceeded exports to Canada for a few months this year.
- The narrowing price spread between WTI and Brent has made it difficult for U.S. exporters to gain a margin, but exports are rising nonetheless.
- U.S. exports averaged 501,000 barrels per day in the first five months of 2016, or about 9 percent higher than a year earlier.
- Exports are going to some surprising destinations. Curacao, a Caribbean island nation, leads the pack. That could be because Venezuela’s state-owned oil company PDVSA needs U.S. crude for its refinery there.
- Other destinations include less surprising places, such as Europe and Japan.
7. Gulf Coast infrastructure at risk
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- The recent floods in Louisiana have been the worst natural disaster to hit the U.S. since Hurricane Sandy.
- The floods are made worse over time by Louisiana’s shrinking coastline. The state loses 20 square miles of coast every year, and because the wetlands act as a buffer to severe storms, the vanishing coast will leave the state increasingly exposed.
- That will put a lot of oil and gas infrastructure at risk. Just this week, ExxonMobil (NYSE: XOM) said that the floods threatened the operations of its 500,000 barrel per day refinery in Baton Rouge, the fourth largest in the U.S.
- More than 600 miles of natural gas pipeline and more than 350 miles of oil pipeline infrastructure are at risk in the state from being swallowed up the by encroaching sea in the next 50 years, according to a Rand Corporation study.
- One estimate finds that the oil and gas industry currently loses $14 billion a year in environmental damages, a number that could swell to $350 billion by 2030.
- Louisiana is short on funds, and will need tens of billions of dollars to repair its coastline, and as Bloomberg reports, pressure is mounting to force the industry to chip in. Many of the oil majors operate in the region, and ConocoPhillips (NYSE COP), for example, is the largest private wetlands owner in the state.
That’s it for this week’s Numbers Report. Thanks for reading, and we’ll see you next week.
