COVID Market Update
- The price of the OPEC basket has climbed above $40 per barrel for the first time in four months, as the group managed to fulfill 100% of its promised cuts last month. The basket price comes as the official selling prices were raised for Kuwait, Iraq, Saudi Arabia, and the UAE, kicked in on July 1.
- At the same time, Russia says OPEC cuts will likely ease off in August, and that by July we could even be looking at a deficit, despite the fact that consumption may not recover before the end of 2021.
- Royal Dutch Shell is the latest oil company to take a major write-down, this time for $22 billion as the oil giant lowered its energy price forecasts in response to the coronavirus pandemic. The writedown includes $9 billion for its integrated gas operations, $6 billion for its oil and gas production assets, and $7 billion for its refining operations.
- Exxon, however, is a writedown holdout, hoping for improved valuations of its assets after the pandemic is over. Exxon’s refusal to writedown its assets has irked some, who are suing it for fraudulent accounting methods after a long history of holding off on writedowns, unlike the majority of its industry peers.
- Tesla has now overtaken Exxon in terms of market cap in what some view as a sign that EVs are gaining in prevalence while the oil and gas industry slips. Tesla’s valuation is now over $200 billion, while Exxon’s is $185 billion.
Politics, Geopolitics & Conflict
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COVID Market Update
- The price of the OPEC basket has climbed above $40 per barrel for the first time in four months, as the group managed to fulfill 100% of its promised cuts last month. The basket price comes as the official selling prices were raised for Kuwait, Iraq, Saudi Arabia, and the UAE, kicked in on July 1.
- At the same time, Russia says OPEC cuts will likely ease off in August, and that by July we could even be looking at a deficit, despite the fact that consumption may not recover before the end of 2021.
- Royal Dutch Shell is the latest oil company to take a major write-down, this time for $22 billion as the oil giant lowered its energy price forecasts in response to the coronavirus pandemic. The writedown includes $9 billion for its integrated gas operations, $6 billion for its oil and gas production assets, and $7 billion for its refining operations.
- Exxon, however, is a writedown holdout, hoping for improved valuations of its assets after the pandemic is over. Exxon’s refusal to writedown its assets has irked some, who are suing it for fraudulent accounting methods after a long history of holding off on writedowns, unlike the majority of its industry peers.
- Tesla has now overtaken Exxon in terms of market cap in what some view as a sign that EVs are gaining in prevalence while the oil and gas industry slips. Tesla’s valuation is now over $200 billion, while Exxon’s is $185 billion.
Politics, Geopolitics & Conflict
- Talks between Libya’s factions and external powers are rumored to be focused on splitting up oil revenues into different accounts before they hit the central bank in Tripoli. The Libyan NOC confirms that talks are in progress and that it is optimistic that the result will be to turn on the taps and remove the force majeure on exports from the Hariga, Brega, Zueitina, Es Sider and Ras Lanuf ports. But the NOC denies that revenues will be split into new accounts; rather, it says there will be new, more transparent “parallel tracks” for oil revenues and they will not be divided up by regional percentages. In the meantime, Russian mercenaries are now guarding the giant Sharara and El-Feel oilfields on behalf of Haftar, sending a message here about leverage in these talks.
- US prosecutors are now attempting to get a federal court order approved to seize four tankers carrying Iranian gas to Venezuela in violation of sanctions on both countries. The basis of the court order is that Iran is using UAE-based companies to cover the origins of gas it is sending to Venezuela.
Deals, M&A, Bankruptcies
- Chesapeake Energy, which filed for Chapter 11 bankruptcy protection last week, is moving forward with its bankruptcy plans after gaining approval for $925 million debtor-in-possession financing from a bankruptcy court. Court filings show Chesapeak has $11.8 billion in debt against $16.2 billion in assets.
- BP is ditching its global petrochemical business for $5 billion in a sale to London-based Ineos, in a move that BP claims is part of an effort to reinvent itself to survive the energy transition. The divestment of its petrochem business complete’s BP’s $15 billion divestment target one year ahead of schedule. Separately, Alaskan officials have approved BP Plc’s sale of its oil and gas leases in the state to closely held Hilcorp Energy Co. as part of a previously announced $5.6 billion deal.
- Houston-based Sanchez Energy, emerging from its Chapter 11, is now private company Mesquite Energy. Sanchez filed for bankruptcy last August, and now has shed nearly all of its $2.3 billion in debt. Along with a brand new balance sheet, Mesquite has a new board.
- Minnesota’s largest frac sand mine, Covia Holdings, has joined the ranks of those filing for bankruptcy, crushed under a heavy debt load high lease payments for railcars. Covia’s bankruptcy follows another frac sand miner’s bankruptcy filings, Hi-Crush, who announced last week that it would file for Chapter 11 protections. Both companies operate in Wisconsin as well, and both have had mines shuttered for months.
- Occidental Petroleum Corp has given the state of Wyoming until July 8 to bid on the land and minerals it is selling. Occidental Petroleum has been struggling with debt taken on in last year’s $38 billion acquisition of Anadarko Petroleum. The bid is on the 6,250 square miles of the company’s holdings mainly in southern Wyoming but also northern Colorado and Utah The landscape could push the price above $1 billion.
- South African Sasol said it would sell its indirect interest in the Escravos gas-to-liquids plant in Nigeria to Chevron for an undisclosed sum. The company said other sale processes are also underway, including its interests in the Mozambique Pipeline Investment Company pipeline and Central Termica de Ressano Garcia gas-fired power plant in Mozambique.
Discovery & Development
- ConocoPhillips has said it will restore its curtailed production in Alaska sometime next month. It shut down 225,000 mboed this year in response to the coronavirus pandemic--15% of which were in Alaska.
- Lukoil has started drilling an exploration well in ultra-shallow waters in the Caspian Sea north of the V.I. Grayfer oilfield. Lukoil has seen some success in the Caspian Sea, after starting its exploration there in the mid-’90s.
- In a first, China’s state-run CNOOC has reportedly made a significant discovery in the Eastern South China Sea at the Huizhou 26-6 prospect. CNOOC is eyeing what it hopes will be its first mid-to-large size condensate oil and gas field in this area of the Pearl River Mouth Basin. This is a shallow-water discovery drilled at a depth of 4,276 meters and tested to produce 2,020 barrels of oil and over 15 million cubic feet of gas per day.
- ENI, BP, and Total drilled its first successful exploration well in its Egyptian North El Hammad license, discovering a 152 meters-thick gas column. The discovery will now be tested for production, which they expect to fast track by utilizing existing infrastructure.
