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Alberta Prepares Its Oil Weapon

Politics, Geopolitics & Conflict

- Newly sworn in Alberta Premier Jason Kenney signed into law a bill that gives the province the option to simply close the taps on oil flowing to neighboring British Columbia in a new effort to push through the Trans Mountain pipeline expansion project that BC is fighting. Kenney says the point is not to deliberately cut shipments to B.C. Instead, he’s seeking the ultimate leverage in the Trans Mountain battle. The BC government has responded with a constitutional challenge to attempt to block the law. Turning off the taps is a desperate move as Alberta needs Trans Mountain to ship more fuels to BC. But that isn’t Alberta’s only problem: It also needs more refineries to produce more fuel.

And as this transportation saga continues, producers are taking the hit. A junior Canadian gas E&P company, Trident Exploration Corp., abruptly shut down this week, simply abandoning some 4,700 wells and telling shareholders and bondholders that they wouldn’t be seeing any reimbursement. Trident doesn’t have the funds to operate or the ability to enter into credit protection. That means Canada now has seen a total of 7,700 wells abandoned. (Note the flipside of this with Suncor energy earnings, above).

- In Libya, General Haftar’s offensive continues without advancing further into Tripoli, but now he is using the National Oil Company (NOC) facilities for military purposes. He has seized the NOC’s airfield, taken over oil terminals to station warships and other military vessels of the LNA (Libyan National Army) and has been attempting to requisition NOC tub boats for his war effort as well. The Tripoli-based NOC describes it as the “militarization of the Libyan national energy infrastructure”. The NOC says that at this point, the General’s actions are threatening the oil company’s abilities to maintain operations. Haftar is busy negotiating with subsidiaries of NOC to squeeze money out of them and away from the central bank to keep the oil flowing - this is his leverage. The UN-backed Government of National Accord (GNA) is desperate enough to have hired a lobbying group and signed a $2-million deal with them to push their case with the Trump administration against Haftar. Next, Haftar could choose to start exporting Libyan oil on his own, if he doesn’t get the funds he needs from the NOC to keep the war effort going.

- In the aftermath and ensuing stalemate from the fizzled out coup attempt/mass uprising in Venezuela, Trump is now said to be seeking funding for Guaido either through US accounts for Venezuela that have been frozen in sanctions or some form of short-term loan. In the meantime, Russian oil giant Rosneft has managed to increase its crude oil withdrawals from Venezuela by 7% thanks to extraction at the Carabobo 2/4 project in partnership with Petrovictoria. This is one of five projects Rosneft has in Venezuela. At the same time, we’re still seeing steady oil exports out of Venezuela with flows maintained to Cuba and boosted to China. For the month of April, PDVSA managed to export 1.06 million bpd of crude and refined products. That’s up 8% from March, despite sanctions.

Deals, Mergers & Acquisitions

- Chevron’s takeover of Anadarko, initially considered a done deal, has turned out to be the beginning of a bidding war between Chevron and Occidental Petroleum. Anadarko offered $6 billion more than Chevron, at $38 billion. Warren Buffett is supporting the Oxy bid with a $10 billion investment.

- A Saudi company has bought Schlumberger’s Middle Eastern drilling operations for $415 million. Taqa made the deal through its subsidiary Arabian Drilling Company, which thanks to the deal has expanded its presence across Kuwait, Oman, Iraq, and Pakistan, making it one of the largest players in the drilling space in the region.

- Petrobras will sell eight refineries, a filling station network in Uruguay, and a stake in Brazil’s largest fuel distribution network as part of an ongoing divestment program aimed at slimming down the company’s debt that was at one time the largest in the global energy industry. Separately, Chevron said it had completed the purchase of Petrobras’ Pasadena Refining System and its trading arm for $350 million.

Tenders, Auctions & Contracts

- ADNOC (Abu Dhabi’s national oil company) has launched its second bidding round for exploration in five new oil and gas blocks--both conventional and unconventional resources, with three blocks offshore and two onshore. The first round launched last year and concluded in March this year. According to ADNOC, the new blocks could hold “multiple billion barrels of oil and multiple trillion cubic feet of natural gas”, with some discoveries already made. There are 290 targeted reservoirs from 92 prospects and leads.

ADNOC

(Click to enlarge)

- BP has signed a contract with Gambia’s government for exploration in an offshore block that the Gambian authorities took from African Petroleum Corporation two years ago claiming its license had expired. Block A1, which BP will explore, is one of two blocks Gambia took from the Norwegian-listed APC, with combined reserves seen at up to 3 billion barrels of oil. The blocks lie next to deposits in Senegalese waters where commercial discoveries have been made.

- Saudi Aramco last week announced it had sold its first-ever cargo of liquefied natural gas in the latest indication it is taking its natural gas push seriously. The cargo was sold from Singapore to an Indian buyer, the company’s chief executive said, adding there was great potential for natural gas production growth both in the country and internationally.

- Exxon has bought two more offshore blocks in Namibia, which it will be the operator of with 90% stakes in each. The supermajor plans to begin exploration work at the blocks later this year. Namibia is not yet a popular oil and gas exploration destination but interest is growing on geological evidence it may have once been a neighbor of Brazil, so its offshore geology may be similar to Brazil’s prolific presalt zone.

- Nigeria’s national oil company (NNPC) has closed out its tender for crude oil-for-fuel swap deals, with 132 companies bidding for rights in the one-year contracts. The current contracts expire in June this year.

Discovery & Development

- ConocoPhillips reported a 30% rise in its Lower 48 oil and gas production from the so-called Big Three: the Eagle Ford, Bakken, and Permian shale plays. The average daily from the three was 326,000 boe daily but Conoco expects the rise to flatten by the end of June before production rebounding in the second half of the year. For full-2019, Conoco expects production from the Big Three to reach 350,000 boe daily, which would be a 19% increase in 2018.

- Apache has reported the highest quarterly production rate from its North Sea assets in two years, with the average daily standing at 66,000 barrels of crude. This represents a 21% increase on the first quarter of 2018, with Apache attributing the result to the first full quarter of production at the Garten field, first production at a new well at the Callater field as well as enhanced uptime across fields.

- Green power hit a milestone for April, which was the first month in history in which it overtook coal in terms of energy production, based on data from Energy Economics and Financial Analysis (IEEFA), a non-profit group. Analysts say, however, that renewables aren’t likely to maintain that top spot over coal once air-conditioning season begins in earnest.

Company News

- BP reported a net profit of $2.4 billion for Q1, exceeding analyst expectations. The figure however was a decline from last year’s Q1’s $2.6 billion and the $3.5 billion booked in net profit for the last quarter of 2018.

- Devon Energy reported a net loss of $317 million, or $0.74 per share for the first quarter because of a one-off loss from hedging. Were it not for the loss, Devon would have been in the black with EPS of $0.36.

- Suncor’s Q1 profits beat expectations on the back of higher oil prices and strong refining margins. Higher production also helped.

- Baker Hughes booked a 4% increase in Q1 revenues, at 5.6 billion, largely thanks to stronger international demand for its core oilfield services and equipment.

- Marathon Oil reported a 50% slump in profits for the first quarter as the Q1 2018 result was boosted by one-off gains. Revenue, however, also fell substantially in Q1 2019.

- Noble Energy reported losses today that came in bigger than expected on the back of weak crude oil prices. Quarterly losses mounted as Noble saw $53.46/barrel of crude and condensate from onshore US operations. That’s compared to $61.50/barrel in the same period last year.


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