Politics, Geopolitics & Conflict
- Trump is adding China’s national offshore oil and gas producer, CNOOC, to the U.S. defense blacklist, launching a salvo that looks a lot like a brewing energy war at a time when American investors are - for the first time - looking to add more China shares to their portfolio for post-COVID recovery. It’s a mess for the incoming administration to deal with, but for now, stick to the non-energy China stocks to boost your portfolio.
- Turkey has withdrawn its oil and gas exploration vessel from the Eastern Mediterranean in a move some media attribute to EU sanctions possibly coming next week. We find this sentiment out of line with Turkey’s general modus operandi: It is very unlike Erdogan to withdraw from exploration because the EU is “pondering” sanctions. The EU is continually “pondering” sanctions and they rarely emerge as much of a threat to Turkey’s out-sized energy ambitions at a time when it is desperately scrambling for a foothold as it becomes isolated in the Mediterranean. The more likely reason behind the withdrawal is exploration failure.
- In another well-timed challenge to Western powers, Iran’s parliament has advanced a bill to end UN inspections of its nuclear facilities and to boost uranium enrichment if the EU does not extend a fig leaf of relief from oil and banking sanctions. This is being tossed out very publicly, even though it is far from becoming law at this point, due to the timing amid a change…
Politics, Geopolitics & Conflict
- Trump is adding China’s national offshore oil and gas producer, CNOOC, to the U.S. defense blacklist, launching a salvo that looks a lot like a brewing energy war at a time when American investors are - for the first time - looking to add more China shares to their portfolio for post-COVID recovery. It’s a mess for the incoming administration to deal with, but for now, stick to the non-energy China stocks to boost your portfolio.
- Turkey has withdrawn its oil and gas exploration vessel from the Eastern Mediterranean in a move some media attribute to EU sanctions possibly coming next week. We find this sentiment out of line with Turkey’s general modus operandi: It is very unlike Erdogan to withdraw from exploration because the EU is “pondering” sanctions. The EU is continually “pondering” sanctions and they rarely emerge as much of a threat to Turkey’s out-sized energy ambitions at a time when it is desperately scrambling for a foothold as it becomes isolated in the Mediterranean. The more likely reason behind the withdrawal is exploration failure.
- In another well-timed challenge to Western powers, Iran’s parliament has advanced a bill to end UN inspections of its nuclear facilities and to boost uranium enrichment if the EU does not extend a fig leaf of relief from oil and banking sanctions. This is being tossed out very publicly, even though it is far from becoming law at this point, due to the timing amid a change of regime in the United States that Iran is hoping to gain leverage over in advance.
Covid-19 Update
- As the name of the game continues to be a disconnect between oil price rallies on vaccine developments and the reality of the coronavirus impact on demand, OPEC+ managed to come to a resolution on oil production for the new year. The group finally agreed on lifting production for January--and January only. For January, OPEC+ will ease the production cuts by 500,000 bpd. After which it will hold monthly meetings to determine the next month’s quota, which could go up or down. Russia’s portion of the 500,000 bpd increase is 125,000 bpd. For Iraq and some of the other laggards they will need to continue to make compensatory production cuts for any earlier overages, through March. But any additional production they are allowed for January can, instead of being used to increase actual production, be used to diminish the level of compensatory cuts they need to make. From the OPEC+ presser following the meeting, it is clear that the group is still sensitive to how they are portrayed in the media. The allegations that the UAE was reevaluating its OPEC membership rankled OPEC leadership, who must maintain the appearance of leadership. Expect more unifying statements to the media. Oil prices were slow to respond to the news, but eventually picked up.
- Colorado’s crude production from May to August this year dropped 13% in total--the sharpest four-month drop since at least 2001 when Colorado first started tracking the data. September’s production was down even more, at 418,000 bpd from 445,000 bpd.
- ExxonMobil this week decided to scrap the idea of selling its oil and gas assets offshore Australia in the Bass Strait, because it failed to attract worthy bids. Exxon has a 50% stake in the assets, which it has held for more than fifty years.
- Exxon has slashed its capex to somewhere between $16 billion and $19 billion next year, and then $20 billion to $25 billion until 2025. More startling is Exxon’s eventual if not extremely late in coming realization that it must write down assets--and a lot of them. Exxon will now write off between $17 billion and $20 billion in natural gas assets in Canada, the U.S., and Argentina. Exxon expects this move to improve its profits.
- In a move designed to bolster its flailing airline industry, Japan is looking to cut its aviation fuel tax by as much as 80% during fiscal 2021. Japan’s airlines have been struggling under the weight of the pandemic, and as such, have been implementing measures to bolster revenues and sales. Some are adding mobile payments to make traveling easier, others are issuing new shares in a rush to scrape up capital, and others are assessing fees to passengers for extra legroom. All this screams slow sales, and slow ticket sales screams depressed oil demand.
- US Major ConocoPhillips will cut 500 jobs at its Houston headquarters starting February 5. The move comes as the oil company tries to cut $500 million in costs through 2022 to make way for its 2021 acquisition of Concho Resources. Conoco is coming off a $1.93 billion loss so far this year.
- Shell is said to begin the permanent shutdown of its 240,000 barrel-per-day Convent, Louisiana refinery after failing to find a buyer for the facility. The move is part of the company’s plans to reduce the number of refineries it operates from 14 to 6 over the next four years. The plans, in turn, are part of its strategy to shift away from its core business and into alternative energy.
Deals, Mergers & Acquisitions
- French utility giant Engie is said by Bloomberg to be preparing to substantially divest services businesses, with a potential valuation of around $6 billion.
- More bad news for Houston oil workers as ConocoPhillips plans to lay off 500 workers following its acquisition of Concho.
Discovery & Development
- BP has launched rilling offshore Angola at its Platina field in Block 18, after a delay of nearly half a year. The plan is to drill four wells, two production wells and two injection wells. The Platina project has an estimated 44 million barrels of oil, with projections that it will produce at around 30,000 bpd.
- It’s bad timing for Sudan to be reaching out to non-local (and non-Chinese) investors for what it claims is 6 billion barrels of oil waiting to be tapped into. The market isn’t excited about it, and Sudan is still on the U.S. terrorist list. It would be Sudan’s first potentially serious oil exploration and production since it lost its oil reserves when South Sudan split and became independent, leaving Sudan proper as a non-producing route for the South’s oil to market. While Sudan will be removed from the US terrorist list at the end of December, we’re not expecting a rush on big oil interest from US, European or Russian companies.
- Denmark will end all new oil and gas exploration in the North Sea by 2050, and it has canceled its latest (eighth) licensing round. Denmark has an ambitious target to reduce emissions by 70% by 2030 and become carbon neutral by 2050.
Regulations and Legislation
- Calgary-based Enbridge Energy’s $2.6-billion Line 3 crude oil pipeline won approval for its final permit from Minnesota regulators this week. Construction may now begin on this highly controversial project, which originates in Alberta and crosses Minnesota en route to Wisconsin.
- Prosecutors in Brazil have filed a lawsuit against giant oil trader Trafigura for corruption allegations related to Petrobras. This is connected to fuel oil purchases and sales that took place between May 2012 and October 2013.
- The Trump administration announced that it will auction off drilling rights in the Arctic National Wildlife Refuge just days before the inauguration of President-elect Joe Biden. The lease sales, approved as part of tax legislation in 2017, would involve around 1.6 million acres. Biden has pledged to protect the refuge.
Renewables
- If you’ve been playing the EV stock game, Nikola has been the one to steer clear of. In the latest share plunger, GM has said it was giving up its equity stake in the EV company and scrapping plans to build Nikola’s Badger pickup truck. That news this week caused Nikola to shed a painful 20%.
- Tesla, on the other hand, continues to defy anyone who says we’re in the middle of an EV bubble that’s going to burst loudly. The stock has been trouncing the market since the S&P 500 announced on November 16th that it would add Tesla, beginning on December 21st, and Musk has now out-ranked Bill Gates in terms of wealth.
