Bankruptcy And Write Downs In The Oil Patch

COVID Market Update

Adding to plans to slash 10,000 jobs by the end of the year, BP made another painful announcement this week to write down nearly $18 billion in oil and gas assets as it cut energy price forecasts. It also raised $12 billion of debt this week in hybrid bonds that is sure to help its balance sheet.

Iraq has made significant cuts in Basra crude supplies to Asia in July as the producer complies with an OPEC ultimatum to cut output. Basra crude supplies for July are expected to decrease by some 15-20%. Iraq’s Oil Marketing Company (SOMO) announced that the country intends to export 2.8 million barrels of Basra crude from its southern ports per day in June.

Colorado-based Extraction Oil & Gas has filed for bankruptcy protection as oil prices plunge amid the COVID-19 pandemic. The company’s market worth has collapsed from $4bn in 2016 to less than $100m on Friday, while its total debt outstanding amounted to $1.6bn at the end of the first quarter.

The Bureau of Land Management (BLM) has postponed the Wyoming oil and gas lease sale scheduled for late June. The bureau had originally planned to open 135 parcels totaling approximately 170,000 acres to energy developers. The decision follows similar postponements in New Mexico, Utah, Nevada, and Colorado as oil prices and lingering lockdowns put a damper on interest, though there has been no official explanation.

Chesapeake Energy could file bankruptcy as soon as this week after it entered into the final stages of negotiating a $900 million debtor-in-possession loan that it took out to keep operating while under Chapter 11 bankruptcy-court protection, with most analysts suggesting there will be no payout to shareholders--or a very small payout. The stock has dipped from near $170 per share at the beginning of the year, to less than $13 now.

Russia’s gasoline production has fallen to a 15-year low as lockdowns stymie demand for fuels and as it cuts crude oil production as part of the OPEC+ agreement. Russia still has a ban on imported refined crude products including gasoline. While fuel demand started to tick up slightly in May, the recovery is slow going.

Politics, Geopolitics & Conflict

The diplomatic activity in Libya is now hitting fever pitch following Haftar’s loss of territory in and around Tripoli to the GNA-Turkey alliance. Turkish officials are in Libya for talks with the GNA this week, Russia (unlikeliest of forces) is hitting up Washington to step into the ring on Haftar’s behalf (along with Russia, UAE, and Egypt), and France is blasting Turkey for meddling in a NATO mission in the Mediterranean. While a French navy vessel was inspecting a vessel cargo suspected of containing embargoed arms to Libya, Turkish frigates targeted them with radar suggesting an imminent missile strike (which Turkey denies). Turkey is now trying to get another figure from the eastern government at Tobruk to replace Haftar in negotiations. That figure is Aguila Saleh Issa. Turkey is banking on Haftar now losing the support of the Russians, with rumors also emerging that the UAE is losing interest in the general.

Results from Suriname’s 25 May parliamentary elections were finalized on 16 June, and a four-party coalition led strongly by the opposition Progressive Reform Party (VHP) has officially won a total of 33 seats. President Desi Bouterse’s ruling party’s (National Democratic Party, NDP) won 16 seats. In August, the National Assembly will elect the president, for which they need a two-thirds majority (the opposition coalition is one seat shy of having that automatically. While local figures largely view the battle as over, with opposition seeming to assume it will be able to unseat Bouterse (who is only avoiding 20 years in prison due to the immunity the presidency affords him), tensions may arise if the incumbent president rallies protesters and rioters to create instability ahead of August. At stake are Apache/Total and now Exxon exploration operations that are positioning Suriname to be the next Guyana offshore.

Reports are emerging that Iran is rebranding its crude shipments for China, via stopovers in Malaysia in yet another sanctions-busting attempt, based on data intelligence provided by Kpler to Radio Farda. The analytical reasoning here is that while the numbers show that China is receiving less Iranian crude now, it may actually be receiving the same crude from Malaysia, rebranded.

The U.S. Treasury Department has blacklisted Mexican company Libre Abordo and a related Schlager Business Group, imposing sanctions on their owners, accusing them of helping Venezuela evade sanctions. The Treasury imposed sanctions on three individuals, eight foreign entities and two vessels. In late March, Libre Abordo declared bankruptcy and said that the Venezuelan government terminated an oil-for-food agreement that had allowed the firm to supply water trucks in exchange for millions of barrels of Venezuelan crude. The company sold oil worth roughly $300 million in recent weeks, but hasn’t shipped any food to Venezuela, the Treasury said. According to the US government, the operations were orchestrated by Colombian businessman Alex Saab. He was arrested last week in Cape Verde by officials acting on an Interpol notice issued after his indictment in the US for money-laundering offenses last year. This coincides with public statements by Mexico’s AMLO that Mexico would be prepared to sell crude to Venezuela should Venezuela ask (which it hasn’t).

Deals, Discovery & Development

Saudi Arabia’s Public Investment Fund (PIF) said it will buy a 2.32% stake in Reliance Industries’ digital unit Jio Platforms for $1.5 billion. Aramco completed the purchase of its 70% stake in the kingdom’s petrochemical giant Sabic from PIF--a key part of Aramco’s strategy of expanding from oil production into chemicals.

Chevron will start a sales process for its 17% stake in the North West Shelf project in Australia. It is estimated that the interest could be worth $3 billion to $4 billion, some $2 billion less than before the pandemic

Exxon has reduced its crude oil production at the Liza offshore field in Guyana due to the risk of excessive flaring. Output at the field, which Exxon operates in a consortium with Hess Corp and CNOOC Ltd, has fallen to between 25,000-30,000 barrels per day. Gas flaring has been a problem, prompting environmentalists to call on the supermajor in May to stop flaring as the emissions this caused exceeded the country’s total emissions produced over three months.

India has taken a historic step towards ending the state monopoly on the mining and selling of coal by auctioning 41 mines in the country to private companies. The mines are expected to hit peak production of 225 million tonnes and will account for 15% of India’s total coal output in by 2026.