Politics, Geopolitics & Conflict
• The publication of the Panama Papers sent shockwaves around the world, implicating heads of state, the global financial elite, celebrities, and even sports stars. The volume of documents leaked to investigative journalists exceeded both the WikiLeaks documents and the Snowden files. The documents center around a law firm in Panama that helped the global elite setup shell companies to avoid paying taxes. It has already claimed its first victim – the Prime Minister of Iceland stepped down after the revelations. But the Panama Papers also show the efforts of petro states in trying to hide wealth. The Saudi King, for instance, has assets in shell companies, which he used to purchase real estate. Other leaders, such as the former Iraqi Prime Minister Ayad Allawi, the former Sudanese President Ahamad Ali al-Mirghani, and former Prime Minster of Qatar Hamad bin Jassim a-Thani, all had shell companies setup for their personal gain. Shell companies were used to embezzle cash from Petrobras. Other top officials from
Nigeria, Angola, Congo, Venezuela, just to name a few, have been tied to the Panama Papers. China is censoring websites and removing content related to the release. Russian President Vladimir Putin, whose inner circle was also named in the papers, says the publication was intended to weaken Russia. There are too many cases to provide a full account, but the full fallout from this massive data release has yet to be felt.
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Politics, Geopolitics & Conflict
• The publication of the Panama Papers sent shockwaves around the world, implicating heads of state, the global financial elite, celebrities, and even sports stars. The volume of documents leaked to investigative journalists exceeded both the WikiLeaks documents and the Snowden files. The documents center around a law firm in Panama that helped the global elite setup shell companies to avoid paying taxes. It has already claimed its first victim – the Prime Minister of Iceland stepped down after the revelations. But the Panama Papers also show the efforts of petro states in trying to hide wealth. The Saudi King, for instance, has assets in shell companies, which he used to purchase real estate. Other leaders, such as the former Iraqi Prime Minister Ayad Allawi, the former Sudanese President Ahamad Ali al-Mirghani, and former Prime Minster of Qatar Hamad bin Jassim a-Thani, all had shell companies setup for their personal gain. Shell companies were used to embezzle cash from Petrobras. Other top officials from
Nigeria, Angola, Congo, Venezuela, just to name a few, have been tied to the Panama Papers. China is censoring websites and removing content related to the release. Russian President Vladimir Putin, whose inner circle was also named in the papers, says the publication was intended to weaken Russia. There are too many cases to provide a full account, but the full fallout from this massive data release has yet to be felt.
• Russia managed to increase oil production in March once again, setting a new post-Soviet record for output. The news comes as the Doha meeting on April 17 is less than two weeks away, and Saudi Arabia cast doubt on the potential success of the production freeze. For Russia, though, the latest increase probably won’t continue. The aging oil fields in West Siberia are facing decline, and state-owned oil company Rosneft is ramping up spending and drilling just to keep production from falling. Russia can ill-afford a decline in production though. The weakness of the rouble is fueling inflation, which stood at 7.3 percent in March. The Russian economy is hurting, and it has few resources to invest in large new oil fields. Russian officials said this week that $45 to $50 per barrel is a fair market price – high enough to raise revenue but low enough to keep shale from coming back. But it is unclear if Doha can accomplish that.
• OPEC countries are also struggling. Venezuela announced that it would temporarily shift to a four-day work week as it struggles with an electricity crisis. Every Friday in April in May will be a non-working holiday as an attempt to conserve energy. Venezuela continues to suffer an economic meltdown from the collapse in oil prices and Bloomberg ranked Venezuela #1 for the world’s most miserable economy. Meanwhile, Nigeria is struggling with a shortage of dollars, sparking a fuel crisis. Dependent on imports for refined products, Nigeria’s dollar shortage is making it difficult to bring in enough fuel, causing long lines at refueling stations as people try to fill up. The government imposed currency controls to avoid burning through cash reserves, but that has created the dollar shortage. The unrest could yet grow as the Nigerian government works through all of its bad options.
Deals, Mergers & Acquisitions
• Halcon Resources (NYSE: HK) is in talks with PJT Partners and Weil, Gotshal & Manges to explore opportunities to “materially reduce its indebtedness while preserving liquidity.” There are no agreements at this time, but the company’s share price jumped 5 percent on the news. Halcon Resources is an independent E&P company that focuses on the Bakken.
• Goldman Sachs listed nine companies that it favors for $35 oil, a price that it says is neither too low nor too high for them. $35 per barrel would deter shale output from rising. The companies Goldman recommended were EOG Resources (NYSE: EOG), Diamondback Energy Inc. (NASDAQ: FANG), PDC Energy Inc. (NASDAQ: PDCE), Hess Corp. (NYSE: HES), Cenovus Energy Inc. (NYSE: CVE), Anadarko Petroleum Corp. (NYSE: APC), Encana Corp. (NYSE: ECA), Continental Resources (NYSE: CLR), and Whiting Petroleum (NYSE: WLL).
• Plains All American Pipeline LP (NYSE: PAA) has agreed to purchase the Canadian natural gas liquids unit of Spectra Energy (NYSE: SE) for $150 million in cash.
• Crestwood Equity Partners (NYSE: CEQP) saw its share price jump nearly 10 percent after announcing that it won a 10-year contract to process gas in the Barnett Shale from BlueStone Natural Resources.
• BP (NYSE: BP) is facing a possible shareholder revolt over the 20 percent increase in salary for CEO Bob Dudley. Top fund managers plan to vote against the £14 million ($19.6 million) pay package. His rising salary comes as the company slashed 5,000 jobs and reported its largest ever annual loss of $5.2 billion in 2015. Meanwhile, a judge finalized the $20 billion settlement over the 2010 Deepwater Horizon disaster, a sum that can be partially deducted from the company’s tax liability.
• The U.S. reported that oil inventories declined last week by 4.9 million barrels, the first decline since early February. Oil storage levels still stand at 529 million barrels, just off of last week’s all-time record high. However, oil prices surged on April 6 following the data release. One week of drawdowns doesn’t necessarily mean that storage levels will continue to be worked through, but it raises the possibility that the oil markets have turned a corner.
Discovery & Development
• Canada’s upstream investment in oil and gas will fall by 35 percent in 2016, from C$48 billion in in 2015 to just C$31 billion this year. That will mark the sharpest two-year decline in the nation’s history, down from C$81 billion in 2014. The Canadian Association of Petroleum Producers says there is an urgency to build new pipelines to allow oil from Alberta to reach new markets.
• Royal Dutch Shell (NYSE: RDS.A) abandoned an oil-licensing round in Norway, as it seeks to optimize its global portfolio. The move dims the chances of development in Norway’s offshore Arctic. Norway is moving forward with the licensing, citing interest from other companies.
• Chevron (NYSE: CVX) closed down its Gorgon LNG facility in Australia due to technical problems. The $54 billion LNG export terminal came online in March, shipping LNG to Asian customers. But the project, having already suffered from development delays, could be offline for one to two months to fix the issue. Separately, Chevron announced that it would cut 655 jobs in Houston, part of its plan to cull its payroll by 4,000 in 2016.
Regulations & Litigation
• The U.S. Department of Justice filed a lawsuit to block the Halliburton (NYSE: HAL) merger with Baker Hughes (NYSE: BHI). The U.S. government says that the takeover will give the combined company too much market power. The suit alleges that the merger would eliminate competition for 23 products and services used for oil exploration and production. The antitrust lawsuit could derail the deal, but both companies have pledged to vigorously fight the government’s lawsuit. “I have seen a lot of problematic mergers in my time. But I have never seen one that poses so many antitrust problems in so many markets,” said Bill Baer, DOJ’s antitrust lead.
• The Aliso Canyon natural gas leak in California could contribute to electricity blackouts in the state this summer, due to inadequate gas supplies. The state placed a moratorium on gas injections while inspectors conduct reviews of the facility. Natural gas storage levels at the site are at less than one-fifth of capacity. Energy officials in California are raising concerns about the possibility of 14 days where the state could be short on capacity, leading to rolling blackouts. The gas leak was the worst gas leak in U.S. history, lasting several months.
• Kazakhstan has filed a $1.6 billion claim against Eni (NYSE: E) and BG Group (now part of Royal Dutch Shell), related to a formula for calculating profits at the Karachaganak gas condensate field. The dispute is a glaring example of the rising tension between governments and private sector partners from low oil prices, as all parties fight over a shrinking pie. The implications and the potential costs of the lawsuit are unclear at this point.
