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Global Energy Advisory – Friday, 26, 2018

Shale

Brent crude touched $71 and WTI hit $66 this week, supported by the latest comments from the energy ministers of Saudi Arabia and Russia, who said after a meeting last weekend that OPEC and Russia planned to leave the framework of their production cut agreement in place after the deal ends. This means there will be a market intervention mechanism ready should the need arise.

Some took these comments to mean the deal could be extended beyond the end of 2018, although both Novak and Al Falih denied this possibility. In any case, the presence of a ready framework for oil market intervention suggests there is now a bigger oil cartel in the market and it is ready to intervene at will to control prices.

The price rally may look sustainable, especially after the EIA reported its tenth weekly inventory draw, but some of the biggest fuel consumers apparently beg to differ. Four major airlines including Delta, American, and United, and Dubai’s Emirates, said this week they had no plans to start hedging fuel deliveries, signaling they are far from worried about oil prices.

Meanwhile, the IMF has warned that despite the latest indications from the global economy that suggest healthy growth this year, a recession may be nearer than many believe. Some sources from the analyst community are in agreement, noting the strongest start of the year for the U.S. stock market and investors’ excessive risk appetite.

Deals, Mergers & Acquisitions

• India’s oil industry consolidation has begun with the $5.78-billion acquisition of Hindustan petroleum by giant ONGC. Both state-owned companies are part of New Delhi’s plans to create one energy behemoth that would be better placed on the international energy stage, and better equipped to compete against the supermajors.

• Vanguard Natural Resources has divested Permian assets for $348.5 million as part of its post-bankruptcy reorganization and will continue with the sale of 1,700 net acres in one of the play’s most promising parts, the Delaware Basin. The assets currently produce some 300 barrels of oil equivalent a day.

• A private equity company, EnCap Flatrock Midstream has stashed $3.25 billion in a fund that will invest in the midstream segment of the oil and gas industry. The Texas-based firm said this is its fourth fund and the sum collected for investments had exceeded its initial target of $3 billion. Over the last decade, EnCap Flatrock has raised some $9 billion to invest in oil and gas transport and storage projects.

• French Total has acquired Samson Offshore anchor LLC to expand its Gulf of Mexico footprint. Samson holds minority stakes in four offshore blocks in the U.S. section of the gulf, all part of Anchor – one of the biggest recent discoveries in the area. Chevron is the operator of the Anchor discovery.

• Noble Energy has plans to further its presence in Israel, where the Texas-based company holds 40% in the giant offshore Leviathan gas field. Leviathan has reserves estimated at 622 billion cubic meters, most of which will be exported. The U.S. company also has a 32.5% stake in the Tamar gas field but has to cut this to 25% as per the local government’s competition-boosting plans.

Tenders, Auctions & Contracts

• BP has signed a seven-year LNG supply deal with Oman LNG after the company played an instrumental role in reversing a persistent production decline trend with the launch of commercial production from the huge Khazzan field, which holds an estimated 10.5 trillion cubic feet of natural gas. Under the terms of the deal, BP will be free to ship the LNG it buys from Oman LNG anywhere in the world.

• Statoil has awarded a $255-million oilfield services contract to Norway’s Aker Solutions, for the development of the third phase of the Troll oil and gas field in the North Sea and the Askeladd field in the Barents Sea. The expansion of production from the Troll field will allow Norway to maintain its role as a major gas exporter to Europe, Statoil noted. The Askeladd field will supply natural gas to a Norwegian LNG project.

• A consortium comprising BP and Kosmos Energy has won the exploration rights to two offshore blocks in Sao Tome and Principe in a restricted tender that also had a consortium between Portugal’s Galp Energia and French Total. The small island off Africa’s west coast is conveniently located in the Gulf of Guinea, where substantial oil and gas reserves have been discovered in recent years.

• China has awarded three local companies with the exploration rights to three blocks in the northwestern part of the country. The deals, worth a total $422 million, were secured after a tender that attracted seven companies. Shortage of private investment has been a major obstacle in China’s oil and gas resource exploitation and Beijing has chosen the oil and gas-rich northwestern province of Xinjiang as a sweet spot for attracting more private company capital in a bid to diversify its energy industry away from the state giants.

• Chevron has awarded Petrofac a contract for oilfield maintenance and construction services at five of its North Sea fields. The contract is the second one between the companies. Petrofac already provides engineering and construction services to Chevron in the North Sea.

Discovery & Development

• Cairn Energy said in an operational update it expected to produce 17,000-20,000 bpd of crude oil this year, adding that production from the Catcher and Kraken fields in the North Sea is seen to plateau by mid-2018. The company added it would spend some $125 million on these two fields this year, and another $75 million on exploration and appraisal in the UK, Norway, and Mexico, where the company won several licenses last year.

• Rosneft is mulling over the addition of a new branch to the huge Druzhba pipeline that will carry crude to German refineries. At the moment, the two German refineries in which Rosneft has minority stakes receive oil via the TAL pipeline from Italy to Germany. The timeline of the extension project is uncertain, however, as it would likely require the green light from the EU authorities and these are unlikely to grant it lightly. The Druzhba crude oil pipeline is the longest in the world.

• Libya announced the restart of its Wintershall oilfield. That would put some 57,000 bpd of new supply into the market. The shutdown since November resulted in the loss of 4.4 million barrels of production at a cost to the economy of $281.5 million.

Company News

• Philadelphia Energy Solutions, the biggest East Coast refiner, has filed for bankruptcy. The news comes six years after Sunoco and Carlyle Group threw the company a lifeline, saving thousands of jobs. The jobs are still not under threat; but the Chapter 11 filing reveals Philadelphia Energy Solutions has been unable to weather the effects of the Renewable Fuels Standard that has pushed up its biofuels expenses considerably enough to threaten its survival.

• Australia’s Santos reported a 20% revenue increase for the fourth quarter of 2017 thanks to the oil price increase, with production 59.5 million barrels of oil equivalent, down 3% on 2016.

• Schlumberger reported fourth-quarter figures that beat analyst expectations, with earnings per share at US$0.48, up 78% on the fourth quarter of 2016. The oilfield service major also booked a pre-tax charge of more than $3 billion for the period partly because of its decision to pull out of seismic surveying.

• Oil prices also pushed up Halliburton’s bottom line higher, with the company reporting fourth-quarter EPS of $0.53, versus the $0.46 forecast by analysts. Halliburton also took a charge, although a much smaller one, at $385 million, related to its business in Venezuela.

• Baker Hughes also beat analyst estimates with its fourth-quarter figures, booking EPS of $0.15, compared with analyst forecasts of $0.01. Revenues also beat forecasts in the final quarter of 2017; but the figure was lower than the one for Q4 2016, which weighed on the company’s stock.

Politics, Geopolitics & Conflict

• Russia is facing new sanctions from the U.S., due to be announced in two weeks. The new round will likely have a strong impact on Gazprom’s Nord Stream 2 project as it is being funded by Western European companies and any more anti-Russian sanctions will be a challenge for them to continue doing business with Gazprom.

• More sanctions have been slapped on North Korean ships, companies and individuals, too, after Washington claimed they were supporting Pyongyang’s weapons of mass destruction program. Two Chinese companies were also added to the list of sanctioned entities for exporting banned goods to North Korea.

• A number of First Nations who back the construction of a $13-billion oil pipeline from Alberta to the coast of British Columbia have launched a GoFundMe campaign to sue the government for a moratorium on tanker transport along the country’s northern West Coast. The First Nations argue the tanker ban is harmful for the local communities and that its introduction was promoted by foreign-financed environmental non-profits.




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