Politics, Geopolitics & Conflict
- ISIS is believed to have been behind a major attack on Syria’s energy infrastructure earlier this week that caused a nationwide blackout following an explosion at the Arab Gas Pipeline.
- Tensions between India and China continue to escalate, now bleeding over into the refinery business after Indian lawmakers passed legislation restricting imports of crude oil from China. Earlier this month, the authorities halted the chartering of any Chinese-owned or flagged tankers to haul oil and fuel.
- Four Americans have been indicted for selling Iranian oil to China in violation of sanctions between May 2019 and February 2020 in a scheme that involved shell companies, forgery, and the bribing of Chinese officials.
- China is losing influence in South Sudan’s oil patch. The newly independent country has said it will allow CNPC’s contract to operate several oilfields to expire, at which point the oilfields will be taken over by state-run Nile Petroleum in order to keep more oil revenues at home. The transition wouldn’t be until 2027, when CNPC’s contract expires, which is a lifetime in chaotic South Sudan and anything could happen in the interim, including the move being used as leverage for a better deal from the Chinese.
COVID Market Update
The oil industry has dueling problems right now, with the longer-term COVID impact rivaling a massive hurricane for attention. Before we get…
Politics, Geopolitics & Conflict
- ISIS is believed to have been behind a major attack on Syria’s energy infrastructure earlier this week that caused a nationwide blackout following an explosion at the Arab Gas Pipeline.
- Tensions between India and China continue to escalate, now bleeding over into the refinery business after Indian lawmakers passed legislation restricting imports of crude oil from China. Earlier this month, the authorities halted the chartering of any Chinese-owned or flagged tankers to haul oil and fuel.
- Four Americans have been indicted for selling Iranian oil to China in violation of sanctions between May 2019 and February 2020 in a scheme that involved shell companies, forgery, and the bribing of Chinese officials.
- China is losing influence in South Sudan’s oil patch. The newly independent country has said it will allow CNPC’s contract to operate several oilfields to expire, at which point the oilfields will be taken over by state-run Nile Petroleum in order to keep more oil revenues at home. The transition wouldn’t be until 2027, when CNPC’s contract expires, which is a lifetime in chaotic South Sudan and anything could happen in the interim, including the move being used as leverage for a better deal from the Chinese.
COVID Market Update
The oil industry has dueling problems right now, with the longer-term COVID impact rivaling a massive hurricane for attention. Before we get into our COVID-related market briefing, here’s a quite hurricane update:
The oil and gas industry in the Gulf of Mexico had braced earlier in the week for Laura, evacuating 299 offshore platforms and 11 drilling rigs on Wednesday. By Thursday, 297 production platforms had been evacuated, which is nearly half of all 643 manned platforms in the GoM. Personnel were also evacuated from 10 of the 12 non-dynamically positioned rigs in this area, and 8 of the 16 dynamically positioned rigs were moved out of the storm’s path. This leaves 1.559 million barrels of oil shut in (84.3%) and 1.628 mmcfd of gas shut in. Just a handful of the refineries shuttered include Motiva’s Port Arthur refinery, Exxon’s Beaumont, Total’s Port Arthur, Valero’s Port Arthur, Phillips 66 Lake Charles, Chevron’s Pasadena, and Citgo’s Lake Charles. Overall, more than 2.0 million barrels of refining capacity had been shut in. By Friday morning, oil prices dipped as it became evident no significant damage had been sustained. Some refiners, such as BP, even began the process of restarting.
- Equinor has announced job cuts of around 20% in Britain, Canada, and the US, and will also be cutting contractors by half as it struggles to maintain profitability amid low oil prices. Equinor also said it would not drill new unconventional wells in the US for the rest of 2020. This mostly will impact the Bakken and Marcellus. As of the end of last year, Equinor had about 20,000 employees.
- Exxon, once the most valuable company in the world, has now been booted from the Dow index. To some, the oil giant’s removal can be attributed to more than just low oil prices. It could be a far scarier indication that there simply isn’t the confidence there anymore that oil demand will rebound enough for Exxon to regain its status.
- Things are looking grim for Alberta. In its first-quarter fiscal update for 2020-2021, Alberta pegged its debt burden nearly $100 billion, with a projected deficit of $24.2 billion for 2020-21. This figure is $16.8 billion higher than estimated than the budget for 2020. The reason for this decline? The sharp drop in oil revenue.
- PetroChina posted a $4.4 billion loss for H1 2020, compared to a hefty profit a year earlier. Despite the loss, PetroChina has pledged to invest in geothermal, hydrogen, solar, and wind power to the tune of 3-5 billion yuan annually. The firm ultimately pledged to have net-zero emissions by 2050.
- Iraq is cutting its exports this month, so far to 2.63 million bpd. This is 0.04 million bpd down from last month’s figures. This downward trajectory for its oil exports is noteworthy given that Iraq and Nigeria are OPEC’s biggest laggards when it comes to production quota compliance, and Saudi Arabia et al have had a difficult time getting Iraq to comply. This export figure will still not bring Iraq into full compliance with production, which would require Iraq to cut an additional 0.4 million bpd.
- Australia’s Oil Search’s planned $20-billion expansion of the Papua New Guinea LNG project will be delayed by approximately two years, due to the pandemic.
Deals, Mergers & Acquisitions
- The US Bureau of Land Management held its first oil and gas lease sales since March this week--one on Wednesday and one on Thursday. Wednesday’s auction for New Mexico tracts of around 2,800 total acres produced lackluster results with most swaths selling in the hundreds instead of thousands of dollars-range per acre. Thursday’s much larger auction--of 45,000 acres total was also in New Mexico, with one of the 93 parcels in Texas--was also a disappointment. The two-day average price was $169 per acre. That is compared to the $1,368 per acre back in February.
- Kinder Morgan has put its final production units at the Elba Liquefaction facility in Georgia online, with total capacity now at 2.5 million mt/year. Elba has a 20-year contract with its only client, Shell.
- Brazil’s Petrobras started its largest sale to date in Rio Grande do Norte offering a total of 26 fields with the aim of divesting non-core assets to raise cash. The Clara Camarão Refinery in the same state is also included in the sale. The refinery has the capacity to process 39,600 bpd.
- Italian Eni has agreed to acquire wind and solar projects in the US as part of the strategy of increasing its investments in renewables. Eni will acquire a stake in Building Energy Holdings US LLC (BEHUS), the U.S. affiliate of London-based renewable energy company Building Energy SpA. The holding company operates 62MW in wind and solar projects in the U.S. and has up to 160MW in wind projects in the pipeline.
- More good news for EVs as Californian authorities greenlighted a $437 million electric vehicle infrastructure program that will add about 38,000 new charging stations in the next four years.
Regulations and Legislation
- The Trump Administration has announced it intends to hold an oil and gas lease sale in California before the end of 2020--the first such auction in seven years. The BLM this week published an environmental review for seven parcels across 4,300 acres. California has repeatedly challenged the federal government over its drilling auctions in the state. Two lawsuits were filed this week against the Trump Administration over the BLM’s plan to open up part of the ANWR to oil and gas exploration after the administration approved the Coastal Plain Oil and Gas Leasing Program earlier this month.
