Iraqi Supreme Court Delivers Blow To Kurdistan Oil Talks

Politics, Geopolitics & Conflict

- Those watching the oil companies operating in Iraqi Kurdistan have of late been rather optimistic over talks between the Kurds and Baghdad since the appointment of a new Iraqi government in October last year. Since then, the dispute over Kurdish oil seemed to have died down, with Baghdad putting a lid on its aggressive legal battle over Kurdish oil. This week, however, the Iraqi Supreme Court delivered a serious blow to these talks, ruling federal budget disbursements to the KRG illegal. That will set back the oil talks—again.

- Alliances continue to shift drastically in Libya, which remains paralyzed by rival governments who have been biding their time as they wait and see where external forces will move as a result of Russia’s war on Ukraine. As we have noted previously, the U.S. has dialed down its support for General Haftar of the Libyan National Army (LNA) in the east, primarily because he is also supported by Russia’s Wagner private mercenaries. This week, we saw the CIA director show up in Tripoli to meet with incumbent prime minister (of the west) Dbeibah and the Government of National Unity (GNU). Indications are now that the CIA is pressuring Haftar to allow the GNU to govern in the east, in his territory and to refrain from threatening blockades of oil installations. There have been earlier indications, as well, that some sort of deal between Haftar and Dbeibah has been in motion for some time. Amid this (premature) optimism, this week, the Libyan National Oil Company (NOC) said on public TV that it would be signing $8 billion in offshore Mediterranean oil and gas exploration and production deals with Italian Eni. What we’re all waiting to see now is what Haftar’s price will be for sidelining rival eastern prime minister Bashagha and cutting a deal with the GNU and Dbeibah.

- Washington’s decision to supply Ukraine with a small number of Abrams tanks is being seen as a major escalation with Russia. The move is largely symbolic, particularly because the tanks will likely not even arrive in Ukraine for months and possibly even years due to the procurement setup. Even then, they require extensive training. The wide consensus is that Washington only agreed to send the tanks so that Germany would deploy its Leopard 2 tanks to the Ukrainian battlefield. For Germany to act “alone” on the tank deployment was frightening to Berlin in the face of Russia–particularly at a time when Germany’s foreign minister has made a rather grave misstep in provoking the Kremlin by using the word “war” in describing Germany’s situation with Russia. Just a day after the tank announcement, a new U.S. ambassador to Russia landed in Moscow–again suggesting the symbolic nature of the tank commitment.

Deals, Mergers & Acquisitions

- Texas-based Matador Resources Co has agreed to purchase Advance Energy Partners Holdings LLC for $1.6 billion in cash for what would be Matador’s biggest deal yet. Advance Energy Partners is controlled by PE firm EnCap Investments LP. The deal, covering 18,500 net acres in the northern Delaware Basin, is expected to close early in Q2. Matador will also pay an additional $7.5 million for each month this year that oil is over $85 per barrel. The asset’s production in the first quarter of 2023 is estimated at around 25,000 boe per day (74% oil). Matadors Ranger asset is in the same area. The deal includes 20 net DUCs that the company expects to be turned into sales during the second half of this year.

- Trinidad and Tobago has managed to secure a license from the United States to develop the Dragon gas field with PDVSA in Venezuelan waters. The company is expecting 350 million cubic feet per day from the field. The license was applied for mid-2022. PDVSA found 4.2 TCF of gas in Dragon, which lies along the Trinidad border. The project has languished for more than a decade. Trinidad & Tobago must now manage to reach a deal with Venezuela without handing over payments to the Maduro regime. Government officials suggested they could pay Venezuela for the nat gas with humanitarian supplies such as food and medicine.

Energy Earnings

- Halliburton recorded Q4 net income of $656 million ($0.72 per diluted share)--up from $544 million in Q3). Total revenue for Q4 was $5.6 billion, up from $5.4 billion in Q3, with Q4 operating income of $976 million. Full-year 2022 revenue was $20.3 billion (+33% y/y). 2022 operating income $2.7 billion (+50% y/y). Halliburton increased its Q1 2023 dividend by 33% to $0.16 per share. Drilling and Evaluation revenue in the fourth quarter was $2.4 billion, up 8% over the Q3, due to increased drilling-related services, testing services, year-end software sales internationally, and higher project management activity in Mexico. North American revenue in Q4 was $2.6 billion–a 1% decrease from Q3. International revenue during Q4 increased by 9%.

- Hess beat Q4 analyst estimates as its Guyana operations continue to give it a boost. The company’s net income for the quarter was $624 million ($2.03 per common share). Adjusted net income was $548 million ($1.78 per common share). Oil and gas net production in Q4 was 376,000 boepd–up 27% from Q4 in the year prior. E&P capital and exploratory expenditures for the quarter were $818 million, compared to just $593 million in Q4 2021. Year-end proved reserves are estimated at 1.26 billion boe. This year’s E&P capital and exploratory expenditures are expected to be about $3.7 billion, about 80% of which will go toward Guyana and the Bakken. The results that beat estimates follow the company's further success in the Stabroek block, including the recent Fangtooth SE-1 well–just a year after the original Fangtooth-1 discovery. Hess holds a 30% stake in the Stabroek block.

- The U.S.’s largest renewable energy generator, NextEra, fared worse than its oil counterparts, missing analysts’ revenue estimates. Q4 revenue was $6.16 billion, compared to analyst expectations of $6.55 billion. Adjusted profit of 51 cents per share beat analyst estimates for 49 cents per share.

- Valero soundly beat analyst expectations for Q4 performance, setting a record for its best-ever quarter so far as low product inventories saw the company's refineries operate at an average of 97% in Q4. Refining margins nearly doubled to $6.3 billion in the quarter compared to Q4 2021. Throughput volumes averaged 3.04 million bpd, just above Q4 2021 throughput. Quarterly adjusted income of $8.45 per share beat analyst estimates of $7.37 per share. Valero commissioned its renewable diesel project near the Port Arthur refinery in the fourth quarter, with a capacity of 470 million gallons per year.