Is The Aramco IPO Back On?

Market Movers

- State-run media say the Aramco IPO will now launch on November 3, with trading for a 1%-2% share to begin with. The leak of this rumor by unnamed sources to media yesterday suggested that the Saudis were possibly testing the waters at the last minute. Officially, MbS and the Kingdom's energy minister said on Wednesday that the IPO would happen soon and "at the right time", with no further detail. Russia's and Norway's SWF have said they have no plans to invest in Aramco's IPO. Russia's RDIF isn't outright shunning Aramco, but will not invest heavily because it is already heavily exposed to oil. Norway's SWF is more definitive, saying that it has no plans at all to invest in Aramco, without listing specific reasons.

- The IEA is predicting more over oil oversupply, cutting oil demand growth projections by 100,000 bpd for this year and next. For 2020, oil demand is now expected to grow 1.2 bpd.

- OPEC's "whatever it takes" strategy appears to have been shrugged off running up to the monitoring committee this month. A Reuters survey shows OPEC's total October production rose by 690,000 bpd, with Saudi Arabia--the glue that has held the production quota deal together come what may--leading the increase, adding 850,000 bpd in October, for a total of 9.9 million bpd for the month. Saudi Arabia has agreed to keep their production at 10.311 millioi bpd, so they are still more than complying. However, the increase in production at a time when demand growth prospects are giving the market the jitters will likely sink prices temporarily. What's more, Venezuela--to the shock of all--increased its production to 650,000 bpd in October, up 50,000 bpd from September. Ecuador, rocked by protests, decreased its production for October. Iraq and Nigeria are still not in compliance, and this will likely be addressed in the monitoring committee meeting. While the market is hoping for deeper production cuts in December,
OPEC members are unlikely to agree to deeper cuts while Iraq and Nigeria have not lived up to their end of the bargain.

Earnings Reports

- Oilfield services company Baker Hughes posted a $57-million profit on $5.9 billion of revenue for Q3. This is up compared to Q3 2018, for which BH reported $13 million in profit on $5.7 billion of revenue. For Q3 2019, BH's earnings per share came in at $0.21, compared to Q3 2018 EPS of $0.03. While Q3 this year was higher year on year, BH still missed analyst expectations, which had estimated $6.1 billion in revenue with an EPS of $0.24.

- BP's Q3 results were disappointing, as its production and exploration segment dragged it into a loss for the quarter. Its replacement-cost profit, which is similar to net income, came in at $2.3 billion. This is a drop from Q3 2018, which has this net income at $3.8 billion. The drop in earnings was partially due to maintenance, Hurricane Barry in the GoM, and lower oil prices. Still, BP has claimed that $60 oil prices are "finely balanced". BP's downstream segment looked more attractive but was down 41% year on year. Still, they were above analyst expectations at $1.8 billion in profit.

- Give it up for ConocoPhillips, which bucked the oil major trend for Q3. Adjusted EPS were $0.82, compared to an expectation of $0.74. ConocoPhillips, who is heavily exposed to the Eagle Ford, Bakken, and Permian basins, saw increased production to the tune of 21% compared to Q3 2018. Even while oil prices fell, ConocoPhillips managed to generate $1 billion in free cash flow.

- Total SA also beat Q3 estimates as it boosted production and cut costs to stay ahead of lower oil prices. Still, adjusted net income was down 24% year on year, at $3.02 billion. Analysts had projected dimmer figures at $2.77 billion. Total did not raise its dividend, as some had expected it might.

- Shell's Q3 profits were down 15% at $4.767 billion. This is down from $5.624 in Q3 2018, but up from $3.462 billion in Q2 2019.

- The United States' largest oil major, Exxon, saw its Q3 profit fall sharply to $3.17 billion, or $0.75 EPS. This is down from $6.24 billion or $1.46 EPS in Q3 2018. Revenue fell also, to $65 billion, from $76.6 billion in the same quarter last year.

- Chevron reported a 36% decline in third-quarter earnings as lower oil and natural gas prices offset an increase in production. Chevron earned $2.6 billion in the third quarter, down from $4 billion last year

Deals, Mergers & Acquisitions

- French Total SA has agreed to sell wholly-owned subsidiary Total E&P Deep Offshore Borneo BV to Shell for $300 million. The company holds an 86.95% interest in Block CA1, located 100 kilometers off the coast of Brunei. Block covers 5,850 square kilometers, with water depths ranging from 1,000 to 2,500 meters.

- Russian oil producer Lukoil and Hungarian energy company MOL are scheduled to sign a settlement deal over contaminated oil next week. A high level of organic chloride was found in late April in Russia's Druzhba pipeline, which connects Siberian oilfields with Belarus, Ukraine, Poland, Germany, Czech Republic and Hungary. Two companies are also expected to sign a contract where Lukoil would supply MOL with $10 billion worth of oil. The contract envisages supplies of around 4 million tons of oil over the next five years.

- Swiss engineering company ABB has bought 67% of stake in Shanghai Chargedot New Energy Technology Co. Ltd, a Chinese electric vehicle charging company. Chargedot makes charging stations and software platforms in China to enable vehicles to be charged with electricity.

- Chevron is said to be planning a divestment drive including several of its Nigerian oil and gas assets, as it focuses on growing its U.S. shale output. Chevron Nigeria operates and owns 40% of the interest in 8 oil blocks in the onshore and near onshore regions of the Niger Delta under a joint venture with Nigeria National Petroleum Corporation (NNPC). The company holds several subsidiaries in the African country. In 2018, Chevron pumped an average of 194,000 barrels of crude oil, 233 million cubic feet of natural gas and 6,000 barrels of liquefied petroleum gas (LPG) in Nigeria. Chevron joins Exxon Shell in the move to reduce stakes in Nigeria.

Discovery & Development

- London listed North Sea oil firm i3 Energy said it discovered around 200 million barrels of oil in its Serenity prospect in the British North Sea.

- Hess has announced an oil discovery at the Esox-1 exploration well, located in Mississippi Canyon Block No. 726, in the deepwater Gulf of Mexico. Hess is the operator and holds a 57.14% interest in the block while Chevron holds 42.86% interest. The first Esox well is expected to come online in early 2020.

- Eni has discovered new oil at an appraisal well in the Abu Rudeis Sidri development lease, in the Gulf of Suez, offshore Egypt. Eni said that the well is expected to commence production in the next few days, with an estimated initial flow rate of approximately 5,000bbl/d. The discovery is estimated to contain about 200Mbbl of oil in place.

Politics, Geopolitics & Conflict

- Mauricio Macri has lost presidential elections in Argentina to Alberto Fernandez and VP running mate Cristina Kirchner, but it remains unclear who will be running the show--the more moderate Fernandez or the dangerously populist Kirchner. Markets are in limbo, awaiting some clarifying indications, particularly as to whether Fernandez will bow to leftist pressure to freeze natural gas and power tariffs, and to peg oil product prices to pesos instead of dollars in order to curb inflation and boost economic growth.

- So much for peace. In Syria, the US withdrawal and the ensuing chaos is now leading to armed clashes between Syrian regime forces and Turkish military forces as the Russian-orchestrated ceasefire breaks down. Some US forces are now being returned to 'protect' Syrian oil as Trump takes heat for his controversial pullout. Trump's suggestion that he might cut a deal with ExxonMobil or similar to develop Syrian oil is a non-starter that will not even warrant comment from the American supermajors. This is a campaign spin. This oil now effectively belongs to the Assad regime and the Russians who will develop and exploit it, short of a major war between the US on one side and Syria, Russia and Iran on the other, with the Kurds and Turks up for grabs. The likes of Exxon has no interest in Syria's low-level oil offerings. In the meantime, ISIS has already replaced its leader.

- Keep a close eye on mass protests in Iraq and new developments that have two powerful Iraqi political factions that are former rivals have aligned against the Iraqi PM to push for his ouster amid protests that have gotten out of control. Iran has now stepped in to intervene, however, convincing a pro-Iranian Iraqi faction not to align with Moqtada Al-Sadr in his bid to oust the PM. The revision of the 'Arab Spring' is also now spreading to other venues in the region, with protests having just forced the resignation of Lebanese PM Hariri this week.

Regulations & Legislation

- Nigeria's proposed legislation called the Deep Offshore and Inland Basin Production Sharing contracts Bill 2019 is set to increase taxation on the oil industry at a time when it is already looking like an unappetizing meal for foreign majors. Nigeria's Senate passed the bill last month, and now the bill is before President Buhari, who has expressed support for it and is likely to sign it into law without delay. Nigeria has stiff competition for attracting foreign oil companies, including the likes of Egypt, Angola, and Ghana--all who have oil and better contract terms and regulations. Specifically, the bill would add another 3%-10% in royalty rates at oil prices between $50 and $80 per barrel. Nigeria's current system gives Nigeria between 60% and 70% of all deepwater revenues, which includes taxes, royalties, along with NNPC's share of production.

- The US' largest private coal miner, Murray Energy, has filed for bankruptcy protection, despite the Trump administration promise to revive the coal industry. Murray Energy and its subsidiaries have 7,000 employees and operate 17 active mines in Alabama, Illinois, Kentucky, Ohio, Utah, and West Virginia. The filing lists $2.5 billion in sales for 2018 and $2.7 billion in debt, plus more than $8 billion worth of liability for pensions and benefit plans. The company is the eighth coal producer to file for bankruptcy this year.