Market Movers
- A Reuters survey shows that OPEC’s production fell last month to 29.50 million bpd in the runup to the cartel’s new production quotas that started at the first of the year - a 50,000 bpd decrease month on month. Once again, the most noncompliant members were Nigeria and Iraq, the latter responsible for chronic overproduction throughout the first production agreement. While Nigeria is still not in compliance, it did manage to decrease its production by 80,000 bpd, largely due to scheduled maintenance. Iraq reduced its production too, but is still only at 59% compliance.
- Oil and gas rigs in the US fell by a total of 207 throughout all of 2019--a drop of 26%. Meanwhile, US oil production rose from 11.7 million bpd at the start of 2019 to 12.9 million bpd at the end of December. According to last week’s report--the first week of the year, another 9 rigs were shed, continuing the downward trend. It is hard for the market to change how it views the rig count in light of rising production and falling rigs.
- The API reported that crude oil inventories had fallen by 5.95 million barrels for the week ending January 3, but the news of a large draw was outshone by tensions in the Middle East.
- Russia and Turkey have successfully launched their TurkStream pipeline that will send Russian gas to Europe and Turkey in a move that not only allows Russia to ship gas at less cost, but also strengthens ties between Turkey and Russia…
Market Movers
- A Reuters survey shows that OPEC’s production fell last month to 29.50 million bpd in the runup to the cartel’s new production quotas that started at the first of the year - a 50,000 bpd decrease month on month. Once again, the most noncompliant members were Nigeria and Iraq, the latter responsible for chronic overproduction throughout the first production agreement. While Nigeria is still not in compliance, it did manage to decrease its production by 80,000 bpd, largely due to scheduled maintenance. Iraq reduced its production too, but is still only at 59% compliance.
- Oil and gas rigs in the US fell by a total of 207 throughout all of 2019--a drop of 26%. Meanwhile, US oil production rose from 11.7 million bpd at the start of 2019 to 12.9 million bpd at the end of December. According to last week’s report--the first week of the year, another 9 rigs were shed, continuing the downward trend. It is hard for the market to change how it views the rig count in light of rising production and falling rigs.
- The API reported that crude oil inventories had fallen by 5.95 million barrels for the week ending January 3, but the news of a large draw was outshone by tensions in the Middle East.
- Russia and Turkey have successfully launched their TurkStream pipeline that will send Russian gas to Europe and Turkey in a move that not only allows Russia to ship gas at less cost, but also strengthens ties between Turkey and Russia (who are about to face off in Libya). First gas deliveries have already started to go through the pipeline. While the US managed to pass a defense bill that would impose sanctions on anyone working on TurkStream, the action was too late to be effective.
- Saudi Aramco is trading at its lowest price since its debut on high-risk sentiment due to tensions between the US and Iran. Fears are that it could again be targeted by Iran.
Discovery & Development
- After announcing a JV deal with French Total SA in Suriname, Apache has announced a “major” discovery that isn’t likely to move the needle much for Total, but could be game-changing for Houston-based Apache. News of this discovery has led to the biggest gain for Apache in almost five decades. This is the Maka-Central-1 well in Block 58, offshore Suriname, and ever-cautious Apache says data indicates the potential for “prolific oil wells” and a “substantial resource”.
- Mid-cap Tullow Oil, on the other hand, is still reeling from a series of disappointments both in Ghana and Guyana (which shares a maritime border with Suriname), with results from its Carapa-1 well in Guyana coming in worse than expected this week, resulting in the third blow to Tullow stock in a month.
- Following up on a major discovery announcement in Mexico last week, Houston-based Talos Energy Inc says the shallow-water Zama field in the Gulf of Mexico likely contains 670 million barrels of recoverable oil, with first production expected in three years (depending on negotiations with Mexican state-run Pemex, which could lead to delays in the current political atmosphere).
- The first-ever oil development project offshore Senegal has now been approved by the government for Australian Woodside Petroleum. This is a $4.2 billion offshore oil project called Sangomar that is expected to have a 100,000 bbl/day production capacity. The project has been delayed by legal disputes over share sales, but the government approval is being viewed as a forward-moving victory.
Deals, Mergers & Acquisitions
- BP is divesting more North Sea assets in a move that seems to have taken investors by surprise. The British oil giant has agreed on terms to sell its interests in the Andrew area, and its non-operating interest in the Shearwater field, to (highly indebted) Premier Oil for $625 million. That means Premier Oil will take over the platform as well as BP's controlling stake in five surrounding fields (Andrew, Arundel, Cyrus, Farragon, and Kinnoull), along with BP’s minority stake in the Shearwater field. BP recently sold interests in the Magnus, Bruce, Keith, and Rhum fields in the northern North Sea as part of a planned program of $10 billion divestments by the end of this year.
- China’s Geely and Mercedes-Benz on Wednesday announced they would each be investing $388.77 million in a China-based venture to build Smart-branded cars for the Chinese and German markets.
- The government of the Democratic Republic of Congo (DRC) is trying to sell stakes in two oil blocks in prolific Lake Albert on the border with Uganda. Those oil block licenses belonged to Israeli middleman Dan Gertler, the individual with ties to the DRC regime of Joseph Kabila and the ongoing investigation against giant Glencore for corruption and bribery. Tullow Oil, Total SA, and Eni are all said to have expressed interest.
- South Sudan will open a tender for an environmental audit of its oil-producing fields ahead of planned exploration and an auction for 14 new oil blocks scheduled for the first part of this year. The environmental tender will be open until January 20th. South Sudan is thought to hold 3.5 billion barrels of oil, much of which has yet to be explored.
Legislation & Regulation
- Algeria's new hydrocarbon law aimed to attract foreign investors came into force earlier this week after being drafted in collaboration with five major international oil companies operating in the country. The new law emerged three days before Algeria’s official presidential election campaign launched. Under the new law, the tax burden on state-owned Sonatrach and its international partners will be cut from 85% to around 60%-65%. Foreign investors will be allowed to hold majority stakes in non-strategic sectors.
- Somalian lawmakers have approved a new oil bill paving the way for offshore exploration and establishing a legal framework for revenue-sharing. Somalia produces no oil, but seismic data indicates the potential for substantial offshore oil reserves. Last year, the country began preliminary preparations for a licensing round for 15 exploration blocks.
- Starting in May, foreign companies will be able to take part in oil and gas exploration and production in China, according to the country’s Ministry of Natural Resources. The reform stipulates that foreign firms registered in China with net assets of not less than $43 million will be eligible to obtain oil and gas mining rights. Previously, only state-owned firms were eligible.
Politics, Geopolitics & Conflict
- Turkey isn’t in Libya to fight on behalf of the Government of National Accord (GNA); it’s there to make a deal, most notably with the Russians, whose mercenaries are fighting for General Haftar’s Libyan National Army (LNA) as it takes the coastal city of Sirte and readies for a big push on Tripoli. On Thursday, Turkey and Russia called for a ceasefire following talks between Erdogan and Putin in Istanbul. But Russia continues to deny that it’s supporting Haftar, despite the increasing numbers of Russian mercenaries showing up in this venue. At this point, a ceasefire would mean convincing Haftar to stand down at a time when he has the upper hand. If Haftar doesn’t stand down, it is unclear what would entice the Russians to stop supporting him. Turkey may have to get its hands dirty in this war.
- Chevron has evacuated all of its oil workers from the Kurdistan Region of Iraq, in the country’s north, following the Iranian/Hezbollah strike on two Iraqi military bases housing US personnel, one of which was in Erbil in Iraqi Kurdistan. In the main oil-producing region in the Iraqi south, in Basra, Iraqi officials have said that some US oil staff were being evacuated, but oil giants operating in the region have no confirmed this.
- Unions in France have blockaded several of the country’s oil refineries as part of a massive French strike against proposed pension reform. Workers at ExxonMobil France's Port Jerome and Fos refineries began a four-day walkout, joining transport workers who have been striking since early December.
- Brazil’s state-owned Petrobras will temporarily stop sending its tankers through the Strait of Hormuz because of rising Middle East tensions, though it ensures that this will not affect fuel supply.
