COVID Market Update
- The IEA has cut its 2020 oil production forecast by 140,000 bpd to 91.9 million bpd, sending the FTSE 100 index down 73 points. The IEA cited the airline industry’s troubles as a key source of weakness in the oil market.
- Saudi Aramco this week reported a $6.6 billion profit for Q2, with H1 profits dipping 50% from H1 2019 when net income reached almost $47 billion. Despite the profit shrinkage, Aramco is keeping its nearly $19 billion dividend payout. Aramco is still planning to boost production capacity to 13 million bpd (at some undisclosed point in the future) despite a planned capex cut to somewhere between $20 and $25 billion next year - down from more than $32 billion last year.
- Scorpio’s offshore support vessel company Hermitage Offshore Services (NYSE:PSV) filed for Chapter 11 protection this week after being unable to reach a deal with its creditors. All of Hermitage Offshore’s 28 subsidiaries have filed. The company has blamed low oil prices as a result of the pandemic.
- Tellurian has scrapped three of its four gas pipelines in its Driftwood LNG Phase 1 project - and that’s if the project moves forward at all. Scrapping three of the four pipelines, combined with finding cheaper sources of feedgas, will allow Tellurian to cut costs by 30%. Tellurian could revisit the viability of the pipelines in the future.
- Capital spending in Alberta’s oil industry is set to fall by a third…
COVID Market Update
- The IEA has cut its 2020 oil production forecast by 140,000 bpd to 91.9 million bpd, sending the FTSE 100 index down 73 points. The IEA cited the airline industry’s troubles as a key source of weakness in the oil market.
- Saudi Aramco this week reported a $6.6 billion profit for Q2, with H1 profits dipping 50% from H1 2019 when net income reached almost $47 billion. Despite the profit shrinkage, Aramco is keeping its nearly $19 billion dividend payout. Aramco is still planning to boost production capacity to 13 million bpd (at some undisclosed point in the future) despite a planned capex cut to somewhere between $20 and $25 billion next year - down from more than $32 billion last year.
- Scorpio’s offshore support vessel company Hermitage Offshore Services (NYSE:PSV) filed for Chapter 11 protection this week after being unable to reach a deal with its creditors. All of Hermitage Offshore’s 28 subsidiaries have filed. The company has blamed low oil prices as a result of the pandemic.
- Tellurian has scrapped three of its four gas pipelines in its Driftwood LNG Phase 1 project - and that’s if the project moves forward at all. Scrapping three of the four pipelines, combined with finding cheaper sources of feedgas, will allow Tellurian to cut costs by 30%. Tellurian could revisit the viability of the pipelines in the future.
- Capital spending in Alberta’s oil industry is set to fall by a third this year, at just $16.6 billion. If realized, it would be the lowest spending since 2006. Alberta spends more than half of its total capital spending on oil and gas extraction. IHS Markit estimates that the spending cuts could actually be more, sinking the capex to less than $15 billion for 2020.
Discovery and Development
- GazpromNeft has made a new oil discovery in the Urals region, and is targeting production next year. The discovery at the Roshchinskoye oilfield has geological reserves of 29 million barrels.
- Shell is looking to purchase a 50% stake in private Indian refiner Nayara Energy’s $9 billion petrochemical project, owned in part by Russia’s Rosneft. The project will be owned equally by Shell and Nayara and will be completed within five years.
- As Vietnam’s crude oil production in the offshore Bach Ho field wanes, state-run PetroVietnam’s Dung Quat refinery is looking for alternatives. It is now testing Russian Sokol crude, where this week it successfully processed its first batch. Dung Qaut has also used WTI and Bonny Light last year.
Regulatory Updates
- Iran’s actual oil exports could be twice as high as US estimates, Tanker Trackers tweeted this week. The vessel tracking company has cited an Indian vessel that loaded cargo from an Iranian oil tanker before making its way into China. The vessel's ship tracking data did not correctly report the ship’s movements, nor did China report receiving any Iranian cargo. The incident highlights what many have suspected for months: Iran is probably exporting more oil than is being accounted for.
- The EPA is set to rescind methane requirements that would detect and fix greenhouse gas emissions. One of those is the rule that ensures that companies can detect methane leaks within their systems. The rules wouldn’t apply to all wells; rather, to those drilled post-2016 and all future wells. The EPA has stated that the rules were merely duplicates of other rules currently in place.
- An August 10th ruling from the U.S. Court of Appeals for the Fifth Circuit has granted Louisiana local governments a major victory over oil companies, including the ability to use the state courts to seek billions in reparations from oil companies over receding coastline. At risk are Chevron and others who are accused of having destroyed coastal marshes and wetlands in violation of state regulations for the drilling of wells, the construction of canals and the disposal of waste, among other things. The implications are severe for both large and small-cap companies involved and open the door to a downpour of similar legislation.
Politics, Geopolitics & Conflict
- Iran’s oil, gas, and petrochemical workers’ strike is now entering its 13th day. The strikes encompass workers from 46 refineries, companies, and factories in 20 separate cities. At the same time, Iran is attempting to counter mounting unrest by publicly considering allowing citizens to invest in domestic oil and gas on an Iranian exchange as part of efforts to “counter the enemies’ oil embargo”.
- A tanker that ran aground near Mauritius has spilled 1,300 tonnes of oil into the Indian Ocean, causing a flurry of individual cleanup efforts by locals - some of whom are even cutting off their hair to use to soak up the oil. Mauritius has declared a state of environmental emergency.
- Islamic State-linked fighters have taken control of a port town in Mozambique that serves as a key logistics hub for Total SA’s $23-billion natural gas project, which is currently under construction. This is one to watch for high-level risk factors, as it is the third time in 2020 that insurgents have targeted the area, threatening the viability of this project.
- Earlier this month, we noted a secret deal that gave a previously unknown American oil company license to operate northeastern Syrian oilfields. Further to that intelligence, it is emerging that Kurdish forces (Syrian Democratic Forces, SDF) orchestrated the deal in an attempt to ensure loyalty and continued support by fickle American allies who had previously stood by and allowed the Turks to storm over the border and threaten the anti-Assad forces. Now the game will likely be to cut the Turks in on this oil deal and thus remove the Turkish threat to the Kurdish forces in the region.
- Further to the situation involving Iranian shipments of fuel to Venezuela, the Trump administration says it has seized the cargo of four tankers transporting Iranian fuel to prop up the Maduro regime on Thursday. This seizure follows federal prosecutors’ allegations that the fuel sale in question was orchestrated by a businessman with ties to Iran’s Revolutionary Guards. While there were questions as to whether the U.S. would be able to enforce a court order in international waters, threat tactics were employed to avoid a physical seizure of the cargo. The threat of sanctions reportedly forced the voluntary handover of the cargo.
Renewables
- Chevron is planning to build 500MW of renewable energy plants in the Permian to power its facilities and is investing in nuclear fusion start-up Zap Energy. Zap is an emerging Seattle-based start-up working on a modular nuclear reactor with the goal of achieving commercially scalable fusion. Both are major steps for the U.S. oil major that has been criticized for lagging behind its European peers who have made quick strides toward an energy transition.
- Equinor has appointed a new CEO to spur its renewable agenda. The new CEO - an engineer - will take over in November. Equinor is still planning to increase its oil and gas output 3% every year over the course of the next six years, although the new CEO said he would be “willing” to re-allocate capital from oil and gas toward renewables if the opportunities were right. The mandate for the new CEO is to accelerate Equinor’s development into a broad energy company. The first step to this transition was made a few years ago, when Equinor took on the Equinor name from its former name, Statoil.
