Markets
- China’s oil imports from the United States may fall sharply over the next few weeks as the trade war between the two continues to escalate. While US to China oil flows had increased in May through July, the trend is expected to now reverse, just like it did in the beginning of the trade war when US crude flows to China took a downward turn. There just aren’t that many more products for China to target in retaliation of the latest round of tariffs that the US announced.
- Guyana is quickly looking like it will be the next oil up-and-comer, opening up a new market for oil tankers. By 2020, it is expected that oil production may reach 120,000 bpd, up from virtually nothing before the latest interest from foreign oil and gas companies. While the market looks attractive, its position next to Venezuela casts some doubt on the country’s chances of success as Venezuela has attempted to claim some of the same fields Guyana claims. The political environment, too, may give some foreign oil companies pause after a vote of no confidence vote triggered a new round of elections expected to take place yet in 2019.
- Global oil and gas contracts reached $42 billion in Q2, a 79% increase over Q1. The number of contracts may have fallen in Q2, but the value was significantly higher. Factoring into those contracts are Bechtel’s $9.57 billion deal with NextDecade for the Rio Grande LNG project in Texas, and Anadarko’s $8 billion deal with McDermott International and…
Markets
- China’s oil imports from the United States may fall sharply over the next few weeks as the trade war between the two continues to escalate. While US to China oil flows had increased in May through July, the trend is expected to now reverse, just like it did in the beginning of the trade war when US crude flows to China took a downward turn. There just aren’t that many more products for China to target in retaliation of the latest round of tariffs that the US announced.
- Guyana is quickly looking like it will be the next oil up-and-comer, opening up a new market for oil tankers. By 2020, it is expected that oil production may reach 120,000 bpd, up from virtually nothing before the latest interest from foreign oil and gas companies. While the market looks attractive, its position next to Venezuela casts some doubt on the country’s chances of success as Venezuela has attempted to claim some of the same fields Guyana claims. The political environment, too, may give some foreign oil companies pause after a vote of no confidence vote triggered a new round of elections expected to take place yet in 2019.
- Global oil and gas contracts reached $42 billion in Q2, a 79% increase over Q1. The number of contracts may have fallen in Q2, but the value was significantly higher. Factoring into those contracts are Bechtel’s $9.57 billion deal with NextDecade for the Rio Grande LNG project in Texas, and Anadarko’s $8 billion deal with McDermott International and Chiyoda for an LNG park in Mozambique.
- OPEC’s July production fell again, by 246,000 bpd. Saudi Arabia, Iran, Venezuela, and Libya were the largest contributors to the cut. Saudi Arabia’s production fell another 134,000 bpd, reaching 9.698 million bpd. OPEC’s MOMR suggested that the rest of 2019 would be bearish for oil.
Discovery & Development
- $859 billion in oil, gas, and petchem projects are in the queue for MENA region, with $283 billion of those set to address MENA’s increase in energy demand over the next 20 years. Saudi Aramco is the single biggest spender on the projects, holding contracts worth $31 billion currently underway. The second, third, and fourth largest spenders in the MENA region are all oil and gas companies in Kuwait, with the three of them set to execute $42 billion in projects.
- Equinor has started up its $7.7 billion Mariner oil field in the North Sea on Thursday, ending multiple delays over the last year. The field is thought to hold 3 billion barrels of oil and will start by producing 55,000 bpd. Eventually it will reach 70,000 at its peak. The domestic production will further the UK’s energy security and represents an important win for the North Sea as ExxonMobil, Marathon Oil, ConocoPhillips, and Chevron have all bailed on the North Sea in favor of quicker turnaround projects in the US shale patch.
Deals, Mergers & Acquisitions
- Spanish Iberdrola has reached a deal with a unit of Macquarie Group to sell its stake in a UK offshore wind farm for $2 billion. The project, known as East Anglia One and valued at nearly $5 billion, will be the world’s largest offshore wind farm, providing power to 600,000 homes. This is the second wind farm acquisition for Macquarie in less than a week.
- Trafigura, Frontline, and Golden Ocean have reached an agreement to supply marine fuel ahead of the IMO 2020 regulations that go into effect on January 1, 2020. Trafigura will have a 75% stake in the JV, with Frontline (15%) and Golden Ocean (10%) owning the remaining shares.
- Osram is considering a takeover by Austrian sensor maker AMS that trumps a competing bid by Bain and Carlyle CG.O with a cash offer valuing the German lighting group at $4.8 billion. AMS is keen to diversify into sensors for self-driving cars as it works to reduce its dependence on Apple. This is the second attempt by AMS to acquire Osram this year. Last month, the company withdrew from the bidding when it didn’t see "sufficient basis" to proceed with its offer.
- Scottish energy supplier SSE it in talks with OVO Group about the sale of its energy retail arm which serves 5.7 million households in Britain, in a deal worth $300 million. If the sale is realized, Ovo Group would add SSE accounts to its 1.5 million customers, making it second only to British Gas. In May, SSE announced plans to sell its energy services division after more than 500,000 households switched to a new supplier.
Tenders & Auctions
- 20 potential bidders have expressed interest in Petroleo Brasileiro SA refineries that it has up on the chopping block. Petrobras is offloading the Abreu e Lima, Landulpho Alves, Presidente Getúlio Vargas, and Alberto Pasqualini refineries. Petrobras is attempting to offload half of the country’s refining capacity to end its monopoly. Interested companies must be oil and gas companies that have at least $3 billion in revenues. Investment funds may also bid if they have at least $1 billion under management.
- Kenya is expected to rubber-stamp a deal that will see Qatar pick up several offshore oil and gas blocks in the country. Qatar has signed a deal with Eni and Total to explore three blocks in a mostly unexplored area in the Lamu Basin.
Regulations & Legislation
- The EPA has drafted a proposal that would keep the federal government from specifically regulating greenhouse gas emissions from oil and gas wells. Despite the proposal to have the feds back off, many oil companies are already engaged in curbing greenhouse gases.
- Tensions are rising in Colorado following a law passed earlier this year that gave local governments more control over their own oil and gas regulations so long as their decisions are more strict than state or federal policies. The Colorado Department of Public Health and Environment was the latest state agency to peacock over the issue, reminding local governments such as oil-rich Weld County that the law in no way diminished the state agency’s authority in matters of the oil industry.
- Canada-based Corridor Resources is giving up, for now, its plans to frac for natural gas in New Brunswick because the province has failed as of yet to grant Corridor an exemption from the existing hydraulic fracturing moratorium in the wake of First Nations opposition. Corridor had planned to seek partners for a JV to develop its Frederick Brooke Shale prospect, but those plans have now been put on hold due to how unfavorable the prospect would look given the current regulatory environment.
- GE was called out in a 125-page report on Thursday by Harry Markopolos, the man who blew the whistle on both Enron and Bernie Madoff. In the fine print of the report, Markopolos admits that the report was self-serving in that it sold an advance copy of the it to a third-party who would stand to benefit should GE’s share price fall. GE shares were trading down nearly 12% by Thursday afternoon after the report claimed that GE was on the verge of insolvency. The report claimed GE broke accounting rules, including over the way it handled the Baker Hughes merger, misleading its shareholders by concealing billions in losses. In all, the report claims the rogue accounting practices that spanned decades misreports tens of billions of dollars.
- The UK today detailed its position on shale gas exploration. The UK’s Department for Business, Energy, and Industrial Strategy said shale could be an important domestic energy source that would allow it to reduce gas imports and help it achieve its net zero emissions targets by 2050. The announcement came on the same day that Cuadrilla resumed its fracking operations after being shuttered numerous times due to seismic events that require the company to stop fracking when even a small seismic event occurs. The Oil and Gas Authority in the UK will now conduct a scientific assessment of recent data on the subject, which will be reviewed by BEIS.
- Venezuela’s opposition leaders are softening its draft oil and gas bill that would have made sweeping changes to the Latin country’s oil industry. While still granting foreign oil companies certain rights they do not currently possess, it is a softer version that has a better chance of being approved quickly. The bill doesn’t mean much for Venezuela right now, but the recent batch of new sanctions that target foreign oil companies doing business with PDVSA may very well be Maduro’s final undoing. The timing of the new draft bill looking to establish a better working relationship with foreign oil companies is noteworthy in that should Maduro finally be ousted, it will be better positioned to repair its oil industry that now pumps fewer than 800,000 bpd. The opposition’s willingness to scale back its changes to get it rushed through may indicate that they feel Maduro’s time is near done.
Politics, Geopolitics & Conflict
- Argentina’s Macri is now, at the 11th hour, desperately rolling out social welfare packages after a surprise loss at the primary elections, which saw Alberto Fernandez (with Kirchner running as his VP) beat the incumbent out by a wide margin of 15 points, despite the fact that polls leading up to the primaries did not support these numbers. With only 60 days to elections, Macri will have a hard time making up for this loss.
- Separatists backed by the UAE have taken control of Yemen’s port of Aden, all government military camps and the presidential palace. The port of Aden, and parts of the port town, have been taken over by the Southern Transitional Council (STC), a militia force that is supported by the UAE and which is seeking the secession of the south. Aden was the temporary seat of the international recognized Hadi government. Hadi was ousted from the Yemeni capital, Sanaa, in 2014, by the Iranian-backed Houthis. Earlier this week, there were clashes between the government’s forces and UAE-backed separatists. The UAE-backed separatist takeover of Aden marks a decisive rift between long-time allies UAE and Saudi Arabia. The Saudis (meaning Crown Prince MBS) cannot back out of this conflict because it would mean losing face. The UAE wants out because it’s bad for reputation and phenomenally expensive. The move comes as UAE announces its withdrawal from Yemen altogether.
- Gibraltar released Iran’s oil tanker that it had seized after a judge received written assurances that the oil contained in the tanker was not bound for any EU-sanctioned country. Earlier reports suggested that the United States had called on Gibraltar to delay the ships release, but the court ruling stated that it had received no official request from the US. The judge ruled the ship should be released immediately. The US expressed its displeasure at the UK for releasing the tanker, and has threatened to impose sanctions on any banks, ports, and anyone involved with the tanker or the crew. Hours before the Gibraltar court released the ship, the head of Iran’s military warned all its enemies that they should withdraw from the Gulf, stating that the Islamic maritime resistance was currently being developed. Its enemies, Iran said, would face a “humiliating exit” if they did not withdraw.
- The European Commission imposed duties of 8% to 18% on imports of subsidized palm oil biodiesel coming in from Indonesia, triggering retaliatory duties on imports of EU dairy products. Indonesia is now prepared to increase the duties by as much as 25% in the latest tit-for-tat move. The dispute escalated earlier this year when the EU imposed restrictions on the use of palm oil in biofuels over concerns of deforestation, despite palm oil’s increased energy efficiency.
- The Panama Canal’s chief said that it will continue to allow tankers coming from Venezuela passage through the waterway, despite the latest round of sanctions against Venezuela.
Earnings Calls
- Duke Energy’s Q2 report exceeded analyst expectations coming in at $820 million or $1.12 an adjusted share. Operating revenue came in at $5.87 billion. Despite the robust Q2, Duke’s future is anything but certain. While it originally looked good for Duke Energy when Senate Bill 559 - a bill that would give Duke (and other utilities) more of a say-so in how it charges its customers - passed, it has been stalled so far in the House where it currently sits in committee. Duke continues to lobby in favor of the proposed legislation.
- Pioneer Natural Resources saw a 40% increase in profits despite the oil price slide due to significant growth in oil production. Its balance sheet is solid and is expected to be well positioned to weather a lower oil price environment. It’s adjusted profit for the quarter came in at $340 milion, or $2.01 per share.
- Aramco shared with the world some financial information that has forever been shrouded in secrecy, announcing that its H1 2019 net income fell 12% to $47 billion from H1 2018. The dip in net income was partially because of lower oil prices, but clearly its oil production cuts--which it’s been implementing with gusto--and its reduced oil exports have contributed to the income slide. Aramco’s EBITA came in at $92.5 billion for H1.
