Politics, Geopolitics & Conflict
Kyiv said mid-week that Russian forces had withdrawn from parts of the key battlefield of Bakhmut as a result of Ukrainian counterattacks. The fallback is not a rout but indicates Russia has retreated in some areas by up to a mile. The battle in Bakhmut has been a litmus test for Putin’s patience with his much-needed but dangerous reliance on Wagner mercenaries. Indications continue to surface that this relationship is becoming highly fractured. Just prior to Kyiv’s announcement that Russia had withdrawn from some positions, Wagner head Prigozhin had threatened to withdraw unilaterally, citing a lack of supplies from the Russian Defense Ministry. Prigozhin alleges that he received a letter from the Defense Ministry threatening to charge Wagner with treason if it retreated. It remains unclear exactly how much of Bakhmut Russia now controls after reportedly withdrawing from some positions, but prior to this, it was estimated that Russia controlled some 80% of the city. While the Russian Defense Ministry said on Thursday that its forces continued to advance on Bakhmut, Prigozhin took to Telegram to say that the battlefield is “developing according to the worst of the predicted scenarios.” He suggested that hard-won positions are now being abandoned daily “by dozens or hundreds of meters.”
Clashes in Sudan have continued and even escalated this week to include significant air strikes. Some 150,000 people are estimated to have fled the country, while some 700,000 have been displaced so far in the fighting between the military and a paramilitary force. Mediation talks are ongoing in Saudi Arabia; however, no concrete progress has been made toward a real ceasefire. Some state buildings have now been occupied by the paramilitary Rapid Support Forces (RSF), while the Sudanese army is using air strikes to attempt to force them out of neighborhoods they have entrenched themselves in. There are still no indications that South Sudan’s oil exports have been negatively affected by the fighting in neighboring Sudan, the landlocked South’s only export route.
In Iraqi Kurdistan, the KRG said Thursday that an agreement had been reached with Baghdad to resume oil exports from northern Iraq; however, Turkey had not yet responded to the request to restart the pipeline, which goes to the Turkish port of Ceyhan. The KRG’s 400,000-450,000 bpd of oil exports have been shut in since March 25th, with prolonged wrangling between Erbil and Baghdad over who should actually be selling this oil. The agreement will see Erbil give up its rights to market its own oil and defer instead to the Iraqi federal SOMO agency, with revenues going to a separate bank account controlled by the Kurds. Turkey could further delay the resumption of exports if it seeks more leverage over various arbitration elements between Iraq and Turkey. The request to Turkey to restart the pipeline was submitted on Thursday, and at the time, the Iraqi oil minister said Turkey would restart on Saturday. However, on Friday, the KRG energy minister denied that oil would restart this weekend, saying there had been no confirmation of an exact restart date from Turkey. As such, the market is left guessing once again.
Because over $680B in goods traverse the Strait of Hormuz every year, the majority of which is crude oil, the Iranian seizures of tankers and cargo earlier in May have some analysts concerned that this vital shipping lane is more vulnerable than usual to geopolitical developments. Some risk managers are advising extra caution. However, our assessment is that, for now, this is simply Iran’s tit-for-tat response to the U.S. seizure of Iranian tankers and cargo, intended to insert some additional fear into the market. If it were to escalate, it would have a significantly damaging impact on global economies, particularly on the U.S., India, and China. We do not believe, at this point, that Tehran is willing to rock the boat with China over tanker seizures by the U.S.
The U.S. Department of Energy may begin repurchasing oil to refill the SPR as soon as next month, following a congressionally mandated sale of 26 million barrels that is set to be concluded in June.
Discovery & Development
Lower natural gas prices have prompted Tellurian to halt drilling in the Haynesville shale and to scale back its 2023 production forecasts by 18% from a forecast made three months ago.
French TotalEnergies will start drilling offshore Lebanon in September and Lebanese officials say they’ll know whether there is a discovery by the end of this year, which would be a major development for a completely collapsing economy. The drilling will be in Block 9 in the prolific Mediterranean (where Israel has made major gas discoveries) and is made possible by a deal ending a maritime dispute between Lebanon and Israel last October. The drilling consortium is led by Total and includes partners Eli and QatarEnergy.
Iraq’s Al-Qayyarah oilfield in Nineveh has restarted at a rate of 33,000 bpd. The oil is used at a local refinery, and the rest is transferred by rail to ports in the Gulf.
Iran has started operations at the Sohrab oilfield along the Iran/Iraq border, with Iran’s NIOC (through PEDEC) overseeing the project and Dana Energy developing the field. The target production is 160 million barrels across 20 years at an initial rate of 30,000 bpd. Sohrab is a heavy oil development.
Kosmos Energy will spud an exploration well in the U.S. Gulf of Mexico in the Tiberius prospect in Keathley Canyon Block 964 in the Wilcox play after its Winterfell discovery a couple of years ago. The prospect is close to Occidental’s Lucius platform. Kosmos has previously said that Tiberius is one of the best prospects in its exploration portfolio.
BP has started to drill a wildcat well off the coast of Canada–far off the east coast in a rather remote location. The well is being drilled by the Stena IceMax at the Ephesus well in the Orphan basin–almost 250 miles offshore. Seismic shows the basin could hold up to 5 billion boe. It is not BP’s first attempt at drilling here, but the company seems to have a renewed focus on frontier prospects in hopes of compensating for its declining output as it spent the last few years focusing on renewables and emissions-cutting. BP is also looking to develop the tricky Kaskida reservoir in the Gulf of Mexico that was shelved many years ago due to the significant challenges.
Deals, Mergers & Acquisitions
Ovo and Octopus Energy are looking to snag Shell’s UK retail energy supply business. The two are in the second round of bidding, sources have said after Shell put the unit under review earlier this year. The unit has been unprofitable for Shell, although it is one of the largest UK home energy suppliers in the UK, with nearly 5% of the power and gas market after picking up market share from other providers who had folded in the wake of crippling gas prices.
Energy Earnings Beat
Saudi Aramco’s Q1 net profit was down year on year by 19.35% to $31.9 billion. The $39.5 billion that the company saw in Q1 2022, however, was inflated by the higher oil prices after Russia invaded Ukraine. Although Aramoc’s Q1 net profits were down from this time last year, it’s still more than 75% of the net profits of the world’s five biggest oil majors.
Marathon Oil (NYSE:MRO) reported quarterly earnings of $0.67 per share, beating analyst estimates. It’s down, however, from the same quarter a year ago, which saw EPS of $1.02. Marathon posted revenues of $1.68 billion for the quarter, compared to year-ago revenues of $1.75 billion.