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Tanker Troubles In The Strait Of Hormuz

Politics, Geopolitical & Conflict

- Following recent tensions in the Persian Gulf and the Strait of Hormuz, oil tankers traveling through the Strait of Hormuz are turning off their transponders to avoid detection in an effort to stay safe. Other tankers are hugging the Saudi coast once inside the Persian Gulf. Shell confirmed it is continuing to travel through the Strait, but is not using UK-flagged vessels to move its oil. BP is also moving oil through the Strait on contracted vessels.

- Germany has rejected the idea of joining a US-led naval mission in the Strait of Hormuz to secure oil tankers. Foreign Minister Heiko Maas said that the German government believes the US strategy of exercising "maximum pressure" against Iran "is wrong." The Germans have also rejected a similar proposal from the UK. On the same day as the German rejection of the Hormuz proposal, a US Senate committee passed a bill to slap sanctions on companies, including several German firms and individuals, involved in building the NordStream 2 gas pipeline from Russia to Germany.

- Yemen’s Ministry of Oil and Minerals is calling on IOCs to restart production and exploration in the country. Oil production has been negligent since 2015. In 2018, Yemen produced about 50,000 bpd of crude, compared to nearly 130,000 bpd in 2014. The government also wants to resume production of LNG, which had been halted as a result of the conflict. The ministry also urged domestic and international oil companies to set up Yemen headquarters in the temporary capital Aden or move them there. Before the conflict, Total, OMV, Engie, Eni and Schlumberger were all dominant in the industry. Austria’s OMV is the first company to return to this conflict zone. French Total has not made a similar move yet. Is it realistic? Not even close. The Yemenis can’t even take care of an abandoned oil tanker with 1.1 million barrels of oil sitting there without maintenance and threatening an environmental disaster. It’s a political bargaining chip in the proxy war.

Discovery & Development

- Duke Energy Renewables is planning a new wind power project in Kay County, Oklahoma. The 350-MW Frontier Windpower II project will be the biggest in its wind portfolio. Frontier I has been operational since 2016. Together, Frontier I and II will generate 550 MW of wind energy. Ball Corporation has signed a 15-year PPA for 161 MW of energy from the Frontier II project, and we are expecting Duke to reveal a second major buyer for another 160 MW later this year. Frontier II construction will be in earnest later this summer, and the project is expected to be online by December next year.

- Tesla has launched a new utility-scale energy storage product, Megapack--the third and largest energy storage system offered by the company (the others are Powerwall and Powerpack).

- Saudi Arabia’s Alfanar Group will launch a renewable energy investment vehicle in London with a $1-billion program to develop six waste-to-energy plants in the UK.

- Another fire broke out this week in Exxon Mobil’s Baytown refinery complex, triggering a shelter-in-place order on the area surrounding the complex. The refinery had restarted less than two weeks ago after maintenance. This is the second fire at this refinery in five months. The complex can process 600,000 barrels per day of crude oil, and is the largest ethylene plant in the world. Harris County, Texas filed a lawsuit against Exxon to prevent reoccurrence.

- Enbridge’s Texas Eastern Transmission natural gas pipeline explosion in Kentucky killed one and hospitalized five on Thursday, with seven additional people missing.

- Eletrobras CEO is expected to meet with right-wing Brazilian President Bolsonaro this week to discuss a potential privatization. The talks follow Brazil’s state-run oil company Petrobras’ move to let go of Brazil’s largest fuel distributor, Petrobras Distribuidora SA, for privatization of a 25% share for roughly $2 billion. The privatization push in Brazil is widespread, and part of a larger divestiture program that will bring in $20 billion for the state.

Deals, Mergers & Acquisitions

- Enterprise Products Partners LP (NYSE: EPD) struck a deal with Chevron (NYSE: CVX) to build a crude oil port in the Gulf of Mexico known. The Sea Port Oil Terminal, or SPOT, terminal will be capable of loading VLCCs at a rate of about 85,000 barrels per hour. The only other terminal capable of loading VLCCs in the US is LOOP. The project is one of many that will add 2.3 million barrels per day of shale oil that will be able to reach the Gulf Coast. SPOT will be located 40 miles off the coast of Houston.

- Shell has sold its Gulf of Mexico Caesar-Tonga offshore oilfield to Equinor for nearly $1 billion. Shell had announced it would sell the asset to Delek in January, but Equinor has exercised its right of first refusal under the JV agreement. Shell has a non-operating interest in the venture. Caesar-Tonga is operated by Anadarko. Equinor and Chevron also hold stakes. Production at the field as of April averaged 70,000 boe/d total gross.

- Japan's Itochu and Romanian Transgaz have signed an MOU to develop LNG terminals and gas transportation projects in Europe. This would involve the construction of an LNG terminal near Alexandroupolis in Greece; a gas pipeline from Georgia to Romania; and an LNG terminal on the Croatian island of Krk. These same companies are involved in the Baltic LNG project.

- Osaka Gas said it is buying 100% of the outstanding shares of US shale gas developer Sabine Oil & Gas for $610 million. This would be the first acquisition of a US shale gas developer by a Japanese company. It’s not Osaka’s first foray into Sabine, though. Last year, it purchased a 35% stake in the eastern half of this east Texas asset. Sabine has a total of 175,000 net acres here, producing around 210 MMcfed of gas in some 1,200 wells.

- Qatar Petroleum has agreed to buy stakes for exploration and production rights in two blocks offshore Guyana from French Total SA. Total currently has 25% in the Orinduik and Kanuku blocks, and according to deal it will sell 10% equity in each to Qatar Petroleum.

- The European Bank for Reconstruction and Development (EBRD) is granting a $35-million financial package to support the largest private-to-private solar project in Jordan to date. The massive financial package is a result of new regulations that allow private consumers to set up their own energy facilities. The process is called “wheeling” and entails the transportation of electricity from grid facilities to locations outside the grid. The project includes the construction of three solar plants that will generate some 70GWh of electricity per year. Jordanian company Kawar Investment is the developer, with Kawar Energy responsible for procurement and construction.

- Libya’s National Oil Corporation (NOC) and Italy’s Eni announced the completion of Phase 2 of the Bahr Essalam offshore gas project, increasing field production from 995 million standard cubic feet of gas per day (MMSCFD) to 1,100 million. Bahr Essalam, located about 70 miles northwest of Tripoli, contains over 260 billion cubic meters of gas.

- Shell has finalized its $1.9-billion sale of upstream assets in Denmark to Norway’s Noreco--a deal initially agreed to last year. The deal includes 100% of shares in the Shell Olie-og Gasudvinding Danmark (SOGU) business, which produced 57,000 barrels per day last year. SOGU owns 37% of the Danish Underground Consortium (DUC), which amounts to 90% of Denmark’s oil and gas production.

- BP and China’s Didi Chuxing teamed up to build electric-vehicle charging infrastructure in China. Didi, China's biggest ride-hailing company, has 550 million users and more than 600,000 EVs run on it in China. According to the deal, BP will develop as many as 200 charging hubs for Didi’s drivers and the wider public by the end of next year.

- Canadian Power Energy Corporation has acquired New-Jersey based developer and asset manager Nautilus Solar Energy for an undisclosed sum. Founded in 2006, Nautilus acquires, develops, finances, owns and manages solar assets across the US and has invested more than $1 billion in capital.
Licenses, Tenders & Auctions

- BP and Eni have signed an exploration and production sharing agreement for Block 77 in central Oman, covering a total area of over 2,700sq km. During the exploration phase Eni and BP will each hold a 50% interest in the block, with Eni acting as operator. The block is located near the BP-operated Block 61, which contains the producing Khazzan gas project as well as the Ghazeer project.

- Argentina launched an international tender for its vital Vaca Muerta pipeline with bidding expected to be opened in mid-September. The multibillion-dollar pipeline, which the government aims to complete by 2021, will transport natural gas from Vaca Muerta to Buenos Aires.

- The Ecuadorian government has announced an international tender for the end of this month to allocate around 500 MW of power generation capacity. Some 45 foreign firms from Germany, Denmark, Spain, Canada, China, South Korea, Japan and the US were briefed on the upcoming tender.

Market Movers

- OPEC’s production is expected to reach a near decade low in July at 29.42 million bpd--down 280,000 bpd from last month. This would be a 163% compliance rate with the agreed-upon cuts for the cartel. The largest drop, not unexpectedly, was Saudi Arabia at 9.65 million bpd, compared to its quota of 10.311 bpd. Other declines for July are expected from Venezuela and Libya, both who experienced outages in July.

- Iran’s crude oil exports hit new lows, reaching as little as 100,000 bpd in July. This compares to 2.5 million bpd before the sanctions went into effect. This, despite Iran’s adamancy that the US would be unable to bring its exports to zero.

- India imported double the amount of crude from Venezuela’s PDVSA in June compared to May. In total, India imported 475,200 bpd from PDVSA last month. Indian Reliance Industries and Nayara Energy refiners struck a deal to buy crude from PDVSA prior to US sanctions earlier this year. In 2012, Reliance signed a 15-year deal with PDVSA to purchase up to 400,000 bpd of heavy crude. In June, Nayara Energy received about 940,000 tons of Venezuelan oil, mostly from Rosneft, while Reliance received about 1 million tons of oil from Venezuela. In May, India was forced to halt imports of Iranian after sanctions waivers expired.

- The NOC has reinstated force majeure on crude oil loadings at Zawiya port. This is the second halt in just over a week. Libya’s largest oilfield, Sharara, was forced to shut down for three days last week after a valve on the pipeline linking it to the Zawiya oil terminal was closed. According to the NOC, staff from its Akakus Oil Operations subsidiary attempted to reopen the valve but were prevented from doing so by a local armed group. The company said that “unidentified perpetrators” were behind the valve closure. Sharara produces around 290,000 barrels a day worth $19 million and is controlled by the Libyan National Army led by General Khalifa Haftar, who is presently launching an offensive to seize Tripoli. Haftar’s forces do not have full control of the pipeline. Libya’s oil output is now down to 950,000 bpd, from 1.3 bpd prior to the force majeure. That’s a five-month low for the country.

Earnings Season …

- GE’s Renewable Energy division has reported losses of $184 million in Q2 2019, up from $162 million in losses in the previous quarter. Q2 losses were primarily due to legacy JV costs and R&D spending, and came despite higher revenue and an increase in orders between April and June. Orders were up 35% year-on-year in Q2, worth $3.7 billion. Revenues were at $3.6 billion, a 26% increase year-on-year.

- Occidental Petroleum Corporation reported second-quarter 2019 earnings of 97 cents per share, beating Zacks’ Consensus Estimate by 6.6%. 2018 Q2 was higher, though, at $1.10 per share.

- Whiting reported a Q2 loss of $0.28 per share compared to earnings of $0.62 per share in Q2 2018. Whiting stock is down over 20% on the year.

- Shell’s profit hit a 30-year low in Q2 on the back of low LNG prices. Shell shares took a big step backward, losing nearly 7% in the biggest one-day slide in years.

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