The Geopolitical Silver Lining Of COVID-19

Politics, Geopolitics & Conflict

There is one clear benefit of coronarvirus - however temporary and however fragile: A sense of world peace, even if it's not real. COVID has officially put the US-Iran conflict on hold. A proxy battle taking place in Iraq is now being pulled back, with Washington refraining from responding further to attacks from Iranian-backed militias at a time when Iran is being crushed with coronavirus. Of the major war or proxy war zones that we have been covering here, Libya remains in its usual state of stalemated civil war, but that's also because COVID-19 has not yet taken hold in the country.

Market Movers

- Canada's oil industry has been hit particularly hard by the virus, bringing WCS down to less than $6 per barrel on Thursday before regaining some lost ground to hover at around $13 - still hardly enough for anyone to profit. As one might expect, Canadian oil companies are cutting their capital spend for the year to the tune of billions of dollars. Canadian Natural Resources is cutting its CAPEX by more than C$1 billion, Crescent Point is cutting between C$700 million to $800 million, Enerplus is cutting 40% off its spend or C$325 million, and Husky Energy is cutting C$1 billion, to name a few.

- To assist its oil industry, Canada is thought to be preparing in secret a package to distribute aid to its oil industry. The package could be worth $10 billion and may roll out as early as next week.

- Iraq was forced to stop production earlier this week on its 95,000 bpd-capacity Gharraf oilfield after Malaysia's Petronas pulled all 80 of its staff without warning in response to the coronavirus. Last month's production for the oilfield was just 60,000 bpd. Iraq has claimed that this will not necessarily affect Iraq's overall output.

- Oman wants to join the ranks of the overproducers club, promising to ramp up production to its full capacity of 1 million bpd, up from its December level of 970,500 bpd and OPEC+ quota of 961,000 bpd.

- Over 200 or some 20% of UK and Norwegian oilfield service companies may go bankrupt due to the coronavirus outbreak, according to Rystad Energy, which says the pandemic will hit the continent's OFS market hard and cut purchases by about $5 billion year-on-year.

Stock Watch

- S&P Global has cut ExxonMobil's credit rating from AA+ to AA and has warned that additional rating cuts to the oil giant are in store if it doesn't take care of its financial issues over the next year or two. And the lower oil prices of today will likely make it extremely difficult for Exxon to do this. Exxon has doubled down on its spending plans, even in the face of Saudi Arabia's threatened overproduction and demand destruction stemming from COVID-19.

- But keep in mind that on Thursday, oil companies were thrown a bit of a potential lifeline when Treasury Secretary Mnuchin backed a plan to spend as much as $20 billion to buy crude to prop up oil companies. This could result in a slight boost to oil prices.

Deals, Discovery & Development

- Total and its partners Neptune Energy, Ithaca Energy, and Euroil Exploration have made a new gas and condensates discovery in the Central North Sea--the 'Isabella' find. This is the latest in a string of finds in the North Sea by Total, including the large Glendronach field.

- In the coming days, China's state-run CNOOC Ltd is scheduled to load its first cargo of crude from Guyana's offshore Liza oil project. Production from the first phase of the Liza field is expected to reach full capacity of 120,000 gross barrels of oil per day in the coming months. The current discovered recoverable resources of Stabroek Block are estimated to be more than 6 billion boe. ExxonMobil affiliate Esso Exploration is the operator with 45%, while Hess holds 30% and CNOOC Petroleum Guyana Limited holds 25%.

- French Total SA has reached an agreement with renewables energy developer Simply Blue Energy to acquire an 80% stake in the floating wind project Erebus in the Celtic Sea, offshore Wales. The facility will have a 96-MW capacity. The acquisition is part of Total's plan to invest up to $2 billion annually to expand its footprint in low carbon businesses. Total has also agreed to buy Global Wind Power France for an undisclosed sum. Global Wind Power France had a 1,000 megawatt (MW) portfolio of onshore wind projects, including 250 MW scheduled to come on stream by 2025.

- South Sudan has delayed its first licensing round due to launch this month due to the oil price crash and the global spread of the deadly coronavirus. South Sudan depends on oil for almost all its revenues with crude exported north to Sudan's Red Sea coast.

- Liberian authorities will move the country's planned April offshore licensing round online, despite calls to postpone it altogether. Nine blocks will be on offer in the Harper basin, one of the last unexplored and undrilled regions offshore West Africa.

- Algerian state-run Sonatrach and Chevron have signed an MOU to initiate discussions for development and exploitation of oil and gas in Algeria. The move follows the signing of the new Hydrocarbon Law, which maintains Sonatrach's equity position in contracts at 51%, allowing foreign companies to hold 49%. Sonatrach also recently signed an agreement with Italian ENI on gas sales.