- Last week we saw the Treasury Department sanction its first Chinese oil trader - Zhuhai Zhenrong over crude oil purchases from Iran. The move was meant to send a message, but it is unclear that message has been received. The panic now is that Trump could target China’s state-run CNPC with sanctions because it has, according to tanker data, recently deployed a new fleet to transport oil from Iran through one of its subsidiaries. If Washington moves to sanction CNPC that would indicate a major escalation of this conflict. At the same time, panic is being further spread with Bank of America Merrill Lynch’s theory that China could potentially decide to defy the latest U.S. tariff threat by ramping up imports of Iranian crude, which could cause prices to plunge by as much as $20-$30.
- Libya’s NOC says it will gradually restart production at its largest oilfield, El Sharara. The oilfield was shut down after a valve on the pipeline linking it to the Zawiya oil terminal was closed Tuesday last week. A local armed group had earlier prevented NOC staff from reopening the valve. Libya’s production fell to its lowest in five months over this force majeure. Production had fallen below 1 million bpd. Force majeure has not yet been lifted. Force majeure was also declared on the Zawiya terminal on July 20 and then lifted on July 22nd.
- Alberta reports that its oil inventories are now at near two-year lows, following the institution of production quotas last December as WCS oil prices slid and at one point were trading at a $50 discount to WTI. Production quotas have since been eased; however, other problems remain: To wit: higher WCS prices rendered oil shipments by rail economically unfeasible, and Alberta lacks any spare pipeline capacity to get oil to market.
Deals, Mergers & Acquisitions
- Saudi Crown Prince MBS is still gunning for a $2-trillion valuation of Aramco, despite falling oil prices, but bankers and advisors are looking to trim that valuation to $1.5 trillion at best. A board meeting today was to address this issue and we will have sources close to that reporting back in the coming days. What has come out of that board meeting rumor mill is that the IPO is likely to go forward as early as next year. But what should make investors cringe is that MBS is really raising funds here for his outsized futuristic city in the desert, NEOM, with this IPO. In the meantime, Aramco’s oil exports will remain flat through September at fewer than 7 million bpd. September will see Aramco produce 700,000 fewer bpd than August as Saudi Arabia attempts to reduce global inventories amid US-China trade war and an economic slowdown, particularly in Europe.
- Qatar’s sovereign wealth fund, the Qatar Investment Authority (QIA), has taken a significant position in Permian crude operator Oryx Midstream Services for $550 million. Qatar, through QIA, is seeking to boost investment in the US to $45 billion in the coming years.
- UAE’s Abu Dhabi National Oil Company (Adnoc) will invest in global storage terminal owner and operator VTTI, which owns and operates storage terminals in a dozen countries in Europe, Asia and Africa with some 60 million barrels of storage capacity. Adnoc will acquire a 10% stake in VTTI with IFM Investors. Vitol will retain 45% ownership.
- Occidental (OXY) has closed on its $55-billion takeover of Anadarko Petroleum (plus assumption of Anadarko debt). OXY sold $13 billion in debt to finance the acquisition. At the same time, OXY and Colombian Ecopetrol have entered into a $1.5-billion JV deal to develop assets in the Permian Midland Basin. Ecopetrol will pay $750 million cash plus $750 million of carried capital in exchange for a 49% interest in the JV. The JV deal comes as Occidental acquires Anadarko Petroleum.
- China’s state-run oil company CNOOC will acquire a majority stake in key West African offshore oil drilling licenses. The deal will give the Chinese giant a 55.6% stake in the Sinapa and Esperanca licenses in Guinea Bissau from Swedish firm Svenska Petroleum Exploration AB. Svenka’s stake will be reduced to 23.03%. If a commercial discovery is made, CNOOC’s stake will drop to 50%.
- Colorado-based oil and gas producer QEP Resources has failed to find a buyer after six months of looking, and now says it will remain independent. QEP reported Q2 earnings showing a 44% year-on-year decline in revenues.
- St. Kitts and Nevis’s state-owned Electric Company SKELEC and one of the world's leading energy storage companies, Swiss Leclanche, have agreed to build the largest solar generation-plus-energy storage project in the Caribbean. Leclanche will build and operate the 35.6MW solar and 44.2MWh battery storage facility.
- Iraq is allegedly close to reaching a deal with BP and Eni to replace two seabed oil pipelines that were originally supposed to be part of a megadeal with Exxon. The negotiations with Exxon fell apart after Exxon evacuated personnel earlier this year on security concerns over Iraq. Iraq's shift away from Exxon and toward BP and Eni highlight Iraq's frustration with how the security challenges were handled.
Discovery & Development
- Australia-based mining giant BHP will invest $283 million to develop the Ruby oil and gas project in Trinidad and Tobago. BHP has a 68% ownership stake in the project, which will cost around $500 million. Heritage Petroleum and the National Gas Company of Trinidad and Tobago (NGC) are the other partners in the project. BHP estimates recoverable resources at 13.2 MMbbl of oil and 274 bcf of natural gas
- Amazon has announced an upcoming solar farm project in Virginia, which would be the seventh such project for the company in the state. The new solar farm will provide 45 MW of renewable capacity and is expected to generate 100,000 MWh of clean energy annually.
Politics, Geopolitics & Conflict
- Belarus state energy company Belneftekhim has agreed with Russia to raise the oil transit tariff by 3.7% starting from September 1st. The deal is a form of compensation for a decline in flows due to contamination of Russian oil earlier this year - an incident that saw some countries temporarily halt crude imports from Russia over quality concerns. Those temporary halts cost Belarus transit revenues.
- Turkish authorities are sending a third drillship into Mediterranean waters in Cyprus’ EEZ, further intensifying the dispute over offshore oil. The Turks already have three vessels in the area - two drillships and one exploration vessel. Turkey’s drilling operations in Cypriot waters continue despite warnings from the European Union and the U.S. Last month, EU foreign ministers suspended negotiations on a comprehensive air transport agreement and decided not to hold further EU-Turkey integration dialogue for the time being.
- Kyrgyzstan's ex-president Almazbek Atambaev was detained on Thursday, a day after a raid on his home led to a shootout in which one security officer died and some 80 others were injured. The detention prompted a clash between the supporters of the ex-president and police. Atambaev had repeatedly refused to show up in court to testify about corruption and abuse of office charges.
- The US Maritime Administration issued a warning that Iran is using GPS jammers to try and trick commercial vessels into traveling through Iranian waters where they would be seized. This has not been independently confirmed. Federal officials said that during at least two recent encounters, including the detention of the British and Liberian flagged ships involving Iranian military forces, vessels reported GPS interference. Security companies that operate in the Gulf are now replacing guards who are UK nationals on their vessels with guards from other countries. The security firms are recommending other vessels in the area replace their UK guards as well.
- A Chinese contractor is moving to come to the aid of Venezuela’s rundown refining network, just days after Washington slapped tough new sanctions on Venezuela and threatened to target companies working with the “rogue nation”. Russian Rosneft is now officially the last major supplier of petrol to Venezuela.
Regulations & Legislation
- EU antitrust regulators are targeting Polish oil refiner PKN Orlen over its bid for rival Lotos. Regulators say the deal might lead to a spike in prices and a reduction in competition in the supply of fuels and related markets. The deal, agreed last year, will see PKN Orlen take a majority 53% stake in state-owned Lotos. PKN Orlen operates 2,679 petrol stations in Poland and across Central and Eastern Europe. Lotos operates some 500 petrol stations in Poland. The European Commission has opened a full-scale investigation into the agreement, with a final decision expected by December.
- Russian oligarch Arkady Rotenberg, a former judo training partner of Russian President Vladimir Putin, has denied a Bloomberg report that he had bought a stake in Russian gas giant Gazprom. Last month, Gazprom sold a quasi-treasury stake of 2.93% worth $2.1 billion and half of that offering went to an undisclosed investor. Rotenberg and his brother Boris are both sanctioned by the U.S, and their assets were frozen in 2014 over close ties to Putin.
- Shale firm Halcon Resources has filed for a prepackaged Chapter 11 bankruptcy with plans to hand over ownership of the company to its debt holders. Under the prepackaged plan of reorganization, Halcon would eliminate more than $750M in debt and reduce annual interest expense by more than $40M. Halcon already went through a bankruptcy restructuring in 2016.
Despite all, some strong earnings calls this week:
- Exxon’s Q2 2019 earnings beat expectations with a ramp-up in liquid volumes in the Permian, though this was partially offset by scheduled downtime activities. Earnings came in at 73 cents per share, beating analyst estimates (Zacks) of 68 cents. Total production was higher than a year ago, at 3.909 MMBOE/d, up from 3.647 MMBOE/d. Liquid production was up to 2.389 MMB/D, from 2.212 MMB/D a year ago. Cash flow was nearly $6 billion from operations and asset divestments, down from $8.1 billion a year ago. Capital and exploration spending rose 22% to $8.1 billion.
- Marathon Oil saw a huge uptick in quarterly profits--50% for the second quarter, largely on the back of increased US shale production. Its Q2 production in the US rose 11.4% to 332,000 boepd. The higher production figures offset the lower prices that were seen in the quarter. Revenues were $1.43 billion for the quarter.
- Murphy Oil also beat estimates, with Q2 earnings of $0.21/share. Zacks estimate was $0.18/share. A year ago, earnings were $0.36/share. That’s two quarterly earnings surprises for Murphy in a row. Murphy has beat estimates three out of four quarters. Revenues for the quarter came in at $709.5 million, ~17% higher than estimates. Revenues a year ago were $618.19 million.