The Oil Industry Braces For An Ugly Earnings Season

COVID Market Update: M&A Is Back

With little to no notable activity on the oil deal scene since the oil price crash, Chevron's offer to buy Noble Energy Inc. for $5 billion in stock made fairly big waves in the industry this week. While the deal was played down by some analysts, it makes Chevron the first oil major to get in on Israel's Levant Basin gas opportunities, which are of significant geopolitical impact. Chevron will get Noble's flagship Leviathan field in the offshore Levant Basin, as well as increased holdings in U.S. shale.

Earlier this week, big oil stocks got a healthy boost from positive COVID vaccine developments, marking the first time in history that oil stocks have been pinned to the healthcare industry. Stocks were also buoyed this week by the EU's $2.1 trillion stimulus package.

That said, it's also earnings season, with only Norway's Equinor reporting this week and the major lineup of Austria's OMV, Italy's Eni, France's Total Sa, Anglo-Dutch Shell, set for next week. ConocoPhillips will be on July 30th, followed by Exxon and Chevron a day later. The anticipated ugliness of the earnings reports could overshadow recent positive moves based on a COVID vaccine and stimulus. Equinor reported a Q2 drop in operating profit, as expected, but pulled in strong refinery and trading performances to the extent that it actually beat forecasts.

Politics, Geopolitics & Conflict

When Apache Corp. announced its huge discovery offshore Suriname with partner Total SA, there was certainly cause for celebration: It signaled a probable repeat of Exxon's massive string of finds in the same basin just across the maritime border in Guyana. But what now for Apache's Sapakara West-1 well? COVID was obviously not anticipated, nor the oil price war between Russia and Saudi Arabia. The local politics--which was likely anticipated by Apache--will also now pose challenges for this emerging oil powerhouse. Suriname now has a new president, and many will breathe a sigh of relief that long-time ruler Desi Bouterse is no longer on the throne. But while Chan Santokhi--a former police officer and justice minister--was inaugurated as Suriname's new president on July 16th, it's worth questioning whether Bouterse hasn't secured power from the sidelines and through a criminal setup he has ingrained in the political system for many years. Santokhi will inherit this and we anticipate that he will have a very difficult time navigating this effectively, particularly in a country edging perilously close to bankruptcy. With one eye on the political situation, then, Apache has now extended its drillship contract with Noble until mid-November, and things appear set to move forward on track.

Deals, Mergers & Acquisitions

Italian Eni said it is looking to sell its assets in Norway and the Republic of Congo. In Congo, Eni has gross production of more some 145K boe/day from operated fields and other assets. In Norway, Eni's Var Energi is the country's largest non-state oil and gas producer.

Russian Gazprom and Royal Dutch Shell are setting up a JV to develop two license blocks on the Gydan Peninsula in the Russian Arctic, known as the Leskinsky prospect, which is believed to contain resources of potentially over 100 million mt of oil equivalent. This is thanks to Putin's investment stimulus moves designed to attract money to Arctic projects.

South Sudan is delaying its long-awaited tender for 14 oil exploration blocks originally scheduled to go up for auction in March, citing reduced industry interest because of the pandemic.

Discovery & Development

Malaysia's Petronas has restarted production at a rate of 50,000 at its Gharraf oilfield in Iraq, where production was suspended in mid-March as part over COVID. Pre-pandemic, the Gharraf oil field was producing an average of 75,000 bbl/d.

Australian regulatory authorities have greenlighted BP's environment plan for the Ironbark-1 exploration well situated in the Carnarvon Basin. Drilling is now expected to start in October.

Legislation & Regulations

Italian prosecutors are seeking an 8-year prison sentence for Eni CEO Claudio Descalzi over an allegedly corrupt $1.1 billion Nigerian oil deal. Eni is on trial in Milan for allegedly knowing that $1.1 billion in bribes was made to the former Nigerian government back in 2011 to secure exclusive rights to develop the OPL-245 block for Eni and Shell.

Renewables

The European Union is allocating more than $572 billion, or 30% of its massive stimulus package, for investments in policies to fight climate change. This is the largest green stimulus package in history, even though it was still smaller than anticipated. It will likely boost the ESG investing megatrend further.

Tesla--on a tear right now in the market--has accused EV rival Rivian of poaching its employees and stealing highly sensitive trade secrets. Tesla accuses Rivian of poaching four former employees who took proprietary information with them. It's about to get messy because nearly 180 former Tesla employees have since been hired by Rivian.