COVID Market Update
- Oilfield service providers continue to be hit hard. Having suffered during the last oil price crisis, it looks like this group will not be spared this time around either. Baker Hughes booked a $15 billion in non-cash goodwill impairment for Q1, and is expected to cut its 2020 capex by 20%. Schlumberger has furloughed employees, cut executive salaries by 20%, cut its dividend by ¾, and booked an $8.5 billion impairment charge. Halliburton has cut 600 layoffs in Texas and Oklahoma. Weir Group expects to see a reduction in exploration and development capital expenditure of 30%.
- All the same, the Saudis enjoyed a quadrupling of oil exports to the United States, amid an oil price war, from February to the first half of April. The US imported 1.46 million bpd of Saudi oil in the first two weeks of April.
- The DoE is still set to rent out available SPR storage capacity in a last-ditch effort to provide some relief to oil companies choking on their oil inventory amid the price and demand slump. Nine companies have raised their hand to use the SPR, with 23 million barrels of capacity up for grabs. In addition to providing relief to oil companies at home, the program is an unspoken acknowledgment that the DoE is well aware the OPEC cuts alone will not provide the market with relief sufficient to keep oil inventories from ballooning out of control.
- Several pipeline projects have stalled due to the pandemic, including the 700-mile Liberty…
COVID Market Update
- Oilfield service providers continue to be hit hard. Having suffered during the last oil price crisis, it looks like this group will not be spared this time around either. Baker Hughes booked a $15 billion in non-cash goodwill impairment for Q1, and is expected to cut its 2020 capex by 20%. Schlumberger has furloughed employees, cut executive salaries by 20%, cut its dividend by ¾, and booked an $8.5 billion impairment charge. Halliburton has cut 600 layoffs in Texas and Oklahoma. Weir Group expects to see a reduction in exploration and development capital expenditure of 30%.
- All the same, the Saudis enjoyed a quadrupling of oil exports to the United States, amid an oil price war, from February to the first half of April. The US imported 1.46 million bpd of Saudi oil in the first two weeks of April.
- The DoE is still set to rent out available SPR storage capacity in a last-ditch effort to provide some relief to oil companies choking on their oil inventory amid the price and demand slump. Nine companies have raised their hand to use the SPR, with 23 million barrels of capacity up for grabs. In addition to providing relief to oil companies at home, the program is an unspoken acknowledgment that the DoE is well aware the OPEC cuts alone will not provide the market with relief sufficient to keep oil inventories from ballooning out of control.
- Several pipeline projects have stalled due to the pandemic, including the 700-mile Liberty Pipeline (Phillips 66 & Bridger Pipeline LLC) that was set to deliver crude from Wyoming to Cushing, and the Red Oak pipeline (Phillips 66 & Plains All American) that will deliver crude from Cushing and the Permian to the Texas Gulf Coast. Auctions to build Argentina's Vaca Muerta-Buenos Aires nat gas pipeline have been put on hold, and auctions to build Nigeria's Obiafu-Obrikom-Oben pipeline have also been suspended.
- Valero Energy Corp warned this week of a $2.1 billion loss for Q1. It has deferred tax payments due in Q1 and will look to defer as much of its tax payments due this year as it can. Q1 results for Valero are expected at the end of next week.
- Brazil's offshore oil rigs have been inundated with cases of Covid-19. As of this week, 126 cases have been confirmed among oil and gas workers in Brazil, which includes 74 people who have been on oil platforms recently. The total number of suspected Covid-19 cases in Brazil's oil and gas industry is 897. Brazil's Petrobras has begun hibernating 62 platforms in shallow water fields in four offshore basins, with shutdowns leading to a production cut of 23,000 bpd.
- Oil companies in the North Sea, including BP, are testing their own employees, citing their critical industry status as justification for their use of precious testing resources that are hard to come by for the British government. BP is testing workers flying on and off its North Sea offshore oil and gas rigs. It is not only conducting tests to see if workers are infected with the virus, but also if they have antibodies to the virus.
- ConocoPhillips is slashing spending and cutting U.S. oil output by about 30% from this year's target, the largest cut so far by the company. The company said it will reduce planned North American output by 225,000 bbl/d.
- Total SA's $23-billion natural gas project in Mozambique is now under quarantine after confirmation of nearly a dozen cases, which represent one-third of the country's total confirmed infections. Total SA is also dealing with an uptick in attacks near its project by Islamic insurgents in recent weeks, and investors will also be looking at Exxon's decision to postpone its FDI for the nearby LNG project (Rovuma). While all this is going on, Total SA investors are increasing the pressure to do more to limit carbon emissions ahead of its annual shareholder meeting. A total of 11 European asset managers are forcing this change, and the timing is about as bad as it could get for the French oil giant.
Discovery & Development
- Norway's Equinor will build and operate the Hywind Tampen floating offshore wind farm in the North Sea to power offshore oil and gas platforms in a landmark move with significant implications for the future of both fossil fuels and renewables. The project will cost around half a billion dollars and will reduce the use of gas turbines for power generation, thus lowering the emissions of carbon dioxide from the five platforms by some 200,000 tons annually and emissions of nitrous oxides by 1,000 tons.
- Qatar Petroleum has launched drilling in the North Field East Project--the world's largest natural gas deposit--where it will drill 80 wells, with the first one spudded already on March 29th. The drilling campaign represents Qatar's ambition to regain the top LNG producer status that it lost to Australia.
Politics, Geopolitics & Conflict
- General Haftar lost some ground outside Tripoli this week, with the GNA retaking two towns and Haftar responding by shelling the capital. For now, as of Thursday, there is a 10-day ceasefire in place, with a lockdown in GNA-controlled areas as more COVID-19 cases were confirmed in the country. While known cases are still very low compared to other countries, Libya does not have the healthcare infrastructure to deal with an outbreak.
- The Turks launched airstrikes in Northern Iraq this week, killing three civilians in targeting Kurdistan Workers Party (PKK) shelters in two separate locations in the north, according to Kurdish sources. One of the Turkish airstrikes was dangerously close to a Kurdish Peshmerga headquarters and was also a clear violation of Iraqi airspace, which will cause a diplomatic rift between Ankara and Baghdad. Turkey's brazen incursion into Iraqi airspace also comes amid Greek reports of an incursion of Turkish drones in Cypriot airspace to accompany Turkish naval frigates operating in Cypriot waters to hinder offshore drilling in the EEZ. At the same time, there is talk of a potential Trump deal to lift the arms embargo against Cyprus, but the leverage is being used against Russia. In other words, the lifting of the arms embargo would require Cyprus to cut ties with Russia. Turkey continues to punch above its weight despite grappling with the coronavirus, with new cases growing by some 4,000 a day for the past week and an already weakened economy that will have a difficult time coping.
- The tense situation in the South China Sea heated up on Friday as the Chinese government survey ship Haiyang Dizhi 8 entered waters near Malaysia, and near a Petronas' exploration vessel, West Capella. China says its vessel was merely conducting normal activities, while Malaysia is claiming the Haiyang Dizhi 8 was flanked at one point by more than 10 additional Chinese vessels, including maritime militia vessels.