U.S. crude oil exports this month are seen to have dropped sharply to 250,000 bpd, from an average 550,000 bpd over the previous five months, cargo loading data from Kpler revealed. The drop is particularly impressive against the background of a record-high daily rate of 1.3 million barrels, reached in the last week of May. The drop is likely the result of growing exports from Nigeria and Libya—OPEC’s two members that were exempted from the production cut agreement last November.
Libya’s exports for June are seen at a high of almost 660,000 bpd this month, as the North African country comes closer to accomplishing its daily production goal of 1 million bpd. The latest update from the National Oil Corporation (NOC) pegged daily output at over 900,000 bpd. Unless production is disrupted, NOC will reach the 1-million-barrel mark earlier than it initially planned – by the end of July. The political situation in Libya is still very volatile, and production and export disruptions are a distinct possibility. However, since the LNA took control over the terminals last year and handed them over to NOC, disruptions have become much shorter. The NOC’s target of 1 million bpd by the end of July seems achievable.
Nigeria, for its part, boosted crude production to 1.68 million barrels daily in May—the last month there is OPEC data for—after the restart of the Forcados export terminal. The terminal, operated by Shell, has been closed by a force majeure order for most of the last year following militant attacks. There has been talk that Nigeria may join the rest of OPEC in the production cuts and there has been even more talk about deeper cuts, to offset rising U.S. production, but so far nothing has been decided. The cartel and Russia are meeting next month to discuss next steps and pressure is mounting for deeper cuts.
Deals, Mergers & Acquisitions
• Carizo Oil & Gas has agreed to buy16,488 net acres in the Delaware Basin in the Permian from a Quantum Energy Partners portfolio company. The $648-million deal, to be paid in cash, will give Carizo access to daily production of some 8,000 barrels of crude. On the other hand, the divestment could be seen as a sign of diminishing optimism among private equity investors about shale oil and gas. After flocking to the Permian in the last two years, some investors are now starting to pull away as prices began falling again.
• Austria’s OMV and Canadian Vermillion Energy are interested in Shell’s New Zealand operations put up for sale. The assets are valued at around $1 billion and indicative bids are expected by the end of the month. The sale is part of Shell’s divestment program aimed at slimming down its $30-billion debt pile accumulated with the acquisition of BG Group.
• Jones Energy has struck a deal to sell its assets in Arkoma Basin, Oklahoma, for up to $70 million. The independent energy company said the assets are non-core, representing just 6% of what Jones Energy sees in revenues this year.
Tenders, Auctions & Contracts
• The Greek government has approved an oil and gas exploration bid from a consortium including Exxon, Total, Hellenic Petroleum, and Energean Oil & Gas. The bid concerns offshore areas around the island of Crete.
• Kogas will start importing U.S. shale gas from next month, under an agreement it struck with Cheniere Energy back in 2012. The annual imports, as LNG, will average 2.8 million tons for the next 20 years, with the 2017 figure at 1.5 million tons. The South Korean energy major may also increase the amount of LNG it imports from the U.S. in the future, if prices remain competitive.
• Another South Korean energy company, SK Group, signed a memorandum of understanding with GE for the joint development of shale gas in the U.S. The Korean company said that the deal will expand its footprint in U.S. shale gas, increase its LNG imports into South Korea and potential re-exports. SK Group plans to invest some $1.8 billion in the U.S. over the next five years. A subsidiary of the company, SK E&S separately inked a gas export deal with Continental Resources this week.
• Atlus Intervention has inked a wireline services deal with Maersk Oil for the company’s operations in the Danish continental shelf. The contract is one of the larger ones in the North Sea. Denmark produces around 140,000 bpd of crude oil, all from the North Sea.
• Australia’s gas major Santos announced a strategic partnership with two existing shareholders, both Chinese companies. The two, Hony Capital and ENN Group, hold a combined 15.1% in Santos and the new agreement will provide for “mutual cooperation and assistance,” Santos said, without going into specific details beyond saying that the partnership will support Santos’ growth.
Discovery & Development
• Exports from the Otakikpo field, in the Niger Delta, hit 250,000 bpd after Shell lifted the second cargo from the floating storage vessel Ailsa Craig. Daily production from the field is currently about 5,500 barrels, which the field operators, Green Energy International and Lekoil, plan to increase to 10,000 bpd.
• EnQuest has announced the start of crude oil production at the Kraken field in the North Sea. The field can yield up to 50,000 barrels of crude daily. The news marks a new stage of development for North Sea oil amid depleting fields and low oil prices, which have substantially reduced capital spending in the area. The Kraken, however, cost less than planned: it took $2.5 billion in gross development costs, versus an initial budget of $3.2 billion. According to Wood Mackenzie, by 2020 about a third of North Sea oil production will come from fields that are yet to be developed.
• Russia’s largest private gas company Novatek plans to take on Qatar in LNG exports as it nears the completion of its giant Yamal LNG project and eyes the final investment decision on another large-scale project, Arctic LNG 2. The two combined could produce 70 million tons of LNG, which compares with 77 million tons of LNG produced by Qatar last year. Russia’s exports of LNG in 2016 stood at 10.8 million tons but this is set to rise to 27.3 million tons when Yamal starts producing at full capacity.
• Nigeria’s Amukpe Escravos Pipeline Project is due to start operation before the end of the year, providing a vital alternative to the Trans Forcados pipeline. The alternative became vital after a string of militant attacks on Trans Forcados, which shut down a lot of export capacity over the last year. The AEPP will have a daily capacity of 160,000 bpd and will branch out to provide a pipeline route for third-party oil producers in the Niger Delta, too.
• China has plans to invest nearly $7 billion in floating LNG projects in Africa. Floating LNG production is a very new technology – to date, there is just one such project in operation, Petronas’ PFLNG 1 in Malaysia. Yet China seems to be bent on utilizing it in hopes of becoming the lowest-cost producer and marketer of the floating production facilities. So far, Chinese banks have committed $4 billion for three FLNG projects off the African coast. The other $3 billion will be poured into two more projects, where Chinese companies will also build the floating production plants.
• Indian Vedanta has set aside $3 billion in production boosting investment for its largest oil field over the next three years. The company, which is India’s biggest private oil producer, plans to drill more wells in the Barmer block, with a senior company executive saying oil from the block is commercially viable even at oil prices of $40 a barrel.
• India has launched its new Open Acreage Licensing Policy and a National Data Repository that should facilitate oil and gas exploration in the country, which is now heavily dependent on fuel imports. Under the new rules, a tender for exploration bid will start on July 1, to continue until November. The next round will begin on January 1, 2018. Plans are to have two bidding rounds every year.
Politics, Geopolitics & Conflict
• Russia’s Foreign Ministry has warned it will retaliate “in proportion” to any U.S. strike against Syrian forces. The warning follows allegations that another chemical attack is being planned in Syria, although opinions diverge on which side is planning it, depending on the source of information.
• China has expressed willingness to negotiate a free trade agreement with Mexico – the latter is China’s second-largest trading partner in Latin America and China is Mexico’s second-largest trading partner globally, Beijing’s ambassador in Mexico City said.
• Beijing has provided $16 million worth of weapons and ammunition to the Philippines, to help with the fight against IS-affiliated militants in Marawi, in the south of the country. Meanwhile, a senior U.S. army official has urged Australia to join the fight as well.
• China’s CNPC, the main supplier of diesel and gasoline to North Korea, has stopped exporting fuel to North Korea for fear Pyongyang won’t pay for it as bilateral tension increases. It is not clear how long the fuel sales suspension would last, but some speculate a period of a month or two. CNPC typically wants upfront payments for the fuel, while North Korean buyers have not been able to pay for the supplies in recent months. As North Korea imports all the oil and oil products it consumes—mostly from China—a prolonged suspension by CNPC would choke out supplies.
• Baghdad is considering challenging a Kurdistan crude oil shipment to the U.S. in American courts. The central Iraqi government is firmly against overseas shipments of oil from the autonomous region. On June 20th, an estimated 650,000 barrels of oil, mostly extracted from the Kirkuk field located in Kurdistan, was shipped to the United States. The oil tanker’s route indicated a dash towards the American East coast, after a three-year hiatus caused by a dispute with Baghdad over Washington’s true loyalties.