Last week in world oil
-International crude prices started the year off a bit weaker than in its ended in December, with prices hovering around the US$52-53/b on the New Year, as the US dollar rallied to its highest levels against major currencies since 2002. January is when OPEC members are expected to make major cuts to their collective supply, and the oil markets will be hoping that the quotas will stick to lift prices.
Upstream & Midstream
-BP and Azerbaijans Socar have agreed to terms governing the developing of the giant Azeri-Chirag-Gunashi (ACG) field in the Caspian Sea through 2050. BP is the lead in the AIOC consortium that comprises international presence in ACG, with other partners being Chevron, Inpex, Statoil, Itochu, ONGC Videsh and ExxonMobil. The super-giant ACG currently produces 620 kb/d of oil equivalent, beginning in 1997 with estimated recoverable reserves of 5-6 billion, with more gas reserves yet untapped.
-Peruvian President Pedro Pablo Kuczynski is threatening to terminate the US$5 billion Southern Peruvian Natural Gas Pipeline if evidence of bribery surfaced. News that Brazilian builder Odebrecht had admitted to bribing officials in Peru from 2005 to 2014 triggered the investigation, with some US$29 million allegedly distributed to gain access to Peruvian energy projects. Under the graft investigation, Odebrecht is required to divest its 55% stake inproject, with Brookfield Asset Management a likely buyer. Chinas CNPC has also been named as a possible contender.
-The US rig count might have ended just under the year-end rig count for 2015, but it is up significantly since mid-2016, with signs that the count will improve further over the first half of 2017. The final week of 2016 saw only 2 new rigs being added both oil during the quietest period of the year, bringing the total to 525, just under 536 on December 30, 2015. Since May 2016, American drillers have started/restarted over 209 oil and gas rigs domestically as prices improved over the second half of 2016.
-After being idled in 2012 by Valero, the 225 kb/d refinery in Aruba will be restarted in 2017. The process will take over 18 months, with Citgo appointing a consortium of Frances Technip, Venezuelas Tecnoconsult and Y&V Group to refurbish the site in a US$700 million project. The would give Venezuelas PDVSA a continued presence in the Caribbean through its US subsidiaryCitgo,after the Curacao refinery now appears to be in Chinese hands.
Natural Gas & LNG
-Malaysias Petronas is aiming to move ahead with its US$27 billion LNG project in western Canada by identifying a new site that would reduce cost and quell local opposition, which had dogged the Pacific Northwest LNG project previously. The processing site will remain on Lelu Island, but the docking facilities moved to theneighbouringRidley Island, eliminating the need for an expensive suspension bridge that was part of the original plan that cut through an environmentally sensitive area.
Last week in Asian oil:
Upstream & Midstream
-Iran has named 29 companies from over a dozen countries that will be allowed to bid for oil and gas projects under its new Iran Petroleum Contract (IPC) model. Though not exhaustive, the pre-qualification list includes Shell, Total, Eni, Petronas,Gazpromand Lukoil, but not BP, which opted out of participating out of fears of renewed American hostility when Donald Trump enters the White House.
-In a move that acknowledges that domestic Chinese upstream production is hitting a wall,Petrochinawill slash capital spending at the Daqing field the countrys largest by 20% in 2017. The aim is to now keep output steady instead of boosting production, keeping output steady at 40 million tons of oil and gas by 2019, in line with 2015 figures.
Downstream & Shipping
-Australian grocery retailer Woolsworth is selling its national fuel station network to BP for A$1.8 billion, claiming that it didnt understand the fuel business. The deal marks BPs second major foray back into downstream in the last two months, after agreeing to partner with Reliance in India.Woolworthsfuel stations are currently being supplied by CaltexAustralia,and will be transitioned to be part of the BP network gradually.
-Chinas Sinopec has begun supplying Beijing Six grade gasoline and diesel to the capital, as the city battles the persistent smog that blankets Beijing. Beijing Six is a stricter standard than even the National Five (equivalent to Euro V) that will be rolled out across China over 2017, with the same 10ppmsulphurlimit and a lower nitrogen oxide and olefins spec. All 562 of Sinopec fuel stations in Beijing will sell the new standard, supplied mainly by SinopecsCangzhou, Yangshan and Qilu refineries.
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Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
Midstream & Downstream
Global liquid fuels
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)