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Last Updated: March 29, 2017
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Last week in World Oil:

Prices

  • Crude oil seems stuck in its current range – US$48/b for WTI and US$51/b for Brent – as traders remain pessimistic of an extension to the OPEC supply freeze that, even if implemented, may not have much effect given the rise in American drilling that is sure to follow.

Upstream & Midstream

  • Permit for the Keystone XL oil pipeline has been issued by President Donald Trump. The battleground now shifts to courtroom, where activists and landowners are plotting regulatory and legal challenges to keep the TransCanada pipeline from moving ahead.
  • The 29th offshore licensing round in the UK North Sea has been completed, with 25 licences handed out to mostly majors, including Shell, BP, ExxonMobil and Statoil. Centred on frontier areas off the Hebrides and Shetlands, the success of the round indicates renewed vigour that has been gaining over the last year in what was once a declining area.
  • The US active rig count jumped by a massive 20 last week, led mainly by oil rig gains, as American drillers put faith in steady crude oil prices. The bulk of the gains were in the onshore Permian Basin, with gains in Eagle Ford and Marcellus shale plays as well.

Downstream

  • A shakeup is happening at PDVSA, where high-level managers across all refining and downstream divisions have been removed recently. Ostensibly to battle corruption, the changes while Venezuela is struggling to provide fuel for its citizens, with reports of long queues to buy gasoline as PDVSA struggles with debt, imports and distribution woes.
  • Shell has completed talks with Tesoro to lease its capacity at an oil terminal in Panama. The three-year agreement at Petroterminal de Panama, which has 14 million barrels of capacity, and a pipeline network connecting the Atlantic to the Pacific, bolsters Shell’s storage capacity in the Gulf and Caribbean, which anchors its crude trading operations.
  • The US government is considering retaliatory actions against Argentina and Indonesia over biodiesel dumping. Between 2014 and 2016, biodiesel imports from both countries have risen by 464%, prompting complaints by American biodiesel producers of underpricing. Indonesia, facing similar complaints from the EU, plans to protest together with Argentina.

Natural Gas and LNG

  • Unable to rely on Saudi Arabia to supply its energy needs, Egypt has been looking elsewhere, issuing a flurry of tenders late last year. The Egyptian Natural Gas Holding Company has signed an agreement with Russia’s Rosneft to buy 10 LNG cargoes this year, starting in May, up from three cargoes bought in 2016. Until Egypt’s natural gas discoveries, including Zohr, begin producing, tenders such as this will be more common. 

Corporate

  • Petrobras has raised its target for divestitures, aiming to raise US$21 billion over 2017 and 2018 in a bid to pare down debt. Despite legal challenges in Brazilian courts that have blocked several of attempted sales, Petrobras intends to accelerate its asset sales plan, while expanding joint ventures in key areas such as refining and E&P.

Last week in Asian oil:

Upstream & Midstream

  • A trend is emerging, as Japan’s Inpex has decided to exit the Natuna Sea in Indonesia. Selling its entire stake in subsidiary Inpex Natuna to Indonesia’s PT Medco Daya Sentosa (a subsidiary of PT Medco Energi Internasional), the sale will see Inpex leave the South Natuna Sea Block B. This follows ConocoPhillips’ decision to exit the Natuna Sea block last year, with PT Medco also gaining in that case. Inpex has been involved in the prodigious Natuna Sea since 1977, but returns have been dwindling recently with little replenishment, leading to declining interest.
  • Petronas is beefing up its presence in Myanmar, farming into two ultra-deep water exploration permits operated by Shell in the Rakhine basin of the Bay of Bengal. Petronas already operates the Yetagun field in Myanmar, and plans to boost involvement in Myanmar as it seeks to deepen its external asset base. With the upstream business in the country heating up, UK oilfield services firm James Fisher and Sons last week signed an MoU with Myanmar’s Royal Marine Technology to expand the country’s marine services industry.

Downstream & Shipping

  • China’s Sinopec has officially acquired its first major refining operation in Africa, following in the footsteps of its upstream division by paying almost US$1 billion for a 75% stake in Chevron’s South African downstream assets, which includes the 100 kb/d Cape Town refinery, the Durban lubricants plant and operations in Botswana. Sinopec will retain the Caltex brand for six years for all retail operations, before rebranding.
  • Indian Oil has inked an agreement with the government of Nepal to supply the landlocked Himalayan nation’s refined product demand for the next five years. This extends a supply agreement dating back to 1974, with the new contract involving 1.3 million tons of refined products, principally gasoline, diesel, jet fuel and LPG for cooking. A natural gas pipeline is also being considered, as well as a refined products pipeline linking Motihari in the Indian state of Bihar to Amlekhgunj in Nepal.

Natural Gas & LNG

  • As the gigantic Gorgon and Wheatstone LNG projects, collectively costing US$88 billion, approached completion, Chevron has signalled that it does not intend to sanction any further expansion. Instead, it will focus on boosting returns and perhaps smaller, linked developments, as the LNG industry adjusts to the slump in oil prices.
  • South Korea’s KOGAS has signed an agreement with Japan’s JERA and China’s CNOOC, as the world’s largest LNG buyers aim to boost cooperation as bargaining power in the LNG industry increasingly shifts from sellers to buyers. Jointly, the three companies buy a third of global LNG, and the agreement potentially creates an influential buyers’ club that could demand more favourable contracts and clauses.

Corporate

  • Indonesian President Joko Widodo has named Elia Massa Manik as the new CEO of Pertamina, tasked with turning around the beleaguered state giant. A relative outsider to the country’s vast oil and gas bureaucracy, Elia lands in the position with a solid reputation for restructuring state-owned firms, including turning around operations at his previous position as head of PTPN III, Indonesia’s state plantation company, and at PT Elnusa, Pertamina’s oil services subsidiary.
  • Malaysia’s oilfield services firm Sapura Kencana will now be known as Sapura Energy Berhad. Proposed in early February and adopted at the recent AGM, the name was chosen to reflect the firm’s ‘global corporate identity.’

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Venezuelan crude oil production falls to lowest level since January 2003

monthly venezueal crude oil production

Source: U.S. Energy Information Administration, Short-Term Energy Outlook

In April 2019, Venezuela's crude oil production averaged 830,000 barrels per day (b/d), down from 1.2 million b/d at the beginning of the year, according to EIA’s May 2019 Short-Term Energy Outlook. This average is the lowest level since January 2003, when a nationwide strike and civil unrest largely brought the operations of Venezuela's state oil company, Petróleos de Venezuela, S.A. (PdVSA), to a halt. Widespread power outages, mismanagement of the country's oil industry, and U.S. sanctions directed at Venezuela's energy sector and PdVSA have all contributed to the recent declines.

monthly venezuela crude oil rig count

Source: U.S. Energy Information Administration, based on Baker Hughes

Venezuela’s oil production has decreased significantly over the last three years. Production declines accelerated in 2018, decreasing by an average of 33,000 b/d each month in 2018, and the rate of decline increased to an average of over 135,000 b/d per month in the first quarter of 2019. The number of active oil rigs—an indicator of future oil production—also fell from nearly 70 rigs in the first quarter of 2016 to 24 rigs in the first quarter of 2019. The declines in Venezuelan crude oil production will have limited effects on the United States, as U.S. imports of Venezuelan crude oil have decreased over the last several years. EIA estimates that U.S. crude oil imports from Venezuela in 2018 averaged 505,000 b/d and were the lowest since 1989.

EIA expects Venezuela's crude oil production to continue decreasing in 2019, and declines may accelerate as sanctions-related deadlines pass. These deadlines include provisions that third-party entities using the U.S. financial system stop transactions with PdVSA by April 28 and that U.S. companies, including oil service companies, involved in the oil sector must cease operations in Venezuela by July 27. Venezuela's chronic shortage of workers across the industry and the departure of U.S. oilfield service companies, among other factors, will contribute to a further decrease in production.

Additionally, U.S. sanctions, as outlined in the January 25, 2019 Executive Order 13857, immediately banned U.S. exports of petroleum products—including unfinished oils that are blended with Venezuela's heavy crude oil for processing—to Venezuela. The Executive Order also required payments for PdVSA-owned petroleum and petroleum products to be placed into an escrow account inaccessible by the company. Preliminary weekly estimates indicate a significant decline in U.S. crude oil imports from Venezuela in February and March, as without direct access to cash payments, PdVSA had little reason to export crude oil to the United States.

India, China, and some European countries continued to receive Venezuela's crude oil, according to data published by ClipperData Inc. Venezuela is likely keeping some crude oil cargoes intended for exports in floating storageuntil it finds buyers for the cargoes.

monthly venezuela crude oil exports by destinatoin

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, and Clipper Data Inc.

A series of ongoing nationwide power outages in Venezuela that began on March 7 cut electricity to the country's oil-producing areas, likely damaging the reservoirs and associated infrastructure. In the Orinoco Oil Belt area, Venezuela produces extra-heavy crude oil that requires dilution with condensate or other light oils before the oil is sent by pipeline to domestic refineries or export terminals. Venezuela’s upgraders, complex processing units that upgrade the extra-heavy crude oil to help facilitate transport, were shut down in March during the power outages.

If Venezuelan crude or upgraded oil cannot flow as a result of a lack of power to the pumping infrastructure, heavier molecules sink and form a tar-like layer in the pipelines that can hinder the flow from resuming even after the power outages are resolved. However, according to tanker tracking data, Venezuela's main export terminal at Puerto José was apparently able to load crude oil onto vessels between power outages, possibly indicating that the loaded crude oil was taken from onshore storage. For this reason, EIA estimates that Venezuela's production fell at a faster rate than its exports.

EIA forecasts that Venezuela's crude oil production will continue to fall through at least the end of 2020, reflecting further declines in crude oil production capacity. Although EIA does not publish forecasts for individual OPEC countries, it does publish total OPEC crude oil and other liquids production. Further disruptions to Venezuela's production beyond what EIA currently assumes would change this forecast.

May, 21 2019
Your Weekly Update: 13 - 17 May 2019

Market Watch

Headline crude prices for the week beginning 13 May 2019 – Brent: US$70/b; WTI: US$61/b

  • Crude oil prices are holding their ground, despite the markets showing nervousness over the escalating trade dispute between the USA and China, as well as brewing tensions in the Middle East over the Iranian situation
  • China retaliated against President Trump’s decision to raise tariffs from 10% to 25% on US$200 billion worth of Chinese imports by raising its own tariffs; crucially, China has also slapped taxes on US LNG imports at a time when American export LNG projects banking on Chinese demand are coming online
  • In the Middle East, Saudi Arabia reported that two of its oil tankers were attacked in the Persian Gulf, with the ‘sabotage attack’ near the UAE speculated to be related to Iran; with the US increasing its military presence in the area, the risk of military action has escalated
  • The non-extension of US waiver on Iranian crude is biting hard on Iran, with its leaders calling it ‘unprecedented pressure’, setting the stage for a contentious OPEC meeting in Vienna
  • In a move that is sure to be opposed by Iran, Saudi Arabia has said it is willing to meet ‘all orders’ from former Iranian buyers through June at least; Saudi Aramco is also responding to requests by Asian buyers to provide extra oil
  • The see-saw trend in US drilling activity continues; after a huge gain two weeks ago, the active US rig count declined for a second consecutive rig, with the loss of two oil rigs bringing the total site count to 988, below the equivalent number of 1,045 last year
  • There is considerably more upside to crude prices at the moment, with jitters over the health of the global economy and a delicate situation in the Middle East likely to keep Brent higher at US$71-73/b and WTI at US$62-64/b


Headlines of the week

Upstream

  • Occidental Petroleum and Warren Buffet have triumphed, as Chevron bowed out of a bidding war for Anadarko Petroleum; Occidental will now acquire Anadarko for US$57 billion, up significantly from Chevron’s US$33 billion bid
  • The deal means that Occidental’s agreement to sell Anadarko’s African assets to Total for US$8.8 billion will also go through, covering the Hassi Berkine, Ourhoud and El Merk fields in Algeria, the Jubilee and TEN fields in Ghana, the Area 1 LNG project in Mozambiuqe and E&P licences in South Africa
  • BP has sanctioned the Thunder Horse South Expansion Phase 2 deepwater project in the US Gulf of Mexico, which is expected to add 50,000 boe/d of production at the Thunder Horse platform beginning 2021
  • Africa is proving to be very fruitful for Eni, as it announced a new gas and condensate discovery offshore Ghana; the CTP-Block 4 in the Akoma prospect is estimated to hold some 550-650 bcf of gas and 18-20 mmbl of condensate
  • In an atypical development, South Africa has signed a deal for the B2 oil block in South Sudan, as part of efforts to boost output there to 350,000 b/d
  • Shell expects to drill its first deepwater well in Mexico by December 2019 after walking away with nine Mexican deepwater blocks last year

Midstream & Downstream

  • China’s domestic crude imports surged to a record 10.64 mmb/d in April, as refiners stocked up on an Iranian crude bonanza due to uncertainty over US policy, which has been confirmed as crude waivers were not renewed
  • Having had to close the Druzhba pipeline and Ust-Luga port for contaminated crude, Russia says it will fully restore compliant crude by end May shipments, including cargoes to Poland and the Czech Republic
  • Mexico’s attempt to open up its refining sector has seemingly failed, with Pemex taking over the new 340 kb/d refinery as private players balked at the US$8 billion price tag and 3-year construction deadline
  • Ahead of India’s move to Euro VI fuels in April 2020, CPCL is partially shutting down its 210 kb/d Manali refinery for a desulfurisation revamp
  • China’s Hengli Petrochemical is reportedly now stocking up on Saudi Arabian crude imports as it prepares to ramp up production at its new 400 kb/d Dalian refinery alongside its 175 kb/d site in Brunei
  • South Korea’s Lotte Chemical Corp expects its ethane cracker in Louisiana to start up by end May, adding 1 mtpa of ethylene capacity to its portfolio
  • Due to water shortage, India’s MRPL will be operating its 300 kb/d refinery in Katipalla at 50% as drought causes a severe water shortage in the area

Natural Gas/LNG

  • Partners in the US$30 billion Rovuma LNG project in Mozambique now expect to sanction FID by July, even after a recent devastating cyclone
  • Also in Mozambioque, Anadarko is set to announce FID on its Mozambique LNG project on June 18, calling it a ‘historic day’
  • After talks of a joint LNG export complex to develop gas resources in Tanzania, Shell and Equinor now appear to be planning separate projects
  • Gazprom has abandoned plans to build an LNG plant in West Siberia to compete with Novatek, focusing instead on an LNG complex is Ust-Luga
  • First LNG has begun to flow at Sempra Energy’s 13.5 mtpa Cameron LNG project in Louisiana, with exports expected to begin by Q319
May, 17 2019
Shell Eclipses ExxonMobil Once Again

The world’s largest oil & gas companies have generally reported a mixed set of results in Q1 2019. Industry turmoil over new US sanctions on Venezuela, production woes in Canada and the ebb-and-flow between OPEC+’s supply deal and rising American production have created a shaky environment at the start of the year, with more ongoing as the oil world grapples with the removal of waivers on Iranian crude and Iran’s retaliation.

The results were particularly disappointing for ExxonMobil and Chevron, the two US supermajors. Both firms cited weak downstream performance as a drag on their financial performance, with ExxonMobil posting its first loss in its refining business since 2009. Chevron, too, reported a 65% drop in the refining and chemicals profit. Weak refining margins, particularly on gasoline, were blamed for the underperformance, exacerbating a set of weaker upstream numbers impaired by lower crude pricing even though production climbed. ExxonMobil was hit particularly hard, as its net profit fell below Chevron’s for the first time in nine years. Both supermajors did highlight growing output in the American Permian Basin as a future highlight, with ExxonMobil saying it was on track to produce 1 million barrels per day in the Permian by 2024. The Permian is also the focus of Chevron, which agreed to a US$33 billion takeover of Anadarko Petroleum (and its Permian Basin assets), only for the deal to be derailed by a rival bid from Occidental Petroleum with the backing of billionaire investor guru Warren Buffet. Chevron has now decided to opt out of the deal – a development that would put paid to Chevron’s ambitions to match or exceed ExxonMobil in shale.

Performance was better across the pond. Much better, in fact, for Royal Dutch Shell, which provided a positive end to a variable earnings season. Net profit for the Anglo-Dutch firm may have been down 2% y-o-y to US$5.3 billion, but that was still well ahead of even the highest analyst estimates of US$4.52 billion. Weaker refining margins and lower crude prices were cited as a slight drag on performance, but Shell’s acquisition of BG Group is paying dividends as strong natural gas performance contributed to the strong profits. Unlike ExxonMobil and Chevron, Shell has only dipped its toes in the Permian, preferring to maintain a strong global portfolio mixed between oil, gas and shale assets.

For the other European supermajors, BP and Total largely matched earning estimates. BP’s net profits of US$2.36 billion hit the target of analyst estimates. The addition of BHP Group’s US shale oil assets contributed to increased performance, while BP’s downstream performance was surprisingly resilient as its in-house supply and trading arm showed a strong performance – a business division that ExxonMobil lacks. France’s Total also hit the mark of expectations, with US$2.8 billion in net profit as lower crude prices offset the group’s record oil and gas output. Total’s upstream performance has been particularly notable – with start-ups in Angola, Brazil, the UK and Norway – with growth expected at 9% for the year.

All in all, the volatile environment over the first quarter of 2019 has seen some shift among the supermajors. Shell has eclipsed ExxonMobil once again – in both revenue and earnings – while Chevron’s failed bid for Anadarko won’t vault it up the rankings. Almost ten years after the Deepwater Horizon oil spill, BP is now reclaiming its place after being overtaken by Total over the past few years. With Q219 looking to be quite volatile as well, brace yourselves for an interesting earnings season.

Supermajor Financials: Q1 2019

  • ExxonMobil – Revenue (US$63.6 million, down 6.7% y-o-y), Net profit (US$2.35 billion, down 49.5% y-o-y)
  • Shell - Revenue (US$85.66 billion, down 5.9% y-o-y), Net profit (US$5.3 billion, down 2% y-o-y)
  • Chevron – Revenue (US$35.19 billion, down 5% y-o-y), Net profit (US$2.65 billion, down 27.2% y-o-y)
  • BP - Revenue (US$67.4 billion, down 2.51% y-o-y), Net profit (US$2.36 billion, down 9.2% y-o-y)
  • Total - Revenue (US$51.2billion, up 3.2% y-o-y), Net profit (US$2.8 billion, down 4.0% y-o-y)
May, 15 2019