Last week in the world oil:
- There are no clear trends in crude prices, with Brent and WTI stuck in
their respective ranges of US$57/b and US$52/b. Reductions in US
drilling rates were offset by Iraqi supply disruptions, while OPEC’s hints
that the supply freeze will persist did little to move the market.
- Mexico is planning a third auction in 2018, hiking up the pace as the
country seeks to exploit new-found private interest in its hydrocarbons in
a election year. The auction will focus on conventional onshore oil and gas
blocks, with terms to be announced early 2018 and awarded by mid-
2018. This joins the planned deepwater Gulf auction scheduled by
January 2018 and a shallow water auction in March 2018.
- BP and SOCAR will sign a new production-sharing agreement for a new
block, D-230, in the North Absheron basin of the Caspian Sea. With equal
stakes, this cements BP as the main international player in Azerbaijan,
with existing stakes in the Azer-Chirag- Guneshli and Shah Deniz fields.
- Thailand’s PTTEP is delaying the FID for the Mariana Oil Sands project in
Canada, the latest holdup in the region’s once booming oil sands sector.
There is a high likelihood that the project, 100% owned by PTTEP, may be
dropped, given the company’s recent focus on midstream and gas.
- The US active rig count dropped by 15 last week – 7 oil and 8 gas – as
drilling activity retreats against stagnant oil prices. All rig losses were
onshore, with the most declines in the Haynesville and Permian basins.
Downstream & Midstream
- Nigeria has announced that the planned 650 kb/d Dangote refinery, being
built by Africa’s richest man Aliko Dangote, will come onstream by end-
2019, which would help ease the country’s growing dependence on
imports. Envisioned as Nigeria’s own Jamnagar refinery, an operational
Dangote refinery will also ease the pressure on NNPC, which has been
struggling to find partners to help revamp its three existing refineries.
Natural Gas and LNG
- Natural gas action in the Eastern Mediterranean is heating up. With Egypt,
Israel, Greece and Cyprus already exploiting resources, Energean Oil &
Gas is backing a new player: Montenegro. Two blocks explored by the
Greek company hold an estimated 1.8 trillion cubic feet of recoverable gas
reserves, with Energean CEO Mathios Rigas saying that Montenegro is
sitting in the ‘sweet spot of untapped potential in the eastern Adriatic.’
Energean was awarded a 30-year licence for the blocks in March 2017.
- Russia’s Novatek is planning to expand the Yamal LNG by one more train.
With an additional capacity of 1 mtpa, the smaller fourth train is planned
for end-2019, with Yamal Trains 2 & 3 tracking ahead of schedule.
- BP’s Chariman Carl-Henric Svanberg has announced his retirement after
steering the supermajor through the Deepwater Horizon disaster just
months after he assumed his position. Svanberg will remain in his
position until a successor is identified.
Last week in Asian oil
- China will continue to be more and more dependent on imported crude,
as domestic production fell by 2.9% y-o- y to 3.78 mmb/d in September.
Low oil prices have made some marginal and ageing fields uneconomic,
exacerbating the country’s declining trend. Domestic natural gas output,
however, was up 10.7% y-o- y to 11.15 bcm, bringing YTD gas production
up by 9.1% y-o- y. With China’s private sector shying away from
developing the country’s ast shale oil and gas reserves after yeas of
limited success, the outlook is poor. Which makes recent deals like CEFC
China Energy’s US$9.1 billion investment in Rosneft more important, as it
gives China access to up to 260,000 bpd of Russian oil. China has also
apparently offered to purchase outright 5% of Saudi Aramco, potentially
circumventing the Saudi Arabian firm’s IPO ambitions.
- As Iraq’s strife with its rebel Kurdish province wanes following the
capture of Kirkuk, the country has wasted no time in making plans to
exploit the region’s large oil reserves. Iraqi Oil Minister announced plans
to collaborate with international investors to double oil production at the
northern Kirkuk fields to exceed one mmb/d. However, Iraq is unlikely to
work with Rosneft – as the Russia producer announced a deal with Iraqi
Kurdistan authorities to operate an oil export pipeline and purchase
stakes in five oil blocks for up to US$400 million. It may have lost Kirkuk,
but Iraqi Kurdistan still controls three northern provinces, and its only
outlet to export its crude is through a pipeline through Turkey, which is
under jeopardy from the recent independence referendum. The Rosneft
pipeline project, together with current Kurdish pipeline operator Kar
Group, would provide an alternative supply route… but continue to stoke
domestic tensions with the central Iraqi government.
- As Shell finalises its exit from the Iraqi upstream oil sector, Total is
gunning to fill the void left by the supermajor, which is focusing on
natural gas production in Basra. Total is reportedly aiming for the
Majnoon oilfield as well as the Nassiriya oil and gas project, both in the
south, signalling its interest to the Iraqi Oil Minister.
- Indonesia will be launching its second oil and gas licenceround for 2017
in November, despite the first auction’s deadline having been pushed
back twice. Acreage to be offered in the second round will comprise both
conventional and unconventional blocks. Delays are expected, given that
the government is still fine-tuning new upstream regulations that will
govern the gross split mechanism applicable to new E&P contracts – the
cause of the first 2017 round’s repeated postponements.
Natural Gas & LNG
- Indonesia has agreed to extend Inpex’s contract to operate the Masela
natural gas field by up to 27 years once the current contract expires in
2028. This comes after Inpex lobbied for the extension, given that
President Joko Widodo’s decision to reject a planned US$15 billion FLNG
facility in favour of an onshore facility had pushed anticipated start of
production by several years to the late 2020s. The extension – a standard
20-year extension and an additional seven years as compensation for
changing the LNG refinery development plan – was necessary assurance
for Inpex and its partner Shell to proceed with the project.
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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%)