In the ancient world, the Fertile Crescent was a semicircle in the easternmost part of the Mediterranean that gave rise to some of the world’s greatest civilisations, including the Egyptian, Mesopotamian, Assyrian, Babylonians and Anatolian empires. In modern times, this stretch of water has been the site of some of the greatest hydrocarbon discoveries in the past decade, transforming the likes of Israel and Egypt from energy importers to energy exporters.
With great potential also comes problems. The major finds – almost all of which are natural gas fields – are clustered some 150km from the land boundaries of Egypt, Israel and Cyprus. Maritime dispute are common in the upstream industry, and are generally solved amicably – either through joint development areas like Malaysia-Thailand or demarcating sea borders, which Cyprus did with Egypt, Lebanon and Israel. However, this region is also home to simmering political tensions, which could cloud future development.
Lebanon last month completed its first offshore oil and gas block tender, awarding two blocks to a consortium of Total, Novatek and Eni. One of those blocks – Block 9 – borders Israeli waters, one of two blocks that overlap a triangular 860 sq.km area that both Lebanon and Israel claim. Crucially, Block 9 is just some 20km from the Karish-Tanin gas field in Israel (with its 2.4 tcf of gas) and 60km from the Tamar field. This hints at good gas potential, but Israel has a long history of conflict with Lebanon. Israel’s described the block sale as ‘blatant provocation’, part of a cadre of recent sabre-rattling statements. This might be defused – like back in 2010 when both countries agreed to a maritime border – but if major oil or gas reserves are found in Block 9, things could get complicated.
Over in Cyprus, Turkey has long protested Cypriot maritime border agreements, seeing them as invalid over the issue of breakaway state Turkish Republic of Northern Cyprus, which only Turkey recognises. Thus far, Cypriot E&P activity has been concentrated in the south, far away from waters around the island’s north that are a political quagmire. Discoveries have been encouraging – the Aphrodite field was discovered in 2011 – but have been dwarfed by giant finds in Egypt and Israel. That changed earlier this month, with Eni and Total announcing a promising new find in the south, just 30km away from Zohr. Estimates on Calypso reserves are still ongoing, but its potential has been described as ‘Zohr-like’. Turkey immediately responded with a statement that it considers Calypso within its boundaries, triggering a rebuke from Cyprus and even Egypt.
In response, Turkish warships repeatedly blocked Eni’s ships from reaching offshore drilling sites. This didn’t happen in 2011 when Aphrodite was being developed, but given the blockbuster size potential of Calypso, things could heat up. Turkey has gone as far as to suggest it will begin offshore surveys in Northern Cyprus in response, another act of provocation that could be worrying given the combative approach of Turkey’s current government.
Something interesting to share?
Join NrgEdge and create your own NrgBuzz today
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%)