BP looks at CEO pay package, GE bullish on coal
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Oil Makes Significant Gains Fueled By OPEC Talk

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Oil prices staged a strong rally on Thursday, moving up 3% for the sixth straight day of gains. Brent hit an eight week high on news that the world’s biggest producers are prepared to discuss a possible freeze in production levels.

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Friday, August 19, 2016

West Texas Intermediate (WTI) crude futures were up $1.43, or about 3.1% percent on Thursday to $48.22 a barrel. That price brings black gold back to highs last seen in early July. Both Brent and WTI have risen more than 20 percent off of their August lows. That resurgence in price has followed news that OPEC and other key exporters may discuss freezing output levels during the OPEC meeting in Algeria in September.

Freezing production at current levels may not be enough to keep prices at present levels according to some analysts. Saudi Arabia has indicated that it could boost crude oil supplies in August to a new record as the Kingdom continues its rivalry with Iran, even as it prepares to discuss output levels with other producers. That behavior would likely undermine freeze talks before they even begin. "The latest news from Saudi Arabia is not price supportive at all," Carsten Fritsch, senior oil and commodities analyst at Germany's Commerzbank, said, "This is a double whammy for the oil market. A test of the lows of early August is quite possible." Analysts at Citi also warned of the risk to the current rally given the failure of talks earlier this year on freezing crude output levels. "OPEC cooperation hopes should be treated with caution, as this is shaky ground to base a bull rally on," the bank said. 

Williams Cos. Stock up on takeover rumors: Williams Cos. Jumped on a report that Enterprise Product Partners approached it this summer with an acquisition – WMB was initially higher by more than 11% following the report before settling out on Thursday up nearly 8%. Williams didn't make an official response, Reuters says, due to recent gains in its stock. Enterprise reportedly
remains interested in a deal

Signs of Upside in Coal and Railroads: Following meetings with Union Pacific management, Morgan Stanley says coal and agricultural shipments are
looking stronger. The upturn in those areas would benefit UNP and peers with sector exposure as cargo-volume growth would be immediately profitable due to current excess capacity. "While visibility remains low, management expressed confidence that any volume rebound in 2017 would likely come with strong incremental margins and minimal service disruption." The bank says that utility stockpiles remain large but are improving and that growth in coal shipments could arrive by 1H2017.

GE Bullish on Coal: GE leaders believe they can lock in decades of low-risk profits from existing coal power plants including installing upgrades that are required due to slowly tightening emissions rules as well as those that help utilities boost output. GE also sees potential from coal facilities construction in developing economies. General Electric has been promoting natural gas use for years on the assumption that coal's future was challenged by environmental and cost issues. With demand for coal rising in India and Southeast Asia, GE is bullish about coal again,
WSJ reports

BP Looks to Revamp Pay Policies:
Sky News reports that BP is reaching out to top investors on a new boardroom pay policy for the firm. That move follows a humiliating revolt this year that saw a majority of shareholders vote against a £14M package for its chief executive. Precise details of the plans are unclear, but it is likely that BP's remuneration committee chairman, Dame Professor Ann Dowling, wants to avoid a repeat of the debacle that put Bob Dudley's pay deal into the headlines in April.

Continental Sheds Assets: In a
Press Release, Continental Resources announced it has sold non-strategic properties in North Dakota and Montana for $222M. The undisclosed buyer picked up 68,000 net acres of leasehold primarily in western Williams County, North Dakota, and 12,000 net acres of leasehold in Roosevelt County, Montana. The sale also includes net production of approximately 2.800 barrels of oil equivalent per day. "This is our third sale of non-strategic assets this year, with total expected proceeds of more than $600 million. We plan to apply proceeds to reduce debt and strengthen our balance sheet," said CEO Harold Hamm. The sale comes amid recent evidence of a thaw in the previously frozen market for oil field assets.

American Electric Power bets on renewables: According to a
press release, American Electric Power is looking to add more renewable energy to its mix, putting out a Request for Proposals to buy wind assets. The company is targeting projects that will be operational by year end of 2018, in amounts up to 100 megawatts.  Projects have to be interconnected to AEP’s subsidiary Southwest Power Pool, meaning they need to be located in Arkansas, Louisiana, Texas, Oklahoma, Kansas or Missouri. Through SWEPCO, AEP currently owns 469 megawatts of wind energy, and plans "significant increases in renewable energy, including wind and solar, and energy efficiency over the next 20 years."

Canadian Solar: Saw its shares spike by 17.5% on Thursday after Q2 EPS of $0.68 beats analyst expectations by $0.31. Revenue of $805.91M beat expectations by $88.44M, up 26.6% YoY.

Morgan Stanley upgrades Kinder Morgan: Morgan Stanley upgraded energy giant Kinder Morgan to Overweight and paired that move with downgrades to Magellan Midstream Partners and Dominion Midstream Partners from Overweight to Equalweight.

BWX to acquire GE Hitachi shares: BWX Technologies' subsidiary, BWXT Canada, has agreed to
acquire all of the shares of the GE Hitachi Nuclear Energy Canada joint venture. The purchase essentially doubles BWXT's footprint in Canada and indicates the company sees opportunity in the Canadian nuclear market. Terms of the transaction are not being disclosed, but the deal should be accretive within the first year and will likely favorably impact margins in the Nuclear Energy Segment.

In our Numbers Report, we take a look at some of the most important metrics and indicators in the world of energy from the past week. Find out more
by clicking here

Thanks for reading and we’ll see you next week.

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Evan Kelly
Editor, Oilprice.com

P.S. –Before the market began its rally on August 3, there were reports showing that hedge funds were dominating the trade with record short positions. Now, we have strong evidence that these funds are paying anything to cover their positions. Technicals however show that momentum could be shifting for crude in the short term. Find out more by taking a free 30-day trial on
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• News Driven Market Could Easily Turn Around
Inside Intelligence:
• Global Energy Advisory August 19th 2016
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Global Energy Advisory August 19th 2016

Politics, Geopolitics & Conflict

•    South Sudan is determined to ramp up its oil production and by November start exporting fuels to neighbor Ethiopia. The announcement was made by the new Oil Minister of the war-torn country, Ezekiel Lol Gatkuoth. The new country, which split from Sudan five years ago, has run into trouble with warring political factions but now it is firmly on the path to peace, said Vice-President Taban Deng Ga Deng during a recent visit to Kenya. The path is right but it may prove to be a very long one and the ambitions to have oil output return to pre-war levels could turn out to be premature, as former Vice-President Riek Machar, who fled the country earlier this year after helping form a post-war government in April, still has supporters in South Sudan.

•    The situation with Libya’s oil terminals remains tense, with the Libyan National Army, which doesn’t recognize the Government of National Accord, planning to take over three terminals: Zuetina, El-Sidra, and Ras Lanuf. At the moment, these three are under the control of the Petroleum Facilities Guard, which has sided with the UN-recognized GNA. It seems that any hopes for a renewal of Libyan oil exports to any semblance of pre-war levels remain vain for the time being. That said, on Thursday, reports began to emerge that the first exports are resuming now from Zuetina. However, on closer scrutiny, at the time of writing, these cargoes were simply being loaded and had not actually left the port. The conflict between the LNA and the PFG is far from being resolved, with neither of the sides giving any indication they are willing to sit down at the negotiating table. We advise all observers to accept reports coming out of Libya at this time as largely publicity stunts intended to paint a picture of settlement. The situation is extremely fluid, and many reports represents the GNA’s attempt to assure us that Libyan oil will begin flowing again and that the situation is under control, while using this to pressure its rivals, who are not necessarily just militant sources with a grudge, but equally credible political forces. Meanwhile, however, armed forces under the GNA achieved an important victory over ISIS militants, taking over control one of the last districts in Sirte that was previously in the hands of the terrorist group. The response to this was a suicide bombing that took out eight people in Sirte. 

•    The U.S. is moving its nukes from Turkey to Romania, according to anonymous sources cited by media outlets. There are some 50 nuclear missiles in the NATO air base in Incirlik, which after the attempted military coup from last month was closed for a while and the base commander was arrested on charges of participating in the coup. The move, which the Romanian authorities vigorously denied but Turkish and U.S. government sources had not commented on by the time this advisory was published, could lead to an escalation in the tensions between the U.S. and Russia, although it’s doubtful Moscow will do anything rash, despite the re-warming of its relations with Turkey and the respective cooling between Washington and Ankara that, according to the sources, prompted the moving of the missiles.

•    The U.S.-led international coalition fighting against ISIS in Syria is in the process of determining if the Turkey-Syria border is indeed closed for members of the terrorist group. This follows the recent liberation of the city of Manbij, near the border, which used to be a main point of entrance by ISIS militants into Turkey. Manbij was liberated by the Kurdish Syrian forces, raising concern about increased tension between Turkey and its neighbor as Ankara is firmly against the rise in regional influence of the Kurds, which it has been fighting for decades.

Deals, Mergers & Acquisitions

•    UK energy company Rockhopper completed the acquisition of Beach Petroleum Egypt, a unit of Australia-based Beach Energy, for a total consideration of $22 million, including $11.5 million in cash and the rest in Rockhopper stock. Beach Petroleum holds a 22% interest in the Abu Sennan gas concession and 25% in the El Qa’a Plain concession on the coast of the Gulf of Suez.

•    Russia has postponed the sale of an almost 51% stake in oil company Bashneft, which was put on the market so Moscow can plug a growing deficit caused by persistently low oil prices. The reasons for the delay put forth by different sources in Russia vary from a conflict between Rosneft and Lukoil as the two main bidders, which left Rosneft behind, to the unfavorable market environment, which makes the stake seem overvalued to potential buyers. A delay, some sources say, will help Rosneft take the lead, even though there are voices saying President Putin himself does not want the state giant to buy the stake, which is valued at around $5 billion.

•    Cobalt International Energy, which is selling a 40% interest in two offshore oil and gas fields in Angola to the state-owned company, said the deal is unlikely to close any time soon. The value of the deal is $1.75 billion and would have helped the energy company prop up its finances. The U.S. company also said it will suspend operations in the Gulf of Mexico in order to preserve its available cash.

Tenders, Auctions & Contracts

•    Gazprom’s European partners for the Nord Stream-2 project have given up their plans for a merger that would have created a consortium responsible for the construction and operation of a twin pipeline along the bottom of the Baltic Sea, straight from Russia to Germany, bypassing Ukraine. The companies, which include Austria’s OMV, Shell, and German Uniper and Wintershall reconsidered their intentions concerned about their position in Poland: it was the Polish anti-trust authorities that voiced opposition to the proposed merger, claiming it would give more power to Gazprom, which already has a dominant position on the European gas market. The Russian giant’s partners said they will be considering individual ways of taking part in the project. Expect a fair amount of interference here emanating from Washington, which is also becoming evident, if not directly so. 

•    Ghana plans to start selling the crude pumped at its TEN field to the local refinery, rather than exporting it, the chief executive of the country’s state-owned company Ghana National Petroleum Corporation said. The Ghanaian refinery is chronically low on crude for processing but it will have to comply with certain requirement set forth by the GNPC if it is to receive crude from TEN., mostly having to do with its ability to pay for the oil it processes.

Discovery & Development

•    Nigeria has approved four production oil wells in Lagos, in the Aje field. These are the first wells outside the Niger Delta. Their exploitation will provide the Lagos state treasury with a 13% derivation, as the portions of oil revenues assigned to the state, local and federal governments are called.

•    Kenya has approved an oil resources development plan, with initial production projected at 4,000 barrels per day. As part of the plan’s implementation, the east African country will undertake a major upgrade of its road infrastructure between the newly discovered oil fields in the north and its biggest port, Mombasa, besides the construction of a pipeline to another port city, Lamu.

•    Azerbaijan’s largest oilfield, the Azeri-Chirag-Gunashli block in the Caspian Sea reached a production milestone last week: total output since the launch of extraction hit 3 billion barrels. The Azeri-Shirag-Gunashli field entered the production phase in 1997. The operator of the field is BP, via its local subsidiary BP Azerbaijan, with a stake of 35.87%. The reserves at ACG are estimated at 2 billion tons of crude, of which more than half recoverable.

•    Sonatrach has announced positive drilling results at the Hassi Bir Rekaiz field, which it is developing jointly with China’s CNOOC and Thai PTTEP. The daily flow rate reached 2,406 barrels of crude, which Algeria’s state firm described as “very satisfactory”. The North African country has been working hard to ramp up its oil production, which has declined in recent year due to the oil price crisis and the associated decrease in foreign investment in its energy industry. Algeria is next month hosting an OPEC meeting that will focus on the possibility of a production cut.

Regulatory updates

•    Commercial trucks in the U.S. will have to comply with stricter fuel-efficiency regulation that aims to save some 1.9 billion barrels of fuel and $170 billion in fuel costs for their owners. The new measure will also save 1.2 billion tons of carbon dioxide emissions over the lifespan of the trucks that the new regulation applies to. The rules, set forth by the Environmental Protection Agency, are in line with commitments made by the Obama administration under the Paris climate agreement.

•    Fracking is threatening two dams along the Peace River in British Columbia and that has been known by BC Hydro officials for years, a BC-based think tank the Canadian Center for Policy Alternatives has revealed. One official from the utility, which operated the dams, voiced the alarm back in 2009, when the vicinity of the Peace River saw coalbed methane exploration. This was later replaced by shale gas exploration, which led to an increase in the earthquakes in the area. Despite being aware of this, the local government did not take any action to ban fracking until much more recently, when a ban on future fracking operations was approved. This, however, does not include already existing shale gas exploration and production activities in the area.

•    The British government has approved the project for the largest offshore wind farm in the world. The Hornsea Project Two will have a capacity of 1.8 GW. The first phase of the project had a projected capacity of 1.2 GW. The revised capacity for the final project will be enough to satisfy the power needs of 1.6 million households and will, according to government officials, solidify Britain’s place as the world leader in offshore wind energy.
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