Iran has pushed back its key oil conference to 2016, Obama and Putin to meet
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25/09/2015
 

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Iran announced a decision to push back a key oil conference where it had planned to reveal new contracts for doing business in Iranian oil fields. The London conference, originally scheduled for December 2015, will instead be held in February 2016. The conference has already been postponed several times, but the decision to push it back another 2 months is intended to ensure that there is some clarity regarding western sanctions before the conference is held. For now, there is a decent chance that December will be a pivotal month for the removal of sanctions. The details of the new oil contracts will go a long way in determining how attractive Iran becomes as a new oil frontier for international companies. Iran has historically been a tough place to do business for foreign companies, but with Iranian oil production down more than 1 million barrels per day from its pre-sanctions level, the government has suggested that an overhaul of contracts would make investment much more attractive. Mark your calendars for February 2016.

U.S. President Barack Obama and Russian President Vladimir Putin have
agreed to meet on the sidelines of the annual UN meeting in New York next week. Top on their list of things to discuss will be Syria, following Russia’s decision to send troops to the war-torn country. Obama wants some sort of resolution to the nearly five-year old war in Syria, including the removal of Syrian President Bashar al-Assad, something that will be difficult to pull off without Russian help. For that matter, Obama will likely need help from Tehran as well, but the White House has so far been unable to parlay its success from the nuclear deal into building a broader strategic relationship with Iran in the region. U.S. Secretary of State John Kerry is planning to meet with foreign minister Javad Zarif, his Iranian counterpart, this weekend. But for now, it doesn’t appear likely that the leaders of the two countries will meet in New York.

Meanwhile, on September 25, China
announced efforts to address climate change, as President Xi Jingping wraps up his trip to the U.S. this week. The initiative comes after the U.S. and China announced climate initiatives in November 2014, following months of backroom negotiations. The U.S. pledged to slash emissions by 26 to 28 percent by 2025, and China will see its emissions peak by 2030.  

The announcement this week will put some meat on the bones for those targets. China unveiled a plan to launch a cap-and-trade program in 2017 in order to reduce greenhouse gas emissions from an array of industries. China has already put in place cap-and-trade plans at the regional level in several parts of the country, but the 2017 plan will cap emissions nation-wide. The announcement is seen as an effort to build momentum heading into the international climate negotiations in Paris this December, and it also helps undermine the argument by those opposed to policies to address climate change within the U.S. Congress – that the U.S. shouldn’t act until other countries do.

Crude oil capped off a volatile week, trading roughly where it started. WTI and Brent have narrowed to just a $3 per barrel spread. The EIA
reported mixed results from its weekly survey, with oil inventories down slightly, but production ticking up.

There is a growing sense that oil prices could be turning a corner, but so far the price gains have been sparse. The EIA
says that persistently low oil prices could lead to a long-term decline in investment in the upstream oil and gas sector. Dollars spent on exploration and development are highly sensitive to the price of crude, and the EIA argues that it is becoming increasingly likely that the period between 2015-2020 will see “substantially lower annual oil and natural gas investment” than the “annual average of $122 billion spent during the 2005-2014 investment cycle crest period.” Of course, with long lead times for most oil and gas fields, the current bust is planting the seeds for a tighter market in the years ahead.

Low oil prices continue to take their toll on the energy industry. Halliburton (NYSE: HAL)
says that the several rounds of job cuts at the oilfield services firm could amount to the loss of 20,000 positions worldwide when all is said and done. TransCanada (NYSE: TRP) says that it will slash 20 percent of its senior management positions, with more cuts potentially in the works. The company was dealt an additional blow this week when Democratic Presidential candidate Hillary Clinton came out against the Keystone XL Pipeline.

Governments that depend on oil revenue are also not doing well. North Dakota
revealed that its tax revenues in July and August fell more than $40 million short of its projection, prompting calls for a new budget forecast. “This is a real wake-up call, I think,” House Majority Leader Al Carlson, said.

Brazil is reeling from low oil prices too (among many other oil-producing countries), although the South American nation is also dealing with a range of other problems. Brazil’s currency, the real, dropped to a record low this week. The real has lost more than 35 percent of its value in 2015, and the central bank could be forced to sell foreign reserves to stop the descent. Brazil, of course, is emblematic of the commodity-producer that became rich over the past decade due to the voracious demand from China for all sorts of raw materials. Now with the commodity “super-cycle” over, Brazil’s economy is falling apart.

Finally, Santos (ASX: STO), a major Australian energy company,
announced that it is starting up its Gladstone LNG (GLNG) project. GLNG will send out its first shipment of LNG from Curtis Island, Queensland, and the project was on time and within budget. Australia has several very large LNG export facilities under construction, many of which will be completed between 2015 and 2017.

In our Inside Investor report this week (below), trader Dan Dicker provides an updated analysis on some of his past stock picks in the energy sector. A lot has changed since he laid out his case for them. Find out where he stands on Anadarko Petroleum, Devon Energy, and three other past selections, by clicking here.

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

Best Regards,

Evan Kelly

Deputy Editor, Oilprice.com

P.S. In our Intelligence Notes this week, our assets have compiled some of the most critical regulatory, investment, and geopolitical developments from around the world from this week. Egypt is facing security problems, which could affect several key natural gas projects. Also, one key oil producer from the Arabian Peninsula announced plans to start an offshore program in the coming years. And readers should also be aware of several deals, asset sales, and potential mergers that are underway. Find out more
by starting your free, no risk, 30 day free trail of Oil & Energy Insider today.

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• What These Five Companies Can Tell Us About The Oil Space
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• Even With The Problems, Buying Petrobras Is A Trader’s Trade
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• Oil Prices Could Straddle This Zone For A While Yet
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• Global Energy Advisory – 25th September 2015
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What These Five Companies Can Tell Us About The Oil Space

I'd like to follow up today on several stocks that I know interest you and have interested me in the past.  My readers know the stocks I currently recommend, but wonder about those that I've touched on in the past but have abandoned. Let's look at Anadarko Petroleum (APC), Devon Energy (DVN), Linn Energy (LINE), Whiting Petroleum (WLL) and Oasis Petroleum (OAS).  

Anadarko has arguably the most interesting and strategically diverse assets of any U.S. independent.  With a strong presence in the Wolfcamp Permian and Wattenberg, shale production is well covered with quality acreage. This goes along with first rate prospects in the Gulf of Mexico (GoM) and a very deep commitment to LNG in Mozambique. Together, these assets cover the best of U.S. oil and gas production potential that I am seeing. But some issues have left Anadarko slightly behind as I have tried to cull the best potential investments in the E+P space.  

For one, I would have liked for Anadarko to be far more aggressive in sequestering and non-completion of wells in this discount environment, and their Capex cut, while large at 30 percent, didn't measure up to the austerity budgeting I thought was needed for this cycle. But in looking more closely at their portfolio, you become convinced that their assets in the Wattenberg and GoM are going to be last, even in a rising crude environment, to pay shareholders back. It's not that I don't like Anadarko – I actually love them – it's just that I want them to react quicker to a stabilization of oil prices. Still, as share prices deflate towards $60, it's going to be a tough one not to add to my portfolio.  

Devon was a company I really liked during 2010-2012 and traded in and out of a lot. But two distinct problems leave them behind for me these days. First, Devon made a huge turnaround move in focusing on oil production, leaving natural gas behind. For as long as I traded Devon, I used it as a proxy for large-cap nat gas independents, but I can't do that anymore – Devon has recently passed the 60 percent mark for crude and liquids production. This turnaround was already expensive and, for me, suspicious with oil prices above $80 a barrel. With prices below $50, Devon clearly doubled down on shale oil at the absolute worst time. Devon was also one of the smartest at using the futures markets for hedging production – while the industry average of production hedges were about 16 percent, Devon led the pack with nearly 80 percent of its 2014 production and 50 percent of its 2015 production hedged. This would seem like good news, and it is, as it has allowed Devon the time to increase its efficiencies in the Eagle Ford and deliver far better quarterly results than the analysts ever expected. The downside is that Devon has almost zero of its 2016 production hedged and is currently getting a combined $31 BoE price. Natural gas liquids, which always seemed to stay strong and bail out Devon's results fared worse in 2015 than even crude did, dropping 60 percent year-over-year and accounting for 20 percent of Devon's revenues.   

I want to like Devon, and will again, as they are adjusting quickly to becoming a low-price oil producer, instead of the steady nat gas producer I depended upon for years.  But I don't believe their growing pains are quite over yet from the big strategic move to oil and I'm not yet ready to sign on. Like Anadarko, however, Devon gets awfully cheap and tempting as it drifts towards $35 a share. I cannot scold anyone who has chosen either Devon or Anadarko here as a long-term hold. I just personally like others a bit better.

Now for three that I still deem unworthy of any interest, yet always seem to peak readers' eyebrows up:  Linn, Whiting and Oasis.

For Linn, their debt position is not untenable, 'merely' as bad as several dozen other oil producers. Their MLP structure increases their burden and they've been shedding Permian assets as fast as they can in a bid to survive – but one survival move lets them out for me forever: their deal with Quantum partners and Blackstone for $1 billion.  Private equity deals are almost always deals with the devil, but this one has strapped Linn far too close to Lucifer to escape the bonds of hell, giving Quantum up to 85 percent of future production and destroying the value of owning the common shares for almost any foreseeable future. I'm out on Linn Energy.  

Whiting isn't nearly as bad off as Linn, but their lack of production hedges for 2015 and unsuccessful search for a buyer earlier in the year told me all I needed to know: Management isn't optimistic about their future, so why should I be?  

Finally, Oasis – whose shares I've actually done well with through day trading. For short term speculation, Oasis has been a good vehicle as their debt position is equally bad as anyone in the space, but their cash position is surprisingly good – making an imminent default impossible. That gives them time and creates a decent high beta trade to play around, but still a terrible long-term investment. They'll need a $75 crude price to have even a chance of survival for the long-haul and if you believe that prices will recover above that price quickly, you've got much better places to speculate – including just plain oil futures.   

In any investments you make, however, show prudence and most of all patience.  The bad times are far from over. 
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