Libyan oil production back up to 700,000 bpd, Frac sand prices rising
Click here to see this email online.
Oil Price  

No OPEC Deal Extension Without Cut From Iran

Dear Member,
  Upgrade to premium
Why upgrade?
Greetings from London.

Oil prices fell this week on oversupply concerns and while certain OPEC members have shown interest in extending the current deal, a new deal is far from certain.

Urgent: Before we take a look at this week’s data, we would like to inform you that we've just published a special report on a breakthrough technology in solar. This report along with several other reports will turn you into an expert in the rapidly growing and dynamic solar power industry. Find out how you can consistently make money from investing in renewable energy. This report is exclusively available to our Energy & Resource Insider members - We have temporarily extended our $49 per year offer for this service. Click here to find out more.

Friday, March 24, 2017

Oil prices fell slightly this week on another crude inventory build in the U.S., although the report was slightly tempered by another decline in gasoline stocks. 

Saudi Arabia’s credit rating cut. Fitch Ratings
slashed Saudi Arabia’s credit rating by one notch to A+ from AA- over concerns about public finances. The downgrade comes as Saudi Arabia and other major oil producers struggle with the dilemma of allowing oil prices to sink lower or make painful production cuts in order to keep prices elevated. Fitch also questioned whether or not the proposed economic reforms in Riyadh will be implemented. “The scale of the reform agenda risks overwhelming the government’s administrative capacity,” Fitch said. 

Saudi Arabia might demand Iran cutback if OPEC is to extend deal. Speculation about whether or not OPEC will extend its production cut deal for another six months will be one of the most significant variables affecting oil prices in the short run. S&P Global Platts
reports that Saudi Arabia might only agree to an extension if Iran agrees to cut its production, something that it did not have to do as part of the initial deal. Iran agreed to a cap on production slightly higher than its October baseline for the January to June period, but Saudi Arabia is growing tired of taking on the bulk of the sacrifice for the market adjustment and might stipulate that other countries make a larger sacrifice if the deal is to be extended through the end of the year.  

OPEC meets in Kuwait to assess progress. OPEC officials are huddling in Kuwait this weekend to gauge the health of the oil market and figure out next steps. They won’t make any decisions until May at least, but they will likely discuss the painfully slow pace of market adjustment. A survey of 13 oil market analysts by
Bloomberg concludes that OPEC has little choice but to continue their production cuts. “They’ll probably think they need to grin and bear it longer,” Citi’s Ed Morse said. “The glue that bound them together to begin with, which was higher prices, is the glue that will continue to bind them together.”

Libyan oil production back up to 700,000 bpd. Libya offered oil bulls a glimmer of hope in early March when it lost nearly 100,000 bpd in production because of fighting between competing factions over the country’s largest oil export terminals. However, production is back up to 700,000 bpd and Libya’s National Oil Company (NOC) has hopes of making much larger gains this year. "We are working very hard to reach 800,000 barrels by the end of April 2017, and, God willing, we will reach 1.1 million barrels next August," NOC Chairman Mustafa Sanalla
said in a statement. If Libya adds another 400,000 bpd by August, it will be hugely bearish for oil prices. The markets are not taking into account this supply potential, and it could blindside investors. 

Frac sand prices rising. Sand prices are rising, raising the cost of drilling and eating into some of the “savings” that shale drillers have achieved over the last three years. The supply of sand is tightening as drillers rush back to the shale patch.  “Companies are worried about it,” James West, a managing director at Evercore ISI, told the
WSJ. “I think the threat of a bottleneck, at this point, is probably understated.” Sand prices have jumped to $40 per ton, more than double the $15 to $20 per ton that prevailed last year. 

Trump approves Keystone XL. The nearly decade-old saga continues as President Trump revived the Keystone XL pipeline on Friday,
granting a federal approval for TransCanada’s (NYSE: TRP) controversial $8 billion project. However, the pipeline still faces a variety of legal challenges at the state level, with Nebraska as a particular headache. Moreover, the pipeline also faces market pressure – two competing pipeline expansions have already been approved by the Canadian government, which, if completed, will add upwards of 1 million barrels per day of pipeline capacity. Kinder Morgan’s (NYSE: KMI) Trans Mountain Expansion and Enbridge’s (NYSE: ENB) Line 3 expansion might ruin the business case for Keystone XL, but that remains to be seen. 

Interest in Gulf of Mexico picks up. The U.S. government
received 189 bids on 163 blocks from 28 companies for its latest auction for offshore tracts in the Gulf of Mexico. The bids were worth an estimated $275 million. That represents a sharp increase in interest from a year ago. Royal Dutch Shell’s (NYSE: RDS.A) subsidiary Shell Offshore Inc. led all companies in bidding. The results of the auction suggest that even as companies are concentrating more resources on shale plays these days, interest in offshore drilling is still alive. 

Eni makes Mexican oil discovery. Italian oil giant Eni (NYSE: E)
announced a “meaningful” discovery in Mexican waters this week, the first well drilled by a private international company. The discovery is a boost to Mexican’s energy reform, which began years ago and is starting to bear fruit. It will also likely spark more interest in Mexico’s next auction in June for deepwater offshore acreage. 

Shell responsible for “astonishingly high” levels of pollution in Nigeria. A
new report finds that Shell’s Nigerian operations spilled oil in enormous volumes back in 2008, and the environmental damage continues to this day. The oil spills and leaks have ruined mangroves and creeks years after the events, endangering local communities. The head of the UN’s Environmental Program calls the situation as “one of the biggest environmental scandals and catastrophes anywhere in the world.” Shell says the report offers no new information, and in any event, the bulk of the spills are the result of sabotage, not wrongdoing by the company. 

Venezuela suffering through gasoline shortage. Gasoline lines are
growing in Caracas as Venezuela’s state-owned PDVSA is rumored to be struggling to pay for imported fuel. “They’re not importing enough because they are saving up to pay the debt,” Jose Brito, an opposition lawmaker in Venezuela told Bloomberg. “It’s unbelievable that this is happening in an oil producing country.” The economic crisis in Venezuela is worsening and there are growing fears of a default this year. 

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. 

Best Regards,

Tom Kool

P.S. – Energy trading expert Martin Tillier finds that oil markets have overreacted to the build in U.S. crude inventories and expects oil prices to return to $50 oil in the short term. He recommends a rebounding oil stock that has been dragged down mercilessly throughout the oil bust, but has significantly rebounded since the OPEC deal was announced. Find out where experts like Martin invest in these overbought markets by claiming your risk-free 30 day trial on
Oil & Energy Insider
back to top
What's in Oil & Energy Premium this week:
Inside Investor
• Are The Survivors Of The Offshore Bust A Buy? 
Inside Opportunities:
• The No.1 Contrarian Play In Oil
Executive Report:
• Oil Industry Not Hedged For 2018
Inside Markets:
• How Much Further Can Oil Fall?
Inside Intelligence:
• Global Energy Advisory - 24th March 2017
Upgrade to Premium
back to top

Global Energy Advisory - 24th March 2017

Politics, Geopolitics & Conflict

•    Violence in South Sudan has further spiked after the announcement of a $500-million oil exploration deal between the government and Nigerian Oranto Petroleum. Rebel forces loyal to former Vice President Riek Machar have kidnapped two groups of oil workers over the past couple of weeks. One of the kidnappings involved employees of Oranto, while five others, including an engineer with the DAR consortium, were also kidnapped. The DAR consortium includes Chinese Sinopec and CNPC, and Malaysia’s Petronas. The rebels are vague on the reasons for the kidnappings. One group has said they are trying to prevent DAR from operating in South Sudan, while a separate group said it would not allow any drilling in territory they control until they are victorious over government forces. As the civil war rages on, the government still plans—unrealistically—to double its current oil production to 290,000 barrels per day in fiscal year 2017/2018, up from current output of around 130,000 barrels per day. Since its independence, South Sudan has relied on oil for all income—a situation that has significantly compounded ongoing political and economic instability due to the fall in crude oil prices. According to South Sudanese officials, production in the past reached as high as 350,000 bpd but fell after a dispute with Sudan over fees for pumping South Sudan’s crude through Sudan’s export pipeline, which led South Sudan to halt production in 2012. South Sudan got the lion’s share of the oil when it split from Sudan in 2011, but it’s only export route is through Sudan, giving Khartoum leverage and leading to ongoing pricing disputes.

•    Britain is expected to evoke Article 50 next Wednesday, starting the process of separation from the European Union, with a 2-year countdown. Emotions are heated both in the EU and in London, with PM Theresa May having said that Britain could walk out on the EU without a deal if the proposed terms are unfavorable. For their part, EU officials are warning London to be careful and settle its bills with the union before it moves on. When Article 50 is invoked, stock markets, forex, and oil prices are bound to react, although the extent of the reaction would depend on whether a deal is agreed or not. In the process, it might lose Scotland, which has consistently demonstrated a pro-EU stance and is now preparing for a second independence referendum. Should it vote yes this time, the UK oil industry could be plunged into chaos. The Brexit vote has not shaken up forecasts for North Sea oil and gas production, but a successful second bid for Scottish independence could slash output in the region. However, if the referendum is passed it would create at least two further years of uncertainty for the sector from 2019 and could push production to below 864,000 bpd in the next decade. Scotland's parliament is set to resume its independence referendum debate next Tuesday.

•    Libya’s crude oil production has recovered to 700,000 barrels daily after control of two key oil export terminals was retaken by the Libyan National Army (LNA). The National Oil Corporation (NOC) has plans to boost this to 800,000 bpd by the end of next month, and to 1.1 million by August. Output had previously declined by roughly 35,000 barrels due to the ports’ instability – which now appears to be restored. Es Sider and Ras Lanuf ports had been in the hands of the NOC in Tripoli since General Khalifa Haftar’s LNA captured the area in September. But, the Benghazi Defense Brigades (BDB) wrested control of the key facilities earlier this month. Reports later showed that the LNA has regained lost ground. Last Tuesday, the LNA claimed to have retaken the country’s key oil ports from the rival faction, and as of later that day, the resurgent group’s soldiers were still in pursuit of a handful of BDB fighters, who were on the run after they lost control of the ports. At any moment, yet another group or coalition could surface to challenge Haftar’s growing power, rendering the NOC’s targeted production levels fragile at best. 

Deals, Mergers & Acquisitions

•    BP has sold 10% of its 20% interest in New Zealand’s single crude oil refiner, New Zealand Refining Company Limited. The $56.2-million deal is part of a global portfolio review, BP said. This has been described by a BP official as a “regular event” in an attempt to head off potential speculation that the company is in trouble. Separately, the company has confirmed reports it is negotiating the sale of its Forties pipeline in the North Sea with Ineos. The pipeline can ship 450,000 bpd, which is equal to 40% of the crude oil output of the UK.

•    Marathon Oil is continuing with its Permian expansion with a fresh $700-million acquisition of 21,000 acres in the play from Black Mountain Oil & Gas. Earlier in March, Marathon paid $1.1 billion for 70,000 acres in the star performer of the U.S. shale patch. To finance the acquisitions, the company divested its Canadian business for $2.5 billion.

•    Sinopec has struck a deal with Chevron to buy the U.S. company’s South African downstream operations for $900 million. Chevron has been looking for buyers for the business for a while now and it said that Sinopec’s terms were better than those of other suitors. The assets include a 75% interest in Chevron South Africa Proprietary Ltd and 100% in the Botswana business of Chevron. The South African operations include a 100,000-bpd refinery in Cape Town and a network of gas stations, convenience stores, and oil storage facilities in the two countries.

Tenders, Auctions & Contracts

•    Britain’s Oil and Gas Authority said it had awarded 25 exploration licenses to 17 companies for new, untapped oil and gas blocks in the North Sea. The tender for these blocks was conducted last October, attracting the lowest interest in 14 years, prompting the OGA to reduce rental fees by as much as 90 percent. The authority plans another tender for May or June, where it will offer mature fields.

•    Korea’s Kogas, Japan’s JERA, and China’s CNOOC have struck a deal to jointly purchase LNG, aiming to create a more favorable environment for the commodity in the region. South Korea is one of the world’s top natural gas consumers, with Kogas the fourth-largest LNG buyer globally.

Company News

•    Tullow Oil is looking to raise over $600 million in a bid to slim down its debt burden and expand its exploration operations in Kenya and elsewhere in Africa. That’s what the company’s new chief executive Paul McDade said, adding that Tullow has a portfolio of low-cost assets whose exploitation should be accelerated and the fresh funds will do just that. The company’s debt is around $4.6 billion, with financial results for the last three years in negative territory.

•    Solaris Oilfield Infrastructure has filed for an initial public offering, aiming to raise around $100 million, with $40-55 million destined to fund the company’s capital expenditure program for the current year. Goldman Sachs and Credit Suisse are underwriters to the deal. Solaris is the fifth oilfield services firm to announce plans for a listing this year, with another ten preparing to do the same, according to sources from the financial services sector, signaling a change in fortunes and investors’ eagerness to get back some of the money they poured into the troubled oilfield services sector during the downturn.

•    Texas-based Ethos Offshore has filed for Chapter 7 bankruptcy, which will result in the liquidation of all the company’s assets, the proceeds from which will be transferred to lenders, whom Ethos was unable to pay. This inability to settle with lenders made it impossible for the company to go the usual way, with Chapter 11 bankruptcy protection.

•    Petrobras reported a net loss of $4.2 billion for 2016 but said things were looking up, with the result for the last quarter of the year in the black, at $717 million. Still, the latest financial report makes 2016 the third year in a row when the troubled Brazilian giant has booked losses, which means it will have a hard going getting back on its feet. On the flip side, the company managed to shrink its humongous debt to below $100 billion.

Discovery & Development

•    Shell and subsidiary QGC have announced a new stage in their Ruby Project – a natural gas operation in the Surat Basin in Queensland. The stage will involve drilling 161 new wells at the site, owned by QGC, this year and next, as well as potential expansion into adjacent plots. The news was hailed by local government officials – Australia is risking power shortages due to insufficient gas supply for electricity generation.

•    TransCanada has applied for variance with Canada’s National Energy Board to go ahead with the construction of its $1-billion North Montney gas pipeline project. The variance is needed because TransCanada was supposed to start the construction only after it made a positive final investment decision on another major project: the Pacific Northwest LNG, where it has partnered with Malaysia’s Petronas.

•    Norway’s giant state-owned Statoil has announced an offshore discovery in a wildcat well in a territory where reserves were not previously known to be, and close to the producing Gullfaks field. The discovery, while minor, bodes well for this region and is only some 4 miles from Gullfaks. The size of the discovery is estimated at between 6 million and 18 million barrels of oil equivalent.
back to top