Monday, September 10, 2018

Just boring variation not a crude rally or slump

Week-on-week, the picture remains one of a crude oil market in which benchmark prices are firming up, yet both Brent and WTI futures remain within that very predictable range of $60-80 per barrel (see chart left, click to enlarge). 

A fortnight ago, bolstered largely by the tightening of US sanctions on Iran or rather the perception of tightening, Brent began a two-week climb towards $80 per barrel, as the WTI strengthened above $70. 

Yet again, bullish prophets hit the airwaves suggesting a $90 per barrel Brent price in light of tightening of a crude market with "very little spare capacity." In some market quarters it is being debated that global spare capacity is now less than 1 million barrels per day (bpd). 

The Oilholic thinks the bulls ought to calm down a bit. Agreed, US President Donald Trump's squeeze on Iranian oil exports is making buyers nervous, particularly India and Japan. And in 2019, it would be reasonable to expect Tehran's production to be well below its current 3.6 million bpd+ production mark to around 2.4 million bpd. 

However, Saudi attempts to compensate (or over-compensate) for a decline in Iranian output would not go unnoticed in Moscow. Russia has already indicated that it would like to raise production, and amicable as things might be with OPEC, if they want to, they would increase production. 

The market's problem right now is that it is missing strong breakout factors - both bearish and bullish ones. Bearish threats of global trade wars, direction of emerging markets, and an unraveling of the OPEC and non-OPEC agreement continue to lurk around. Similarly, bullish factors such as the industry under-investing (a very visible concern) and running out of spare capacity to mitigate supply shocks also persist. 

So price positive as well as negative sentiments are still not strong enough to decisively pull oil futures one way or another, with US turning less and less to the global supply pool courtesy of rising domestic production. Therefore smart money says what we've seen over the last two weeks was not a rally and nor has there been any noticeable slump. All that has transpired is variation within a predictable floor and ceiling. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Graph: © Gaurav Sharma, September 2018.

Friday, August 10, 2018

Gazing at DJ Basin’s ‘Shale Gale’ with Highlands Natural Resources

Last month, the Oilholic headed stateside to get a 'crude' glimpse of drilling activity in the Denver Julesburg or 'DJ' Basin in Colorado; this blogger's first visit to the region. The basin has been a key hydrocarbon producing region of the US since 1901. Over a century later, it's still going strong courtesy of the state of Colorado's very own 'Shale Gale.' 

Colorado's legislative climate might be a bit onerous compared to Texas, but the basin still remains a relatively benign place for exploration and production, and yes the oil majors are all there poking around the place.

Also, what won't surprise regular readers of this blog one bit is that regional activity is being bolstered by - you guessed it - the independent upstarts, or new-age shale wildcatters as the Oilholic prefers to call them. 

In this august group is London-listed Highlands Natural Resources (HNR), the brainchild of entrepreneur and local oilman Robert Price, and his close-knit group of geologists, engineers, financiers and consultants. The company's simple but effective motto – in Price's own words – is to deliver projects "safely, on time and on budget."

The company has farmed out acreage from ConocoPhillips out in East Denver, is not only trialling Halliburton's cost and process optimising Integrated Asset Management (IAM) suite of techniques to the fullest, but also has a stake in its operations from the global oilfield services company itself; a rather unique scenario. 

HNR's site in the Lowry Bombing Range, East Denver (see above left), visited by this blogger in Price's company, sees just the sort of savvy operations predicated on big data that we often hear about in the popular press. For example, in an area where players are attempting to drill 16 or 24 wells in the same pad, Domingo Mata, HNR's Vice President of Engineering, says his company has opted for 8 wells, as studies have convinced the management that fewer wells will provide a better yield.

"We also keep an eye on the minutiae of the drilling process via a plethora of sensors. That's how we gather data and learn lessons from the drilling process in the case of each well, and bring about a sequential reduction in drilling times by improving upon past processes based on what the data revealed about the last round of works," Mata adds.

In some cases, that drilling time has come down to 10-14 days; and we're talking depths in the range of 17,000 to 19,000 feet. Price says optimised operations are the bedrock of his company and together with his chief geologist Paul Mendell, HNR is "astute and prudent" in managing its exposure to what has been, is, and will always remain, a high risk, high reward business. 

On the East Denver site the Oilholic had a walkabout, HNR now has a 7.5% carried interest in first 8 wells to produce at the project with additional upside potential to own 7.5% interest in up to 24 wells at no extra cost. The arrangement is boosted by a strong working relationship with majority holder True Oil. 

The site carries a potential yield of 5,000 barrels per day (bpd) of one of the sweetest and best crudes (see right) this blogger has seen since a visit to Oman back in 2013. The product is currently being brought to market via tanker trucks, but will soon be hooked up to ConocoPhillips' pipeline infrastructure. 

And HNR has received £2.9 million of income during four months up to 31 March 2018 from just two wells – Powell and Wildhorse – which sit in the top 3% of all horizontal DJ Basin (Niobrara) wells in Colorado. 

Not wanting to sit on its existing plays, the company is now eyeing West Denver prospects. HNR owns a direct 100% working interest in leases covering 2,721 acres in the area, where Price reckons his team, partners, contractors and affiliates can collaboratively drill at least 48 wells.

What's more the surface area is largely free of urban development and consolidated into closely grouped parcels, and may allow HNR to move through Colorado's permitting and development processes quicker relative other statewide plays.  

Price and Mendell have also made it their mission to diversify HNR. The company is looking to market and monetise its DT Ultravert technology for enhanced oil recovery, which it claims will help the wider industry achieve at least a 15% increase in production. 

It has been proven to prevent 'well bashing' in horizontal and vertical wells. If the monetisation of DT Ultravert takes off, it could be a game-changer for the company, which is incidentally also in the business of Helium and Nitrogen plays.

All things considered, could Team HNR be described as 'Shale Gale' mavericks? "I think prudent, efficient, low-risk operators would be what I'd humbly describe us as," says Price. Well there you have it folks! It was a pleasure exchanging views with Team HNR (above) and seeing what they are up to.

Depending on whom you rely on, ranging from the US Energy Information Administration's projections to estimates by the likes of Anadarko Petroleum, the DJ basin could hold up to 4.5-5 billion barrels of oil equivalent for viable extraction (including natural gas liquids). 

That suggests there's plenty going around for the likes of HNR to continue tapping away at the reserves in their own cost optimised way. So here's to ingenuity and the spirit of private enterprise that has come to symbolise the shale revolution. That's all for the moment; keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Photo I: Highlands Natural Resources' East Denver drilling site. Photo II: Glimpse of Denver light sweet crude produced by Highlands Natural Resources. Photo III: (Left to Right) Gaurav Sharma with Robert Price, CEO & Chairman, Highlands Natural Resources, and Domingo Mata, Vice President of Engineering, Highlands Natural Resources © Gaurav Sharma, 2018.

Friday, July 13, 2018

What to make of Chevron’s North Sea pullback?

What was widely rumoured is now official – oil major Chevron has commenced the divestment of a number of its oil and gas fields in North Sea.

For some in the UK, the San Ramon, California-based US company's retreat from the mature hydrocarbon exploration prospect is the end of an era. Chevron has had a presence in the region for decades and that about says it all, as the North Sea has been in decline since production peaked in 1998.

The company is by no means alone. Both BP and Royal Dutch Shell have sold assets in the North Sea in recent years, as has Chevron's US rival ConocoPhillips. But scale of the Chevron's assets up for sale is sizeable. In fact, the company has confirmed it would encompass "all of its UK Central North Sea assets."

That includes its Britannia platform and allied infrastructure, along with the Alba, Alder, Captain, Elgin/Franklin, Erskine, and Jade fields as well as the Britannia platform and its satellites. The assets collectively contributed 50,000 barrels per day (bpd) of oil and 155 million cubic feet of natural gas to its headline output. 

Company won't vanish from the North Sea just yet. It is currently considering the development of the Rosebank field west of the Shetland Islands. However, the oil major is now focussed on growing its shale production in the Permian basin in Texas as well as the giant Tengiz field in Kazakhstan.

All things considered, Chevron's moves points to a strategic move away from mature prospects by IOCs to those with a more viable higher production prospect. In the process, they are leaving these mature prospects behind to independent upstarts, or state operators who can maximise the asset's end of life potential. 

Take for instance, BP’s business in the North Sea, which is now centred around its major interests West of Shetland and in the Central North Sea. The company sold its Forties Pipeline system to billionaire Jim Ratcliffe's Ineos last year. 

The move put the 235-mile pipeline system, built in 1975, that links 85 North Sea oil and gas assets, belonging to 21 companies, to the UK mainland and Grangemouth refinery, which Ratcliffe bought from BP in 2005. 

In volume terms, the pipeline's average daily throughput was 445,000 bpd and around 3,500 tonnes of raw gas a day in 2016. The system has a capacity of 575,000 bpd.

The acquisition also made Ineos the only UK player with refinery and petrochemical assets directly integrated into the North Sea.

It is highly likely independents will queue up for Chevron's assets, and of course so will the state operators contingent upon pricing. Nexen, a subsidiary of China's CNOOC, and TAQA already have sizable operations in the North Sea and will be keeping an eye on proceedings. Expect more of the same! That's all for the moment folks! Keep reading, keep it crude! 

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© Gaurav Sharma 2018. Photo: Oil rig in the North Sea © Cairn Energy.

Friday, June 22, 2018

OPEC’s new deal: Fudgy math or fuzzy stats?

The deed is done and not a single Iranian appeared visibly riled in the end. Following the conclusion of OPEC's 174th Ministerial Meeting on Friday here in Vienna, Austria, the cartel announced a 'nominal' production hike of 1 million barrels per day (bpd).

But the futures market expected more and has gone into full bullish mode as the weekend approaches. At 18:32pm BST on Friday, the WTI front-month futures contract was at $68.77, up $3.23 or +4.93% and Brent was at $74.88, up $1.83 or +2.51%.

Both benchmarks more than recovered their overnight declines, as traders who – like the Oilholic – delved into the OPEC statement, encountered some real fudgy math or perhaps fuzzy stats. It seems all what OPEC has done is "insist" on 100% compliance with a 1.2 million barrels per day (bpd) cut it put forward in November 2016. 

The cartel's claim is that some of its members 'overcut' due to their own enthusiasm, or due to circumstances, geopolitics or lack of investment (Latter cases to be read as Libya, Nigeria and Venezuela). 

According to OPEC, this meant that compliance with the cuts touched 152% in May, instead of 100% or 1.824 million bpd. So now all OPEC has asked its members to do is bring compliance down to 100%, or put 624,000 barrels back on to the market and not a million! 

Of course, as has become the norm for over a decade now, OPEC did not reveal which individual member will do what and who is or isn't partaking in the exercise. That's the compromise to keep Iran onside for the moment. Here is one's Forbes piece for a more detailed perspective; but it is a jolly old fudge here at Helferstorferstrasse 17.

And oh, by the way, Congo's request to join OPEC has been accepted. So, if there's an OPEC-Plus or a Super-OPEC, it'll have 25 members to begin with. That's all from Vienna for the moment folks! More tomorrow when OPEC chats to its 10 non-OPEC counterparts.Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Photo: Opec Secretariat, Vienna, Austria © Gaurav Sharma 2018

The prospect of ‘OPEC-plus’ or ‘Super-OPEC’?

With the OPEC International seminar done, half of the world's scribes and analysts, including yours truly, have now descended on OPEC HQ for the 174th Oil Ministers Summit, and the chatter about altering the global crude market order is all the rage here.

Its been helped in no small part by UAE Oil Minister and current OPEC President Suhail Al Mazroui. Following hints from various OPEC member delegates at the seminar, in his opening remarks to the ministers summit, Al Mazroui said he wanted to "institutionalise" the alliance between 14 OPEC oil producers and 10 non-OPEC producers leading to the creation of a much bigger crude cabal. Full report on Forbes here

Well we had what's dubbed as 'R-OPEC' dominating discourse back in November when the Russians last arrived to shake hands with OPEC, and brought other non-OPEC producers along for the ride. So, what would this new creation be called? The Oilholic's preference is for 'OPEC-plus'; afterall the johnny-come-lately(s) can only be described as additions to a decades old organisation. 

Of course, for dramatic effect, some have suggested 'Super-OPEC'. Chances are – should it happen – that neither of the two would be adopted, and that a designated policy wonk would come up with some bland name with a catchy acronym. That's all from OPEC for the moment folks. More later in the day. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Graph: UAE Oil Minister and OPEC President Suhail Al Mazroui (third from left) speaks at 174th OPEC Ministers Meeting in Vienna, Austria © Gaurav Sharma 2018.

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For comments or for professional queries, please email: gaurav.sharma@oilholicssynonymous.com

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