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.

Sunday, June 10, 2018

The oil price rally that wasn’t

We were led to believe that a $100 per barrel oil price was not a case of "if" but "when." Over April, and early on in May both Brent and WTI futures continued their upticks, primarily driven by hedge funds piling into the front end of the futures curve, and OPEC hinting at extending its production cut agreement.

Even six-month dated Brent contract's backwardation streak started to narrow, though it ultimately stayed in backwardation mode, as the Oilholic noted in a recent broadcast. And then it happened – information came out that the Saudis and Russians were no longer keen on extending the existing OPEC/non-OPEC production cut agreement, that has seen 1.8 million barrels per day (bpd) taken out of the global supply pool by 14 OPEC and 10 non-OPEC producers. 

Furthermore, if a Reuters exclusive is to be believed, the US demanded that OPEC production be raised by 1 million bpd. The same story also claimed that President Donald Trump's unilateral slapping of sanctions on Iran only came after the Saudis allegedly promised to raise their output. 

Sidestepping all of this, the Oilholic has always maintained that the barrels OPEC and non-OPEC producers took out of the market to – in their words "balance the market" – had to return to the global supply pool at some point. That was the real "when not if" situation for the market.  

As market sentiment on that happening has gained traction, the predictable result is a visible correction in the futures market with OPEC set to meet on 22 June. Meanwhile, the $100 price remains a pipedream, with both benchmarks still oscillating in a very predictable $60-80 range, only occasionally flattering to deceive with bullish overtones only to slide backwards (see graph above, click to enlarge). 

Away from the crude price, here are one's Forbes posts on US oil producers maintaining their efficiencies drive despite relatively higher oil prices and the UK-France Channel Tunnel operator's latest sustainability initiative of using ozone friendly refrigerants for cooling it landmark tunnel. 

Finally, it's a pleasure to have the Oilholic mentioned and recognised by third parties. These include Feedspot who recently featured this blog in their ‘Top 60 oil and gas blogs to follow’ section. It comes after industry data provider Drillinginfo flagged this blog in its roundup of '10 great oil & gas blogs to follow', as did penny stocks expert Peter Leeds, and US-based Delphian Ballistics. A big thank you to all of the aforementioned. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Graph: Friday closes of oil prices year to 8 June 2018 © Gaurav Sharma 2018.

Sunday, May 20, 2018

A Toyota Mirai ride to the 'Hydrogen Society'

Its official – the Oilholic is now a self-proclaimed part member of what some might describe as the evolving Hydrogen Society; that demure lot doing their bit to reach a low carbon Alamo premised on good old H2 as their alternative to fossil fuels. Of course, that’s alongside their – shall we say – more boisterous electric and hybrid mobility solutions counterparts. 

This new membership came courtesy of an 800 km-ride between 16-18 May from Salzgitter in Northern Germany to the Danish capital Copenhagen in a Toyota Mirai; the global automaker's sedan-sized bet on yet another alternative fuel solution, with hybrid and electric cars already on its portfolio.

And along the journey this blogger saw planes, trains and automobile concepts all premised on a hydrogen-powered future, and got views on a zero-emission journey from fossil fuel retailers to politicians, engineers to scientists (see earlier posts).  

Of course, the Oilholic assumes all what you lot want to know is – how was the Mirai ride and what about the perils of big, bad hydrogen spontaneously exploding! Well, the ride was pretty smooth, and the latter point – with 2018 technology in play – comes across as a bit silly (to ‘crudely’ quote none other than a Shell executive). Of course, it was perfectly safe! But more on all that later. 

The entry point should be what is Toyota’s motivation? Agreed, others are in too. For instance Hyundai, Audi, Honda, Indian heavy vehicle manufacturers and British forklift truck-makers are all attempting to harness hydrogen for mobility, but via the Mirai, Toyota is the only mass producer of hydrogen fuel cell vehicles attempting to take things to the next level.  

The company's answer, which this blogger accepts in good faith, is that via the Mirai project – Toyota is putting forward both "a new point of discussion" on alternative fuels as well as "an additional mobility option" in its own march to a low carbon future. 

The company is quite candid that in its backing of hydrogen powered fuel cell vehicles, it is not making some utopian statement about the demise of the dominant internal combustion engine (at least not yet!). Rather, Toyota – the world’s second-largest automaker with its fingers in all modes of mobility fuels including some of the world's best selling petrol cars – says hydrogen fuel cell technology is not only an option, but a viable one. 

Moving on to the car itself – Mirai's chassis might somewhat resemble the latest Toyota Prius model – but riding in it is even quieter than a Prius. Yup, apparently that is possible! 

The front wheel drive vehicle uses Toyota's Fuel Cell System (TFCS), featuring both fuel cell and hybrid technology, and incorporates the global automaker’s proprietary fuel cell (FC) stack, FC boost converter and, of course, a 5kg capacity high-pressure (@ 70 MPa/10,000 psi) hydrogen tank. 

As for those worried about the tank’s safety – it has been rigorously tested since 2012, not just to your average crash tests but has even had bullets fired at it too without failure! The TCFS emits no CO2, but water, which can be released at the press of a button. A tank full of hydrogen can take you to around 500 kms before refuelling, according to Toyota, with only water as a by-product along the way.

En route, the Mirai, by the Oilholic’s calculation, accelerated from 0 to 100 km/h in 10 seconds. The car does have a top speed of around 180 km/h, but yours truly and his companions did not attempt it. 

And over the course of 800 kms, not a single problem or glitch occurred, although a passive eye had to be kept on fuel levels, given hydrogen refuelling points are not around every corner just yet. While fuel retailers hope to change that, Toyota, for its part, hopes the Mirai will captivate drivers' imagination in the years ahead. 

Organisational take-up of the Mirai from police departments to taxi and car hire companies across Europe has been pretty positive since 2015, after the Mirai moved from pilot to initial road deployment stage. Around 5,500 have been sold globally, including 250+ in Europe. By 2020, Toyota is targeting global sales of 30,000 per year.  

What the future holds is anybody's guess, but it was an absolute pleasure to have ridden in the Mirai in order of get a first hand feel of the emerging Hydrogen Society. That's all from this trip folks, with this the last of the hydrogen posts. But keep reading, keep it ‘crude’ and a tad hydrogen-fuelled too!

ADDENDUM: And here is the Oilholic's report on the Toyota Mirai and various permutations its success (or otherwise) holds in relation to the nascent hydrogen economy for Forbes.

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© Gaurav Sharma 2018. Photo 1: The Oilholic with the Toyota Mirai and photo of the car at a site in Denmark. Photo 2: Toyota Mirai console. Photo 3: Toyota Fuel Cell © Gaurav Sharma, May 2018.

Thursday, May 17, 2018

Oil giant Shell on revving cars up with hydrogen

After getting a glimpse of a rather splendid hydrogen fuelled train, the Oilholic next had the pleasure of being driven in a hydrogen powered electric fuel cell Toyota model - The Mirai - overnight from Salzgitter to Hamburg, Germany.

Of course, much of the drive had to do with a demonstration of the fuel medium's prowess, the car's performance (come rain or shine of which we had plenty of), and more. We'll touch on that in the next post.

But for now one question well worth asking is – for such vehicles to reach critical mass and wider public acceptance, retail points for filling up them up and keeping them running would be needed; so how is that problem going to be addressed? 

Afterall Toyota has an ambition of putting 1 million emissions free vehicles on the road per year between 2020 and 2030, and rivals such as Hyundai and Audi have plans of their own. Enter oil giant Royal Dutch Shell - which says the fuel retail industry has the answers. 

Speaking to this blogger at Shell Germany's Hamburg hub, regional Chairman Stijn van Els opined that the new "Hydrogen Economy" will indeed require a rethinking of the retail infrastructure but that's "well within the industry's scope" given that major oil and gas companies are already well on their way to exploring the alternative fuels market.

"There is no competition with fossil fuels, there is co-existence as we move to a low carbon economy and Shell is committed to expanding its hydrogen fuel sales points. Furthermore, its not a shift we are attempting on our own." 

Survey data compiled at the end of 2017 suggests Toyota's home turf – Japan – has the largest number of hydrogen fuelling stations worldwide at 91, followed by the US (61), Germany (37) and the UK (18). The German figure is already above 40, at the time of writing this post, according to van Els, and the industry veteran hopes that at a pan-European level they'll be 400 sales points by 2019. 

Fuel retailers are expected to step up to the challenge for both retail and commercial clients over the coming decade, according to Toyota, with the automaker claiming "a hydrogen facility can be integrated into an existing refuelling station as an additional fuel offering."

There is certainly evidence of that. For instance, Shell's FTSE 100 rival BP is already attempting this with electric vehicle charge points, at conventional gas stations, the most recent example being its downstream venture in Mexico. The Oilholic was given a demonstration of a fuel point setting with the Mirai en route to Hamburg via a refuelling stop at a station in Wolfsburg (See below right, click to enlarge). 

Filling up a hydrogen car was not any different from a petrol or diesel car, nor did the "pump" look all that different, even if it was pumping in compressed hydrogen instead of a petroleum product.

Of course, when the hydrogen flows into the tank there's a chilling effect on the pump handle, unlike petrol or diesel refuelling where, well, you simply hear the liquid gurgling.

It's all done in a matter of minutes, and instead of paying per litre or gallon, you pay per kilogram which is on average €9.50 in Germany, €11.50 in France, and around a same-ish post-Brexit £10 in the UK. Roughly around 5kg would constitute a tank-full equating to around 60 litres, according to a Toyota spokesperson. You do the math, but the Oilholic would leave the fuel economy firmly parked for now, and touch on it in a blog post to follow. 

So going back to van Els, Shell reckons hydrogen would "certainly" play its part in the alternative fuels market and so do the oil major's fuel retail rivals. And much of the industry, including world's top 20 fuel retailers have also said they are not averse to establishing hydrogen refuelling stations as greenfield sites as well. So it all depends on consumer take-up, but the "commitment is there", according to both Toyota and Shell. Only time will tell how it all plays out. 

But for now, that's all for the moment folks! Time to load up on hydrogen and conclude the Mirai adventure. Keep reading, keep it 'crude' even if - as one said - the next few posts are going to be about hydrogen! 

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© Gaurav Sharma 2018. Photo 1: A Toyota Mirai in Shell signage. Toyota Mirai being fuelled with hydrogen at a facility in Wolfsburg, Northern Germany, with fuel pump and close-up of car inset. © Gaurav Sharma, May 2018.

Wednesday, May 16, 2018

Turning from diesel to hydrogen trains

The Oilholic finds himself on the road again; this time roughly 570 miles east of London in Salzgitter, Germany, at a research and testing facility of rail transport solutions provider Alstom. 

The French company's testing yard is abuzz for a (relatively) new reason – one of it's most popular Coradia series trains, namely the reliable diesel work-horse the Coradia Lint 54, is about to undergo a transformation like none other.

Meet the 'Coradia iLint', a full emission-free train that runs on Hydrogen powered fuel cells (see above). It only emits steam and condensed water, and no  carbon. To get a perspective, the Oilholic was given a demonstration ride on the train over a one mile track, before its due to enter service on German public transport this year. 

For all intents and purposes, it was a smooth ride and the quietest ever rail journey this blogger has been on. In fact, were it not for the wheel friction din and movement vibration, you wouldn't hear a thing. You'd imagine reducing pollution, also means minimising noise pollution and the Coradia iLint certainly fits that box.

The interior was that of a normal train in service across European public transport networks, meaning no clunky hydrogen tanks in eyesight or internal variations. (Click image below to enlarge and get a glimpse)


According to Alstom, the prototype is powered by an electrical traction drive. Electrical energy is generated onboard in fuel cells and stored in batteries.

The fuel cell provides electrical energy by combining hydrogen stored in the train's tanks onboard with oxygen from the environment, releasing good old H2O. 

While on the test track the train touched 80 km/h, out in the real world Alstom insists it would match the performance of a Coradia diesel unit, including comparable acceleration, braking and maximum speed (of 140 km/h) with the same travel range and passenger capacity as its hydrocarbon fuelled variant. 

Two things spring to mind; first being safety and the second being the infrastructure needed to power up the new train. On the first point, an Alstom spokesperson claimed that high pressure hydrogen reservoirs are actually safer than petrol tanks in comparable hazard situations, a point also made by Japanese automaker Toyota, which has been on its own hydrogen powered vehicle pathway since 2015 via its Mirai model. The technology has been rigourously tested, both mobility providers insist. 

As for the infrastructure needed, Alstom says it is offering the "complete package" consisting of the train itself and its maintenance, and also the whole hydrogen fuelling infrastructure, taking care of all rolling stock and hydrogen related matters, leaving operators to concentrate on their "core competencies."

The company's message chimes with that of other proponents of Hydrogen – intelligent energy management coupled with emissions free mobility.

And to make the point – a Toyota Mirai pulled up alongside the Coradia iLint (see above), with perfect timing. That's all from Salzgitter, as its time to ride the Mirai around Northern Germany and beyond! Keep reading, keep it 'crude', even if the next few posts are going to about hydrogen!

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© Gaurav Sharma 2018. Photo 1: Alstom's Coradia iLint. Photo 2: Glimpses of exterior, roof, interior and driver's cabin of the Coradia iLint. Photo 3: Coradia iLint and Toyota's Mirai hydrogen fuelled car © Gaurav Sharma May 2018.

Sunday, May 13, 2018

Crude talk in H-Town

As the Oilholic prepares to say yet another goodbye to Houston, one cannot but help wondering why the new found pragmatism here over the possible direction of the oil price is not reflected elsewhere in the oil market.

Brent is currently within touching distance of $80 per barrel, while the West Texas Intermediate is firming up above $71 per barrel. 

Having spent a whole week deliberating with market participants out here in America's oil capital, including physical traders, few seem to think the oil price can sustain three figures, even if it gets there.

The sentiment was echoed by several delegates at the Baker McKenzie Oil & Gas Institute 2018 with most there, including leading legal and financial advisers, dismissing a sustainable return to a three-figure oil price. In fact, most are advising their clients not to get carried away, and mark a return to the profligacy of the sort we saw in the US oil patch when the price was last in three figures back in 2014.

Their clients, i.e. representatives of leading oil companies and project sponsors also share the sentiment, and while appreciative of relatively higher oil prices, are in no mood to get carried away.

Yet with Venezuelan production heading to a historic dive below 1 million barrels per day, US President Donald Trump's withdrawal from the Iran nuclear deal and the general geopolitical malaise in the Middle East, hedge funds and money managers are piling in to the futures market in the hope of extending a rally largely supported by OPEC's output cuts.

Plenty of food for thought, but the oil market is in real danger of overstretching itself! And on that note, that's all from Houston folks. Time for the ride home to London. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Photo: View of downtown Houston, Texas, USA from Burnett Street on the outer edge of town. © Gaurav Sharma, May 2018.

Thursday, May 10, 2018

Thoughts From Baker McKenzie’s Oil & Gas Institute 2018

Earlier today, the Oilholic was delighted to attend the Baker McKenzie 2018 Oil & Gas Institute; an event that grows bigger by the year, and has become a true 'crude' fixture in Houston.

From Big Oil getting to grips with Big Data to capital raisings in mature jurisdictions, emerging market legal considerations to mergers and acquisitions - there was plenty on the agenda to for everyone. Of course lurking in the background to it all is the direction of the oil price and US President Donald Trump's re-imposition of sanctions on Iran, the Israeli-Iranian tussle in Syria, OPEC and all the rest. It's pushed Brent crude above $77 per barrel and WTI above $71. 

While every US shale player would gladly accept the current prices; quite like the Oilholic, few at the Institute felt the elevated prices would last. Given there are several variables in the equation - including, but not limited to, what OPEC would do next month, what sort of levels US producers are likely to record, how many Iranian barrels are likely to be knocked off the market, etc. - getting carried away by the bulls would not be a good idea. 

To quote, Jim O'Brien, Chair of Baker McKenzie's Global Energy, Mining & Infrastructure Practice Group and one of the architects of the Institute, the US oil patch is "feeling good" about itself at the moment, but at the same time there is a fair degree of realism that a return to $100 prices is unlikely.

In fact, one of the key takeaways from the Institute was how oil and gas players, both large and small, were aiming to achieve breakeven at prices as low as $30. 

Underpinning that drive would be digitisation across the board enabled by big data, AI, automation and robotics coming together to bring about the kind of process efficiencies capable of making a tangible difference to the operating expenditure of oil and gas companies. Touching on this very subject was a keynote speech by Paulo Ruiz Sternadt, boss of Siemens-owned Dresser-Rand. (Full Forbes report here)

Representatives of Baker McKenzie, BP, Accenture, Shell and many others also touched on the topic. LNG, employment diversity and private equity in the business were other subjects under discussion, as was the topic of investing in Mexico (Forbes post here) and the latest developments in Saudi Arabia. All in all, another interesting afternoon of deliberations. But that's all for the moment from Houston folks. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Photo: Delegates at the Baker McKenzie 2018 Oil & Gas Institute in Houston, Texas, USA © Gaurav Sharma 10 May, 2018.

Tuesday, May 08, 2018

In Houston Town To Trump's Iranian Frowns

The Oilholic is back in Houston, Texas for another round of events and networking. However, getting stuck in one's hotel room watching CNN on a sunny Texan afternoon certainly wasn't part of the plan.

Of course, with US President Donald Trump taking on himself to single-handedly tearing up the Iran Nuclear deal, there was little choice but add to the afternoon news-watchers ranks. 

And with customary aplomb, the Donald annulled the US end of a "very bad deal" with Tehran at 2pm Eastern. It's something he had always criticised, and had promised he'd annul if he won the Presidency. So, the Oilholic wonders, why is the market surprised? 

Here are one's thoughts on what the President's move could mean for the global supply and demand dynamic via a Forbes post. In fact, Moody's Analytics reckons Trump's sanctions have the power to knock off 400,000 barrels per day (bpd) of Iranian crude off the global market. 

But given the President's move is unilateral, unlike Barack Obama's multilateral sanctions, the volume would be less than half of what his predecessor managed inflict on the Iranian before they came to the table (i.e. 1 million bpd).

Of course, both leading up to and in the hours after Trump's announcement, both Brent and WTI fell by as much as 3% only to gain 2%, before ending the day firmly on a bullish note. While this blogger is not offering investment advice, a bit of caution is advised.

The Oilholic, for the moment is minded to stick to his average Brent price forecast range of $65-75 per barrel. These are early days, much needs to unfold here. But that's all for the moment from Houston folks. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Photo: Billboard in Houston, Texas, USA © Gaurav Sharma, May 2018. 

Saturday, May 05, 2018

Oil to touch $300/bbl? Are you having a laugh Pierre?

You have to hand it to hedge fund managers. At the sight of the slightest uptick in crude prices, whether driven by geopolitics, OPEC's shenanigans or dare we say – actual supply and demand dynamics – hedge funds and money managers tend to pile in with long calls in the hope of extending the rally. 

However, when it's a case of all of the above market factors, some tend to get overexcited. Pierre Andurand, whose Andurand Capital Management is often bullish on oil and has been down on its luck for the first quarter of 2018 (according to Bloomberg), is certainly among the excitable creatures.

Earlier this week, in a succession of now deleted tweets, Andurand quipped that concerns over the rise of electric vehicles was keeping investment in upstream oil projects muted thereby extending their lead times over fears of peak demand. 

"So paradoxically these peak demand fears might bring the largest supply shock ever. If oil prices do not rise fast enough, $300 oil in a few years is not impossible," he added. 

Having grabbed the attention of the crude markets, the tweets, of course, were subsequently deleted with no explanation. The Oilholic has an explanation – perhaps rational thinking returned? 

Perhaps a realisation that OPEC's lowering of output has to end at some point? Or perhaps a realisation that the US rig count continues to rise in tandem with American barrels? Or even perhaps a realisation that much of oil demand – as the International Energy Agency notes – is driven by petrochemicals and aviation. In fact, even if one in every two cars is electric, oil demand would still rise. 

Anyway, why should rationality get in the way of a provocative tweet. Or make that a deleted provocative tweet. 

For the record, the Oilholic reiterates his average oil forecast range of $65-75/bbl for Brent for 2018, which is a tad higher than that of many fellow bears in the range of $60-70/bbl, given there still is plenty of oil in the market, and the crude mix of light and heavy is keep the global pool well supplied.

To provide, some content the Brent front month contract closed just shy of $75/bbl on Friday (see chart above, click to enlarge), still in its painfully dull range, albeit lurking near the highest level since November 2014. So only another $225 to stack up in a matter of years Pierre, if the bears get your bullish fever! That's all for the moment folks! Keep reading, keep it ‘crude’!

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Thursday, April 12, 2018

Discussing Blockchain at ISTrade 2018

Barely had the Oilholic returned from Panama, that it was time to head 1550 miles east to Istanbul, Turkey for ISTrade 2018: The 3rd Energy Trading and Supply Conference on the banks of the Bosphorus. 

Yours truly was invited to speak and moderate a panel on the digitisation of energy trading here with a heavy emphasis on - you guessed it blockchain; an emerging and perennially hot topic at energy trading events which are rapidly beginning to feel like technology events!

More on that later, but first on to 'crude' thoughts, and it seems feedback from the great and good of energy trading in Turkey, on this splash and dash work visit to the country, reconfirms one's thoughts that oil is likely to stay in relatively predictable price bracket of $60-70 per barrel, even if geopolitical risk briefly props it up to $70 per barrel. 

Away from the crude price, ISTrade 2018 delegates also noted how trading arms of 'Big Oil' companies, and established commodities trading houses like Vitol, Gunvor and Glencore and the likes, are investing in blockchain and are being exceptionally candid about it.

It set the scene nicely to discuss energy trading in relation to emerging technology, and the Oilholic's take was that it's a one way street to process efficiencies and optimisation. The market can expect more of the same. To discuss the subject, this blogger was joined on the panel by Ashutosh Shashtri, Director of EnerStrat Consulting and Serkan Sahin, Manager, Europe and Africa Oil and Gas Research at Thomson Reuters.

Elsewhere, at IStrade 2018, a plethora of crucial topics were discussed. Here is the Oilholic's detailed report for Forbes from the event. One final point, before taking your leave, is to flag up a Rystad Energy research note that arrived over the weekend. The independent energy research and consulting firm reckons US oilfield services have more to lose compared to Chinese peers from current trade tensions between both countries initially fanned by President Donald Trump.

On April 3, the US published a list of approximately 1,300 Chinese exports that could see tariffs in the near future. Not to be outdone, the Chinese government promised and delivered additional retaliation.

These potential Chinese tariffs include plastics, petrochemicals, petroleum products and specialty chemicals. "For an oil and gas industry looking to rebound in a higher oil price environment, these tariffs necessitate monitoring. More specifically, oilfield service companies must now take pause," says Matthew Fitzsimmons, Vice President of Oilfield Service Research at Rystad Energy.

American companies Clariant, Ecolab, Hexion and NOV each have had significant revenues from China in the past few years. NOV brought in revenues upwards of $561 million during 2017 from their fibreglass and composite tubular businesses in China.

"The giant service company NOV was anticipated to have over $650 million in annual revenues from China for the remainder of the Trump presidency. A trade war between the two nations could certainly impact their ability to grow in this market," Fitzsimmons adds. 

Hexion, a chemistry company offering oilfield drilling chemicals, had $309 million in revenue from China during 2017. Rystad Energy estimates Hexion's Chinese business could grow to $350 million in 2019, if it were not impacted by trade tariffs. Continued Chinese and American trade tensions could have an adverse effect on these companies.

While less volume is at stake, the trade tensions also give reason for concern to Chinese service companies. Hilong and Drill Pipe Master are two pipe fabricators that were impacted by initial US tariffs. However, these companies have strong domestic customers and diverse international clients that will soften adverse effects from trade tensions.

Well there you have it, although many here in Istanbul are hoping things would calm down between the Trump White House and China, with cooler heads prevailing eventually. That's all from Istanbul folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Photo1: Glimpses of ISrade 2018, April 9-10, Istanbul, Turkey © Gaurav Sharma 2018. Photo 2: The Oilholic speaking at IStrade 2018. 

Monday, April 02, 2018

Admiring the Panama Canal: A true engineering marvel

A vessel passes the Panama Canal's Miraflores Locks
The Oilholic finds himself on this glorious sunny day roughly 5,300 miles away from his abode of London town, admiring a marvel of modern engineering – the Panama Canal. In fact, yours truly got to do so both from the shore and on the water aboard the Pacific Queen.

Being a creature of habit, a Forbes piece will follow later down this month. However, this outing is no 'crude' assignment, rather a bid by this blogger to fulfill a long held desire to see the Canal. This maritime shortcut – in operation since 15 August, 1914 built after a decade of construction – serves to connect the Atlantic and Pacific Oceans at the narrowest point of the Isthmus of Panama and the American continent.

The journey, north to south or vice versa, takes around 8 to 10 hours over a distance of around 80km (50 miles) depending on traffic, saving shippers of bulk cargo and commodities, including oil and gas, almost 15 days of circling around Cape Horn.

And for those privileged enough to have travelled on the Canal, as the Oilholic did today, would notice its locks – including the iconic Miraflores and Pedro Miguel locks – serve as water lifts to raise or lower ships from the Pacific or Atlantic Oceans, depending on their North or Southbound routes, either side of the Isthmus of Panama, to the artificial Gatun Lake 27 meters above sea level; the Canal's connecting water body for transit.

The Panama government pumped in $5.3bn towards the Canal's expansion in 2007 following public consultation, and the expanded Canal – inaugurated on 26 June 2016 – saw its capacity double. So atop Panamax vessels, it can now handle Neo-Panamax vessels (or Aframax class).



These days toll fees charged for the largest vessels per crossing could be in the range of $500,000 to $800,000. The Panama Canal Authority, a public body entrusted with running the Canal since Panama took over the administration of the waterway from the US in 1999, argues that a trip around Cape Horn would cost way more both in monetary terms and time of passage.

Not content with visiting the Miraflores center, The Oilholic also lapped up views of the waterway from Cerro Ancon - Panama City's highest point.

But of course, the main show came on board the Pacific Queen, when one got a feel of the Panama Canal going southbound from the Atlantic to the Pacific crossing Gatun, Pedro Miguel and Miraflores locks, being first raised to Gatun lake, and then lowered on the journey to the Pacific, heading under the Centennal Bridge and the Bridge of the Americas before ending a memorable voyage.

All in all, an amazing outing and to have been here and seen it. And with that done, it's time to head back. Photos from the outing - with captions - are spread across this post (and below), along with a video of a tanker crossing the Miraflores locks (above). But alas, that's all from Panama City folks! Keep reading, keep it 'crude'!

ADDENDUM: April 16, 2018: As promised here is The Oilholic’s report on ‘crude’ traffic on the Panama Canal for Forbes.

The Oilholic's glimpses of the Panama Canal:

Miraflores Locks, Panama Canal

Tanker makes its way through Miraflores Locks
































Pedro Miguel Locks, Panama Canal

















Vessel crossing Pedro Miguel Locks















Gatun Lake, Panama Canal
















Bridge of the Americas














View of Panama Canal & Albrook Port from Cerro Ancon





















© Gaurav Sharma 2018. Photos © Gaurav Sharma, April 2018. 

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Contact:

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

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