Showing posts with label Natural Gas. Show all posts
Showing posts with label Natural Gas. Show all posts

Wednesday, October 09, 2019

Turkey Energy Summit and Eastern Med tussles

The Oilholic is about to complete a quick visit for a speaking engagement at the 10th Turkey Energy Summit in Altalya on the sunny shores of the Mediterranean, off the coast of which is brewing an almighty tussle for natural gas riches. 

For Eastern Mediterranean offshore prospection could potentially provide a pathway to over 70 trillion cubic feet (tcf) of natural gas. 

With great resource riches often come great geopolitical tensions. Cyprus has awarded drilling licences to its preferred partners, but Turkey which invaded the island in 1974 following a Greek-inspired coup and created a Northern Turkish Cypriot enclave in its wake, won't have any of it. 

Its response has been to send drilling ships of its own to howls from the EU and US, and of course Cyprus. But Turkey's Energy Minister Fatih Donmez told the summit in his keynote speech that Ankara won't be backing down, and more has emerged on the Turkish stance since. Here's yours truly's full report for Forbes

All the more fitting it was then that this blogger moderated two panels at the summit on 7 and 8 October, touching on geopolitics and its impact on energy and commodities market, and LNG market permutations. 

It was a pleasure and privilege to have conducted them and having partaken in some exciting and engaging industry dialogues. 

Alas, it is now time for the flight home, but before one takes your leave, here's a glimpse of Antalya's amazing coastline. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2019. Photo 1: Gaurav Sharma (left), moderates the geopolitics session at the 10th Turkey Energy Summit in Antalya, Oct 7, 2019 © Turkey Energy Summit. Photo 2: Coastline of Belek, Antalya © Gaurav Sharma, October 2019. 

Friday, September 20, 2019

Enhanced gas recovery & the good folks at DGOC


The Oilholic just got back from a quick turnaround research trip to the US Appalachian Basin covering the hydrocarbon rich prospection patch between Morgantown, West Virginia and Pittsburgh, Pennsylvania.

The latter being that promised American departure point yours truly told you about in 2016, where even the airport authority is privy to the proceeds natural gas

Having spent the last six months being convinced by academics and policy wonks that the Appalachian Basin is in trouble given oversupply, pipeline capacity issues, and the prospect of sub-$2/MMBtu Henry Hub prices, it was a breath of fresh air listening to the good folks at Diversified Gas and Oil Plc (LON:DGOC).


The company is currently listed on AIM, has formally announced its intention to move to London's main market and says that business is good. DGOC's simple, effective modus operandi is going after mature long life conventional wells in the region, often neglected by exploration and production firms obsessed with unconventional shale exploration.

The company's CEO Rusty Hutson (fifth from left), COO Brad Gray (second from left) and their team on the ground in Pennsylvania took this blogger around their patch explaining their methods, which include deploying a surprisingly low amount of contractors on site, entrusting employees to chart cost effective, efficient and resource maximising pathways, and of course some prudent management.

Hutson and Gray are also pretty acquisitive almost, always fishing around for primarily natural gas assets they can buy, often at low cost, to turn them around. To give the readers a flavour, recent sellers to DGOC have included the likes of EQT, CNX and Anadarko.

By drilling few wells, and mainly operating and maximising already onstream wells totalling over 60,000, team DGOC believe they can make a decent margin even at $2/MMbtu Henry Hub prices with smart strategic hedging, including hedges stretching 10 years out in the case of some instruments they have deployed.

If enhanced hydrocarbon recovery will bring about a new output wave stateside as many market commentators think, DGOC's contribution is over 92,000 barrels of oil equivalent per day (boepd) to that pool and rising.

You can expect more of the same, and more, Hutson assures the Oilholic. More observations from the trip to follow for publishing outlets but that's all for the moment folks! Keep reading, keep it 'crude'!

Addendum I - 27.09.19: Thoughts via Rigzone - 'Smart' Appalachian Operators Can Handle Sub $2 Natural Gas. Click here.

Addendum II - 07.10.19: Thoughts via Forbes - Enhanced Recovery Maverick: Meet West Virginia Oilman Taking Resource Maximization To New Heights. Click here.

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© Gaurav Sharma 2019. Photo I: Morgantown, West Verginia, US from the air. © Gaurav Sharma, September 2019. Photo II & III: Gaurav Sharma onsite with DGOC personnel in Pennsylvania, US © Ben Romney, September 2019. 

Friday, January 11, 2019

Moroccan perspective on natural gas market

The current situation in the natural gas market has several variables as we enter the first quarter of 2019. But before anything else, what price levels we are at would be a good conversation starter. Using the US Henry Hub as a benchmark, it remains stuck around $3/mmbtu. For Europe, adding an average $2+ mmbtu would be about par.

After a late December collapse, natural gas prices were seemingly being held down by higher than normal winter temperatures, before a big freeze hits several parts of Europe and North America. As for the market itself, most of the chatter these days is about how US LNG - both small and large scale - will add to the global supply pool with the country's capacity tipped to cap 40 million tonnes per annum (tpa) in 2019. 

As the Americans increasingly tussle with other major LNG exporters such as Qatar, Malaysia and Australia for a slice of the global market, Morocco - a net energy importer, albeit with substantial natural gas reserves - is in a reasonably positive position. 

The country has proven reserves of some 1.44 billion cubic meters (bcf) of natural gas, according to the CIA World Factbook, but domestic production is not even a tenth of that volume. Rabat is attempting to alter that dynamic via several independent upstarts led by SDX Energy, and accompanied by the likes of Sound Energy (which recently said it would focus exclusively on Morocco) and Chariot Oil & Gas. 

Seeing potential, the government is offering attractive terms to exploration and production companies (refer to the Oilholic's previous post on the subject). But until Morocco meaningfully discovers its domestic production mojo, the US shale gas bonanza couldn't have come at a more opportune time, as Rabat looks ensure security of supply over the medium-term. In October 2018, Energy Minister Aziz Rabbah confirmed that Morocco is preparing to invite bids for a LNG project in Jorf Lasfar worth $4.5 billion.

It includes construction of a jetty, terminal, pipelines and gas-fired power plants, ultimately leading to the import of up to 7 billion cubic metres of gas by 2025, in a very competitive global gas buyers' market. 

The announcement follows state-owned power utility ONEE announcement in 2017 that it had picked HSBC Middle East as a financial adviser for its plan to boost imports of LNG. The scenario provides plenty of talking points, which is why the Oilholic is heading to Morocco in February to speak and deliberate at the 2nd Morocco Oil & Gas Summit in Marrakesh, February 6-7, 2019, being organised by IN-VR Oil & Gas

It's all set up nicely, and this blogger early awaits the summit. But that’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2019. Photos: Cairn Energy / IN-VR Oil & Gas

Thursday, October 18, 2018

Kerfuffle over fracking in the UK

Earlier this week the Oilholic noted plenty of predictable commotion as the UK finally got fracking following years of legal limbo. On Monday (October 15), Cuadrilla confirmed it had started fracking at its natural gas prospection site in Little Plumpton, Lancashire, after the failure of a legal challenge the previous week.

Here's the Oilholic's take on the development via Forbes, but amid the pro and anti-fracking hot air, shouty crackers and genteel debaters, statements and counter-statements, an interesting report from the pro-shale 'Global Warming Policy Foundation (GWPF)' found its way into this blogger's mailbox.

Having done a review of UK media coverage about fracking, it concludes that major outlets have been "hyping claims of environmentalists while playing down the benefits" of shale gas. GWPF's Andrew Montford is particularly scathing about the output of the Guardian and the BBC. 

"They tend to recount wild stories and then move on without correcting the record. The public should therefore be very cautious about what they read on the subject in the next few weeks, as shale gas fracking begins in the UK."

Here is Montford's review (PDF download); you be the judge of it! That's all for the moment folks! Keep reading, keep it 'crude'!

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Monday, July 20, 2015

Importance of Khazzan-Makarem gas field for BP

When the Oilholic paid a visit to Oman couple of years ago, natural gas was not atop the list of ‘crude’ industry intelligence gathering activities, one must admit. The Sultanate perhaps has the richest quality of all Middle Eastern crude oil varieties but there’s not a lot of it around, nor is Oman's reserves position anywhere near as strong as that of its neighbours.

Nonetheless, oil matters took up much of this blogger’s time and effort, including an excursion to the Musandam Peninsula, where Oman is in the process of having a decent crack at its first offshore exploration. The crucial subject of Omani natural gas largely slipped under the radar there and then, and largely up until now. 

That’s until this blogger recently met David Eyton, Group Head of Technology at BP, for a fascinating Forbes interview (click here) on how the oil major is using digital tools such as 4D seismic to reshape the way it operates both upstream and downstream, and the subject of Oman came up.

The country's Khazzan-Makarem gas field is in fact among the many places benefiting from BP’s research and development spend of around two-thirds of a billion dollars per annum towards digital enablement of surveying, and more. What’s at stake for BP, and for Oman, is Khazzan’s proven reserve base of 100 trillion cubic feet. Unlike Shell, its FTSE 100 peer, BP isn’t digging for oil in the Sultanate, making the gas field – which it discovered in 2000 – a signature play.

At its core is Block 61, operated by BP Oman and Oman Oil Company Exploration and Production in a 60:40 joint venture partnership. Eyton says some of BP’s patented digital tools, including 4D seismic, are being deployed to full strength with a drilling schedule of approximately 300 wells over a 15 year period to achieve a plateau production rate of 1.2 billion cubic feet of gas per day.

“Khazzan has massive potential. It’s not shale in the strictest sense, but pretty tight gas and mighty difficult to crack owing to the low porosity of the reservoir rock,” Eyton said.

Invariably, BP has brought the full works into play to realise Block 61’s potential, drilling horizontal wells and using hydraulic fracturing technologies. "Advanced seismic imaging has played a huge part in understanding where the best bits of the reservoir are, and how to unlock them. Ultimately, that’s enabling development to proceed at a far better pace."

Construction work on Khazzan has commenced and first gas is expected in late 2017. Implications of Block 61 yielding meaningful volumes, as expected, cannot be understated. For Oman, the projected 1.2 bcf in daily production volume would be equivalent to an increment of over 30% of its total daily gas supply.

Concurrently, BP would look back in satisfaction at a Middle Eastern foray on business terms few oil and gas markets, bar Oman, would offer in an age of resource nationalism. As for the technology being deployed, it is already a winner, according to Eyton. That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo: David Eyton, Group Head of Technology at BP © Graham Trott / BP

Monday, August 19, 2013

Statoil’s move & a crude view from Oslo

The Oilholic finds himself in Oslo, Norway for the briefest of visits at a rather interesting time. For starters, back home in London town, recent outages at Norway's Statoil-operated Heimdal Riser platform are still causing jitters and firming up spot natural gas prices despite the low demand. Although it’s a lot calmer than last Wednesday as order has been restored. The UK is also soaking in news that Norway's US$760 billion oil fund (the world's biggest investor), has cut its British government debt holdings by a whopping 26% to NKr42.9 billion (£4.51 billion, $7.26 billion) and increased its Japanese government bond holdings by 30% to NKr129.5 billion.

However, the biggest story in Oslo is Statoil’s decision to sell minority stakes in several key offshore fields in the Norwegian sector of the North Sea and far north to Austria's OMV. To digest all of that, the Oilholic truly needed a pint of beer – but alas that hurts here! No, not the alcohol – but the price! On average, a pint of beer at a bar on Karl Johans Gate with a view of the Royal Palace (pictured above left) is likely to set you back by NKr74 (£8.20 yes you read that right £8.20). Monstrous one says! Anyways, this blog is called Oilholics Synonymous not Alcoholics Anonymous – so back to 'crude' matters.

Chatter here is dominated by the Statoil decision to sell offshore stakes for which OMV forked-up US$2.65 billion (£1.7 billion). The Norwegian oil giant said the move freed up much needed funds for capex. Giving details, the company announced it had reduced its ownership in the Gullfaks field to 51% from 70% and in Gudrun field to 51% from 75%.

The production impact for Statoil from the transaction is estimated to be around 40,000 barrels of oil equivalent (boe) per day in 2014, based on equity and 60 boe per day in 2016, according to a company release. However, Chief Executive Helge Lund told Reuters that the company will still have the capacity to deliver on its 2.5 million barrels per day (bpd) ambition in 2020.

"But we will of course evaluate it as we go along, whether that is the best way of creating value.It will impact the short-term production...but we are not making any changes to our guiding at this stage," he added.

For OMV, the move will raise its proven and probable reserves by about 320 million boe or nearly a fifth. What is price positive for Austrian consumers is the fact that it will also boost OMV’s production by about 40,000 bpd as early as 2014.

Statoil’s consideration might be one of capex; for the wider world the importance of the deal is in the detail. First of all, it puts another boot into the North Sea naysayers (who have gone a bit quiet of late). There is very valid conjecture that the North Sea is in decline - hardly anyone disputes that, but investment is rising and has shot up of late. The Statoil-OMV deal lends more weight that there's still 'crude' life in the North Sea.

Secondly, $2.65 billion is no small change, even in terms relative to the oil & gas business. Finally, OMV is a unique needs-based partner for Statoil. The Oilholic is not implying it’s a strange choice. In fact, both parties need to be applauded for their boldness. Furthermore, OMV will also cover Statoil's capex between January 1 and the closing of the deal, which could potentially raise the final valuation to $3.2 billion in total, according to a source.

And, for both oil firms it does not end here. OMV and Statoil have also agreed to cooperate, contingent upon situation and options, on Statoil's 11 exploration licences in the North Sea, West of Shetland and Faroe Islands.

Continuing the all around positive feel, Statoil also announced a gas and condensate discovery near the Smørbukk field in the Norwegian Sea. However, talking to the local media outlets, the Norwegian Petroleum Directorate played down the size of the discovery estimating it to be between 4 and 7.5 million cubic metres of recoverable oil equivalents. Nonetheless, every little helps.

Right that’s about enough of crude chatter for the moment. There’s a Jazz festival on here in Oslo (see above right) which the Oilholic has well and truly enjoyed and so has Oslo which is basking in the sunshine in more ways than one. But this blogger also feels inclined to share a few other of his amateur photos from this beautiful city – (clockwise below from left to right, click image to enlarge) – views of the Oslofjord from Bygdøy museums, sculptures at Frogner Park and the Edvard Munch Museum, which is currently celebrating 150 years since the birth of the Norwegian great in 1863.

Away from the sights, just one final crude point – data from ICE Futures Europe suggests that hedge funds (and other money managers) raised bullish bets on Brent to their highest level in more than two years in the week ended August 13.

In its weekly Commitments of Traders report, ICE noted – speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 193,527 lots; up 2.5% from the previous week and is the highest since January 2011. Could be higher but that’s the date ICE started the current data series – so there’s no way of knowing.

In the backdrop are the troubles in Egypt. As a sound Norwegian seaman might tell you – it’s not about what Egypt contributes to the global crude pool in boe equivalent (not much), but rather about disruption to oil tankers and shipping traffic via the Suez Canal. That’s all from Oslo folks. Next stop – Abu Dhabi, UAE! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2013. Photo 1: View of the Royal Palace from Karl Johans Gate, Oslo, Norway. Photo collage: Various views of Oslo, Norway © Gaurav Sharma, August, 2013.

Tuesday, October 23, 2012

Hawaii’s crude reality: Being a petrohead costs!

In a break from the ‘crude’ norm for visits to the USA, the Oilholic packed his bags from California and headed deep out to the Pacific and say ‘Aloha’ to newest and 50th United State of Hawaii. It’s good to be here in the Kona district of the Big Island and realise that Tokyo is a lot closer than London.

It is interesting to note that Hawaii is the only US state still retaining the Union Jack in its flag and insignia. The whole flag itself is a deliberate hybrid symbol of British and American historic ties to Hawaii and traces its origins to Captain John Vancouver – the British Naval officer after whom the US and Canadian cities of Vancouver and Alaska’s Mount Vancouver are named.

What’s not good being here is realising that a 1.3 million plus residents of these northernmost isles in Polynesia pay the most for their energy and electricity needs from amongst their fellow citizens in the US. It is easy to see why, as part dictated by location constraints Hawaii presently generates over 75% of its electricity by burning Petroleum.

Giving the geography and physical challenges, most of the crude oil is shipped either from Alaska and California or overseas. Furthermore, the Islands have no pipelines as building these is not possible owing to volcanic and seismic activity. Here’s a view of one active crater – the Halema’uma’u in Kilauea Caldera (see above right). You can actually smell the sulphur dioxide while there as the Oilholic was earlier today. In fact the entire archipelago was created courtesy of volcanic eruptions millions of years ago. The Big Island’s landmass of five plates is created out of Mauna Kea (dormant) and Mauna Loa (partly active) and the island is technically growing at moment as Kilaueu still spews lava which cools and forms land.

So both crude and distillates have to be moved by oil tankers between the islands or tanker lorries on an intra-island basis. The latter  creates regional pricing disparities. For instance in Hilo, the commercial heart of the Big Island and where the tanker docking stations are, gasoline is cheaper than Kona by almost 40-50 cents per gallon. The latter receives its distillates by road once tankers have docked at Hilo.

The state has two refineries both at Kapolei on the island of O‘ahu 20 miles west of capital Honolulu – one apiece owned by Tesoro and Chevron. The bigger of the two has a 93,700 barrels per day (bpd) and is owned by Tesoro; the recent buyer of BP’s Carson facility. However in January Tesoro put its Hawaiian asset up for sale.

Tesoro, which bought the refinery for US$275 million from BHP Petroleum Americas in 1998, said it no longer fitted with its strategic focus on the US Midcontinent and West Cost. The company expects the sale to be completed by the end of the year. Its Hawaiian retail operations, which include 32 gas stations, will also be part of the deal. Chevron operates Kapolei’s other refinery with a 54,000 bpd capacity. Between the two, there is enough capacity to meet Hawaii’s guzzling needs and the pressures imposed by US forces operations in the area.

In this serene paradise with volcanic activity and ample tidal movement, power generation from tidal and geothermal is not inconceivable and facilities do exist. In fact, for the remaining 25% of its energy mix, the state is one of eight US states with geothermal power generation and ranks third among them. Additionally, solar photovoltaic (PV) capacity increased by 150% in 2011, making Hawaii the 11th biggest US state for PV capacity. However, it is not nearly enough.

One simple solution that is being attempted is natural gas – something which local officials confirmed to the Oilholic. The EIA has also noted Hawaii’s moves in this direction. Oddly enough, while Hawaii hardly uses much natural gas, it is one of a handful of US states which actually produces synthetic natural gas. Switching from petroleum-based power generation to natural gas for much of Hawaii’s power generation could lower the state’s power bills considerably as the massive disconnect between US natural gas and crude oil prices looks set to continue.

Strong ‘gassy’ moves are afoot and anecdotal evidence here suggests feelers are being sent out to Canada, among others. In August, Hawaii Gas applied for a permit with the Federal Government to ship LNG to Hawaii from the West Coast. While the deliveries will commence later this year, arriving volumes of LNG would be small in the first phase of the project, according to Hawaii Gas. At least it is a start and the State House Bill 1464 now requires public utilities to provide 25% of net electricity sales from renewable sources by December 31, 2020 and 40% of net electricity sales from renewables by December 31, 2030.

That’s all for the moment folks as the Oilholic needs to explore the Big Island further via the old fashioned way which requires no crude or distillates – its the trusty old bicycle! Going back to history, it was Captain James Cook and not Vancouver who located these isles for the Western World in 1778. Regrettably, he got cooked following fracas with the locals in 1779 and peace was not made between Brits and locals until Vancouver returned years later.

Moving away from history, yours truly leaves you with a peaceful view of Punaluʻu or the Black Sand beach (see above left)! It is what nature magnificently created when fast flowing molten lava rapidly cooled and reached the Pacific Ocean. According to a US Park Ranger, the beach’s black sand is made of basalt with a high carbon content. It is a sight to behold and the Oilholic is truly beholden! On a visit there, you have a 99.99% chance of spotting the endangered Hawksbill and Green turtles lounging on the black sand. For once, yours truly is glad there are no bloody pipelines in the area blotting the landscape. More from Hawaii later - keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo 1: Halema’uma’u, Kilauea Caldera. Photo 2: Punaluʻu - the Black Sand beach, Hawaii, USA © Gaurav Sharma 2012.

Thursday, May 17, 2012

BP fishes, ETP swoops & Chesapeake stumbles

Three corporate stories have caught the Oilholic’s eye over the past fortnight and all are worth talking about for very different reasons. With things improving Stateside and memories of a Russian misadventure fading, oil major BP announced on Tuesday that it had inked two production sharing agreements and aims to begin new deepwater exploration in Atlantic waters off the coast of Trinidad and Tobago. The company is already the Caribbean island nation’s largest oil & gas producer with average production for 2011 coming in the region of 408,000 barrels of oil equivalent per day.
Having been awarded blocks 23(a) and TTDAA14 in the 2010-2011 competitive bid rounds last summer, BP finds itself fishing for crude and gassy stuff in the two blocks which are 2,600 sq km and 1,000 sq km in area respectively. Local sources see the company as a ‘good corporate citizen’ and that ought to be comforting for BP in its march to rebuild trust under Bob Dudley.

While BP’s fishing, Energy Transfer Partners LP (ETP) is smiling having won plaudits around the crude world for its US$5.3 billion acquisition of Sunoco on April 30. A fortnight hence, market commentators are still raving on about the move especially as ETP’s swoop for Sunoco follows on from a clever buyout of Southern Union for US$5.7 billion. These acquisitions make ETP the USA’s second-biggest owner of pipeline assets behind Kinder Morgan whose merger with El Paso is imminent.

Most importantly, the Oilholic believes a swoop for Sunoco diversifies ETP’s pipeline portfolio adding around 9,700 km of oil and refined products pipelines to its existing network of 28,160 km of natural gas and natural gas liquids pipelines. With the move, oil revenues will account for over a quarter of its income. A Moody’s report prior to announcement of the deal suggested that together with Enterprise Production Partners, ONEOK Partners and Williams Partners, ETP was currently in a good place and among those best positioned for organic growth.

Growing production of oil, natural gas and natural gas liquids and higher margins are driving increased earnings and cash flow for midstream companies, especially those with existing gathering and processing or pipeline infrastructure near booming shale plays says the agency. While ETP’s smiling, the situation at Chesapeake Energy is anything but smiles. Under Aubrey McClendon, who co-founded the firm in 1989 in Oklahoma, it grew from strength to strength becoming the USA’s second largest natural gas producer and a company synonymous with the country’s shale gas bonanza. However, in a troubling economic climate with the price of natural gas plummeting to historic lows, Chesapeake has endured terrible headlines many of which were self-triggered.

Two weeks ago activist shareholders forced McClendon’s hand by making him relinquish the post of Chairman which he held along with that of Chief Executive over an arrangement which allows him to buy a 2.5% stake in all new wells drilled by Chesapeake. The arrangement itself will also be negotiated by 2014. The Oilholic finds the way McClendon has been treated to be daft for a number of reasons.

The arrangement has been in place since 1993 when the firm went public so neither the company’s Board nor its shareholders can claim they did not know. Two decades ago Chesapeake drilled around 20 wells per annum on average but by 2011 the average had risen to well above 1500 wells. That McClendon kept putting his money where his mouth is for so long is itself astonishing which is what the attention should focus on rather than on the man himself.

In later years this was largely achieved by borrowing at a personal level to the tune of US$850 million; Reuters reckons the figure is more in the region of US$1.1 billion. However, sections of the US media are currently busy sensationalising the Oklahoma man’s tussles within the company and as if this arrangement has emerged out of the blue.

Furthermore, the macroclimate and falling gas prices are now forcing the energy company’s hand with analysts at Fitch Ratings noting that it faces a funding shortfall of US$10 billion this year. In response, Chesapeake says it plans to sell US$9.0 billion to US$11.5 billion in assets this year. Word from Houston is that the sales of its Permian Basin property in West Texas and Mississippi Lime joint venture are a given by September. Some analysts believe asset sales may cap the figure of US$14 billion; though the view is not unanimous.

While this would help with liquidity issues, a sell-off of those assets currently producing oil & gas would most certainly reduce Chesapeake’s cash flow needed to meet requirements of its existing US$4 billion corporate credit facility secured earlier this week from Goldman Sachs and Jeffries Group. It matures in December 2017, with an interest rate of around 8.5% and can be repaid at any time over 2012 without penalty at par value.

As expected, Chesapeake has suffered a ratings downgrade; Standard & Poor's lowered its credit rating to "BB-" from "BB" citing corporate governance matters and a widening gap between capex and operating cash flow as the primary reasons. There is clear evidence of hedge funds short-selling Chesapeake’s shares.

Industry veteran and founder of BP Capital Partners – T. Boone Pickens – launched a strange albeit very vocal defence of McClendon on CNBC’s US Squawk Box on Wednesday which made yours truly smile. Pickens admitted that he had sold his position on Chesapeake – not because of what is going on but rather that he was very concerned about natural gas prices full stop.

“We got out of natural gas stocks and Chesapeake was one of them. We’re not long on Chesapeake now. Aubrey (McClendon) is a great Oklahoman and Chesapeake is a great company for Oklahoma City generating jobs and investment. Aubrey is a visionary…don’t bet against him…They’ll pull it off. You bet against Aubrey and you’ll scratch your loser’s ass,” said the industry veteran.

You have got to hand it to Pickens! If he's got something to say, there is no minding of the "Ps" and "Qs" – so what if its live television! As a former CNBC employee, the Oilholic wholeheartedly enjoyed Pickens’ soundbite and agrees that Chesapeake should make it out of this mess! However, bad headlines won’t go away anytime soon and its partly their own fault. That’s all for the moment folks! Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo 1: Pipeline warning sign, Fairfax, Virginia, USA © O. Louis Mazzatenta/National Geographic. Photo 2: Chesapeake well drilling site © Chesapeake Energy.

Thursday, April 12, 2012

Houston, We have a natural gas price problem!

While oil E&P players here in Houston are optimistic, those in the shale and natural gas businesses have a bit of a worry - for the first time since January 2002, a front-month settlement for natural gas has closed below US$2 on the NYMEX overnight.

The execution in question was for a May delivery which settled at US$1.984 per million Btu, down 2.3% or 4.7 cents, and it has caused a stir down here since majority of players, including independents are involved in both sets of prospection activity.

The reason is simple – there’s just too much of the stuff around, especially in a North American context courtesy shale gas plays which have been resulting in an exponential rise in US production. A relatively mild winter stateside and an abundance of supply has already caused natural gas prices to plummet over 50% on an annualised basis.

Can they plummet further over the next two quarters? Possibly. Will they? Probably not; that’s because the trading community will also take stock of the new low. The price is low enough as it is, but is there an appetite for further bearish punts? Regrettably, the Oilholic has not encountered definitive reasons one way or another. In fact, an unscientific straw poll of five Houston based traders had three anticipating a further fall while two said a temporary bottom had been reached.

Without a shadow of doubt though, over the course of the year, companies with a higher proportion of their production equation leaning towards natural gas will be more at profit risk on a basis relative to their peers having a greater exposure to oil production. Expect a scaling back of budgets or a sale of assets in order to manage leverage ratios by such players.

Coupled with all this is an interesting and somewhat related note on US midstream companies put out by Moody’s on April 2, 2012 which notes that booming demand for new oil and natural gas liquids infrastructure trumps weak natural gas prices. The agency reckons that a robust environment for US midstream energy companies will continue through mid-2013 and possibly beyond and forecasts that EBITDA for the midstream sector will grow by more than 20% in 2012.

Growing production of oil, natural gas and natural gas liquids and higher margins are driving increased earnings and cash flow for midstream companies, especially those with existing gathering and processing or pipeline infrastructure near booming shale plays. The agency names Energy Transfer Partners, Enterprise Production Partners, ONEOK Partners and Williams Partners among those best positioned for organic growth.

In addition, Moody's says that low interest rates and the sector's lower commodity price sensitivity have made the midstream sector very attractive to equity investors, while both high-yield and investment grade midstream companies are able to tap the open capital markets for funding to fuel growth.

Moving away from ‘gassy’ issues and onto the price of the crude stuff, WTI maintained its mildly bullish thrust trading over US$103 per barrel at one point in intraday trading on Thursday aided by a weaker US dollar while Brent was seen more or less holding steady at price levels above US$120 per barrel.


That’s all for the moment folks! The Oilholic leaves you with views (above) of the Christopher C. Kraft Mission Control Center building and its mission control room at NASA’s Johnson Space Center which yours truly took time out to visit this afternoon. While crude oil markets have “lift off”, the natural gas markets have a “problem.” Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo 1: Downtown Houston, Photo 2: Mission control room and exterior of the Christopher C. Kraft Mission Control Center building at NASA’s Johnson Space Center, Texas, USA © Gaurav Sharma 2012.