Two tech-heavy 'crude' days at Ignite 2019

The Oilholic has spent the last two days in Oslo, Norway attending energy software firm Cognite's annual Ignite 2019 conference at the City's H3 Arena. 

Founded by entrepreneur John Markus Lervik, this energy software start-up majority-owned by Norwegian investment firm Aker, has been making waves in the oil and gas industry as a provider of advanced data and digitization services. 

The firm's industry solutions and analytics bank on operations and equipment sensors that help boost efficiency, throughput and reduce costs by several multiples – something oil and gas players can easily relate to especially in the current volatile oil price climate and pressure for lower breakevens. 

Within just over three years (and counting) of its founding, Cognite has bagged nearly 30 customers including big names such as OMV, Aker BP and Lundin Petroleum. Ignite 2019 was the company's attempt at showcasing what it can offer and trigger debates and dialogues about process efficiencies and optimisation.

Inevitably, in the age of advanced analytics and artificial intelligence, much of the discourse centred on 'Big Data for 'Big Oil'. The conference was supported by companies such as Cognizant, Google, Framo, Siemens, National Instruments and Aker BP to name a few. Nikolai Astrup, Minister of Digitalization of Norway, started proceedings declaring "data is gold."

The minister went on to note: "If we refine, manage and share data appropriately it will lay the foundation for better and more effective public services, new industry successes and create jobs. 

"The Norwegian government has just launched an ambitious digitalization strategy, making us a pioneer in creating good public services for citizens, businesses and the voluntary sector."

A packed agenda saw several speakers outline the kind of efficiencies their digitisation efforts are bringing about and the results they have yielded. For instance, here is the Oilholic's report for Forbes on how Austria's OMV has managed to lower its production costs from $15 per barrel down to $7 per barrel.

While the job of impressing the sector and bagging clients is well underway, and Cognite's product suite is helping the company to grow profitably, further capital for expansion will be needed. To that end, this blogger sat down with Lervik to discuss his future plans, including those for a possible initial public offering. Here's this blogger's full interview for Forbes in which Lervik also discusses Cognite’s expansion to Asia and North America. 

Following an evening of networking over some fun music and drinks on day one, day two brought more efficiencies discussions to the fore, not necessarily digressing from the oil and gas industry theme but including renewables and low carbon as vital topics.

As were the subjects of advanced data analytics and cloud computing, with Darryl Willis, VP Oil, Gas & Energy at Google Cloud, telling Ignite 2019 delegates that every industry, including energy, will be grappling with data as the new common denominator. "Data science to real time monitoring aided by cloud computing and data analytics would only be to the industry advantage."

Plenty more articles coming up from the deliberations for Forbes, Rigzone and Energy Post over the next few weeks, but that's all from Ignite 2019 on that note. After a few more meetings in Oslo, it'll be time for the big bus home. Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.

To follow The Oilholic on Forbes click here.

To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2019. Photo 1: Oslofjord Ferry Pier, Oslo, Norway. Photo 2: Nikolai Astrup, Minister of Digitalization of Norway speaks at Ignite 2019 at the H3 Arena in Oslo, Norway. Photos 3&4: Glimpses of networking floor at Ignite 2019 © Gaurav Sharma, June 2019.

North Sea & the 'crude' mood in Aberdeen

The Oilholic spent the wee hours of this morning counting the number of North Sea operational support ships docked in Aberdeen Harbour. Interestingly enough, of the nine in the harbour, six were on the Norwegian ships register.

Whether you examine offshore oil & gas activity in the Norwegian sector of the North Sea or the British sector, there is a sense here that the industry is enjoying something of a mini revival if not a full blown renaissance. As production peaked in the late 1990s, empirical evidence that oil majors had begun looking elsewhere for better yields started emerging. Some even openly claimed they’d given up.

Over a decade later, with new extraction techniques and enhanced hydrocarbon recovery mechanisms in vogue – a different set of players have arrived in town from Abu Dhabi National Energy Company (TAQA) to Austria's OMV, from Canada's Talisman Energy to China's Sinopec. Oil recovery from mature fields is now the talk of the town.

Even the old hands at BP, Shell and Statoil – who have divested portions of their North Sea holdings – seem to be optimistic. The reason can be found in the three figure price of Brent! Most commentators the Oilholic has spoken to here, including energy economists, taxation experts, financiers and one roughneck [with 27 years of experience under his belt] are firmly of the view that a US$100 per barrel price or above supports the current level of investment in mature fields.

One contact remarks that the ongoing prospection and work on mature fields can even take an oil price dip to around $90-level. "However, anything below that would make a few project directors nervous. Nonetheless, the connect with between Brent price fluctuation and long term planning is not as linear as is the case between investment in Canadian oil sands projects and the Western Canadian Select (WSC) price."      

To put some context, the WSC was trading at a $30 per barrel discount to the WTI last time yours truly checked. Concurrently, Brent's premium to the WTI, though well below historic highs, is just shy of $10 per barrel. Another contact, who retains faith in the revival of the North Sea hypothesis, says it also bottles down to the UK's growing demand for natural gas.

"It's what'll keep West of Shetland prospection hot. Furthermore, and despite concern about capacity constraints, sound infrastructural support is there in the shape of the West of Shetland Pipeline (WOSP) which transports natural gas from three offshore fields in the area to Sullom Voe Terminal [operated by BP]."

While further hydrocarbon discoveries have been made atop what's already onstream, they are not yet in the process of being developed. That's partially down to prohibitive costs and partially down to concerns about WOSP's capacity. However, that's not dampening the enthusiasm in Aberdeen.

Five years ago, many predicted a rig and infrastructure decommissioning bonanza to be a revenue generator and become a thriving industry itself. "But enhanced oil recovery schemes keep pushing this 'bonanza' back for another day. This in itself bears testimony to what's afoot here," says one contact.

UK Chancellor George Osborne also appears to be listening. In his budget speech on March 20, he said that the government would enter into contracts with companies in the sector to provide "certainty" over tax relief measures. That has certainly cheered industry players in Aberdeen as well the lobby group Oil & Gas UK.

"The move by the Chancellor gives companies the certainty they need over the tax treatment of decommissioning. At no cost to the government, it will speed up asset sales and free up capital for companies to use for investment, extending the productive life of the UK Continental Shelf," a spokesperson says, echoing what many here have opined.

Osborne's budget speech also had one 'non-crude' bit of good news for the region. The Chancellor revealed that one of the two bidders for the UK government's £1 billion support programme for Carbon Capture and Storage (CC&S) is the Peterhead Project here in Aberdeenshire. Overall, the industry sounds optimistic, just don't mention the 'R-word'. Scotland is due to hold a referendum on September 18, 2014 on whether it wants to be independent or remain part of the United Kingdom.

Hardly any contact in a position of authority wants to express his/her opinion on record with the description of political 'hot potato' attributed to the referendum issue by many. The response perhaps is understandable. It's an issue that is dividing colleagues and workforces throughout the length and breadth of Scotland.

General consensus among commentators seems to be that the industry would be better off in a 'United' Kingdom. However, even it were to become a 'Disunited' Kingdom come September 2014, industry veterans believe the global nature of the oil & gas business and the craving for hydrocarbons would imply that the sector itself need not be spooked too much about the result. National opinion polls suggest that most Scots currently prefer a United Kingdom, but also that a huge swathe of the population is as yet undecided and could be swayed either way.

In a bid to conduct an unscientific yet spirited opinion poll of unknown people since known ones were unwilling, the Oilholic quizzed three taxi drivers around town and four bus drivers at Union Square. Result – two were in the 'Yes to independence' camp, four were in the 'No' camp and one said he'd just about had enough of the 'ruddy question' being everywhere from newspapers to radio talk shows, to a stranger like yours truly asking him and that he couldn't give a damn!

Moving away from the politics and the projects to the crude oil price itself, where black gold has had quite a fortnight in the wake of a US political stalemate with regard to the country's debt ceiling. Nervousness about the shenanigans on Capitol Hill and the highest level of US crude oil inventories in a while have pushed WTI’s discount to Brent to its widest in nearly three months by this blogger's estimate.

Should the unthinkable happen and the political stalemate over the US debt ceiling not get resolved, it is the Oilholic's considered viewpoint that Brent is likely to receive much more support at $100-level than the WTI, should bearish trends grip the global commodities market. This blogger has maintained for a while that the WTI price still includes undue froth in any case, thereby making it much more vulnerable to bearish sentiment. 

Just one final footnote, before calling it a day and sampling something brewed in Scotland – according to a recent note put out by the Worldwatch Institute, the global commodity 'supercycle' slowed down in 2012. In its latest Vital Signs Online trends report, the institute noted that global commodity prices dropped by 6% in 2012, a marked change from the dizzying growth during the commodities supercycle of 2002-12, when prices surged an average of 9.5% per annum, or 150% over the stated 10-year period.

Worldwatch Institute says that during the supercycle, the financial sector took advantage of the changing landscape, and the commodities market went from being "little more than a banking service as an input to trading" to a full-fledged asset class; an event that some would choose to describe as "assetization of commodities" and that most certainly includes black gold. Supercycle or not, there is no disguising the fact that large investment banks participate in both financial as well as commercial aspects of commodities trading (and will continue to do so).

Worldwatch Institute notes that at the turn of the century, total commodity assets under management came to just over $10 billion. By 2008 that number had increased to $160 billion, although $57 billion of that left the market that year during the global financial crisis. The decline was short-lived, however, and by the end of the third quarter in 2012, the total commodity assets under management had reached a staggering $439 billion.

Oil averaged $105 per barrel last year and a slowdown in overall commodity price growth was indeed notable, but Worldwatch Institute says it is still not clear if the so-called supercycle is completely over. That’s all for the moment folks! Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.

To email: gaurav.sharma@oilholicssynonymous.com
 

© Gaurav Sharma 2013. Photo 1: North Sea support ships in Aberdeen Harbour. Photo 2: City Plaque near ferry terminal, Aberdeen, Scotland © Gaurav Sharma, October 2013.

Saudi’s ‘crude’ range, Fitch on Abu Dhabi & more

Petroleum economists are wondering if we have crossed a gateway to crude chaos? The magnificent one pictured (left) here in Abu Dhabi's Capital Garden is certainly no metaphor for the situation. Egypt is burning, Libya is protesting and US/UK/NATO are threatening [almost direct] action against Syria.

Add the US Federal Reserve's current stance on QE to the geopolitical mix and you get a bullish Brent price. Yes, yes, that's all very predictable. But when bulls run amok, all attention usually turns to Aramco's response. It is a well known fact that the Saudis like the crude oil price to remain within what economists prefer to describe as the "middle" ground. (You want your principal export to be priced high enough to keep you ticking, but not so high as to drive importers towards either consuming less or seeking alternatives).

Investment house Jadwa's research often puts such a Saudi comfort zone in US$80-90 per barrel price range. The Oilholic has been banging on about the same range too, though towards the conservative lower end (in the region of $78-80). The Emiratis would also be pretty happy with that too; it's a price range most here say they’ve based their budget on as well.

A scheduled (or "ordinary") OPEC meeting is not due until December and in any case the Saudis care precious little about the cartel's quota. Hints about Saudi sentiment only emerge when one gets to nab oil minister Ali Al-Naimi and that too if he actually wants to say a thing or two. As both Saudi Arabia and UAE have spare capacity, suspicions about a joint move on working towards a "price band" have lurked around since the turn of 1990s and Gulf War I.

Aramco's response to spikes and dives in the past, for instance the highs and lows of 2007-08 and a spike during the Libyan crisis, bears testimony to the so called middle approach. Recent empirical evidence suggests that if the Brent price spikes above $120 per barrel, Aramco usually raises its output to cool the market.

Conversely, if it falls rapidly (or is perceived to be heading below three digits), Aramco stunts output to prop-up the price. The current one is a high-ish price band. Smart money would be on ADNOC and Aramco raising their output, however much the Iranians and Venezuelans squeal. For the record, this blogger feels it is prudent to mention that Aramco denies it has any such price band.

Away from pricing matters, Fitch Ratings has affirmed Abu Dhabi's long-term foreign and local currency Issuer Default Ratings (IDR) at 'AA' with a Stable Outlook. Additionally, the UAE's country ceiling is affirmed at 'AA+' (This ceiling, the agency says, also applies to Ras al-Khaimah).

In a statement, the agency said, oil rich Abu Dhabi has a strong sovereign balance sheet, both in absolute terms and compared to most 'AA' category peers. To put things into perspective, its sovereign external debt at end of Q4 2012 was just 1% of GDP, compared to Fitch's estimate of sovereign foreign assets of 153% of GDP. Only Kuwait has a stronger sovereign net foreign asset position within the GCC.

With estimated current account surpluses of around double digits forecast each year, sovereign net foreign assets of Abu Dhabi are forecast to rise further by end-2015. Fitch also estimates that the fiscal surplus, including ADNOC dividends and ADIA investment income, returned to double digits in 2012 and will remain of this order of magnitude for each year to 2015.

Furthermore, non-oil growth in the Emirate accelerated to 7.7%. This parameter also compares favourably to other regional oil-rich peers. Help provided by Abu Dhabi to other Emirates is likely to be discretionary. Overall, Fitch notes that Abu Dhabi has the highest GDP per capita of any Fitch-rated sovereign.

However, the Abu Dhabi economy is still highly dependent on oil, which accounted for around 90% of fiscal and external revenues and around half of GDP in 2012. As proven reserves are large, this blogger is not alone in thinking that there should be no immediate concerns for Abu Dhabi. Furthermore, Fitch's conjecture is based on the supposition of a Brent price in the region of $105 per barrel this year and $100 in 2014. No concerns there either!

Just a couple of footnotes before bidding farewell to Abu Dhabi – first off, and following on from what the Oilholic blogged about earlier, The National columnist Ebrahim Hashem eloquently explains here why UAE's reserves are so attractive for IOCs. The same newspaper also noted on Friday that regional/GCC inflation is here to stay and that the MENA region is going to face a North-South divide akin to the EU. The troubled "NA" bit is likely to rely on the resource rich "ME" bit.

Inflation certainly hasn’t dampened the UAE auto market for sure – one of the first to see the latest models arrive in town. To this effect, the Oilholic gives you two quirky glimpses of some choice autos on the streets of Abu Dhabi. The first (pictured above left) is the latest glammed-up Mini Cooper model outside National Bank of Abu Dhabi's offices, the second is proof that an Emirati sandstorm can make the prettiest automobile look rather off colour.

Finally, a Bloomberg report noting that Oil-rich Norway had gone from a European leader to laggard in terms of consumer spending made yours truly chuckle. Maybe they should reduce the monstrous price of their beer, water and food, which the Oilholic found to his cost in Oslo recently. That's all from Abu Dhabi, its time to bid the Emirate good-bye for destination Oman! Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.

To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2013. Photo 1: Entrance to Capital Garden, Abu Dhabi, UAE Photo 2: Cars parked around Abu Dhabi, UAE © Gaurav Sharma, August, 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’!

To follow The Oilholic on Twitter click here.

To email: gaurav.sharma@oilholicssynonymous.com

© 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.

UK Oil & Gas Inc. - The Thatcher Years!

The Oilholic has patiently waited for the fans and despisers of former British Prime Minister Margaret Thatcher to quieten down, in wake of her death on April 8, 2013, before giving his humble take on what her premiership did (or in many cases didn’t) for the UK oil and gas Inc. and what she got in return.

 

Her influence on the North Sea exploration and production certainly got a mention in passing in all the tributes and brickbats thrown at the Iron Lady, the longest serving (1979-1990) and only female British Prime Minister. The world’s press ranging from The Economist to the local paper in her former parliamentary constituency – The Hendon & Finchley Times (see covers below) – discussed the legacy of the Iron Lady; that legacy is ‘cruder’ than you think.

 

In the run-up to Thatcher's all-but-in-name state funeral on April 17, the British public was bombarded with flashbacks of her time in the corridors of power. In one of the video runs, yours truly glanced at archived footage of Thatcher at a BP production facility and that said it all. Her impact on the industry and the industry’s impact itself on her premiership were profound to say the least.

 

Academic Peter R. Odell, noted at the time in his book  Oil and World Power (c1986) that, “Countries as diverse as Finland, France, Italy, Austria, Spain, Norway and Britain had all decided to place oil partly, at least, in the public sector.” A later footnote observes, “Britain’s Conservative government, under Mrs. Thatcher, subsequently decided [in 1983] to ‘privatize’ the British National Oil Corporation (BNOC) created by an earlier Labour administration.”

 

The virtue of private free enterprise got instilled into the UK oil and gas industry in general and the North Sea innovators in particular thanks to Thatcher. But to say that the industry somehow owed the Iron Lady a debt of gratitude would be a travesty. Rather, the industry repaid that debt not only in full, but with interest.

 

Just as Thatcher was coming to power, more and more of the crude stuff was being sucked out of the North Sea with UK Continental Shelf (UKCS) being much richer in those days than it certainly is these days. The UK Treasury, under her hawk-eyed watch, was quite simply raking it in. According to the Office for National Statistics (ONS) data, government revenue from the oil and gas industry rose from £565 million in fiscal year 1978-79 to £12.04 billion in 1984-85. That is worth over three times as much in 2012 real-terms value, according to a guesstimate provided by a contact at Barclays Capital.

 

Throughout the 1980s, the Iron Lady made sure that the revenue from the [often up to] 90% tax on North Sea oil and gas exploration and production was used as a funding source to balance the economy and pay the costs of economic reform. Over three decades on from the crude boom of the 1980s, Brits do wish she had examined, some say even adopted, the Norwegian model.

 

That she privatised the BNOC does not irk the Oilholic one bit, but that not even a drop of black gold and its proceeds – let alone a full blown Norwegian styled sovereign fund – was put aside for a rainy day is nothing short of short-termism or short-sightedness; quite possibly both. One agrees that both macroeconomic and demographical differences between Norway and the UK complicate the discussion. This humble blogger doubts if the thought of creating a sovereign fund didn’t cross the Iron Lady’s mind.

 

But unquestionably, as oil and gas revenue was helping in feeding the rising state benefits bill at the time – all Thatcher saw in Brent, Piper and Cormorant fields were Petropounds to balance the books. And, if you thought the ‘crude’ influence ended in the sale of BNOC, privatisation drives or channelling revenue for short-term economic rebalancing, then think again. Crude oil, or rather a distillate called diesel, came to Thatcher’s aid in her biggest battle in domestic politics – the Miners’ Strike of 1984.

 

Pitting her wits against Arthur Scargill, the National Union of Mineworkers’ (NUM) hardline, stubborn, ultra-left leader at the time, she prevailed. In March 1984, the National Coal Board (NCB) proposed to close 20 of the 174 state-owned mines resulting in the loss of 20,000 jobs. Led by Scargill, two-thirds of the country's miners went on strike and so began the face-off.

 

But Thatcher, unlike her predecessors, was ready for a prolonged battle having learnt her lesson in an earlier brief confrontation with the miners and knew their union’s clout full well based on past histories. This time around, the government had stockpiled coal to ensure that power plants faced no shortages as was the case with previous confrontations.

 

Tongue-tied in his vanity, Scargill had not only missed the pulse of the stockpiling drive but also failed to realise that many UK power plants had switched to diesel as a back-up. Adding to the overall idiocy of the man, he decided to launch the strike in the summer of 1984, when power consumption is lower, than in the winter.

 

Furthermore, he refused to hold a ballot on the strike, after losing three previous ballots on a national strike (in January 1982, October 1982 and March 1983). The strike was declared illegal and Thatcher eventually won as the NUM conceded a year later in March 1985 without any sizable concessions but with its member having borne considerable hardships. The world was moving away from coal, to a different kind of fossil fuel and Thatcher grasped it better than most. That the country was a net producer of crude stuff at the time was a bonanza; the Treasury’s to begin with as she saw it.

 

The Iron Lady left office with an ‘ism’ in the shape of 'Thatcherism' and bred 'Thatcherites' espousing free market ideas and by default making capitalism the dominant, though recently beleaguered, economic system of our time. Big Bang, the day [October 27, 1986] the London Stock Exchange's rules changed, following deregulation of the financial markets, became the cornerstone of her economic policy.

 

In this world there are no moral absolutes. So the Oilholic does not accept the rambunctious arguments offered by left wingers that she made ‘greed’ acceptable or that the Big Bang caused the global financial crisis of 2007-08. Weren’t militant British unions who, for their own selfish odds and ends, held the whole country to ransom throughout the 1970s (until Thatcher decimated them), greedy too? If the Big Bang was to blame for a global financial crisis, so was banking deregulation in the UK in 1997 (and elsewhere around that time) when she was not around.

 

Equally silly, are the fawning accolades handed out by the right wingers; many of whom – and not the British public – were actually instrumental in booting her out of office and some of whom were her colleagues at the time. Let the wider debate about her legacy be where it is, but were it not for the UK oil and gas Inc., there would have been no legacy. Luck played its part, as it so often does in the lives of great leaders. As The Economist noted:

 

“She was also often outrageously lucky: lucky that the striking miners were led by Arthur Scargill, a hardline Marxist; lucky that the British left fractured and insisted on choosing unelectable leaders; lucky that [Argentine] General Galtieri decided to invade the Falkland Islands when he did; lucky that she was a tough woman in a system dominated by patrician men (the wets never knew how to cope with her); lucky in the flow of North Sea oil; and above all lucky in her timing. The post-war consensus was ripe for destruction, and a host of new forces, from personal computers to private equity, aided her more rumbustious form of capitalism.”

 

They say that the late Venezuelan president Hugo Chavez stage-managed 'Chavismo' and bred 'Chavistas' from the proceeds of black gold. The Oilholic says 'Thatcherism' and 'Thatcherites' have a ‘crude’ dimension too. Choose whatever evidence you like – statistical, empirical or anecdotal – crude oil bankrolled Thatcherism in its infancy. That is the unassailable truth and that’s all for the moment folks! Keep reading, keep it ‘crude’!

 

To follow The Oilholic on Twitter click here.

 

To email: gaurav.sharma@oilholicssynonymous.com
 

© Gaurav Sharma 2013. Photo 1: Baroness Margaret Thatcher’s funeral cortege with military honours, April 17, 2013 © Gaurav Sharma. Photo 2: Front page of the Hendon & Finchley Times, April 11, 2013. Photo 3: Front cover of the The Economist, April 13, 2013.

Crude profit taking & Browne’s Shale hypothesis

Concerns over a conflict in the Middle East involving Iran did ease off last week but apparently not far enough to prevent a further slide in the price of the crude stuff. A relative strengthening of the US dollar was also seen supporting prices to the upside despite Eurozone woes. So Brent resisted a slide below US$107 on Friday while the WTI resisted a slide below US$91 a barrel.

In fact, the WTI August contract reached a high of US$92.94 while Brent touched US$108.18 at one point; the highest for both benchmarks since May 22. This meant that the end of last week saw some good old fashioned profit taking with conditions being perfect for it.

However, on this crude Monday afternoon, we see both benchmarks dipping again. When the Oilholic last checked, Brent was resisting a slide below US$102 per barrel while the WTI was resisting a US$88 level. With the Middle East risk premium easing marginally, City traders have turned their attention to Spain.

Last week the country’s government predicted that the Spanish recession may well extend into next year. Additionally, the regional administration of Valencia asked for federal help from Madrid to balance its books. So what have we learnt over the last seven or eight trading sessions and what has changed? Well not much except that oil price forecasting often resembles an inexact task based on fickle market conjecture.

The bullish sentiments of last week were an aberration prompted by the perceived risk of a conflict in the Middle East which the Iranians would be incredibly barmy to trigger. Add the temporary lowering of oil production courtesy a Norwegian strike and you provide the legs to a perfect short term prancing bull!

Existing economic fundamentals and current supply demand scenarios did not merit last week’s pricing levels either side of the pond. The Oilholic agrees with the EIA’s opinion that the Brent price would indeed range between US$97.50 and US$99.50 a barrel up until the end of 2013. Analysts at investment banks and ratings agencies are also responding.

For instance, Société Générale has downgraded Brent price estimates by 10% over 2012-14, from US$117 a barrel to US$105. The French bank views oil market fundamentals as neutral for the rest of the year. Nonetheless, should the Brent price weaken below US$90, like others in the City, Société Générale says a Saudi response is to be expected.

For what it is worth, at least Brent’s premium to the WTI has been constantly taking a knock. By some traders' accounts, it is presently below US$15 a barrel for the September settlement contract having been at US$26.75 at one point over Q4 2011. As a direct consequence of the linkage between waterborne light sweet crudes, the Louisiana Light Sweet’s premium to the WTI is down as well to around US$16 a barrel according to Bloomberg.

Moving away from pricing, Lord Browne – the former boss of BP and a director of fracking firm Cuadrilla – believes shale prospection would rid the US of oil imports. Speaking in Oxford at the Resource 2012 forum on water, food and energy scarcity, Browne said the US will not need to import any crude within two decades.

He quipped that the amount of shale gas in the US was effectively “infinite". On a sombre note, Browne said, “Shale gas has a very bad reputation, as a result of the weak players cutting corners. Regulation tightening would be welcome."

His Lordship is known to be a member of the “All hail shale” brigade. Back in March he told The Independent newspaper that if fracking took off meaning fully in the UK, it could generate 50,000 British jobs. The country could very well need its own shale drive especially as a government watchdog recently warned of declining oil and gas revenues.

A consultation period is currently underway in London. All UK fracking activity ground to a halt last year, when a couple of minor quakes majorly spooked dwellers of Lancashire where Cuadrilla was test fracking. Given the incident and environmental constrictions, the Oilholic suspects that Lord Browne knows it is too early to get excited about shale from a British perspective. However, Americans see no cause for curbing their enthusiasm. That’s all for the moment folks. Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: Oil tankers in English Bay, British Columbia, Canada © Gaurav Sharma 2012.

UK & Norway: A ‘crudely’ special relationship

Unconnected to the current systemic financial malaise in Europe, a recent visit to Oslo by British Prime Minister David Cameron for a meeting with his Norwegian counterpart Jens Stoltenberg went largely unnoticed. However, its ‘crude’ significance cannot be understated and Cameron’s visit was the first by a British Prime Minister since Margaret Thatcher’s in 1986.

Beaming before the cameras, Stoltenberg and Cameron announced an "energy partnership" encompassing oil, gas and renewable energy production. As production from established wells has peaked in the Norwegian and British sectors of the North Sea, a lot has changed since 1986. The two principal proponents of exploration in the area are now prospecting in hostile climes of the hitherto unexplored far North – beyond Shetland Islands and in the Barents Sea.

Reading between PR lines, the crux of what emerged from Oslo last week is that both governments want to make it easier for firms to raise money for projects and to develop new technologies bearing potential benefits in terms of energy security. That Cameron is the first British PM to visit Norway in decades also comes as no surprise in wake of media reports that the Norwegian sector of the North Sea is witnessing a second renaissance. So of the growing amount of oil the UK imports since its own production peaked in 1999 – Norway accounts for over 60% of it. The percentage for British gas imports from Norway is nearly the same.

"I hope that my visit to Oslo will help secure affordable energy supplies for decades to come and enhance investment between our two countries. This will mean more collaboration on affordable long-term gas supply, more reciprocal investment in oil, gas and renewable energies and more commercial deals creating thousands of new jobs and adding billions to our economies," Cameron said.

For their part the Norwegians, who export over five times as much energy as they use domestically, told their guest that they see the UK as a reliable energy partner. We hear you sir(s)!

Meanwhile, UK Office for National Statistics’ (ONS) latest production data released this morning shows that extractive industries output fell by 15% on an annualised basis in April with oil & gas production accounting for a sizeable chunk of the decline.

A further break-up of data suggests oil & gas production came in 18.2% lower in April 2012 when compared with the recorded data for April 2011. Statisticians say production would have been higher in April had it not been for the shutdown of Total’s Elgin platform in the North Sea because of a gas leak.

Elsewhere, farcical scenes ensued at the country’s Manchester airport where the airport authority ran out of aviation fuel causing delays and flight cancellations for hours before supplies were restored. Everyone in the UK is asking the same question – how on earth could this happen? Here’s the BBC’s attempt to answer it.

Finally the Oilholic has found time and information to be in a position to re-examine the feisty tussle for Cove Energy. After Shell’s rather mundane attempt to match Thai company PTTEP’s offer for Cove, the Thais upped the stakes late last month with a £1.22 billion takeover offer for the Mozambique-focused oil & gas offshore company.

PTTEP’s 240 pence/share offer improves upon its last offer of 220 pence or £1.12 billion in valuation which Shell had matched to nods of approval from Cove’s board and the Government of Mozambique. The tussle has been going on since February when Shell first came up with a 195 pence/share offer which PTTEP then bettered.

Yours truly believes Cove’s recommendation to shareholders in favour of PTTEP’s latest offer does not guarantee that the tussle is over. After all, Cove recommended Shell’s last offer too which even had a break clause attached. Chris Searle, corporate finance partner at accountants BDO, feels the tussle for control may end up with someone overpaying.

“I’m not surprised that PTTEP have come back in for Cove since the latter’s gas assets are so attractive. Of course the danger is that we now get into a really competitive auction that in the end will lead to one of the bidders overpaying. It will be interesting to see how far this goes and who blinks first,” he concludes.

Cove’s main asset is an 8.5% stake in the Rovuma Offshore Area 1 off the coast of Mozambique where Anadarko projects recoverable reserves of 30 tcf of natural gas. Someone just might end-up overpaying.

On the pricing front, instead of the Spanish rescue calming the markets, a fresh round of volatility has taken hold. One colleague in the City wonders whether it had actually ever left as confusion prevails over what messages to take from the new development. Instead of the positivity lasting, Spain's benchmark 10-year bond yields rose to 6.65% and Italy's 10-year bond yield rose to 6.19%, not seen since May and January respectively.

Last time yours truly checked, Brent forward month futures contract was resisting US$97 while WTI was resisting US$82. That’s all for the moment folks! The Oilholic is off to Vienna for the 161st OPEC meeting of ministers. More from Austria soon; keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: Oil Rig in the North Sea © Royal Dutch Shell.

No consensus at OPEC; quota unchanged

In a surprising announcement here in Vienna, OPEC ministers decided not to change the cartel’s production quota contrary to market expectations. At the conclusion of the meeting, OPEC Secretary General Abdalla Salem el-Badri said the cartel will wait another three months at least before revisiting the subject.

El-Badri also said the crude market was “not in any crisis” and that no extraordinary meeting had been planned. Instead, the ministers would meet as scheduled in December. However, he admitted that there was no consensus at the meeting table with some members in favour of a production hike while some even suggested a cut.

“Waiting (at least) another three months for a review was not to everyone’s liking but the environment around the table was cordial even though it was a difficult decision,” he said after the meeting. However, as expected, he did not reveal which member nations were for or against a decision to hold production at current levels.

El-Badri put OPEC's April production at about 29 million b/d and refused to answer many or rather any questions on Libya except for the conjecture that while Libyan production was not taking place, others can and will make up for the shortfall within and outside of OPEC.

The surprising stalemate at OPEC HQ has seen a near immediate impact on the market. ICE Brent crude oil futures rose to US$118.33, up US$1.55 or 1.3% while WTI futures rose US$1.30 to 100.61 up 1.3% less than 20 minutes after el-Badri spoke.

He added that the environment was cordial, but many suggested that it was anything but. The Saudis left the building in a huff with minister Ali al-Naimi describing it as the "worst meeting they have attended."

The analyst community is surprised but only mildly with many opining that the Saudis may well go it alone. Jason Schenker, President & Chief Economist of Prestige Economics says, “I think that what we have witnessed today is very similar to the group’s quota suspensions in the past. High volatility in the markets is clearly visible and there was no consensus at the meeting table about how to respond. At the end of the day, most OPEC member countries are going to react to what we have seen today as they see fit. Atop the list are the Saudis – the OPEC heavyweights - who will react as they always do and go it alone.”

Ehsan Ul-Haq, an analyst with KBC Energy Economics agrees with Jason. “Quite simply, if the Saudis want more oil on the market, they don’t need the Iranians, they don’t need the Venezuelans; they can and now probably will do it alone."

No wonder the new man at the table – the meeting’s President Mohammad Aliabadi of Iran spoke of a “nervous” two quarters for the oil market. The Oilholic felt this 159th ordinary meeting would be ‘extraordinary’ and so it has turned out to be. Venezuela, Iran and Algeria reportedly refused to raise production with a Gaddafi-leaning Libyan delegation backing their calls.

Meanwhile, the latest Statistical Review of World Energy published by BP earlier today with an impeccable sense of timing, noted that consumption of oil appreciated on an annualised basis at the highest rate seen since 2004. Christof Ruhl, BP group's chief economist, puts the latest growth rate at 3.1%.

According to BP, much of the increased demand for oil continued to come from China where consumption rose by over 10% or 860,000 b/d. The report also notes the continued decline of the North Sea with Norway, followed by the UK, topping the production dip charts. The take hike announced in the recent UK budget is not going to help stem the decline.

© Gaurav Sharma 2011. Photo: OPEC logo © Gaurav Sharma 2008

UK Drilling Activity Down But Exploration is Rising

Offshore drilling in the UK Continental Shelf (UKCS) dipped 20% Q3 2010 on an annualised basis, according to the latest oil and gas industry figures obtained from Deloitte.

It’s Petroleum Services Group (PSG), revealed in a report published on Friday that a total of 24 exploration and appraisal wells were spudded in the UK sector between July 1 and September 30, compared with 30 exploration and appraisal wells during the corresponding period last year.

Concurrently, PSG also said a 4% quarter over quarter rise was noted in the number of wells spudded in the UKCS in the third quarter of this year, attributed to higher levels of exploration drilling in the UKCS, up 32% for the first three quarters of 2010 when compared to the same period of 2009.

Overall, international deal activity saw a marked increase during the third quarter of 2010, following a period of no activity at all in the previous quarter. Most notable were the corporate acquisitions announced following KNOC’s acquisition of Dana and EnQuest’s decision to buy Stratic Energy.

However, corporate level activity within the UK has decreased since the second quarter of 2010 with only one corporate asset sale announced compared to three announcements and one completion in the previous quarter.

Graham Sadler, managing director of Deloitte’s PSG, commented in a statement that seeing deal activity in the UK decreasing for a second consecutive quarter was not a major surprise.

“There is evidence of a shift in company strategy as organisations are opting for less costly and less risky policies as they look to adjust their portfolios. This is reflected in the fact that the number of farm-ins announced has almost tripled this quarter to 11, in comparison with just four announcements during the second quarter. Until more confidence in the recovery of the market becomes further evident, this may be a trend that continues in the future,” Sadler said.

Elsewhere in the UKCS, Norway saw seven exploration and appraisals wells spudded, which represents a 56% decrease when compared to the number of wells drilled in the second quarter of this year.

Netherlands, Denmark and Ireland also reported low levels of drilling activity according to the Deloitte report while the four wells spudded in the Cairn Energy drilling programme in Greenland marked the first activity in the region for a decade.

On the pricing front, despite the overall decreased activity, the price of Brent Crude oil has remained stable throughout the whole of the third quarter of 2010, achieving a quarterly average of US$76.47 per barrel.

Carrying on with the theme, I met several analysts here at OPEC who think Brent appears to be winning the battle of the indices. The sentiment is gaining traction. David Peniket, President and Chief Operating Officer of Intercontinental Exchange (ICE) Futures Europe remarked in May that WTI is an important US benchmark but that it does not reflect the fundamentals of the global oil market in the way that Brent reflects them.

© Gaurav Sharma 2010. Photo: Andrew Rig-North Sea © BP