Showing posts with label Shell. Show all posts
Showing posts with label Shell. Show all posts

Friday, September 20, 2024

Gastech Days III & IV: Harnessing the power of natural gas and climatetech

Over the course of Thursday and Friday - days III & IV - of Gastech 2024 that put us on the home stretch towards the conclusion of global event, many of the conversations revolved around climatetech and harnessing the power of natural gas as a destination fuel in the world's march to a low to a zero carbon future. 

An action packed agenda was underpinned by several movers and shakers in the natural gas space especially LNG terminal developers and operators from Venture Global LNG to Mexico Pacific. 

Meanwhile, energy major Shell emphatically declared its intentions of continuing to expand its global LNG portfolio predicated in its belief of an expected industry growth of 50% by 2040. It also noted that North America's total upcoming LNG exports alone could account for around 30% of global demand by 2030. 

Many thought leaders also echoed each others' belief that decarbonizing industry and transportation would involve natural gas in close step with emerging technologies. Yours truly hosted panels on both transport sector decarbonization as well as climatetech on Thursday. 

The first of these was titled - Decarbonizing heavy transportation: Collaborations to address the acceleration of climate technology solutions from development to deployment. The panellists included Sukhmal Jain, Director (Marketing) & Board Member, Bharat Petroleum Corporation Limited, Yoki Firnandi, CEO, PT Pertamina International Shipping, Meg Gentle, Executive Director, HIF Global and Mark S. Brownstein, SVP, Environmental Defense Fund. 

Decarbonizing heavy transport, specifically shipping, aviation and HGV remains a key challenge in addressing climate change. 

The panellists discussed how to steer the transport industry to net zero by 2050, robust strategies that will be needed to stimulate supportive policies, innovation in technologies and collaboration across the value chain to drive the adoption of low- and zero-carbon fuels.

We also discussed some of the barriers to investment in zero-emissions fuelling infrastructure, including biofuels, hydrogen and clean ammonia, which can pave the way for achieving their long-term supply and the climate benefits of decarbonization and some of the incentives that may be required. 

Next yours truly's attention turned to climatetech via a panel titled - Fostering greater climate technology innovation, deployment, and scale across the value chain. Eminent panellists included - Mahdi Aladel, CEO, Aramco Ventures, Paula Gant, President & CEO, GTI Energy and Vikas Dhole,  Vikas Dhole, GM of Project Management, AspenTech. 

Climatetech innovation holds the key to ensuring a significant decarbonization of energy systems and GHG emissions reductions. 

The panel deliberated how governments, the energy value chain and the emerging climate technology market overcome challenges related to scalability, matching market demand with new energy supply and a lack of the workforce skills needed to drive further adoption and deployment of low-carbon technologies.  

As proceedings began to wind down late on Wednesday and early Thursday, attention turned to passing the baton on to next year's Gastech destination - Milan - which was revealed as the next host city for Gastech 2025. 

Simon Ford, Vice President, Gastech, dmgevents, said this year's event had seen participation of attendees from over 150 countries, including 50 official government delegations. 

The occasion was marked a lovely launch evening party before everyone bid goodbye to H-Town following an insightful and fantastic energy event that will live long in the industry's memory. Well that's all from Gastech 2024. See you at Gastech 2025 in Milan. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo I: The George R. Brown Convention Center, Houston, Texas, U.S. - Venue of Gastech 2024. Photo II: Gastech 2024 Strategic Panel on Decarbonizing heavy transportation: Collaborations to address the acceleration of climate technology solutions from development to deployment moderated by Gaurav Sharma. Photo III: Gastech 2025 Launch Reception at The Corinthian, Houston, Texas, US. © Gaurav Sharma 2024. 

Monday, May 20, 2024

Range-bound crude prices & European majors' antics

After a fairly volatile April, a sense of relative calm has returned to the global oil markets in May. Since the start of the month, Brent futures have fluctuated between $82-84 per barrel with the global proxy benchmark's $85 support having been firmly breached last month. 

What was April's technical support level is proving to be this month's resistance level with oil struggling to cap $85 in a market still searching for a firm direction of travel.

It's doubtful if OPEC+ would be the one to provide direction. The Oilholic's reading of market sentiment is that a rollover of production cuts by the producers' group has been largely priced in by the market. 

If China's data remains positive overall, and the second reading of the US Q1 GDP is similarly so, perhaps an uptick in prices may be expected in the second half of the year. However, for now Brent remains in technical backwardation, i.e. the current contract is trading higher compared to one six months or more out. For example, Jan 2025 Brent is just north of $81 at the time of writing this blog. 

The oil price isn't too high and it isn't too low at the moment. So if you were OPEC+ why would you make any headline moves on production quotas? Much rather focus on soothing internal tensions for the common cause. Well their common cause, obviously not the consumers'! 

Away from crude prices, the European oil and gas majors sang from the same hymn sheet in recent weeks at the release of their quarterly results - offer shareholders higher dividends and announce multi-billion share buybacks. BP, Shell and TotalEnergies were all at it, but the latter two went one step further by professing their love for a primary US-listing in search of a higher valuation. 

Here are this blogger's musings on their antics and reasons via Forbes, and Chevron calling time on 55 years of oil and gas exploration in the North Sea. That's a wrap. More musings to follow soon. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo: Oil pump jack model at the AVEVA World 2023 Conference, Moscone Center, San Francisco, US© Gaurav Sharma October 2023. 

Saturday, November 11, 2023

Can oil really hit $150? (And more!)

As the current crude oil trading year enters its final two months marked by festive breaks and potentially higher consumer demand as the Northern Hemisphere's winter approaches - thoughts inevitably turn to what price levels we will likely encounter in 2024.

With hostilities in the Middle East failing to lift crude prices despite all the talk of risk premiums and potential supply disruptions, being bullish about oil early in 2024 is proving hard. That's because concerns over crude demand are outweighing concerns over supply. 

We're talking muted demand from the economic powerhouses of Germany and China, lower consumer confidence levels in key OECD markets and elevated interest rate levels kept there by major global central banks, especially the US Federal Reserve. 

It therefore came as a surprise to The Oilholic when the World Bank opined that crude prices could hit $150 if hostilities in the Middle East escalate! Here are this blogger's thoughts on that via Forbes. Simply put - don't hold your breath! 

And let's not forget, Brent hasn't even capped a more realistic $100 per barrel level the bulls crave. The benchmark's January 2024 contract is barely higher than current levels, and contracts further out into the summer of next year are even lower. That implies Brent remains in backwardation mode.

Away from the crude price, the latest quarterly earnings posted by energy majors provided plenty of talking points. More so, after the return of megadeals as ExxonMobil swooped for Pioneer Natural Resources and Chevron swooped for Hess Corp. 

Other deals may follow as the energy majors fish for viable plays. It's led many, including this blogger, to wonder if a supermajor itself could be vulnerable? The prime candidate for finding itself in this position is BP; a chronically undervalued supermajor in the Oilholic's opinion. More on the subject here via Forbes

Is it possible? Yes, especially in a industry built on big ticket deals. Will it happen? Probably no, not least down to BP's $100 billion plus valuation (however discounted that may appear to some). But as yours truly noted on Forbes - that the company has had to bat away questions about being a takeover target is pretty extraordinary and indicative of how far it has fallen. Well that's all for now folks. Keep reading, keep it here, keep it 'crude'!

To follow The Oilholic on Twitter click here.
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To email: journalist_gsharma@yahoo.co.uk  

© Gaurav Sharma 2023. Photo: Oil pump jack model at the AVEVA World 2023 Conference, Moscone Center, San Francisco, US© Gaurav Sharma October 2023. 

Wednesday, October 11, 2023

Media missives from ADIPEC 2023

With ADIPEC 2023 drawing to a close last week, the Oilholic capped a fascinating and engaging week with a rounding off piece for Forbes on the criticality of scaling up technology - and, of course, backing it up with petrodollars and willpower, if a meaningful energy transition is to be achieved. To this end, this blogger had great conversations with ABB, AiQ, AspenTech, AVEVA and Avaada Group. (More here)

Yours truly also hit the airwaves to discuss the various soundbites coming out of the conference and various developments in Abu Dhabi, all in the midst of a very volatile crude oil market riddled with demand concerns, supply-side tightening and geopolitical complications. The final broadcasting call before departing was with Asharq Bloomberg News, with this blogger's week out in Abu Dhabi peppered with plenty of other missives via the keyboard for Forbes, the Motley Fool, and of course via this blog. 

All blog entries for each ADIPEC day may be found here

Some commentary on Shell's share price direction via the Motley Fool may be found here. And here are selected Forbes copies in chronological order based on soundbites and insight from ADIPEC 2023. 

  • Emirati COP28 President Calls For A "Just, Orderly, Equitable And Responsible" Energy Transition, October 2, 2023.
  • India "Will Manage" And Won't Panic If Oil Rises Above $100, Says Energy Minister, October 3, 2023.
  • Abu Dhabi To Unveil World’s Fourth Largest Solar Farm "Very Soon", October 4, 2023.
  • Oil Futures Slump Further On Uncertain Global Demand Outlook, October 5, 2023.
  • Abu Dhabi In First Wind Farm Launch As 2GW Solar Project Nears Completion, October 8, 2023.
  • 4 Middle East Geopolitical Scenarios That May Hike Oil Market Risk Premiums, October 9, 2023.
  • Scaling Technology And Willpower Critical For 'Fast-Tracking' Global Energy Transition, October 10, 2023.
And that's a wrap. Keep reading, keep it here, keep it 'crude'!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Forbes click here.
To follow The Oilholic on Rigzone click here.
To email: journalist_gsharma@yahoo.co.uk  

© Gaurav Sharma 2023. Photo: Gaurav Sharma on Asharq Bloomberg TV on October 4, 2023 © Asharq Bloomberg 2023.

Tuesday, November 12, 2019

ADIPEC Day II: Oil & Gas 4.0 sessions & more

Day two of ADIPEC 2019 has just concluded in Abu Dhabi, UAE and as expected it was another action packed one with half a dozen CEOs, dignitaries and ministers in town. As part of the proceedings, the Oilholic moderated a downstream panel under the event's Oil and Gas 4.0 strategic dialogues programme.

The subject under discussion - Sustaining industry momentum in downstream: how will companies build an agile and resilient business model capable of withstanding the inevitable cyclical highs and lows in the years ahead? 

The panel included Abdulaziz Alhajri, Executive Director Downstream Directorate at ADNOC, Thomas Gangl, Chief Downstream Operations Officer at OMV, Philippe Boisseau, CEO of CEPSA, François Good, Senior Vice President Refining & Petrochemicals Orient at Total and Catherine MacGregor, CEO-elect at TechnipFMC. 

The panelists touched on a host of slants under the topic including the crucial issue of long-term objectives underpinned by technology, corporate patience on the return on investment front, tech-enabled throughput improvements and the need to invest in talent, not just hardware and software. 

Of course, lurking around ADIPEC corridors is the subject of the oil price direction and what OPEC will or won't do when it meets in Vienna, Austria on December 5-6, 2019. Here is one's take via Forbes, with soundbites and analysis aplenty, and the central conclusion that OPEC is damned if it cuts production or rolls existing cuts over further, and damned if it opens the taps

Away from the oil price and to the exhibition floor where industry vendors made deal announcements with customary aplomb. ABB announced it had won a project to install its extended automation system at a greenfield pilot plant for SABIC in Jubail, Saudi Arabia, supporting the Saudi company's broader vision to digitalise its operations. 

Under the contract, ABB's Ability System will apply integrated automation, control and safety solutions to the company's Utilities Park and Pilot project. The park is part of the SABIC Technology Centre (STC), which marks the company’s biggest global investment in innovation, and the largest of its 21 technology centers worldwide.

Not to be outdone, Honeywell Process Solutions (HPS), the global software industrials' automation unit, announced that Kuwait Integrated Petroleum Industries Company (KIPIC) has selected it as the main automation contractor for its new Petrochemicals and Refinery Integration Al Zour Project (PRIZe). 

Under the agreement, HPS will provide KIPIC with front-end engineering design and advanced process control technology for the complex, which will help KIPIC expedite production start-up and assist with reaching production targets faster and more efficiently. 

The PRIZe project will become the first integrated refining and petrochemicals complex in Kuwait.

The new facility – developed as part of the Al-Zour Complex – will significantly enhance Kuwait’s domestic petrochemicals, aromatics and gasoline manufacturing capabilities.

Customarily, neither ABB nor Honeywell provided any details on financials of the contract in a fiercely competitive industry in which demand for Industry 4.0 solutions is growing by the minute. Finally, out on the exhibition floor, this blogger spotted another hydrogen powered
Toyota Mirai, this time at Saudi Aramco's stand, following one yesterday at Shell's stand.

What do you know - an IOC and a NOC flagging an alternative fuel - now the Oilholic has really seen it all. 

That's all for the moment folks, more from here over the coming days  as the event gathers further momentum. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2019. Photo I: Gaurav Sharma (left) at ADIPEC 2019 Oil and Gas 4.0 strategic dialogue in Abu Dhabi, UAE © DMG Events. Photo II &III: Toyota Mirai cars at ADIPEC 2019 exhibition © Gaurav Sharma 2019. 

Monday, January 29, 2018

On Brent at $70/bbl & crude blockchain moves

Crude year 2017 is firmly behind us, and the Oilholic has summed up weekly closing prices for you on the chart adjacent, along with key points of the year which ended on a high for the oil market (see left, click to enlarge). 

That uptick has extended well into January. It can certainly be said that 2018 has started on a frantic, interesting and massively bullish note for the oil market. Brent, the world’s preferred proxy benchmark, finally closed at $70 per barrel on Friday (26 January); a first Friday-close above the said level since 28 November 2014.

However, that doesn’t necessarily mean yours truly has turned bullish. The Oilholic continues to follow his preferred mantra of being net-short over the long term, and long over the short term. The reasons are simple enough – more US oil, even if purely for domestic consumption – is inevitable.

Inventories have rebalanced, and demand is picking up, but relative to that, there is still plenty of oil in the market. Yet, there is a school of thought out there that the International Energy Agency (IEA) has exaggerated the significance of shale. The Saudi Oil Minister Khalid Al-Falih, among other influential voices at OPEC, has endorsed such a thinking

However, with US production tipped to cap 10 million barrels per day (bpd) in the first quarter of 2018, and may even touch 10.3 million bpd, one doubts the IEA has exaggerated things. US rig counts have continued to rise in step with the oil price rise. As such, there's little to have faith in a long-term $70 Brent price, especially as OPEC itself will ramp up production at some point. 

To get an outside-in perspective, on 25 January this blogger spent most of his day interacting with physical crude traders in Amsterdam and Rotterdam. Hardly anyone seemed to buy in to the bullish chatter that was coming out of the World Economic Forum 2018 in Davos. So the Oilholic is not alone, if you take him at his word. 

Away from the oil price, many say the biggest contribution of cryptocurrencies has not been Bitcoin and Ethereum, but the creation of blockchain, which is akin to a digitally distributed ledger that can be replicated and spread across many nodes in a peer-to-peer network, thereby minimising the need for oversight and governance of a single ledger.

This is now being actively pursued by major energy sector players, and developments at their end have kept the Oilholic busy for better parts of two weeks scribbling stories for Forbes

On 18 January, Shell’s trading arm unveiled its investment in a London-based start-up Applied Blockchain. Just days later on 22 January, Total and several energy traders joined TSX Venture Exchange-listed BTL's blockchain drive aimed at facilitating gas trading reconciliation through to settlement and delivery of trades using blockchain.

BP, Statoil and other traders such as Koch Supply & Trading and Gunvor have all recently gone down the blockchain path.

Then on 26 January, Blockchain outfit ConsenSys and field data management firm Amalto announced a joint venture to develop a platform to facilitate the automation of ticket-based order-to-cash processes in the oil and gas industry.

The emerging blockchain infrastructure aims automate all stages of the process associated with field services in upstream, midstream and downstream markets. Many of the processes, like field ticketing or bill of lading, are still largely manual and paper-based and primed for the blockchain revolution.

So from back-office functions to gas trading, blockchain is coming to shake-up the industry. Expect to hear more of the same. But that’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Graph: Oil benchmark Friday closing prices in 2017 © Gaurav Sharma 2017.

Wednesday, April 08, 2015

BG Group’s been ‘Shell-ed’

In case you have been away from this ‘crude' planet and haven’t heard, oil major Royal Dutch Shell has successfully bid for its smaller FTSE 100 rival BG Group in a cash and shares deal valuing the latter at around £47 billion (US$70 billion).

While it’s early days into the current calendar year, the deal, subject to approval by shareholders, could be one of the biggest of 2015 producing a company with a combined value of over £200 billion.

For the Anglo-Dutch oil major, BG Group's acquisition would also add 25% to its proven oil and gas reserves and 20% to production capacity, along with improved access to Australian and Brazilian prospects. BG Group shareholders will own around 19% of the combined group following the deal.

BG Group's new chief executive Helge Lund, who only took up the post last month, will remain with the company while the deal is being worked on. However, he is expected to leave once it is completed walking away with what many in the City reckon to be a £25 million golden goodbye. The Oilholic thinks that’s not too bad a deal for what would come to little over three months of service.

BG Group shareholders, who’ve had to contend with a lacklustre share price for the last 12 months given the company’s poor performance, can also expect a decent windfall should they choose to sell. The bid values BG at around 1,350p per share; a near 50% premium to its closing price of 910.4p on Tuesday. If they decide to hold on to their shares, they’d be likely to receive an improved "Shell of a dividend" from a company that has never failed to pay one since 1945.

Shell chief executive Ben van Beurden said, "Bold, strategic moves shape our industry. BG and Shell are a great fit. This transaction fits with our strategy and our read on the industry landscape around us."

The market gave the news a firm thumbs up. Investec analyst Neill Morton said BG’s long-suffering shareholders have finally received a compelling, NAV-based offer while Shell’s bid was arguably “20 years” in the making.

“We agree that BG’s asset base is better suited to a larger company, but the economics require something approaching Shell’s $90/bl assumption. Consequently, we do not expect a rival bid and are wary of this catalysing a flurry of copycat deals. But we are also mindful that investment bankers can be very persuasive! We suspect Shell aims to re-balance dividends versus buybacks over the long-term. This could imply lower dividend growth,” he added.

As for the ratings agencies, given that the deal completion is scheduled for H1 2016, and quite possibly earlier given limited regulatory hurdles, Fitch Ratings placed Shell's ratings on Rating Watch Negative (RWN) and BG Group's ratings on Rating Watch Positive (RWP).

The agency aims to resolve the Rating Watches on both companies pending the successful completion of the potential transaction and “once there is greater clarity with regard to Shell's post-acquisition strategy and potential synergy effects.” We’re all waiting to hear that, although of course, as Fitch notes – Shell's leverage will increase.

“Our current forecasts suggest that the company's funds from operations (FFO) adjusted net leverage will increase from 1.5x at end-2014 to around 2x in 2015-2017 based on conservative assumptions around the announced $30 billion divestment programme and execution of the announced share buybacks from 2017.”

Moody’s has also affirmed its Aa1 rating for Shell, but quite like its peers changed the company’s outlook to negative in the interim period pending the completion of the takeover. Meanwhile, some City commentators have speculated that Shell's move might trigger a wave of M&A activity in the oil and gas sector.

However, the Oilholic remains sceptical about such a rise in M&A. In fact, one is rather relieved that the Shell and BG Group saga would cool nonsensical chatter about a possible BP and Shell merger (oh well...there's always ExxonMobil).

They’d be the odd buyout or two of smaller AiM-quoted independents, but bulk of the activity is likely to remain limited to asset and acreage purchases. Of course, consolidation within the sector remains a possibility, but we are too early into a cyclical downturn in the oil market for there to be aggressive overtures or panic buying. However, 2016 could be a different matter if, as expected, the oil price stays low.

Moving away from the Shell and BG show, here is one’s take via a Forbes column on how oil markets should price in the Iran factor, following the conclusion of pre-Easter nuclear talks between the Iranians and five permanent members of UN Security Council plus Germany.

Additionally, here’s another one of the Oilholic’s Forbes posts on why a decline in US shale activity is not clear cut. As it transpires, many shale producers are just as adept at coping with a lower oil price as any in the conventional industry. That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo: Vintage Shell petrol pump, San Francisco, USA © Gaurav Sharma

Monday, December 15, 2014

That $60-floor, refining & FTSE100 oil majors

The US$60 per barrel floor was well and truly breached on Friday as the WTI dropped to $57.48 at one point. The slump is continuing into the current week as Brent lurks around $60 in early Asian trading. 

The scenario that most said would set alarm bells ringing within the industry is here. Since no one is predicting the current supply glut to ease anytime soon, not least the Oilholic, that the readers should expect further drops is a no brainer. Odds have shortened considerably on OPEC meeting well before June as was announced last month.

Nonetheless, speaking in Dubai, OPEC Secretary General Abdalla Salem El-Badri said, “The decision [not to cut production] has been made. Things will be left as is. We are assessing the situation to determine what the real reasons behind the decrease in oil prices are.” So is perhaps half the world!

In the Oilholic’s humble opinion Brent could even dip below $50 fairly soon. However, supply constriction will eventually kick-in to support prices over the second half of 2015. In the interim, we’ll see a few interesting twists and turns.

As for oil and gas companies, Fitch Ratings reckons the much beleaguered European refining sector is likely to end the year in much better shape than 2013. In the first edition of its European Refining Dashboard, the ratings agency noted that refining margins in the third quarter rose to their highest level since at least the start of 2013 as “product prices fell more slowly than crude oil prices.”

The Oilholic feels it’s prudent not to ignore the emphasis on the words “more slowly”. Fitch says overcapacity and intense competition from overseas refineries still plague European refining.

“Further capacity reductions may be needed to restore the long-term supply and demand balance in Europe, while competition from Middle Eastern, Russian and US refineries, which generally have access to cheaper feedstock and lower energy costs, remains strong,” it added.

More generally speaking, in the Oilholic’s assessment of the impact of lower oil prices on the FTSE 100 trio of Shell, BP and BG Group; both Shell and BP outperformed in the last quarter by 6% and 11% respectively, according to published data, while BG Group’s underwhelming performance had much to with other operational problems and not the price of the crude stuff. 

While published financial data is backward looking, and the slump in prices had not become as pronounced at the time of quarterly results as it currently is, it's not all gloomy. However, the jury is still out on BG Group. The company is responding with incoming CEO Helge Lund waiting to take charge in March. Last week, BG Group agreed to sell its wholly-owned subsidiary QCLNG Pipeline Company to APA Group, Australia’s largest gas infrastructure business, for approximately $5 billion.

QCLNG Pipeline company owns a 543 km underground pipeline network linking BG Group’s natural gas fields in southern Queensland to a two-train LNG export facility at Gladstone on Australia’s east coast. 

The pipeline was constructed between 2011 and 2014 and has a current book value of US$1.6 billion. “The sale of this non-core infrastructure is consistent with BG Group’s strategy of actively managing its global asset portfolio,” it said in a statement.

While largely welcoming the move, most analysts have reserved judgement for the moment. “The sale is broadly supportive to the company's credit profile. However, we will need to be comfortable with the use of proceeds and progress with BG's planned output expansion before we change the current negative outlook,” as analysts at Fitch wrote in a note to clients.

Reverting back to Shell and BP, the former has quietly moved ahead of the latter and narrowed the gap to market leader ExxonMobil. Strong downstream results helped all three, but Shell’s earnings recovery over the year, was the most impressive according to Neill Morton, analyst at Investec.

“Despite its modest valuation premium, we would favour Shell’s more defensive qualities over BP in the current uncertain industry environment,” he added. Let's not forget the Gulf of Mexico oil spill fallout that BP is still getting to grips with.

Moving away from FTSE 100 oil majors and refiners, UN Climate Change talks in Peru ended on a familiar underwhelming note. Delegates largely cheered at the conclusion (which came two days late) because some semblance of something was achieved, i.e. a framework for setting national pledges to be submitted at a summit next year.

The final communiqué which can’t be described as anything other than weak is available for download here should it interest you. Problem here is that developed markets like lecturing emerging markets on CO2 emissions, something which the former ignored for most of 20th century. It won't work. Expect more acrimony, but hope that there is light at the end of a very long tunnel. 

On a closing note, here’s the Oilholic’s latest Forbes column on the Saudis not showing any signs of backing down in the ongoing tussle for oil market share.

Also over past few weeks, this blogger reviewed a few ‘crude’ books, namely – Energy Trading and Risk Management by Iris Marie Mack, Marketing Big Oil by Mark Robinson, Putin and the Oligarch by Richard Sakwa and Ownership and Control of Oil by Bianca Sarbu. Here’s hoping you find the reviews useful in deciding whether (or not) the titles are for you. That’s all for the moment folks! Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
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To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2014. Photo:  Refinery, Quebec, Canada © Michael Melford / National Geographic

Monday, February 03, 2014

Keystone XL revisited, some results & fossil fuels

Despite it having been a mad few days of 'crude' results, the Oilholic feels there is only one place to start this post – the US State Department's recent take on the Keystone XL project.

The Department's review of the project or should you like formalities – its Final Supplemental Environmental Impact Statement – noted that it had "no objections" on any major environmental grounds to the cross-border 1,179 mile-long Alberta to Texas pipeline extension project.

Its take, of course, pertains to 875 miles of proposed pipeline construction across US jurisdictional control which has been the subject of immense controversy with everyone from the American workers' unions [flagging-up job creation] to environmentalists [warning about risk of spillage] weighing in.

So is the end of the saga close with a thumbs-up from the State Department? Sadly, not quite, not yet! A 30-day public comment period has begun and is scheduled to end on March 7. During this time, "members of the public and other interested parties" are encouraged to submit comments on "the national interest determination."

Then the ultimate decision has to be made by the ditherer-in-chief, President Barack Obama, who is yet to make his mind up, pending reviews from "other government agencies" and the public at large.

As expected, the State Department's statement is full of waffle. Hoping not to annoy either those for or against the project, it took no firm stances in the Oilholic's opinion. However, there is one very clear, in fact explicit, conclusion by the department, from this blogger's reading of it – Alberta's oil sands will be developed Keystone XL or not!

In a related development impact assessment, it also noted – perhaps in no small part down to recent incidents and accidents – that using the rail network to transport crude was an even worse option than the pipeline itself, if a carbon footprint was the deciding factor. The so-called "other agencies", most notably the Environmental Protection Agency, now have around 90 days to comment before the State Department finally issues its "final" recommendation to the President.

Then there would be no excuses or reasons for stalling left and we should know either ways by the summer. One thing is for sure, the Americans have formally acknowledged that cancelling the pipeline extension won't stop E&P activity in the oil sands. So if that's what the environmentalists are after, there's some food for thought. One wishes, the State Department read this blog more often. Yours truly could have saved them a lot of time and money in reaching such a blatantly obvious conclusion.

For TransCanada's sake, which first applied for a permit from the US government as far back as 2008, the Oilholic hopes the US$7 billion project does go ahead. Stepping away from pipeline politics, to some 'crude' financial results over the past week, one cannot but feel for BG Group's Chief Executive Chris Finlayson.

In a geopolitically sensitive industry, Finlayson's team could not be apportioned blame when he announced that group earnings would dip by 33% on an annualised basis to around $2.2 billion, owing to unrest in Egypt. In the backdrop of domestic strife, the Egyptian government has not honoured agreements covering BG Group's share of gas from fields in the country, with high levels of gas being diverted to the domestic market.

Unable to fulfil its export obligations, the company had to serve force majeure notices to affected buyers and lenders, in effect releasing all sides from contractual obligations for circumstances beyond their control. Hence, a company deemed to be high-flier in the oil & gas world was - albeit temporarily - made to look like a low-flapper boosted by occasional gusts of gas...er sorry wind!

As Egypt accounts for over 20% of its annual production at present – BG Group's profit warning made its shares take a plastering following the trading update on January 27, dipping 18% at one point. The price is currently in the £10 to £11 range and most analysts are nonplussed. For instance, Liberum Capital cut BG Group to hold from buy, with the target cut from £14.75 to £12.80. Investec analyst Neill Morton cut the group's EPS forecast for 2014 and 2015 by 22% and 16% respectively.

"However, we do not believe that a takeover is likely (or even possible?) for a $60 billion company which is likely to command a substantial takeover premium. The key challenges over the next 18 months are the developments in Brazil and Australia which still run the risk of further issues, in our view (for e.g. the Brazil development is being done by Petrobras)," Morton added.

While BG Group was warning on profits, supermajor Shell wasn't exactly covering itself in glory. Following on from a pretty substantial profits warning, Shell's profits [outstripping the effect of oil price fluctuations came] in at $2.9 billion for the last quarter of 2013, down from $5.6 billion noted over the same period in 2012. The market was already well prepared for a dip in performance from Shell, but much to this blogger's surprise, new chief executive Ben van Beurden said the company's strategy presentation [slated for March 13] would contain no fresh targets on production, capex and asset disposal.

Odd indeed, and if one might humbly add – Shell's asset disposal, especially if similar drives at BP, Chevron and ConocoPhillips are to be used as measuring rods, seems a bit random! The Anglo-Dutch company said it was targeting disposals of $15 billion in the current financial year, and had stopped exploration in Alaska.

Its stake in the Australian Wheatstone project is expected to go, and a 23% stake in the Brazilian Parque das Conchas (BC-10) offshore project already has gone, subject to regulatory approvals. Ratings agency Fitch said such moves were positive, but added: "It remains to be seen whether Shell will take the opportunity that this flexibility affords it to retrench, or be tempted into shareholder friendly actions that could threaten its 'AA' credit rating."

Finally, ExxonMobil – biggest of the publicly traded IOCs by market value – also saw its profits below market expectations after a failure to offset declining production with fresh reserves. For the fourth quarter, it posted a net income of $8.35 billion, or $1.91 per share, compared with $9.95 billion, or $2.20 per share, over the same quarter in 2012. Those picky analysts were hoping for $1.92 to $1.94 per share – some will never be pleased!

Forget the analysts, here's an interesting article on what Warren Buffet sees in ExxonMobil to help draw conclusions on the "quintessential defensive stock." In response to his company's latest financials, chief executive Rex Tillerson promised to move ahead with new exploration projects.

Away from results, oil majors and minors ought to take notice as it seems oil might be overtaken by coal as the dominant primary energy source worldwide by 2017, according to the IEA. Adding further weight to this hypothesis, Worldwatch Institute's recent Vital Signs Online study noted that natural gas increased its share of energy consumption from 23.8% to 23.9% during 2012, coal rose from 29.7% to 29.9%, while oil fell from 33.4% to 33.1%.

Coal, natural gas, and oil, collectively accounted for 87% of global primary energy consumption in 2012. Finally, OPEC's 'long-standing' Secretary General Abdalla Salem El-Badri has said its member nations will be able to handle the extra oil "expected to come from Iran, Iraq and Libya" to head off any oversupply.

We believe you sir, but it'll be kinda hard to keep a trio gagging for an export impetus to toe the line, say us supply-side analysts. Hopefully, oversupply or even the perception of oversupply should bring the price of the crude stuff down a fraction and may be price positive for consumers. Hence, a month into 2014, yours truly stands by his price forecast. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2014. Photo 1: The White House, Washington DC, USA © Gaurav Sharma, April 2008. Photo 2: Shell tanker truck at Muscat International Airport, Oman © Gaurav Sharma, August 2013.

Thursday, November 21, 2013

‘Frackers’ & US coffers plus other crude matters

US Interior Secretary Sally Jewell should be a happy bunny this week say contacts in Houston town. In fact since morning, no fewer than nine have pointed this out to The Oilholic.

That is because Jewell's Interior Department has collected and disbursed over US$14.2 billion this week courtesy of a record royalties and fees windfall from oil & gas drilling on public land and US territorial waters for the fiscal year ending September 30. The figure is the second-highest collection on file and represents an annualised increase of $2 billion over the last fiscal year.

Fracking and horizontal drilling coupled with increasing interest in offshore E&P are being seen as the drivers. There is one caveat though, the figure does include proceeds of a bonus licensing bid in the Gulf of Mexico that took place in 2012, but was put on ledgers for 2013. In a statement, Jewell said, "The figure reflects significant energy production from public resources in the United States and serves as critical revenue stream for federal and state governments and tribal communities."

While the Interior Secretary stopped short of blessing the frackers, they are chuffed to bits and there is a fair bit of table thumping here. Let's also not forget that despite the frenetic pace of E&P activity in North Dakota, the state of Texas remains the country's largest producer of the crude stuff. That position is likely to be retained on account of fracking, enhanced oil recovery techniques being deployed, horizontal drilling and many established extraction sites that are chugging along nicely.

There is one positive domino effect which is largely going under the radar – Houston is leading the global race in the manufacture and shipping of oil & gas equipment manufacturing from blowout preventers to wellheads. Some of equipment can be loaded conventionally, but the rest – i.e. break bulk (heavy equipment which cannot be shipped in conventional containers) loading is also creating additional revenue streams in the state.

According to the Port of Houston, the facility handles nearly 70% of the US' entire break bulk cargo. Some here say jobs have more than doubled since 2005; Texas (along with North Dakota) also has the lowest unemployment rates in the country to brag about. Recent research conducted by McKinsey and IHS Global Insight came out bullish on the industry's long term potential for job creation – with both forecasting the creation of 1.7 million and 3.9 million jobs by 2020 and 2025 respectively.

Now that tells you something, especially as the US is poised to overtake Russia and Saudi Arabia and become the world's largest producer in barrels of oil equivalent terms. Strangely enough though, some of the majors such as Shell and BHP Billiton have apparently not got it right. The former has cut its shale production projections while the latter has put up half of its oil & gas land holdings right here in Texas as well as New Mexico for sale.

ExxonMobil's exit from shale exploration in Poland has also slightly dented the hypothesis of America exporting its nous on shale overseas. Some geologists have long warned that no one size fits all shale beds! Nonetheless, its early days yet on the knowledge export front at least.

Going beyond Texan borders, the positive impact of major upstream project start-ups on cash generation in the global integrated oil & gas industry in 2014-15, as well as continuing robust crude price conditions, have resulted in a change of outlook for the sector by Moody's to 'positive' from 'stable'. Up until this month, the ratings agency's outlook had been stable since September 2011.

Francois Lauras, senior credit officer in Moody's corporate finance group, said, "With crude prices set to remain robust, we expect that the start-up and ramp-up of major upstream projects over the next 12-18 months will benefit companies' production profiles and operating cash flow generation, and lead the industry's EBITDA to grow in the mid-to-high single digits year-on-year in 2014, albeit with more of the improvement showing in the latter part of the year."

"Downstream operations will remain under pressure, but EBITDA from refining and marketing operations will stabilise near their 2013 levels," he adds. Furthermore, Lauras feels that the global integrated oil and gas sector's capital investment in 2014 will remain close to its record levels of 2013.

The completion of the major upstream projects currently under construction will hold the key to the sector's return to positive free cash flow in the medium term. Integrated oil & gas companies will also continue to manage their asset portfolios actively and will execute further asset sales, supporting their financial profiles, Moody's concluded.

Finally, the Oilholic leaves you with glimpses of The Woodlands (see above, click to enlarge), a suburb of Houston, dedicated by none other than the late George Mitchell, a man credited for pioneering fracking.

Founded in 1974 as a largely residential area, today it houses commercial operations of many companies including those of a crude variety such as Anadarko, Baker Hughes and one GeoSouthern energy, a Blackstone Group backed company. It was one of the first to take a punt on the Eagle Ford shale prospection area and has just sold shale acreage to Devon Energy.

That's all for the moment from Houston folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2013. Photo 1: Pump Jacks, Perryton © Joel Sartore / National Geographic. Photo 2: Collage of The Woodlands, Texas, USA © Gaurav Sharma, November 2013.

Thursday, October 10, 2013

A crude walk down 'Exploration Drive'

The Oilholic finds himself in the 'Granite City' or the 'Oil capital of Europe' as Aberdeen, Scotland has recently come to be known as. Given that context, a street named Exploration Drive in the city's Energy Park has a nice ring to it. In what has been an interesting week – news-wise, market reports-wise and otherwise – right up to this morning, it's good to be here, meeting old friends and making yet newer ones during been. While this blogger's flight got in on time, blustery conditions so common in this part of the world saw one plane overshoot the runway and the airport closed for a few hours

That wasn't the only news in town. Reports of the Libyan PM first getting kidnapped and then released, flooded the wires and Shell – Nigeria’s oldest IOC operator – has put up four oil blocks there feeding the Bonny Terminal (the country’s oldest export facility) up for sale, according to the FT.

The chatter, if formally confirmed, would be seen as a retreat by the oil major from a part of the world where theft of crude from pipeline infrastructure is rampant. Shell it seems is getting mighty fed up of constant damage to its pipelines. Moving on from news, it is worth summarising a couple of interesting notes put out by Moody's these past few weeks.
 
In the first, the ratings agency opines that BP can tolerate a moderate penalty related to the 2010 Gulf of Mexico oil spill without compromising its credit quality. However, a severe penalty resulting from a finding of gross negligence would change the equation according to Moody's, with Phase 2 of the trial to determine limitation and liability having begun stateside.

"BP can tolerate about US$40 billion in penalties, after taxes, under its A2, Prime-1 ratings. A ruling in line with the company's current $3.5 billion provision would leave some headroom to absorb other charges, including settlement costs from payouts awarded for business economic loss claims, which ultimately depend on the interpretation of the Economic and Property Damages Settlement Agreement," Moody's noted.

Other defendants in the case include Transocean, Halliburton and Anadarko. Of these, Transocean, which owned the Deepwater Horizon rig, is exposed to sizable fines and penalties. "Indemnifications will protect Transocean from some liabilities. But other items could ultimately cost the company billions of dollars to resolve," says Stuart Miller, senior credit officer at Moody's.

In its second note, the ratings agency said it had downgraded Petrobras' long term debt ratings to Baa1 from A3. The downgrade reflects Petrobras' high financial leverage and the expectation that the company will continue to have large negative cash flow over the next few years as it pursues its capital spending programme.

With that programme being the largest among its peers, Petrobras' spending in 2013 could be almost double its internally generated cash flow. The company's total debt liabilities increased in the first half of 2013 by $16.3 billion, or $8.36 billion net of cash and marketable securities, and should increase again in 2014, based on an outlook for negative cash flow through 2014 and into 2015. The outlook remains negative, Moody's adds.

Moving away from companies to countries, global analytics firm IHS has concluded that North America’s "Tight Oil" phenomenon is poised to go global. In its latest geological study – Going Global: Predicting the Next Tight Oil Revolution – it says the world has large 'potential technical' recoverable resources of tight oil, possibly several times those of North America.
 
In particular, the study identified the 23 "highest-potential" plays throughout the world and found that the potential technically recoverable resources of just those plays is likely to be 175 billion barrels – out of almost 300 billion for all 148 play areas analysed for the study.

While it is too early to assess the proportion of what could be commercially recovered, the potential is significant compared to the commercially recoverable resources of tight oil (43 billion barrels) estimated in North America by previous IHS studies. The growth of tight oil production has driven the recent surge in North American production. In fact, the USA is now the world largest 'energy' producer by many metrics.

"Before the tight oil revolution people thought oil supply would start to fall slowly in the longer term, but now it is booming. This is important because Russian production has been hovering at the same level for some time, and now the US will exceed the Russia’s total oil and gas production," says Peter Jackson, vice president of upstream research at IHS CERA.

In IHS' view, Russian oil production is unlikely to rise in the medium term. In fact, the firm anticipates that it will start falling because of the lack of investment in exploration in emerging areas such as the Arctic and new plays such as tight oil. "But of course, there is a long lead time between deciding to invest and exploring and then getting that oil & gas out of the ground," Jackson adds.

North America's growth in supply from the tight oil and shale revolution means that the USA is now less worried about the security of energy supply. It is now even thinking of exporting LNG, which would have been unheard of ten years ago, as the Oilholic noted from Chicago earlier this year.

This is having an impact on the direction of exports around the world changing direction, from West to East, for example to China and post-Fukushima Japan. Furthermore, light sweet West African crudes are now switching globally, less directed to the US and increasingly to Asian jurisdictions.

OPEC, which is likely to increase its focus in favour of Asia as well, published its industry outlook earlier this month. While its Secretary General Abdalla Salem el-Badri refused to be drawn in to what production quota it would set later this year, he did say a forecast drop in demand for OPEC's oil was not large.

The exporters' group expects demand for its crude to fall to 29.61 million bpd in 2014, down 320,000 bpd from 2013, due to rising non-OPEC supply. "Tight oil" output would be in decline by 2018 and the cost of such developments means that a sharp drop in oil prices would restrain supplies, Badri said.

"This tight oil is hanging on the cost. If the price were to drop to $60 to $70, then it would be out of the market completely." He does have a point there and that point –  what oil-price level would keep unconventional, difficult-to-extract and low-yield projects going – is what the Oilholic is here to find out over the next couple of days. That’s all for the moment from Aberdeen folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2013. Photo 1: Exploration Drive, Aberdeen, Scotland, UK. Photo 2: Weatherford site, Aberdeen Energy Park, Scotland, UK © Gaurav Sharma, October 2013.

Friday, September 06, 2013

Profiling Oman's E&P and its wider market impact

The Oilholic has always been intrigued by Oman's oil & gas industry. The oil storage tanks atop the Al Wattayah cliffs of the Hajar Mountain range (see left) dominate the scenery behind Muscat and Muttrah's natural harbours. They also bear a silent but impactful testament to black gold's importance in this part of the world.

In a regional context, and from a geopolitical standpoint, Oman's 5.5 billion barrels of oil equivalent (boe) in proven reserves are the largest for any non-OPEC country in the Middle East. Admittedly, in this part of the world, there aren't that many non-OPEC players of significance in any case, let alone one with such a proven reserves position.

However, given that Oman does not have as much in terms of reserves relative to its regional oil exporting peers, is precisely why IOCs get better deals when it comes to oil & gas prospection here. The Petroleum Development Oman (PDO) holds around 92% of Oman's oil reserves. Aside from the government's 60% stake in PDO, Shell is the junior partner with 34%. Total (4%) and Partex (2%) make up the rest with minority stakes.

For all of that, it's actually Occidental Petroleum which has the largest operations of any IOC in Oman and is the country's second largest oil-producer! Chinese presence here is the shape of CNPC, while BP, Repsol and KoGas are meaningful industry participants as well.

The country has come a long way from signing its first export consignment of 543,800 barrels of the crude stuff delivered F.O.B Mina-al Fahal for a purchase price of US$1.42 per barrel (to Shell) way back on that historic date of August 8, 1967. PDO archives reveal that momentous invoice which was the harbinger of things to come (see right, click to enlarge).

The journey so far has not been without hiccups. A lot of soul-searching ensued when production, which at one point was above 950,000 barrels of oil equivalent per day (boepd) in the late 1990s, plummeted to an all time low of 714,000 boepd in 2007. However, initial anxieties about a general decline in oil & gas production have been replaced by renewed vigour and pragmatism with output rising steadily if not spectacularly in recent years.

Two key decisions taken by the administration of Sultan Qaboos bin Said Al Said have seen Oman turn a corner. As the Oilholic noted in an earlier blog post, the first move was to diversify Oman's economy away from oil & gas and promote transport, cargo & logistics, regional banking and, of course, tourism sectors. The plan was dubbed "Vision 2020" and initiated in 1998, when the oil price dipped below $10 per barrel.

The second move, kick-started in 2002, saw a strategic increase in petrodollars pumped into boosting oil production via enhanced recovery mechanisms at ageing oilfields. Miscible gas injection, thermal injection and polymer flooding were the techniques which found favour. Of these, thermal has proved most popular being deployed at Mukhaizna, Marmul, Amal-East, Amal-West and Qarn Alam fields. However, the PDO is employing traditional water-flooding at Yibal; the largest oilfield in the country.

The changes are tangible. According to the US EIA, Oman's average production came in at 923,500 boepd in 2012. Updating the figure, a PDO spokesperson told the Oilholic that H1 2013 production was in the region was around 944,200 boepd.

"All said medium term production expectation of over 930,000 boepd based on current investment and undertaking would be a realistic supposition for next few years," he added. The country's Petroleum Investments Directorate at the Ministry of Oil & Gas breaks this up as 900,000 barrels per day (bpd) of the crude stuff and 3.3 bcm of natural gas. The figure is based on 2012 data from seven – mainly onshore – production blocks.

PDO also looks set to pump additional funds, above and beyond what was budgeted in 2002, into improving production even further. Despite the best efforts of yours truly, a reliable figure was not forthcoming. But if one was to take a cumulative average of what local analysts say – we'd be looking at a minimum spend in the region of $6 billion per annum for the next 10 years.

While onshore prospects have historically been Oman's mainstay, as the Oilholic noted an earlier blog from Khasab – Bukha's offshore prospects are noteworthy. Norwegian independent upstart DNO International's 'Block 8' prospection off the Musandam coastline could well and truly shake things up. Some say it already is! The block is yielding 8,000 bpd, but reliable local sources say that once its full potential is realised, we could be looking at 20,000 bpd.

The big question is – could fresh Omani prospection coupled with the ongoing enhanced recovery programme – push production above the psychologically uplifting and headline grabbing figure of 1 million bpd?

Based on empirical and anecdotal evidence, thoughts of market commentators in Muscat and Abu Dhabi and the Oilholic's own calculations – sadly no! However, Omani production will be tantalisingly close to the magic mark as early as Q1 2014, and this blogger would be delighted for the country were he to be proved wrong, however briefly.

Regardless of the final figures, what does it mean and for whom? Almost 760,000 bpd would be exported by 2014, according to the government. The Far East seems to be the preferred destination for Omani Crude – with China, Japan and South Korea being the buyers. Since 2005, India is also looking towards Oman, more so, since last year, as the availability of Iranian crude remains sanction hit. 

Well, it is nearly time to call it a day here in Muscat. But not before the Oilholic leaves you with a view of His Majesty Sultan Qaboos' Royal Yacht - its one magnificent floater (see above left) ! Additionally, see below, from clockwise from left to right – the Royal Opera House, a very Omani sunset, Muscat's answer to London’s "Boris Bikes" and the Marina Bandar Ar Rawdah. It's been a thoroughly memorable visit to this wonderful country, full of warm, gracious and welcoming people.

One is truly grateful to professionals and commentators from PDO to BankMuscat, from the Oil & Gas Exhibition Centre to local guides who spared their valuable time to discuss various aspects of Oman's oil & gas industry.

However, away from Oman and just before boarding the flight to London Heathrow, one has a bit of reading material to flag-up. First, here's a brilliant column in the FT by Victor Mallet discussing travails of the Indian Rupee, in the current climate of foreign investors wanting to pull their money of emerging markets. The second is a BBC report about Egyptian officials saying they had foiled an attack aimed at disrupting shipping in the busy Suez Canal. This is seriously spooky with on-going problems in Syria, Libya and Egypt itself.

To put things into their proper context, the Suez Canal sees 800,000 barrels of crude and 1.5 million barrels of petroleum distillate products pass each day through its narrow confines between the Red Sea and the Mediterranean Sea. Furthermore, it's not just the canal that should be of concern.

With nefarious characters lurking around, another supply route of concern might be the Suez-Mediterranean pipeline which ferries through 1.7 million bpd. Disruption to either could see the risk premium on Brent be hit for six! That's all from Oman folks! Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.
 
© Gaurav Sharma 2013. Photo 1: Oil storage tanks atop the Al Wattayah cliffs of the Hajar Mountain range, Muscat, Oman. Photo 2: Invoice of the first consignment of Omani oil exports, 1967. Photo 3: Sultan Qaboos’ Royal Yacht, off Muttrah coast, Oman. Photo 4: Clockwise from left to right – Royal Opera House, Sunset in Muscat, the city’s answer to London’s "Boris Bikes" and the Marina Bandar Ar Rawdah , Oman © Gaurav Sharma, August, 2013.