No change at OPEC, 30mbpd is the 'official' quota

It was over in a jiffy – that’s the best explanation one can come up with. So the OPEC ministers arrived at 10am CET, did their customary presser, opening note came in, sandwiches followed (nothing worse than keeping analysts and scribes hungry) and then time slot for the formal quota announcement kept getting revised from 1600CET to 1530CET to 1430CET. Before you knew it – in came Secretary General Abdalla Salem El-Badri at 1400CET to convey what everybody had already factored in, the ‘official quota’ stays at 30 million barrels per day (bpd).

Official quota in inverted commas because we all know OPEC is pumping way more than that. Surveys suggest that between the 12 member, the exporters’ collective led by Saudi Arabia is producing over 31.5 million bpd. Even OPEC’s official monthly report from April put production at 30.93 million bpd. With demand tepid and the oil price neither here not there, but better than January, where was the incentive to change, as one opined last month.

In fact, the Oilholic is getting quite used to filing an end of conference blog post from here titled “no change at OPEC” often followed by “in line with market expectation”. Quite like the 166th meeting, that number 167 followed the recent norm was hardly a surprise. Perhaps they'd had enough of each other at OPEC International Seminar which came before the meeting. 

But as one’s good friend Jason Schenker, President of Prestige Economics, says “Oil has always been a story of demand”; El-Badri & co. saw tepid demand and responded leaving production as it was.

OPEC is indeed forecasting world oil demand to increase in the second half of 2015 and in 2016, with growth driven by non-OECD countries. But nothing quite like what it was in 2014.

There was one rather intriguing development, for according to El-Badri it seems we’ve all got it wrong. The so-called, OPEC production quota, it turns out isn’t a quota at all. "It is not a quota as such, but rather a recommendation given to members which we expect them to take," said the longstanding Secretary General.

He also said OPEC in fact had no target price, when asked if the Iranians' opinion that US$75 per barrel would be adequate was a view he shared.

“OPEC does not have a so-called oil price target. I agree that there are income disparities within OPEC. We have rich oil exporters and poor oil exporters; our decision in November [to hold production] as well as what we have decided today is in the interest of all members.”

On the supply side, non-OPEC growth in 2015 is expected to be just below 700,000 barrels per day, which is only around one-third of the growth witnessed in 2014. That's all from Vienna for the moment folks. Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2015. OPEC Secretariat, Helferstorferstrasse 17, Vienna, Austria © Gaurav Sharma

OPEC's 167th meet: The crude story so far

The Oilholic is back in Vienna, camped up here in the Austrian capital for OPEC’s latest deliberations with an extended round of market chatter in the shape of the organisation’s once-in-two years International Seminar (which concluded on Thursday) ahead of the minister’s summit.

Not all 12 OPEC members are having sleepless nights. The mood in some camps is pretty placid, and not at all dark as some would have you believe. Two days of the international seminar have been fascinating. The sixth in the series saw a procession of CEOs come and go, but Ryan Lance, CEO of ConocoPhillips, delivered a blinder of a speech telling his hosts – shale was here to stay. 

Representing the buyers’ club, Indian Petroleum Minister Dharmendra Pradhan bluntly called for a revision of terms and conditions on which his country, a major client of OPEC exporters, imports oil. Both comments stood out for the Oilholic in terms of robustness. Here’s one take in a column for Forbes.

There were plenty of spot reports for Sharecast to share around too. In wake of the oil price decline, several CEOs – including CEO of Royal Dutch Shell Ben van Beurden, Total CEO Patrick Pouyanne, Eni Claudio Descalzi and Chevron chairman & CEO John Watson - called for a rethink in industry strategy (click here for report). 

Emerging market demand or non-OECD demand remained a recurring theme for OPEC as well as wider industry commentators with member ministers and Big Oil bosses queuing up to point out Asia is where most of their crude product’s demand will come from. 

Even before the ministers have convened there is palpable sense here in Vienna, that OPEC would not move to alter its production quota of 30 million barrels per day (bpd), given that it’s already ‘officially’ pumping 930,000 bpd more than that, with unofficial estimates putting it some 1.5 million barrels above.

There’s always the element of surprise, but that element seems to be missing here, especially on crude matters. Finally, the Oilholic leaves you with a view of OPEC Gala Dinner on Wednesday night (see above right) where one met a lot of old friends and made yet newer ones. This post is just to get the ball rolling, more from Vienna, very, very shortly. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo 1: OPEC's 6th International Seminar, Hofburg Palace, Vienna © OPEC Seminar Gala Dinner, Vienna City Hall, Austria, June 2015.

US oil production decline much less than feared

As the latest visit to Houston, Texas nears its conclusion, the Oilholic walked wistfully past a petrol station in the Lone Star state. What European motorists wouldn’t give for US$2.49 (£1.61) per US gallon (3.79 litres) to fill up their cars. That was the price was this morning (see left)!

Ditching wistfulness and moving on to price of the crude stuff, the latest energy outlook report from the US Energy Information Administration (EIA) sees Brent averaging $61 per barrel in 2015, with WTI averaging around $55. The EIA also expects a decline in crude oil production stateside from June onwards through to September.

However, there is little anecdotal evidence here on the ground in Houston to suggest the Eagle Ford is slowing down if activity elsewhere is. Furthermore, feedback from selected attendees at two events here – Baker & McKenzie’s 2015 Oil & Gas Institute 2015 and the Mergermarket Energy Forum – alongside most experts this blogger has spoken to since arrival, point to the said production decline being much less than feared.

On average, most opined that we’d be looking at a decline of between 35,000 to 45,000 barrels per day (bpd) this year. It would imply that US production would still stay within a very respectable 9.1 to 9.3 million bpd range with much of the drop coming from North Dakota. As if with eerie timing, American Eagle’s filing for Chapter 11 bankruptcy protection, following its inability to service debt on plays in North Dakota (and Montana), provided a near instant case in point.

Overall picture is less clear for 2016. If the oil price stays where it is, we could see a US production decline in the region of 60,000 to 100,000 bpd. EIA has estimated the decline might well be towards the upper end of the range. 

It comes after analysts at Goldman Sachs labelled the recent oil prices “rally” as being a bit ahead of itself. Or to quote their May 11 email to clients in verbatim: “While low prices precipitated the market rebalancing, we view the recent rally as premature.

“The oil market focus has dramatically shifted over the past month, from fearing a breach of US crude oil storage capacity to reflecting a well under way oil market rebalancing. We view this shift in sentiment and positioning as excessive relative to still weak fundamentals.”

The Oilholic has repeatedly said over the past six weeks that both benchmarks are likely to stay within the $50-75 barrel range, as the decline in the number of operational oil rigs stateside was not high enough (yet) to trigger persistently lower US production. EIA data and feedback here in Houston supports such conjecture.

Meanwhile, the front page of the Financial Times loudly, but bleakly, declared on Tuesday that “more than $100 billion of projects” were on ice with Canada hit the hardest. According to the newspaper’s research, Shell, BP, Statoil and ConocoPhillips have all led moves to curtail capital spending on 26 major projects in 13 countries.

Speaking of ConocoPhillips, its CEO Ryan Lance has joined an ever increasing chorus stateside of oil industry bosses calling on the US government to lift its 40-year plus ban on crude exports. 

At a conference in Asia, Lance told Bloomberg that the Houston-based oil and gas producer had sufficient production capacity stateside to cater the global market and ensure stable domestic supply. Right, so there’s no danger to Houstonians paying $2.49 per gallon to fill up their cars then?

To be fair, the ConocoPhillips boss is not alone in calling for a lifting of the ban. Since last July, the Oilholic has counted at least 27 independents, many mid-tier US-listed oil and gas producers including Hess Corp and Continental Resources, and almost all of the majors voicing a similar opinion.

They can say what they like; there won’t be any movement on this front until there is a new occupant in the White House. That’s all from Houston on this visit folks, its time for the big flying bus home. Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2015. Photo: Price display board at a Shell Petrol Station in Houston, Texas, USA © Gaurav Sharma, May 2015.

Talking Russia, China, shale 'debt' & more in Texas

The Oilholic finds himself in Houston, Texas for Baker & McKenzie’s 2015 Oil & Gas Institute. When yours truly was last in Texas back in February, the mood was rather sombre as leading oil futures benchmarks were still on a downward slide.

That was then, what we have now is stagnancy in the US$50-75 per barrel price range which probably encompasses both the WTI and Brent. We are not getting away from the said range anytime soon as one noted in a column for Forbes last Friday before flying out here.

Given the nature of such discourse, some delegates here at the Institute agreed and others disagreed with the Oilholic’s take on the short-term direction of the oil markets, especially as a lot is going on in this ‘crude’ world that such industry events are particularly sound in bringing to the fore.

The 2015 instalment of this particular Baker & McKenzie event had a great array of speakers and delegates – from Shell to Citigroup, Cameron International to Chevron. The legal eagles, the macroeconomists, the internationalists, the sector specialists, the industry veterans, and of course the opinionated, who never sit on the fence on matters shaping the direction of the market, were all there in good numbers.

(L to R) Louis J. Davis, Greg McNab, Natalie Regoli, James Donnell and David Hackett of Baker & McKenzie discuss the North American Market in wake of the oil price decline

The situation in Russia propped up fairly early on in proceedings. Alexey Frolov, a legal expert from Baker & McKenzie’s Moscow office, was keen to point out that it was not just the sanctions that were hurting Russia’s oil & gas industry; related macroeconomics of the day was sapping confidence away as well.

But Frolov also pointed to a degree of resilience within Russian confines, and a more flexible domestic taxation regime which was helping sustain high production levels unseen since the collapse of the Soviet Union. It does remain unclear though how long Russia can keep this up.

Meanwhile, Cameron International’s Vice President and Deputy General Counsel Brad Eastman flagged up something rather interesting. “We see Chinese companies continue to back rig building projects, even if they are being mothballed elsewhere in the world given the current market conditions. Chinese companies wish to continue their march in to the rig-building industry.”

Here’s China indulging in something that is really bold, some say unusual. So even if no one is exactly queuing up to buy or lease those Chinese rigs, it is another example that China operates on a whole different level to rest of the natural resources players and participants.

As for US shale, people say there is distressed debt out there and the end might be supposedly nigh for some small players. Well hear this – based on the Oilholic’s direct research here in Texas of looking into 37 independent US players, sometimes known as mom n’ pop oil & gas firms, and another 11 mid-sized companies; a dollar of their debt would fetch between 83 cents to 92 cents if hypothetically sold by their creditors.

That’s hardly distressed debt even at the lower end of the range. On hearing the Oilholic’s findings, Louis J. Davis, Chair of Baker & McKenzie’s North America Oil & Gas Practice, said: “An 8 to 17 cents discount does not constitute as distressed. Rewind the clock back to 2008-09 and you’d be looking at 35 to 40 cents to the dollar on unprofitable plays – that’s distress. This is not.”

Quite simply, creditors and investors are keeping the faith. But to curb the Oilholic’s enthusiasm, alas Davis added the words “for now”.

“You have to remember that many players [both large and small] would be coming off their existing oil price hedges by the end of the current calendar year. That’s when we’ll really know who’s in trouble or not.

“However, blanket assumptions that US shale, and by extension some independents are dead in the water, is a load of nonsense. Usual caveats apply to the Bakken players, but nothing I know from clients large or small in the Eagle Ford suggest otherwise,” Davis concluded.

As with events of this nature, the Oilholic of course wears several hats – most notably for Sharecast / Digital Look and Forbes. Hence, it’s worth flagging up other interesting slants and exclusive soundbites mined for these publications by this blogger.

The subject of oil & gas mergers and acquisitions in the current climate dominated the Institute’s morning session, as one wrote on Forbes earlier today. How to deal with the prospect of Iran’s possible return to the crude oil market also came up. Click here for one’s Sharecast report; treading carefully was the verdict of experts and industry players alike.

Separately, a Pemex official described in some detail how UK-listed oil and gas companies were sizing up potential opportunities in Mexico. Lastly, yours truly also had the pleasure of interviewing Anne Ka Tse Hung, a Tokyo-based partner at Baker & McKenzie, for Sharecast on the subject of the LNG industry facing a buyers’ market.

Hung noted that the market in Asia had completely turned on its head for Japanese utilities, from the panic buying of natural gas at a premium in wake of the Fukushima tragedy in 2011, to currently asking exporters to bid for supply contracts as competition intensifies and prices fall. That’s all for the moment from Houston folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2015. Photo: A panel session at the Baker & McKenzie 2015 Oil & Gas Institute, Houston, Texas, USA © Gaurav Sharma, May 2015.

UK election result's impact on British Energy Inc

By all accounts, result of the UK General Election on May 7 was simply stunning. Pollsters got it horribly wrong, Prime Minister David Cameron’s Conservative Party returned with a majority against all expectations, Scottish National Party bagged 56 out of 59 parliamentary seats in the ‘oil hub’ of Scotland - all the ingredients to excite politically minded scribes and the general public alike. The Oilholic began his experience at Ellwood Atfield’s splendid election night bash in Westminster (photo above left) ushering in news of the first exit poll predicting the Conservatives were going to be the largest party with 316 members of parliament.

As events unfolded into early hours of the morning and late afternoon the next day, Cameron’s Conservatives returned with 331 MPs and a slim majority putting to bed all talk of a hung parliament. This blogger was up when Labour heavyweights Ed Balls, Douglas Alexander, Jim Murphy and Liberal Democrats ministers Vince Cable, Ed Davey, Lynne Featherstone and Danny Alexander all lost their seats.

Resignation of the hapless Labour leader Ed Miliband who managed to deliver his party’s worst election result since 1983 followed, along with that of Nick Clegg, now former deputy prime minister and Liberal Democrat leader. Cameron soon walked back into Downing Street after meeting the Queen and telling her he’d now form a majority Conservative government.

Having enjoyed the drama of election night well into sunrise the next day, it’s worth pondering what the result means for the UK’s energy industry in general and the oil and gas business in particular. Afterall, the Oilholic did fret about the direction of the market in his pre-election column for Forbes.

For starters, Ed Miliband’s barmy energy price freeze isn’t going to happen. A daft idea, daftly presented to maximum populist effect just didn’t work and is now in the dustbin of political history. This blogger expects ratings agencies to ease up both on UK-listed energy utilities Centrica, the owner of British Gas, and SSE, another service provider as well as the sector in general. 

Unsurprisingly, both stocks jumped as the entire London market welcomed the result on May 8 morning with the FTSE 100 momentarily returning back above 7,000 points. Nonetheless, Cameron’s government faces a very serious challenge of planning investment towards creaking energy infrastructure – from nuclear to renewables – ensuring the lights are kept on. By some estimates, the required capital expenditure could be as high as £330 billion by 2030.

Switching to the mainstream oil and gas business, both the Conservative victory in the UK and an SNP landslide in Scotland are broadly positive for various reasons. As this blogger has noted before, Chancellor George Osborne’s taxation policies turned positive for the industry towards the end of the last parliament, as the oil price decline began to bite North Sea players. 

Collective measures put into effect back in March imply that the UK’s total tax levy would fall from 60% to 50%, giving a much needed breather to those prospecting in the North Sea. Any further stimulus measures for the better are unlikely to be disrupted by the SNP, even if they do have a broader agenda of roughing up other government programmes both North and South of the Scottish border.

This is broadly good for the industry, as it goes through a challenging period and grapples with the restructuring in Aberdeen triggered by companies as large as BP and as small as independent operations services providers. 

Finally, turning attention to the new energy minister Amber Rudd, a Conservative MP for Hastings, who has been appointed as the successor to Ed Davey; the choice is a great one. Obviously, her credentials are solid or she wouldn’t be here. Gauging the response of the wider industry, most have welcomed the appointment.

Rudd is seen as conscientious and hard working minister. Even Greenpeace sent out a release welcoming her to the job, hoping that she’d bring the same energy to implementing the Climate Change Act, as she did to fight the corner of fisheries in her last government remit.

With a challenging portfolio, Rudd has her work cut out and we wish her well, especially as she sets about the arduous task of attracting investment to the sector. That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo: Ellwood Atfield election night party, May 7, 2015 © Gaurav Sharma