A Week Of War Cries Worries Energy Markets

Politics, Geopolitics & Conflict

From Sudan and Libya to Bosnia, it’s been a week of war cries that threaten high-level instability which would weigh on oil and gas markets:

Just as Libya announces it will start registering election candidates in November, fighting between armed groups has caused damage to the 120,000 bpd Zawiya oil refinery, the country’s largest. Thirteen storage tanks were damaged, according to the NOC, along with damage to the refinery's main electrical transformer. At the same time, the NOC reported a leak at its Es Sider pipeline, which will take 200,000 bpd offline for up to 10 days. The skirmishes are a result of various factions attempting to stake their claims on the country’s oil ahead of Libya’s hoped-for first presidential elections, which are likely to be accompanied by bloodshed. Control of the NOC, which has recently seen attempts (so far, unsuccessful) to unseat the long-running chairman, will be considered a crucial aspect of controlling the country’s oil riches. Presidential elections planned for December 24th will be held in two stages, with runoffs set to be held after the New Year, along with parliamentary elections.

Sudan’s military, which has been in a fragile power-sharing deal with the civilian government, has staged a coup and effectively taken over the country, leading to its suspension from the African Union and rendering it deprived of World Bank aid. General Abdel Fattah Burhan dubbed the coup an attempt to avert a civil war in the country. The power-sharing agreement had been in place since Q3 2019, after the ousting of Sudanese president Omar al-Bashir who was himself overthrown by the military following mass protests against his power. For the past month leading up to the coup, tribesmen protesting the political structure had been blocking the port and keeping Sudan from its much-needed oil trade. Sudan is not a major oil producer and relies on imports, which are now being held up.

26 years after the end of war in Bosnia and Herzegovina, the country is once again on the geopolitical radar of the US and the EU on one side, and Russia on the other. Earlier this month, Milorad Dodik, the Serb member of Bosnia’s tripartite presidency, announced that the Bosnian entity Republika Srpska, dominated by ethnic Serbs, was pulling out of state institutions. Dodik, installed by the western powers in 2006 to lead Bosnian Serbs as an alternative to the Serb wartime leadership (Karadzic) has since gone rogue. For a decade, he’s been threatening the secession of Republika Srpska. In this quest, both traditional allies Serbia and Russia pay him lip service - but they are not likely sincere in their support for such a radical (and dangerous) move. Officials in both countries may offer their verbal support, but government bodies themselves do not.

In 2017, Washington imposed economic sanctions on Dodik and banned him from traveling to the US. And Dodik’s renewed calls for secession are prompting warnings of more sanctions to come. So if Dodik has continually threatened what would basically amount to a civil war, conveniently ahead of each new election cycle, and nothing ever comes of it, what’s different this time around? This time around it’s getting far more media attention because it’s a regional issue Biden follows closely. The heightened media attention, in turn, sparks greater fears of the reality of another war among the people on the ground in Bosnia. And so tensions escalate further. Nor are the Bosnian Serbs of Dodik’s band the only ethic contingent interested in breaking away. Bosnian Croat leaders wouldn’t mind joining EU member state Croatia. Only the Bosniaks (Bosnian Muslims) are desperate to keep the existing borders and they have no “reserve country” to look to. But for now, this is all about pre-election hype.

Earnings Beat

Exxon (NYSE: XOM) reported earnings of $6.75 billion for the quarter with an EPS of $1.75. Adjusted EPS came in at $1.58. XOM reported $73.79 in revenue, slightly beating WS expectations. The company raised its dividend for Q4 to $0.88 per share.

Enphase Energy (NASDAQ: ENPH) reported record Q3 revenue. Enphase makes microinverters and backup energy storage for solar power. The record revenue of $351 million comes even with the supply chain issues the company battled in the quarter that drove up prices and lead times for consumers. ENPH saw its stock surge more than 23% after reporting. This revenue was double the Q3 2020 report and an 11% increase over Q2 2021. ENPH will institute another price increase for its product in Q4 as freight rates have octupled.

Royal Dutch Shell (NYSE: RDS.A) Thursday pulled out a record-high cash flow from operations, excluding working capital. The $17.5 billion in cash flow was assisted by commodity derivatives, in addition to cash generation across businesses. This is a nearly $4 billion increase quarter on quarter and nearly double year over year. Shell’s net debt for Q3 fell to $57.5 billion, from $73.5 billion in Q3 2020. Adjusted earnings were $4.1 billion, and adjusted EBITDA was $13.5 billion. The positive results come after an activist shareholder pitched the idea of breaking up Shell’s oil and gas divisions from its renewables.

Chevron (NYSE: CVX) swung back to profit in Q3--its strongest quarterly profit in 8 years--on higher oil and gas prices in addition to mindful cost-cutting. Revenue was up 76% from this time last year, reaching $43 billion. EPS climbed to $2.96--up from $.11 per share in Q3 2020. This was $.76 above expected EPS. In unrelated news, lawyer Steve Donziger who won the $9.5B award against Chevron, reported to prison this week for contempt of court for withholding evidence.

Deals, Mergers & Acquisitions

California-based Bloom Energy (NYSE: BE) will provide $4.5 billion in hydrogen fuel cell equipment and services to the South Korean SK Group, sending stocks nearly 40% higher. Under the agreement, SK’s Ecoplant will purchase 500 MW of Bloom's systems over the next three years. SK will also have someone on Bloom’s board of directors. The deal dwarfs Bloom’s current revenue, which came in under $800 million last year.

On the lithium beat, Albemarle (NYSE: ALB) will invest in two new lithium conversion plants in China, each with a 50,000 mt/yr capacity (lithium hydroxide). The plants will be built at the Yangtze River International Chemical Park in Jiangsu province (a free trade zone) and at the Pengshan Economic Development Park in the Pengshan district, Sichuan province.

Eni will seek a $17.4 billion valuation of its retail and renewables unit that it will IPO in 2022. Eni will keep a majority interest in the IPO'd unit, which will appear on the Milan exchange. The move is largely seen as allowing Eni to grow its renewables business. It would be one of Italy's largest IPOs in twenty years.

Phillips 66 (NYSE: PSX) will purchase the rest of the shares in pipeline affiliate Phillips 66 Partners (NYSE: PSXP) in an all-stock deal valued at $3.4 billion. The deal will close in Q1 2022, and will make the pipeline company a full subsidiary of Phillips 66.

Evaluate Energy has released its new quarterly report showing that Eni and Shell are the leading oil producers in terms of green deal-making so far this year:

Discovery & Development

In a major nod to advanced oil and gas technology, after a 20-year hiatus, Spanish Repsol has brought oil production back online at Norway’s Yme oilfield in the North Sea petroleum reservoir. What was abandoned two decades ago, is now achievable thanks to new tech. Repsol is eyeing peak output here of 56,000 boepd and a total of 63 million barrels.

In the Norwegian Sea, Norway’s Equinor has announced a “material” light oil discovery of up to 63 million barrels of recoverable resources at its Asgard field, in the Egyptian Vulture Prospect. The partner in this project is UK-based Longboat Energy PLC.

Aramco's $110B Jafurah unconventional gas field will use gas as its flagship project for making blue hydrogen. Saudi Arabia has plans to export 4 million tonnes of hydrogen for 2030.

Tesla has received the world’s largest order of EVs, from Hertz rental car, which just emerged from bankruptcy. EVs will represent more than 20% of Hertz’s global fleet. The order represents $4.2B in revenue for Tesla.

Texas has doubled the number of active oil and gas drilling rigs since this time last year. From the 403 active rigs in operation prior to the pandemic at the beginning of 2020, active rigs had fallen to just 100 during August 2020. But things are looking up for the Lone Star state, with 249 rigs actively drilling--a more than doubling in 14 short months. This is also seen in oil and gas employment numbers. After losing 60,000 oil E&P jobs during the pandemic, Texas has now recovered more than 23,000 of them--September alone saw an increase in 2,900 E&P jobs in Texas, marking the fifth month in five for oil and gas industry job gains.

there will be no new coal projects in Pakistan- Pakistan’s PM Imran Khan said. Pakistan shelved 2,400 MW of coal projects, replaced them with 3,700 MW of hydroelectricity projects

Dominion Energy (NYSE: D) and Siemens Gamesa (OTCMKTS: GCTAY) will team up to build the first U.S. wind blade manufacturer, in Portsmouth, Virginia. The factory, set for completion around 2025, will supply blades to the Coastal Virginia Offshore Wind Project (CVOW).

QatarEnergy and ExxonMobil Canada are teaming up on a farmout exploration license offshore Newfoundland and Labrador. QE will hold a 40% participating interest in the license (1165A) for the Hampden exploration well. Exxon holds the remainder. All necessary government consents have been received.

What to Watch in the Coming Weeks

On November 17th, the U.S. will hold an auction for drilling rights in the Gulf of Mexico after a court order facilitated the resumption of oil and gas lease sales. Some 80 million offshore acres will be auctioned off. This will be Biden’s first such auction and will not be without controversy.