A Worrying Sign For Oil Companies In Iraqi Kurdistan

Politics, Geopolitics & Conflict

In the Kurdistan Region of Iraq (Iraqi Kurdistan), those remaining oil companies who have unilateral E&P deals with the Kurdistan Regional Government should be very concerned after Baghdad moved this week to invalidate three contracts between the KRG authorities and Gulf Keystone (UK-based), ShaMaran (Canadian), and Addax Petroleum (owned by Chinese Sinopec). As for UAE-based Dana Gas, the jury is still out. While Iraqi media initially reported that Dana Gas’ contract had also been invalidated by Baghdad, corrections soon emerged, noting that no decision had been rendered in Dana’s case. No sooner did the correction appear than Dana Gas was all over local media broadcasting ambitious plans to double natural gas production in the KRG. Gazprom Neft is also awaiting a decision. While an ongoing cause for concern among investors in this venue, so far, the KRG has simply ignored Baghdad’s court rulings and continued with business as usual.

The formation of Iraq’s new government led by Prime Minister-designate Muhammad Al-Sudani was originally met with protests and a delayed parliamentary session Thursday to vote on granting the new government confidence. Late on Thursday, the new government was approved, ending a year-long deadlock. A majority of the 253 lawmakers voted to appoint 21 ministers, leaving only two posts undecided.

Chaos has continued to spread in Iran this week, with two Revolutionary Guards forces killed in the city of Zahedan in the Sistan-Baluchistan province as hundreds had taken to the streets in anti-regime protests that have consumed Iran since the death of a young woman killed in police custody after having been arrested for a headscarf violation. Also this week, a massacre at a Shi’ite shrine that killed at least 15 people has been claimed by ISIS, which said it was targeting “Sunni refusal infidels” inside the shrine. Iranian security officials claim the suspects in the attack are foreign nationals. Clashes broke out this week across Iran, marking the 40-day period since Mahsa Amini’s death in custody. Late on Thursday, Iranian security forces opened fire on Kurdish protesters in Mahabad.

Energy Earnings Beat

Saudi Arabia’s shipping company, Bahri, booked a 360% increase in profits in the first nine months of the year, while revenues increased to $1.5 billion, mainly on the back of higher revenue from its oil transportation segment as global shipping rates soared.

The first of the major refiners reported this week, with Valero’s Q3 net profit exceeding expectations, reaching $2.8 billion ($7.14 per share). That figure is up drastically from $545 million in Q3 2021. Valero’s refining utilization was 95% for the quarter, averaging 3 million bpd.

Halliburton booked higher profits in the quarter that beat analysts' estimates. Halliburton’s net income increased to $544 million, or 60 cents per share, which is more than double its income from a year ago. Revenue from North America was $2.6 billion, while international revenue reached $2.7 billion. Halliburton took $366 million in charges and impairments as it sold off its Russian assets and impaired assets in Ukraine.

South Korean battery firm and Tesla supplier LG Energy Solution swung to an operating profit of 522 won ($370 million) in the quarter after going public at the start of the year. Its battery backlog increased to $260 billion by the end of the quarter–about 15 times its projected revenue for the full year. 70% of this backlog is from the United States.

PetroChina’s net profit for the first nine months of the year hit 16.66 billion, with domestic crude oil output increasing 2.7% during that time compared to a year ago, reaching 577 million barrels. Gas output was up 5.1% at 3,296 billion cubic feet. Refinery production was down by 1.8% compared to a year ago, at 896 million barrels, or 3.28 million bpd. Gasoline output fell 12% on weakened fuel demand during the nine months, while aviation fuel fell 33%. Nat gas sales grew 6.6% to 147 billion cubic meters.

The LNG giants TotalEnergies and Shell - the world’s two largest LNG traders - reported robust earnings for the quarter, although TotalEnergies seemed to benefit the most from the LNG boom in Europe. As Shell put it, trading and optimization results were “impacted by seasonality and supply constraints, coupled with substantial differences between paper and physical realization in a volatile and dislocated market.” Total reported adjusted net income of $9.9 billion for the quarter–more than doubling its earnings from the year-ago period. Net income stood at $6.6 billion after a $3.1 billion Russian-related impairment charge, with cash flow from operations tripling to $17.8 billion. Shell reported a profit of $9.45 billion, easing from its record-setting Q2 results on the back of weaker refining and gas trading figures. Shell announced a $4 billion buyback program over the next three months and will increase its dividend by 15% in Q4, to be paid in March.

China’s CNOOC saw its net profit nearly double from Q3 2021, at $5.1 billion, on the back of revenues that saw a 53.7% increase. The average realized price for crude and liquids increased by 36% to $95.80 per barrel in the quarter, while average realized gas prices increased by 15.1%. CNOOC’s net production came in at 461.5 million boe for the first nine months of the year–up 9.3% y/y. Net production increased by 8.8% for Q3 specifically, coming in at 156.8 million boe. Net production from its overseas operations–mainly from its Guyana Liza Phase II and Brazilian Buzios projects–was up by 13.5%.

Deals, Mergers & Acquisitions

Saudi Arabia is moving ahead with its IPO of its energy trading business, Aramco Trading, in Riyadh by the end of this year or early next year. The trading unit could be valued at as much as $30 billion.

Shell has signed onto Qatar’s major North Field South LNG project, following in the footsteps of Total. Shell will take a 9.375% participating interest in the 16 million tonnes per annum project, with Qatar offering a total of 25% of the project to foreign parties. There is 6.25% of the project left for another co-venturer. The project is the industry’s largest-ever LNG project and is set to add 48 million tpa of gas into global supplies by 2027.

Discovery & Development

Exxon has made two more oil finds in Guyana at the Sailfin-1 and Yarrow-1 wells in the now-famous Stabroek block. Exxon did not provide estimates for the amount of oil or gas contained in the latest discovery.

Phillips 66 is cutting staff at multiple refineries and terminals as it restructures to optimize its cost structure. Some staff are being repurposed, while others are being let go. Phillips is looking to cut $700 million in expenses to remain competitive “in any market environment” and to prepare for the transition away from fossil fuels.

The EU reached a deal to effectively ban the sale of all new gasoline and diesel cars from 2035. Carmakers must reach a 100% cut in CO2 emissions by 2035, rendering it impossible to continue sales of ICE vehicles. The deal also includes a 55% cut by 2030 vs. 2021 levels–this is a significant increase to the current target that calls for a 37.5% reduction by that time. Smaller car makers that produce fewer than 10,000 cars per year and negotiate weaker targets through 2036.