COVID Market Update
- If you want to know where OPEC’s production is heading, one needs only to look at their next month’s OSP, particularly to its largest market, Asia. This week, Saudi Arabia raised its June OSP to Asia, as well as to the US and Europe, in a clear sign that it is indeed cutting production and planning fewer exports. This isn’t difficult for Saudi Arabia to achieve, as their April production was at an all-time high as it tried to regain market share in an aggressive grab designed to get the upper hand in the Russian production cut saga and quash US shale.
- The Texas Railroad Commission gave up on the idea of planned production cuts after two of the three chairmen voted the measure down. The measure was supported mainly by smaller oil companies, while the larger more integrated--and therefore better positioned--companies were opposed to the measure. Chairman Ryan Sitton, in favor of production cuts for the industry, argued that the measure was never really seriously considered.
- Devon Energy Corp (DVN) said it would shut in 10,000 bpd for Q2, with the potential for additional cuts as needed, to be decided on a month-to-month basis. Devon is a major producer in the Permian basin, where it produces 84,000 bpd of its total 155,000 bpd expected after the curtailment.
- And, in some way, on the oil and gas scene at least, COVID-19 is positioning Turkey’s Erdogan for a bit of a win in the Mediterranean. Italian Eni…
COVID Market Update
- If you want to know where OPEC’s production is heading, one needs only to look at their next month’s OSP, particularly to its largest market, Asia. This week, Saudi Arabia raised its June OSP to Asia, as well as to the US and Europe, in a clear sign that it is indeed cutting production and planning fewer exports. This isn’t difficult for Saudi Arabia to achieve, as their April production was at an all-time high as it tried to regain market share in an aggressive grab designed to get the upper hand in the Russian production cut saga and quash US shale.
- The Texas Railroad Commission gave up on the idea of planned production cuts after two of the three chairmen voted the measure down. The measure was supported mainly by smaller oil companies, while the larger more integrated--and therefore better positioned--companies were opposed to the measure. Chairman Ryan Sitton, in favor of production cuts for the industry, argued that the measure was never really seriously considered.
- Devon Energy Corp (DVN) said it would shut in 10,000 bpd for Q2, with the potential for additional cuts as needed, to be decided on a month-to-month basis. Devon is a major producer in the Permian basin, where it produces 84,000 bpd of its total 155,000 bpd expected after the curtailment.
- And, in some way, on the oil and gas scene at least, COVID-19 is positioning Turkey’s Erdogan for a bit of a win in the Mediterranean. Italian Eni and French Total SA are postponing their proposed gas exploration operations in the Cypriot EEZ for about a year in what will be spun as a major victory for Turkey. Before the coronavirus pandemic, Eni and Total had announced plans to start exploratory drilling in Block 6 and two other blocks in early February. The Cypriot government said it would extend the exploration contracts. Last month, ExxonMobil and Qatar Petroleum consortium also postponed drilling in the Eastern Mediterranean due to the pandemic. Meanwhile, Turkey is moving in the opposite direction announcing it will intensify exploration and drilling activities in the region.
Deals, Discovery & Development
- Algerian state-run Sonatrach and Russia’s Lukoil have signed an MOU for possible future E&P in Algeria, one of the top three oil producers on the African continent with proven reserves of around 4.5 trillion cubic meters of natural gas and 1.5 billion tons of oil. After a protracted delay, while oil companies sat back and watched what would happen with Algeria’s political unrest, Sonatrach is trying to intensify the competition, signing the same deal with Exxon earlier this month.
- TechnipFMC has reportedly been hired by A-Property, a firm owned by Russian energy mogul Albert Avdolyan, to design a $10-billion LNG export terminal near Russia’s border with China. The plant would produce 13 million tonnes of LNG per year at maximum capacity.
- Thailand’s PTT Exploration and Production Pcl and its JV partners have made two deep-water oil discoveries in the Salina Basin, offshore Mexico. The commercial potential of the new discoveries will be assessed in the next phase. However, the company said that the prospect of developing new offshore sites would remain impractical until prices significantly rise. PTTEP also reduced its 2020 expenditure by 15-20% from a previous projection of $4.61 billion.
Asset Sales
- Shell has dumped its Marcellus shale assets, following similar actions from other supermajors in recent years including Chevron, Noble, and India’s Reliance. It’s looking like the economics of extracting nat gas here in the current environment just don’t make sense for the larger companies. This is evidenced not just by Shell ditching its holdings, but by the fact that it did so for pennies on the dollar. It paid $4.7 billion for the asset, selling it for $541 million.
- The U.S. investment firm Warburg Pincus is considering selling five of its eight international oil and gas investments. The firm has committed or invested some $13 billion into energy over the last decade, with the majority of it in the US and Canada.
- Without explanation, Brazil’s Petrobras is delaying the process that will allow it to divest its natural gas pipeline unit, Gaspetro. The potential buyer analysis that should have been complete on March 18 has now been extended to May 15. It’s also halting the sale of offshore oilfields, including the huge cluster known as Marlim, which produces over 240,000 bpd.
The COVID Earnings Season (Cont.)
- Total SA’s Q1 net profit slid 35% to $1.8 billion, but it’s keeping its dividend the same as Q1 2019. The French major has also pledged carbon neutrality by 2050, even as the pandemic is pushing oil majors to focus on efficiency and cost-cutting in the low-price environment.
- Canadian Natural Resources reported a loss of US$918 million for Q1, compared to a Q1 2019 profit of $689 million. It did, however, maintain its dividend.
- Probably the most startling news on the earnings front was last Friday’s surprising loss from supermajor Exxon. The giant saw a loss of $610 million in Q1 after $2.9 billion in write-downs as prices crashed. It is its first loss in decades.
- Suncor Energy joined the dividend-cut club, slashing its quarterly dividend by more than half. The move is designed to lower Suncor’s cash breakeven to $35/barrel, after it recorded this week a net loss of US$2.5 billion for Q1, compared to net earnings of US$1.05 billion for Q1 2019.
- Highlighting once again just how poorly timed Occidental Petroleum’s acquisition of Anadarko was in retrospect, Oxy reported this week a net loss of $2.2 billion for Q1, after chalking up goodwill impairment charges of $1.4 billion. It will reduce spending by 50%, to land at $1.2 billion in spending cuts for this year alone.
- Murphy oil reported a Q1 loss of $416 million with $1 billion in revenue. It's also closing its Arkansas headquarters and Calgary office and heading to Houston in an effort to consolidate in these tough times.
- Marathon Oil Corp (MRO) reported a 1Q1 loss of $46 million and $1.23 billion in revenue. It is halting dividend payouts and share buybacks. Share prices have slid 64% in the past year. It cut its spending for the year by another $350 million; it is the second capex cut in 30 days.
- Apache reported a Q1 loss of $4.48 billion. A year ago, Apache's loss was $47 million. Shares are down 62% over the last year.
- Pioneer Natural Resources recorded a Q1 profit of $289 million and $2.26 billion in revenue. Pioneer announced a $300 million cut to capex - 55% lower than its original budget for 2020.
- Canada’s Enbridge (ENB)--responsible for sending 3 million barrels of oil per day into the U.S., posted a net loss of US$1.02 billion for Q1, compared to a profit for Q1 2019. Mainline throughput is down 400,000 bpd in April - it’s average throughput on Mainline for Q1 was 2.84 million bpd.
Politics, Geopolitics & Conflict
- Armed militants linked to one of General Haftar’s sons stormed the headquarters of the Brega Oil Marketing Company in the easter city of Benghazi last weekend. The armed group the company’s director by force because the director was supporting the eastern government’s efforts towards a political agreement with the Government of National Accord (GNA) in Tripoli. Such an agreement would go against Haftar’s recent declaration of a “popular mandate” to rule all of Libya as we noted in last week’s newsletter. This is yet another sign of the dangerous rift between Haftar and his traditional allies in Benghazi.
