Oil Prices Bristle As U.S. Rig Count Climbs

 Oilprice.com

Oil Prices Bristle As U.S. Rig Count Climbs

Baker Hughes reported a 10-rig increase to the number of oil and gas rigs this week. The total number of oil and gas rigs now stands at 1003, which is an addition of 164 rigs year over year.

The number of oil rigs in the United States increased by 11 this week, for a total of 808 active oil wells in the US—a figure that is 136 more rigs than this time last year. The number of gas rigs held steady this week, still at 194; 29 rigs above this week last year.

The oil and gas rig count in the United States has increased by 80 in 2018.

While US drillers seem determined to add rigs, Canada continued its brutal losing streak, with a decrease of 23 oil and gas rigs, after losing 168 rigs last week in the four weeks prior. At just 111 total rigs, Canada now has 21 fewer rigs than it did a year ago.

Oil prices were trading down on Friday, with West Texas Intermediate trading down $0.27 (-0.42%) at $63.27 at 9:17am EST. The Brent benchmark was trading down $.011 (-0.16%) at $68.22. Price pressures persisted on Friday as the China and US trade tiff heated up, with President Trump announcing billions in additional tariffs in a tit-for-tat measure after China’s latest round of tariffs. Also weighing on prices this week is the ever-present threat of climbing US crude oil production, which rose again in the week ending March 30, reaching 10.460 million bpd—the sixth build in as many weeks—well on its way to the 11 million bpd mark that analysts see coming in 2018.

At 8 minutes after the hour, WTI was trading at $62.41 (-1.78%) and Brent was trading at $67.43 (-1.32%).

By Julianne Geiger for Oilprice.com

Producers could be getting their appetite for investment back with oil at $65

CNBC

  • With oil prices in a protracted period of relative stability, oil majors are gradually getting the confidence to invest once again, the CEO of Woodside Petroleum indicated.
  • Although Coleman cautioned that it was still too early to budget for $65 oil, he also acknowledged bullish developments in the space.
Why fossil fuels are not necessarily 'dirty': Woodside CEO

Why fossil fuels are not necessarily ‘dirty’: Woodside CEO  

With oil prices in a protracted period of stability, oil companies are gradually getting the confidence to invest once again, the chief executive of Australia’s biggest independent oil and gas producer indicated Monday.

“It’s a nice spot where it is at the moment, around $60 and $65 per barrel,” Peter Coleman, CEO of Australian oil and gas producer Woodside Petroleum, told CNBC at the Credit Suisse Asian Investment Conference in Hong Kong.

“You can almost say that $65 today is kind of the new $80 of what we were three or four years ago, simply because we’ve got cost down and we’ve got margin back into our business,” he said, adding that current price levels meant that operations are sustainable today.

On Monday, oil prices pared some of their gains made after settling above $62 in the last session.

Although Coleman cautioned that it was still too early to budget for $65 oil, he also acknowledged bullish developments in the space.

“At this price, you’re starting to see new projects go to final investment decisions so people are starting to get that confidence again that they can invest,” Coleman said, adding that plenty of companies are making substantial investments in the renewable energy space.

According to Coleman, companies are also starting to change their portfolio mix in a bid to tackle their carbon footprint.

“You can see they’re going more gas-oriented. They’re actually starting to say the mantra is moving from being an oil and gas company to being a gas and oil company,” he said.

Woodside announced earlier in the month that its intention to buy Exxon Mobil’s 50 percent stake in the Scarborough gas field in Australia had been approved by BHP, a stakeholder in the development.

Oil Prices Bounce After A Tough Week

Oilprice.com

Oil

Oil has had a bumpy week, but following the news that Trump would allow some keep exceptions to the tariffs, along with a strong jobs report and falling U.S. oil rig count, crude prices bounced back on Friday.

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Friday, March 9, 2018

Oil posted some steep losses mid-week after the EIA reported another crude oil inventory increase. Some fears about U.S. steel tariffs, and follow up tit-for-tat protectionist measures, also weighed on crude sentiment. But news that Trump would allow some exceptions to the tariffs, as well as a strong jobs report and a falling U.S. oil rig count sent oil prices bouncing back up on Friday.

Saudi Aramco CEO: Oil industry needs $20 trillion in investment. Over the next 25 years, the oil industry will need another $25 trillion in investment just to meet expected demand, while also accounting for natural depletion at existing fields, Aramco’s CEO Amin Nasser said at the CERAWeek Conference on Tuesday. The sentiment came after the IEA warned that the oil market will be short on supply in the 2020s without an increase in upstream spending. In fact, there is a growing chorus of analysts who agree with the basic premise that the oil market could be well-supplied in the near-term because of U.S. shale, but faces supply risks in the early- to mid-2020s because of low upstream investment. “I am not losing any sleep over peak oil demand or stranded resources,” Nasser added.

OPEC production dips to 9-month low. Total OPEC production dropped to 32.14 million barrels per day in January, according to Argus Media, a 9-month low. That was largely the result of a sharp decline in output from Nigeria and Venezuela, and OPEC officials waived away concerns about the drop. “There is no plan to do anything (about Venezuela’s output) at this point,” Saudi oil ministry adviser Ibrahim Al-Muhanna said at the CERAWeek Conference. “The market has not reached the point of balance … there is no need to address it this year.” Related: The Mysterious Chinese Company Looking To Buy Rosneft

Oil and gas eye steel tariff exemption. After vociferously opposing President Trumps’ steel tariffs, some in the energy industry were somewhat relieved when the White House said it would allow certain companies and industries to apply for an exemption if they cannot procure enough steel domestically. Many parts of the energy industry, including pipeline construction, involves a special type of steel that is difficult to source in the U.S. A long list of companies warned that the tariffs could have a negative impact on oil and gas. For instance, Royal Dutch Shell (NYSE: RDS.A) said that the duties could impact the company’s decision to move forward on a major oil project in the Gulf of Mexico.

Mexico eyes heavy oil production. Mexico’s energy regulator said this week that heavy oil production could offer the country a “short-term investment opportunity.” More heavy oil would be readily taken up by U.S. refiners, especially because heavy oil supply has dipped elsewhere, aside from Canada. “The margin between WTI and heavy Canadian crude is at its narrowest in several years,” Zepeda said at the CERAWeek Conference on Tuesday. “The Gulf coast refineries were designed to process heavy oil from Mexico and Venezuela, where its production has been in decline. Heavy oil in the Gulf of Mexico is going to be in high demand.” Still, increasing production would require farming out some work to the private sector, which is not in Pemex’s near-term plans.

MBS to London. Saudi Crown Prince Mohammed bin Salman visited London this week to discuss some foreign policy issues with the British Prime Minister, but analysts see one key objective of the trip was to try to build a relationship with the west and tamp down investor concern after last year’s purge of the Saudi elite. MBS will also want to curry favor with international investors as the Kingdom prepares its IPO of Saudi Aramco. Saudi Arabia is still mulling the location of the public offering, deciding between London, New York and Hong Kong.

ExxonMobil CEO: Oil prices could fall if demand falters. While everyone is worried about U.S. shale supply undercutting oil prices, ExxonMobil’s CEO Darren Woods says economic growth, which is bolstering oil demand, is the key. Strong global growth is what’s “really driving demand at levels much higher than recent history,” Woods said. He warned that the oil market will suffer from oversupply if demand “starts to tail off.”

Oil industry shrugs off peak oil demand, but climate concerns rising. Top oil industry officials dismissed concerns about a rapidly approaching peak in oil demand at the CERAWeek Conference, but what was notable was how much climate change came up at the event. In particular, Royal Dutch Shell’s (NYSE: RDS.A) CEO Ben van Beurden warned about the risks to the oil industry form climate change. “There may not be total unity behind the Paris Agreement any longer, but there is no other issue with the potential to disrupt our industry on such a deep and fundamental level,” van Beurden said.

Citi: Oil to drop below $60 by summer. Citi’s Ed Morse says that U.S. shale is going to flood the market, pushing Brent prices into the $50s within a few months. Others disagree. Gary Ross, global head of oil analytics and chief energy economist at S&P Global Platts, told the WSJ that WTI could jump into the $70s later this year because of soaring demand. Needless to say, analysts have a wide range of opinions about what to expect in the oil market over the next few quarters.

Related: Saudis Hint They Could Delay Aramco IPO Until 2019

Shell and Blackstone to spend $10 billion for BHP’s shale unit. Royal Dutch Shell (NYSE: RDS.A) is partnering with private equity giant Blackstone (NYSE: BX) to make a $10 billion bid for BHP’s (NYSE: BBL) shale assets. It would represent Shell’s largest deal since its $50 billion purchase of BG Group nearly three years ago.

ExxonMobil announces spending increase. ExxonMobil (NYSE: XOM) said it would dramatically increase spending in order to boost oil and gas production in the coming years, but the move was not received well by the oil major’s shareholders. The spending increase, which would see capex jump by about a third this year to $24 billion and steadily rise to $30 billion by the early 2020s, was met with a 3% selloff in the company’s share price. Exxon said it would double earnings by 2025 and would focus on its discoveries in Guyana, the Permian, along with LNG and its downstream refining and petrochemical units.

Saudi Aramco considers massive spending spree on shale. Bloomberg reports that Aramco could begin producing shale gas this month from its North Arabia basin. Aramco says the assets are similar in size to the Eagle Ford, and the company could spend as much as $300 billion to develop oil and gas projects, including shale gas, over the next 10 years.

By Tom Kool for Oilprice.com

Offshore oil searches are coming back to fashion: just not in Asia

Investing.com

© Reuters. Oil service support ships are seen in Singapore© Reuters. Oil service support ships are seen in Singapore

By Henning Gloystein and Gavin Maguire

SINGAPORE (Reuters) – Surveying the ocean floor for oil and natural gas reserves is gradually emerging from a multi-year slump, everywhere apart from Asia.

That’s despite Asia being the world’s biggest consumer of oil, having by far the strongest demand growth while seeing its production fall faster than anywhere else.

The reasons for Asia’s dearth in offshore exploration and production (E&P) include high costs in Australia’s promising waters, declining reserves in production hotspots Malaysia and Indonesia, as well as territorial disputes in the oil- and gas-rich waters of the South China Sea.

“We only have two 3D vessels in Asia-Pacific, since there are fewer opportunities and less activity in that region,” said Bard Stenberg, vice president at Norwegian offshore survey company PGS, adding that most of his company’s vessels were in the Atlantic.

MISSING OUT

A 2017 and 2018 activity map by geophysical surveillance firm TGS shows the most activity in the North Atlantic.

A similar map by Bernstein Research showed the Asia-Pacific basin to have only four minor offshore developments of under 50,000 barrels per day (bpd). That compares to five major developments (above 50,000 bpd) and 11 minor ones in the Atlantic.

Asia’s dearth comes despite the region’s huge oil deficit, resulting from booming demand and declining output.

 

In one of the most promising regions, Australia, the main problem is cost, in part due to a requirement for rigs to pay for Australian crew once in Australian waters.

“Once any foreign-flagged vessel is in Australian waters, the ship operator has to pick up Australian workers… They work 12 hours a day, 7 days a week for 4 weeks, then get 4 weeks off,” said Christy Cain of the Maritime Union of Australia.

When oil prices were high, this was not a big problem, drillers said. But in times of cheaper oil and low profit margins, the added cost deters explorers, several said.

In another promising area, the South China Sea, conflicting territorial claims, especially between China and Vietnam, have hindered E&P activity.

Meanwhile, in Asia’s most established offshore oil and gas production basins of Malaysia and Indonesia, recoverable reserves are depleting.

Malaysia’s state-owned Petronas, Southeast Asia’s biggest oil producer, is increasingly focusing on downstream projects like the Pengerang Integrated Complex (PIC) in the southern state of Johor.

From 2019, PIC will refine crude oil into fuel and petrochemical products. Significant amounts of its crude will come from Saudi Arabia.

With little E&P activity, Asia’s oil import bill – which has already more than doubled since 2000 to over $420 billion a year – will rise further, likely above $500 billion in 2017, leaving other regions to cash in on Asia’s oil thirst.

COUNTING HELICOPTERS

Gauging the health of the secretive offshore industry is difficult. But dozens of mothballed rigs and support vessels sit idle in southern Malaysia’s Johor river delta, waiting to be used or scrapped.

Yet cautious optimism is emerging.

“Activity to support new development projects may increase slightly (between 2018 and 2020), but is unlikely to approach historical high levels (2013/14),” Petronas said in an outlook this month.

Douglas Westwood, which monitors helicopter activity to and from offshore vessels, has a similar view.

“The offshore helicopter market has finally started to recover following three years of decline,” Westwood said, although it added that average annual growth between 2018 and 2022 will still only be 1 percent.

“Global utilization will average 59 percent over the forecast,” it said, up from a paltry 54 percent in 2017.

At the root of the industry malaise lies rampant overproduction in the years running up to 2014, which crashed crude prices from over $100 per barrel in 2014 to below $30 in 2016.

E&P companies were among the first to feel the bite of aggressive industry cost slashing.

Firms in the seismic oil surveillance sector, including Polarcus, PGS, and Electromagnetic Geoservices have seen their share prices crash since 2015, in some cases by over 90 percent.

Only a production cut led by the Organization of the Petroleum Exporting Countries (OPEC) has stabilized Brent above $50 a barrel since mid-2017.

With oil demand healthy, the offshore industry hopes companies will start spending on future output again.

“We’re hoping that it’s going to pick up next year,” said Cain of the Maritime Union of Australia.

In a sign that even in Asia-Pacific there may be some more activity, the geothermal surveillance ship Polarcus Naila left Singapore in early December for a seismic mission in the Bonaparte Basin, off Australia’s northwest coast.

Speaking to Reuters during a visit to Singapore by the ship, one of the Naila’s senior crew members said he hoped things would go from “worst to bad.”

Norway’s $1 Trillion Wealth Fund Looks To Dump Oil & Gas Stocks

Oilprice.com

Norway

The global campaign to divest from fossil fuels may have just picked up its most significant ally to date – the largest sovereign wealth fund in the world.

Norway’s trillion-dollar sovereign wealth fund has proposed dropping investment for oil and gas companies. The plan, backed by the central bank, still needs approval by the finance ministry, but it would see the fund gradually divesting itself of oil and gas stocks over time. Currently, fossil fuel investments account for about 6 percent of the fund’s assets, or $37 billion.

“Our advice is to simply remove the oil and gas sector, as it is defined in the FTSE reference index, from the fund’s reference index,” Deputy Central Bank Governor Egil Matsen told Reuters in an interview. “That would mean all companies that the FTSE has classified with the sector, should be removed from our reference index.”

The global movement for fossil fuel divestment has been one of the fastest growing divestment campaigns ever witnessed. According to Fossil Free, a project of 350.org, an estimated 808 institutions from around the world have committed to divestment, totaling $5.57 trillion in assets. The type of groups are varied – about 27 percent of them are faith-based, another 20 percent are philanthropic foundations, 18 percent are government, 16 percent are education institutions, and 10 percent are pension funds.

But the potential move by Norway’s sovereign wealth fund is one of the most significant pledges yet, for a few reasons. First, the size of the fund, with $1 trillion in assets, is obviously notable. Second, the fund was built on oil and gas money, so a diversification away from fossil fuels has symbolic importance. But third, the justification for divestment, according to the fund, is not because of concerns over climate change, which is the usual reason why most other institutions have opted to divest.

Norway’s sovereign wealth fund wants out of fossil fuels in order to avoid exposure to oil price fluctuations.

The sovereign wealth fund is a massive investor in oil and gas, so the news of a shift in investment strategy is significant. According to Reuters, Norway’s sovereign wealth fund holds a 2.3 percent stake in Royal Dutch Shell, 1.7 percent stake in BP, 0.9 percent stake in Chevron and 0.8 percent of ExxonMobil.

But, as any energy investor would know, oil and gas stocks have been poor performers for the past few years. “It clearly stands out, perhaps not surprisingly, but not obviously, that indeed there is a substantial difference … in return between the oil and gas sector and the broad stock market in periods when the oil price changes substantially,” Matsen said. “Oil price exposure of the government’s wealth position can be reduced by not having the fund invested in oil and gas stocks.” The sovereign wealth fund, like other investors, would have been better off putting their money in other sectors of the global economy.

It isn’t just the most recent downturn that Norway is worried about. Over the long-term, peak oil demand looms. Pulling out of companies like Royal Dutch Shell and BP would make Norway’s wealth “less vulnerable to a permanent drop in oil and gas prices,” according to the country’s central bank, the FT reported.Related: Why Saudi Arabia Should Fear U.S. Oil Dominance

The sovereign wealth fund is seeded with revenues generated from oil and gas sales, so it is already vulnerable to oil price fluctuations. Moreover, the Norwegian government owns a substantial portion of Statoil, making the country even more dependent on oil and gas revenues. One way to reduce the country’s financial risk would be for the sovereign wealth fund to get out of the oil business.

Critics of the divestment campaign often note that liquidating one’s assets does very little to influence the actions of the oil and gas industry. After all, even if divestment dragged down the valuation of an oil company, its share price would merely be discounted for opportunistic investors to scoop up the asset on the cheap. But that was never the overarching goal. The objective of the divestment movement was to make fossil fuels so toxic in the minds of the public that it forces governments to change policies to force a transition towards cleaner energy. That fight is ongoing.

However, the proposal from the Norwegian sovereign wealth fund opens up an entirely new front on the oil and gas industry. Hard-headed central bankers are concerned about the long-term investment case for fossil fuels…unrelated from climate change. The largest sovereign wealth fund in the world simply doesn’t think it makes sense to hold onto oil and gas assets anymore.

By Nick Cunningham of Oilprice.com

Is Saudi Arabia Lying about Its Oil Inventories?

Irina Slav

IRINA SLAV

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

 

OILPRICE.com

oil well

Saudi Arabia’s reports about declining crude oil inventories were instrumental in the buildup of trust on the market that OPEC’s—and the Kingdom’s specifically—efforts to rebalance crude oil’s fundamentals were working. Now, a satellite imaging company, Orbital Insights, is challenging these reports, suggesting that OPEC’s leader may have well been lying to get prices higher.

While this would not exactly be a surprise, it would throw a stone in the quiet waters of the official OPEC narrative that has played a lead role in several oil price rallies so far this year. And here’s the size of this stone: Orbital satellite data suggests that Saudi Arabia’s crude oil inventories have risen slightly since early 2016—not dropped. A slight rise in itself would normally not be a big deal, but Riyadh has been reporting declines in inventories over this period, to the tune of some 70 million barrels.

But things are not so simple, the FT’s David Sheppard notes. The Orbital Insights data only focuses on above-ground storage tanks. Its satellites collect and analyze images of the floating roofs of these tanks, estimating the amount of oil each holds based on the shadow the oil casts across the top.Related: OPEC Eyes $70 Oil

Yet, Saudi Arabia stores oil abroad, too, and in pipelines, as well as in underground tanks that cannot be seen by satellites. It is possible that there is less crude oil in storage abroad and underground, and the 70-million-barrel reduction comes from there, but it is just as possible that there is even more crude in Saudi Arabian storage.

What does this say about oil prices? Most bluntly, if the Orbital data are accurate, it says that Saudi officials were not exaggerating when they said they were ready to do whatever it takes to rebalance the market—“whatever” in this case meaning less-than-truthful about their inventories.

If word gets around that the leader of the pack has been less than transparent about its inventories and creating a make-believe scenario of market rebalancing, other pack members might decide to follow its example, which would fulfill the expectations of those skeptics that from the start said that the OPEC deal wouldn’t work because OPEC always cheats.

By Irina Slav or Oilprice.com

Chinese companies agree to develop LNG in Alaska as Trump visits

CNBC

  • Three major Chinese companies agreed to develop Alaska’s liquefied natural gas sector
  • The deal comes during President Donald Trump’s state visit to Beijing

China’s top state oil major Sinopec, one of the country’s top banks and its sovereign wealth fund have agreed to help develop Alaska’sliquefied natural gas sector as part of President Donald Trump’s visit, the U.S. government said on Thursday.

Alaska Gasline Development, the State of Alaska, Sinopec, China Investment Corp and the Bank of China have signed an agreement to advance LNG in Alaska, the U.S. government said in an email.

A full moon helps illuminate an Alaskan pipeline under the faint glow of the Aurora Borealis on November 19, 2002 near Milne Point, Alaska.

Greg A. Syverson/Getty Images
A full moon helps illuminate an Alaskan pipeline under the faint glow of the Aurora Borealis on November 19, 2002 near Milne Point, Alaska.

The agreement will involve investment of up to $43 billion, create up to 12,000 U.S. jobs during construction, reduce the trade deficit between the United States and Asia by $10 billion a year, and give China clean energy, it said.

There were no other details. AGDC is building a gas treatment plant, an 800-mile (1,287 km) pipeline to south central Alaska for in-state use, and a liquefaction plant in Nikiski to produce up to 20 million tons of LNG per year for export.

China, the world’s third-largest gas buyer, is importing more LNG as the government tries to wean the country off dirty coal as part of its push to clear the skies, while the United States wants to sell more of its excess gas abroad.