Oil report for August 15, 2017
• In 2015, the U.S. spent the least on energy in over a decade, largely due to the collapse of oil prices.
• In real terms, the U.S. spent $1.27 trillion on energy in 2015, down 20 percent from a year earlier.
• In inflation-adjusted terms, as well as in terms of percentage of GDP, the expenditures were the lowest since 2004.
• BP (NYSE: BP) has started up natural gas production at its Juniper project in offshore Trinidad & Tobago. It is the fifth of BP’s expected seven upstream projects slated to come online this year.
• Chevron (NYSE: CVX) says it is going to recommit to the North Sea, restarting a bidding process for the Rosebank field, while also investing in extending the life of existing assets.
• Wood Mackenzie predicts that oil production in the Permian Basin will rise by as much as 300,000 bpd by the end of this year, despite the poor results from Pioneer Natural Resources (NYSE: PXD), which sent a chill through the shale sector.
Oil prices started the week down from last week, with WTI dipping back below $48 per barrel. There is not a ton of direction for the market right now, with expectations of rising U.S shale weighing on the benchmark prices. “Shale is still rising strongly,” said Olivier Jakob, an oil analyst at Petromatrix, according to the WSJ. There are doubts over whether WTI can “move above $50, with the capacity how it is in the U.S.,” he said. He went on to add that trading was flat on Tuesday because “there is nothing really new.”
U.S. shale production continues to grow. The EIA forecasts that U.S. shale production will grow by 117,000 bpd in September compared to August. The gains come from the Permian (+64,000 bpd), plus smaller contributions from the Niobrara (+15,000 bpd), the Eagle Ford (+14,000 bpd), the Bakken (+10,000 bpd) and the Anadarko (+12,000 bpd). For the Permian, it will rise to an overall output of 2.6 million barrels per day, a new record high. Hedging by shale companies has locked in future sales, providing certainty around $50 per barrel for them to ramp up production.
Protestors storm Shell facility in Nigeria. There are rumblings of unrest in Nigeria again, as protestors stormed a crude oil facility owned by Royal Dutch Shell (NYSE: RDS.A) last week, raising fears that Nigerian oil production could once against suffer disruptions. The facility feeds Shell’s Bonny export terminal.
Chart of the Week
Shell hits milestone with Appomattox project. Shell’s massive platform set sail from South Korea to Texas, moving the oil major one step closer to completing its giant Appomattox project in the U.S. Gulf of Mexico. The project was given the greenlight 2 years ago and is expected to come online before the end of the decade. Shell insists that it can breakeven with oil at $50 per barrel.
Oil bankruptcies slow in 2017. A new report from Dallas law firm Haynes & Boone finds that the number of oil and gas companies declaring bankruptcy has slowed to a crawl this year. Only 14 companies filed for Chapter 11 bankruptcy in the first half of 2017, down from 50 in the same period in 2016. The improvement is in part due to the rise of oil prices, but also because some of the weaker oil and gas companies were already pushed out of the market.
Shell pivots to electricity. The FT reports on the strategic shift underway at Royal Dutch Shell (NYSE: RDS.A), which is moving to sell electricity to industrial consumers. The move highlights the potential for an oil major to adapt to a rapidly changing energy landscape. Beginning next year, Shell will sell electricity in the UK, but the company has said it would like to expand to the U.S. In the past, oil companies have declined to enter the electricity business, but with long-term oil demand uncertain, oil producers can hedge their bets by getting into electricity.
Activist investors oppose EQT acquisition of Rice Energy. EQT (NYSE: EQT) has proposed a $6.7 billion takeover of Rice Energy (NYSE: RICE), which would form the largest natural gas producer in the U.S., but activist investor Barry Rosenstein of Jana Partners opposes the deal. Jana Partners holds a 5.8 percent stake in EQT. Rosensteinaccuses EQT of putting executive compensation ahead of shareholder value, arguing that the deal will cost more than the savings EQT would achieve by merging the companies. In other words, EQT is pursuing a “value-destructive acquisition” in order to enrich its executives.
Famed oil bull becomes a bear. Andy Hall, a well-known oil trader, recently closed his hedge fund after posting steep losses on bullish oil bets. He made his name as an oil bull but has recently soured on the chances of a rise in oil prices. “The fact that OPEC has had to talk about further extending its production cuts is ultimately a sign of weakness, not of strength,” he wrote in a letter to investors earlier this month. “The medium-term outlook for oil still looks challenging with, if anything, balances for 2018 having deteriorated in recent weeks.” He also said that “it has become hard to risk capital on the price of oil with as much conviction as in the past.”
U.S. sanctions on Venezuela could redirect oil to Asia. Last week, U.S. President Donald Trump suggested that the U.S. would consider military action in Venezuela, although those comments have since been dismissed by most analysts as bluster. Nevertheless, the U.S. probably still has more actions planned against the South American OPEC member, including some measures targeting Venezuela’s oil. If some sort of ban or sanctions policy on PDVSA is implemented, Venezuela’s oil would like be rerouted to Asian customers, Reuters reports. The U.S. currently imports about 740,000 bpd of Venezuelan heavy crude, a type of oil that would readily find a home in Asia because the cuts from OPEC have limited heavy oil supplies in the region.
ConocoPhillips launches new drilling in Alaska’s North Slope. ConocoPhillips (NYSE: COP) said that would proceed with a $460 million drilling project on the North Slope of Alaska, with oil coming online by the end of the year. The viscous oil would be minimal – only an estimated 8,000 bpd – but it would have larger implications for the area. The North Slope’s viscous oil is thought to have large untapped potential, so Conoco’s success could lead to more activity.