ExxonMobil restarts souther portion of Pegasus crude line
ExxonMobil restarted the southern portion of its Pegasus crude pipeline July 9, a company spokesman said Wednesday. The 96,000 b/d Pegasus line, which runs from Patoka, Illinois, to Corsicana, Texas, was shut in March 2013 after it leaked 5,000 barrels of heavy sour crude near Mayflower, Arkansas.
The southern leg of the pipeline, which runs from Corsicana, Texas, to Nederland, is running at reduced rates and will not be brought to full rates at anytime in 2014, spokesman Aaron Stryk said. ExxonMobil has submitted a remedial work plan to the Pipeline and Hazardous Materials Safety Administration for the northern section of the line but does not have a timetable for its possible approval, Stryk said.
US crude stocks fall 3.7 million barrels last week
US commercial crude stocks dropped 3.7 million barrels to 367.37 million barrels in the reporting week that ended July 25, according to US Energy Information Administration data released Wednesday.
The draw far surpassed the 2.1 million barrel build analysts had been expecting, and largely came about from still-robust crude runs at US refineries as well as imports rallying 337,000 b/d to 7.74 million b/d.
Even though crude runs at US refineries came slipped 47,000 b/d, at 16.55 million b/d runs are still exceedingly strong, and remained comfortably above the 16 million b/d mark for a fifth consecutive EIA reporting week.
Runs last approached these levels ahead of the past winter, when US refineries processed 16 million b/d or more in five out of six reporting weeks between November 29 and January 3. US refinery utilization rates dropped 0.3 percentage points to 93.5% of capacity, in line with analysts expectations.
Crude runs on the US Gulf Coast — home to 51% of US operable capacity — fell 37,000 b/d to 8.59 million b/d, while imports in the region jumped 383,000 b/d to 3.81 million b/d. In turn, USGC crude stocks rose 447,000 barrels to 197.38 million barrels.
b USGC runs likely took a hit last week after ExxonMobil’s 584,000 b/d Baytown, Texas, refinery experienced a compressor trip, in addition to any lingering issues at Shell/Saudi Aramco joint venture Motiva’s 600,000 b/d Port Arthur refinery following weather-related issues the week prior.
EIA data show imports of Saudi crude, which largely feed the Motiva facility, dropped 397,000 b/d to 896,000 b/d in the week that ended July 25. Meanwhile, imports from Venezuela rallied 390,000 b/d to 1.01 million b/d last week, much of which headed to the USGC, likely tied to term deals. Citgo and Valero are typically the largest importers of Venezuelan crude.
Crude stocks at Cushing, Oklahoma — delivery point for the NYMEX crude futures contract — fell 924,000 barrels to 17.9 million barrels last week. This puts Cushing stocks at their lowest since August 2008, and more than 24,000 barrels below year-ago levels.
While some of that crude is likely heading south to the USGC, Midwest refineries have been operating at near record levels, which is likely eating up some of the Cushing supply. Despite an 82,000 b/d week-on-week decline , Midwest refinery runs at 3.71 million b/d are not far shy of the record 3.82 million b/d set in the week that ended July 11.
Cenovus sees 18% hike in oil output in Q2, loads new unit train
Total crude oil output by Cenovus Energy in Western Canada rose 18% to 201,688 b/d in the second quarter on the back of growing oil sands production, CEO Brian Ferguson said Wednesday.
Oil sands production in the second quarter was 124,827 b/d, compared
with 93,797 b/d in Q2 2013, he said on a second-quarter earnings webcast, noting this was followed by a conventional oil output of 76,861 b/d.
A large share of the new oil sands output came from Cenovus’ Christina Lake facility, which saw production rise to 67,975 b/d in the second quarter due to its next phase of development, called Phase E, Ferguson said. Work is underway for the Phase F expansion, due to produce first oil in 2016, while engineering and procurement of construction materials is also being carried out for Phase G.
Production from Cenovus’ second oil sands facility in Alberta, called Foster Creek, averaged 56,852 b/d in the second quarter, Chief Operating Officer John Brannan said on the webcast. “Steaming started for Phase F [of Foster Creek] in May and first oil is targeted later this year,” Brannan said. Typically, Cenovus carries out its expansion projects with capacities of 35,000-45,000 b/d to get a better handle on costs and completing the facilities on time. In the second half of 2014, the company aims to receive regulatory approval from the Alberta government for two new oil sands facilities in the province with a total capacity of 270,000 b/d, Brannan said.
It will include the 180,000 b/d Grand Rapids and the 90,000 b/d Telephone Lake projects. Meanwhile, Cenovus loaded its first unit train in the second quarter at Hardisty, Alberta, operated by a joint venture of Gibson Energy and Houston-based US Development Group, Brannan said.
Typically, each unit train consists of 100 rail cars each with a capacity of 500-680 barrels. “With this, we have loaded eight unit trains in Alberta in the first half of 2014,” Brannan said, reiterating his company’s guidance of exiting 2014 with a total rail loading capacity of 30,000 b/d. Besides the Hardisty facility, Cenovus also has an agreement with independent loader Canexus Corp. for the latter’s crude-by-rail loading facility at Bruderheim, Alberta.
Phillips 66 sees Q3 refinery utilization in low to mid-90% range
Phillips 66 expects worldwide refinery utilization in the third quarter to be in “the low to mid-90% range,” a company official said Wednesday during a conference call to discuss operations.
During the second quarter, worldwide crude capacity refinery utilization was 96% with a profit margin of $9.96/barrel, according to presentation materials related to the call. Phillips’ four “central-corridor” refineries with total capacity of 718,000 b/d ran at 102% in Q2 with a realized profit margin of $14.91/b, it said.
This high run rate was despite a small fire in the larger crude unit at its 58,000 b/d Billings, Montana, refinery during the quarter which affected operations. The refinery is back up, president Tim Taylor said during the call. Phillips’ central corridor refining operations include the 200,000 b/d Ponca City, Oklahoma, refinery, which reported “solid operations” in Q2 due in part to “a more consistent crude slate which led to more consistent results,” Taylor said.
Phillips is looking to buy crude at the wellhead rather than buying blended crude, in the interest of consistency, particularly in the Bakken, he said. Phillips also has two joint venture refineries in the region with Canada’s Cenovus Energy: the 314,000 b/d Wood River, Illinois, refinery, and the 146,000 b/d Borger, Texas, refinery.
A 30-day unplanned outage at the Borger refinery is expected to lower Q3 regional rates slightly, but the company did not quantify how much. “Borger hasn’t run well this year,” said Taylor, adding the refinery was already back up.
Phillips’ three Gulf Coast refineries ran at 92% utilization in Q2, with a realized profit margin of $8.12/b. Total regional capacity is 660,400 b/d, comprised of the 239,400 b/d Lake Charles, Louisiana, refinery, the 274,000 b/d Alliance refinery in Belle Chasse, Louisiana, and the 147,000 b/d Sweeny, Texas, refinery. The company is “actively studying marine and pipeline” alternatives to get price-advantaged crude from Texas to Louisiana, an official said during the call.
Washington (Platts)--30Jul2014/523 pm EDT/2123 GMT
Merger and acquisition activity in the oil and gas industry surged in terms of value and volume in the second quarter of 2014 compared with the second quarter of last year, PwC US said Wednesday.
The company said there were 54 oil and gas deals with values greater than $50 million for a total of $42.2 billion, compared with 47 deals worth $30.3 billion in the Q2 2013.
"The first three months of 2014 set the stage for the strongest second quarter of oil and gas deal activity that we've seen in the last five years," Doug Meier, PwC's US energy sector deals leader, said.
"Over the past three months, we continued to see companies looking to realign their portfolios and divest non-core assets, which provided opportunities for acquirers with cash and access to capital," he said.
There were 12 mega deals during the Q2 2014, representing $30.8 billion, or 73% of total deal value, driven by larger oil and gas companies divesting more valuable assets.
Upstream deals accounted for 61% of total deal activity in Q2 2014, with 33 transactions representing $21.7 billion, or 51% of total second-quarter deal value, the company said.
There were 10 midstream deals that contributed $12.1 billion, and seven downstream deals during Q2 2014 added $7.5 billion, compared with 12 midstream deals worth $17.5 billion and five downstream deals worth $1.4 billion during the same period last year, PwC said. The number of oilfield services deals dipped 30%, while value dropped 80%.
"In the second quarter, overall shale deal value jumped substantially, reaching $20 billion, compared to $4.4 billion in the first quarter of 2014 and $7.7 billion during the second quarter of 2013," John Brady, a Houston-based partner with PwC's energy practice, said.
"The continued interest in shale plays is a testament to how companies and investors view the success of the unconventional landscape, especially as new technologies and methods come to fruition that increase speed and efficiency from the upstream and drilling process to transportation and bringing oil and gas to market," he said.
The most active shale plays for merger and acquisition with values greater than $50 million during Q2 2014 include the Eagle Ford in Texas, which had six deals with a total value of $6.9 billion, followed by the Niobrara and Permian plays with three deals each, representing $432 million and $1.1 billion, respectively. The Marcellus Shale represented two deals worth $2.9 billion, while the Utica and Bakken shales each generated one deal.
--Rodney White, rodney.white@platts.com
--Edited by Annie Siebert, ann.siebert@platts.com
Brussels (Platts)--30Jul2014/622 am EDT/1022 GMT
The EU has agreed to target Russia's oil sector as part of new economic sanctions over the country's involvement in the Ukraine crisis, EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso said Tuesday.
The sanctions will "curtail Russian access to sensitive technologies particularly in the field of the oil sector," they said in a joint statement.
The sanctions will require companies subject to EU law wishing to export "certain energy-related equipment and technology" to Russia to gain approval first from a competent national authority, the press office for the EU Council, which represents national governments, said in a note Tuesday.
"Export licences will be denied if products are destined for deepwater oil exploration or production, Arctic oil exploration or production and shale oil projects in Russia," the press office said.
A senior EU official source stressed Tuesday that only exports for these specific oil project categories would be banned -- exports for gas projects can continue.
Late Tuesday afternoon in the US, President Barack Obama announced new sanctions against Russia, targeting energy technology exports and banking.
The EU sanctions will only apply to new contracts, and are expected to be approved formally by national governments acting in the EU Council in the next day or so.
The EU plans to publish the sanctions in its Official Journal late Thursday and they would apply from the next day for 12 months, in principle, the source said, adding that EU sanctions are constantly monitored and can be changed at any time.
There would be a formal review after three months to check on their effectiveness.
The new economic sanctions, which also target Russia's access to EU capital markets, defense and dual-use goods, are part of the EU's toughening attitude to Russia after the downing of civilian Malaysian Airlines flight MH17 in the conflict zone in eastern Ukraine. All on board died, including more than 200 EU citizens.
The EC said in its draft sanctions recommendations last week that EU exports of energy-related technologies for non-conventional oil and gas projects are worth some Eur150 million [$200 million] per year.
The source said that the EU had chosen high-end oil sector technology as it may be hard to find alternatives to EU products at short notice.
BAN COULD DELAY PROJECTS
An export ban on such equipment could delay plans by Russia's state-run Rosneft and Gazprom to explore and develop new oil and gas resources in the Russian offshore and Arctic areas by limiting access to Western drilling technology.
ExxonMobil and Rosneft are planning to drill the first wells in the Arctic Kara Sea this August, and the first exploration results are expected by the end of November.
EU Energy Commissioner Guenther Oettinger said last week the EU has "no reason" to help promote the Russian economy by giving it access to key energy technologies.
"Russian activity in the Arctic can only be developed with hardware and software from the West," he said.
The EC last week recommended targeting pipes, casing and tubing, drill bits, pumps, mobile drilling derricks, and floating or submersible drilling or production platforms, and to focus on long-term production projects so as not to disrupt current energy trade with Russia.
A list of the products covered will be published with the sanctions decision in the EU's Official Journal, the source said.
The EU had already decided to expand its sanctions criteria to include Russian entities even before the downing of MH17, based on Russia's failure to meet EU demands such as to stop the flow of weapons over the border to pro-Russian rebels in eastern Ukraine. The first names published Monday under these extended criteria did not include any with connections to Russia's energy sector.
The EU has also agreed to target individuals and entities supporting or benefitting from the Russian decision-makers involved in annexing Crimea and destabilizing eastern Ukraine -- a move seen as opening a way to target Russian President Vladimir Putin's inner circle. The first names under these criteria are expected Wednesday.
--Siobhan Hall, siobhan.hall@platts.com
--Edited by Kevin Saville, kevin.saville@platts.com
Singapore (Platts)--30Jul2014/613 am EDT/1013 GMT
India's LPG imports for public and private sector demand are projected to jump to more than 8 million mt in fiscal 2014-2015 (April-March) from 6.3 million mt in 2013/14, after the government raised the number of subsidized cylinders early this year, India-based traders said Wednesday.
The government early last year bowed to political pressure and increased the subsidy cap to nine after it was set at six cylinders in September 2012.
This was followed by the Cabinet Committee on Political Affairs' approval January 30 to further raise it to 12 subsidized cylinders a household can receive.
Compared to negative demand growth in the first quarter of the last fiscal year, growth this year is forecast at double digits, traders said. Official data showed a 12.3% jump in Q1 demand to 4.03 million mt versus 3.59 million mt during the same period of the last fiscal year.
"If this momentum continues due to the relaxation of restrictions on subsidized cylinders, demand for LPG from public sector undertakings is likely to touch nearly 18 million mt/year," one source said, calculating this based on H2 sales being normally higher than in H1 by nearly 10%.
Demand for the rest of the year is projected to expand well above 15%, he added.
"As local production capacity is likely to stay stagnant at around 10 million mt, the imports by PSUs will touch 8 million mt and the private sector would probably bring in another 0.5 million mt, taking the total import to well above the 8 million mt mark," he said.
In June, LPG sales rose 11.5% year on year to 1.32 million mt versus 1.18 million mt in June 2013, but were down 5.6% from May, official data showed.
An Indian Oil Corp. executive recently said Indian LPG imports will continue to grow even if the new Bharatiya Janata Party government proceeds with plans to reduce subsidies for consumers.
LPG imports are projected to rise to 9.2 million mt by 2019/20, or a compound annual growth rate of 18% from 2013-14, without taking into account the impact of subsidy cuts, and if the government cuts subsidies, imports are estimated at 8 million mt, the executive said.
The trade source said long-term import projections would depend on how much indigenous production is being added. "We do not see too much additional refining capacity coming up, as there is excess capacity already," he said.
SUBSIDY BURDEN
The only uncertainty affecting imports would be state refiner MRPL ramping up LPG production, as it has a swing capacity of 700,000 mt/year recently added to its refinery, he said.
"If the current rate of demand expansion continues, then the figure of 9 million mt/year could be breached in the next couple of years itself, as all incremental demand would have to be met through imports," the source said, adding that LPG demand in India is price inelastic due to the heavy subsidies.
"The federal government did not make any announcement in the budget about controlling the runaway LPG growth by curbing subsidized cylinders owing to elections in some important states which are slated towards the end of the year," he said.
"It seems to be a repeat performance of the previous Congress Government which kept delaying the decision because of some election or the other and got into a fine mess. The only reassuring point for the government is the stable prices as otherwise the impact could be hurtful to its finances."
Sources said recent record high VLGC freight rates around $140/mt would not have an impact on Indian imports, as Indian oil firms have time-chartered vessels. Rates have eased back towards $120/mt this week.
"In fact India is one of the reasons for the tightness in shipping, as ships are waiting indefinitely at the harbors for discharging," one source said, referring to congestion at Indian ports which crimp up vessel supply.
Healthy Indian imports, of which butane makes up 60% and propane 40%, as well as North Asian petrochemical demand, are among the factors keeping Asian prices above $900/mt since April.
However, in recent days prices have dipped below $900/mt, as Japanese utilities demand has waned during summer, while supplies were abundant with expected flows from the US, West and North West Africa as well as cargoes being resold by Chinese and Japanese importers, traders said.
ICRA Research, an associate of Moody's Investors Service, said in a recent report high LPG subsidies would continue to be a major issue even after diesel price deregulation.
While diesel under-recoveries should decrease by around 60% year on year to Rupee 260 billion ($4.31 billion) in fiscal 2015, LPG under-recoveries are expected to rise by 54.2% year on year to Rupees 324 billion in H2 of fiscal 2014, from Rupees 210 billion in H2 of fiscal 2013.
"LPG demand growth is expected to remain high due to increased cap of subsidized cylinders, which tend to encourage the diversion of domestic LPG for auto-LPG and commercial LPG purposes (where prices are deregulated and almost double that of subsidized domestic LPG)," it said.
The under-recovery on domestic LPG has more than doubled to Rupee 465 billion in fiscal 2014 from Rupee 195 billion in fiscal 2011, following robust demand growth of 5-9% during the three years, except for 1.6% growth in fiscal 2013, along with non-revision of domestic LPG prices.
ICRA said it expects the share of domestic LPG in total under-recovery to increase from 25% in fiscal 2013 and 33% in fiscal 2014 to around 46% in fiscal 2015 due to an increase in the subsidy on domestic LPG.
--Ramthan Hussain, ramthan.hussain@platts.com
--Edited by Jonathan Fox, jonathan.fox@platts.com
Washington (Platts)--29Jul2014/444 pm EDT/2044 GMT
The US on Tuesday said it will impose restrictions on exports of US energy technologies to Russia for use in deepwater, Arctic offshore or shale oil projects, as part of a sanctions packaged aimed at punishing Moscow for further escalating the crisis in Ukraine.
The export restrictions dovetail with similar measures the EU is expected to impose on Russia later this week.
Under the sanctions, US companies wishing to export such technology to Russia would need to receive permission from the US Department of Commerce.
US officials said the restrictions should not impact Russia's current oil production and sales.
"But it will have a cumulative impact on the development of future fields," an official, who spoke on condition of anonymity, told reporters. "The impact of these restrictions will grow over time."
An export ban on such equipment could delay plans by Russia's state-run Rosneft and Gazprom to explore and develop new oil and gas resources in the Russian offshore and Arctic areas by limiting access to Western drilling technology.
ExxonMobil and Rosneft are planning to drill the first wells in the Arctic Kara Sea this August, and the first exploration results are expected by the end of November.
ExxonMobil officials could not immediately be reached for comment on how the new sanctions would impact its plans.
--Herman Wang, herman.wang@platts.com
--Siobhan Hall, siobhan.hall@platts.com
--Edited by Derek Sands, derek.sands@platts.com
Washington (Platts)--29Jul2014/1220 pm EDT/1620 GMT
A cargo of Kurdish crude on the United Kalavrvta tanker 60 miles off the port of Galveston, Texas, remained stranded offshore Tuesday, and may stay there until a US court determines whether the Iraqi central government or the Kurdistan Regional Government has purview over the oil.
Though a US magistrate judge ordered the US Marshals Service to seize the cargo, it can not do so until the oil is lightered and reaches US territory, which extends 12 nautical miles off the coast, said Phillip Dye, an attorney representing Baghdad.
"We're waiting for them to lighter some oil," Dye said. "The other possibility is they could sail off or they could just sit there with the oil."
The US Marshals Service office in Galveston declined to comment and referred questions to its general counsel in Washington, who could not be reached for comment.
Meanwhile, lightering firm AET, which was contracted by Talmay Trading to unload the crude from the United Kalavrvta, has asked the US District Court for the Southern District of Texas for a restraining order against itself, which would free AET from its obligation to lift the cargo.
In its request filed late Monday, AET said it will "suffer immediate and irreparable injury by taking possession of the crude oil cargo," given Baghdad's threats of legal action if the crude is offloaded. AET asked for the restraining order until the court determines who owns the cargo.
The Iraqi central government has declared in a filing with the court that the United Kalavrvta's 1 million barrels of crude, valued at more than $100 million, belongs to the Iraqi people and is being unlawfully sold by the KRG.
--Herman Wang, herman.wang@platts.com
--Edited by Derek Sands, derek.sands@platts.com
Lagos (Platts)--30Jul2014/519 am EDT/919 GMT
Nigeria LNG Ltd Wednesday said it was gradually losing global LNG market share due to a delay in the expansion of the six train Bonny LNG plant in the Niger Delta.
The Bonny plant produces 22 million mt/year of LNG, but plans to build a seventh train and increase output to 30 million mt/year, initially from 2010, have failed to materialize.
"NLNG used to be the 10th-largest supplier but it is gradually losing the market to international competitors who have continued to expand their businesses. It is therefore imperative that NLNG increases its production in order not to lose more market share," the company's general manager in charge of production, Chima Isilebo, said in a statement.
NNPC holds a 49% interest in the Bonny plant alongside Shell (25.6%), Total (15%) and Eni (10.4%).
The delay in building the seventh train has cost Nigeria $2.5 billion/year in potential revenue, as well as the opportunity to further reduce gas flared from oil fields in the Niger Delta, NLNG Managing Director Babs Omtowa said in January.
The Bonny LNG plant currently processes over 4 Tcf/year of associated gas that would have been flared into export gas and for domestic consumption, Omtowa said at the time.
The project's owners have continued to postpone making a final investment decision on the seventh line even though export contracts have been already been signed with potential buyers in Japan, China, India and Malaysia.
While no official reason has been given for the delay, industry sources have attributed it to Nigeria's current focus on providing gas to the domestic market over exports, security challenges and delays in the passing of a petroleum industry bill that is holding back several projects.
--Staff, newsdesk@platts.com
--Edited by Wendy Wells, wendy.wells@platts.com
By Stephen Bierman Jul 30, 2014 9:49 PM GMT+0700
The latest European sanctions may thwart plans by OAO Rosneft (ROSN), Russia’s largest oil producer, to boost sagging output by drilling offshore.
New export licenses for energy-related equipment and technology will be denied if the products are destined for deep water, arctic or shale-oil projects in Russia, the European Union said in a statement yesterday.
“The idea is to constrain Russia’s ability to develop new production in the future without affecting current production and supply,” Edward Chow, a senior fellow at the Center for Strategic and International Studies, said by e-mail.
The EU agreed to the measures to force Russia to end its involvement in Ukraine following the July 17 downing of a Malaysian airliner over territory held by pro-Russian separatists. Rosneft also faces U.S. sanctions limiting its access to capital markets and travel by Chief Executive Officer Igor Sechin.
Subject to Sanction
Rosneft shareholders may welcome a halt in plans to invest in Russia’s offshore zones due to the high cost of extracting the oil resource, said Ivan Mazalov, who helps manage $4 billion at Prosperity Capital Management in Moscow.
“Offshore development is value destructive for Rosneft at current oil prices, so no upside is destroyed,” said Mazalov.
Rosneft shares rose 1.8 percent to 224.31 rubles at 6:22 p.m. in Moscow.
40 Wells
The limits on equipment may crimp Rosneft’s plans to drill as many as 40 exploration wells in Russia’s offshore areas with Exxon Mobil Corp. (XOM), Eni SpA and Statoil ASA (STL) by the end of 2018, the company said in a Feb. 4 presentation.
“There’s nothing today that changes our impression of the progression of the projects,” which are still at a very early stage, Knut Rostad, a spokesman for Statoil, said by phone. “We will ensure that our activities are in compliance with the sanctions.”
Rosneft’s press service didn’t immediately comment on offshore plans. Eni didn’t respond to e-mails seeking comment.
“We are assessing the impact of the sanctions,” Exxon spokesman Alan Jeffers said by e-mail today.
Russia’s 2008 strategic laws, which favor state-led companies, effectively restrict exploration on the nation’s continental shelf to Rosneft and OAO Gazprom, the world’s largest natural gas producer. Gazprom retains plans to develop the vast Shtokman deposit in the Barents Sea, even after a partnership with Statoil and Total SA failed to reach an investment decision.
Caspian Drilling
OAO Lukoil, Russia’s second-largest oil producer, has offshore exploration and production in the Caspian Sea. Lukoil contracts Russia’s largest driller Eurasia Drilling, which has its own fleet of so-called jack-up rigs, for exploration in the inland sea.
Oil output by Rosneft fell to an average 4.13 million barrels a day in the second quarter from an average 4.22 million in the fourth quarter, according to financial results on the company’s website.
The explorer seeks to boost oil and gas output 30 percent by 2020, Sechin said on May 24 in St. Petersburg. Rosneft and Exxon plan to begin a well in the Kara Sea next month with a Seadrill Ltd. rig to exploit a deposit the size of the city of Moscow. The well, targeting a structure with more than 9 billion barrels of oil and gas potential, may surpass $700 million in cost.
Seadrill will make a statement later today, Chief Financial Officer Rune Magnus Lundetrae said by phone.
To contact the reporter on this story: Stephen Bierman in Moscow at sbierman1@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Alex Devine, Ana Monteiro
By Maher Chmaytelli and Grant Smith Jul 31, 2014 2:02 AM GMT+0700
Escalating conflicts in Libya are thwarting a revival of oil output from Africa’s largest crude reserves after a yearlong blockade of eastern ports, just as Societe Generale SA and Barclays Plc predict rising demand.
While the government said in early July that traders could buy cargoes again from Es Sider and Ras Lanuf, the biggest blocked ports, neither has shipped anything. In Tripoli, the capital, firefighters are still battling a blaze at a fuel-storage depot caused by clashes between militias that have been struggling for political power in the three years since the ouster and killing of longtime leader Muammar Qaddafi.
Brent crude futures have been trading as if supplies would be ample. Near-term contracts are priced at a discount to deliveries later in the year, a pattern known as contango, since July 8, the longest stretch in four years. Societe General and Barclays are among the banks predicting the discounts won’t last, with accelerating global growth driving global oil demand by more than Libya produced in any year since 1979.
“Investors became very excited about the reopening and underestimated the technical issues that have held up the resumption of exports,” Riccardo Fabiani, a London-based analyst at Eurasia Group, a political-risk group that specializes in energy. “They are only now coming to grips with a more complex picture.”
Evacuations
The U.S. State Department evacuated its Libyan embassy on July 26 because of the violence, while the U.K. and Canada also withdrew diplomatic staff. With conflicts in the North African country becoming more widespread and deadly, “the prospect of increasing exports is starting to look a lot bleaker,” Citigroup Inc. said in a report yesterday.
Brent crude for September delivery ended at $106.51 a barrel on the ICE Futures Europe exchange, compared with $106.99 for the October contract and $107.32 for December. Prices for immediate delivery have traded at a discount to later ones for 17 straight sessions, the longest stretch since the end of 2010, exchange data show.
On July 16, the last day of trading for the August contract, the discount to September futures was $1.32 a barrel, prompting firms including Bank of America Corp. and Energy Aspects Ltd. to speculate it would be profitable for traders to buy crude at the current price, store it, and sell later.
“Everyone is very excited about what’s happening to the prompt Brent spread, but I don’t think that’s indicative of a total market collapse, or anything even resembling it,” said Seth M. Kleinman, Citigroup’s head of European energy research. “If you’re buying crude for your refinery, all you care about is it’s reliably there, and you can’t say that’s going to be the case for Libya.”
OPEC’s Smallest
The clashes, between an anti-Islamist militia aligned with a renegade general and pro-Islamists, are a spinoff of violence in the eastern region between Islamist militants and their opponents, headed by General Khalifa Haftar. Rivalries between militias, which have often doubled as national security forces, have undercut the already-weak central government’s ability to exert influence and stabilize the nation.
Production in Libya reached 1.7 million barrels a day in 2008 and was almost 1.6 million before Qaddafi’s death in 2011. Output has tumbled since then as unrest and political instability increased. Earlier this year, Libya became the smallest supplier in the Organization of Petroleum Countries and shipped 300,000 barrels a day in June, according to data compiled by Bloomberg.
Contango Risk
A sustained resumption by Libya could help to maintain the contango. Brent’s premium to West Texas Intermediate, the main U.S. equivalent, was at $6.24 a barrel today, having settled at $6.75 yesterday.
Libya’s oil is similar to the Brent crude from the North Sea that is a European benchmark. Both are low in sulfur and less dense than other types, meaning they can yield a greater proportion of high-value products including gasoline and jet fuel.
“If a refiner buys cheap crude from Libya, he is not necessarily there to buy North Sea barrels that he would otherwise have been interested in,” Torbjorn Kjus, an analyst at DNB ASA, Norway’s biggest bank, said by e-mail on July 23. “A pickup in exports as a result could blow out the contango even further.”
North Sea Works
While extra Libyan cargoes would add supplies, there’s also likely to be less shipped from the North Sea. Producers in the region are poised to undergo yearly maintenance next month, reducing the pool of crudes available.
Shipments of Brent, Forties, Oseberg and Ekofisk crudes, the grades that make up the physical price of Brent, will drop to a 14-month low of about 755,000 barrels a day next month, according to loading programs obtained by Bloomberg.
That will occur at a time of strengthening demand. Daily global use will increase 1.97 million barrels to a record 93.63 million in the second half of this year, according to the International Energy Agency, an adviser to 29 oil-consuming nations.
Nations including Saudi Arabia may adjust their output if Libya ships more, according to Mike Wittner, an analyst at Societe Generale in New York.
Libya’s supply resumption will be uneven, and fighting around Tripoli could mean output declines if international oil companies evacuate more workers, according to Miswin Mahesh, an analyst at Barclays in London.
“Further weakness on Brent from current levels is likely to be limited until we see exports from Libya actually materialize in a sustainable manner,” Mahesh said. “That’s unlikely given the increasingly fragile state of affairs.”
To contact the reporters on this story: Maher Chmaytelli in Dubai at mchmaytelli@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Charlotte Porter
By Moming Zhou Jul 30, 2014 11:46 PM GMT+0700
U.S. crude imports may drop from last week’s two-month high as prices on the Gulf Coast, home to 51 percent of refining capacity, slipped below Brent.
Imports climbed 337,000 barrels a day in the week ended July 25, the Energy Information Administration reported today. Light Louisiana Sweet crude on the Gulf traded below Brent, benchmark for half of global oil trade, for a fourth day, according to data compiled by Bloomberg.
LLS surged $4.52 a barrel above Brent on July 23, the biggest premium in one year, as strong refinery demand depleted crude inventories in the Gulf region. For the past year, the grade averaged $4.26 cheaper than Brent. Refineries slowed their operation last week amid rising fuel inventories.
“This is a short-term reaction,” said James Williams, an economist at WTRG Economics, an energy research firm in London, Arkansas. “But it’s not going to hold. We have a surplus of light crude. Gasoline stocks are sufficient.”
Crude imports rose to 7.74 million barrels a day last week, the highest level since May 23, the EIA, the Energy Department’s statistical arm, reported. Shipments to the Gulf Coast, known as PADD 3, climbed 383,000 to 3.81 million.
Imports reached 6.47 million barrels a day in mid-May, the lowest level since 1997, as U.S. domestic production reduced dependence on foreign oil. Output reached the highest since 1986 as a combination of horizontal drilling and hydraulic fracturing, or fracking, unlocked supplies trapped in shale formations, including the Bakken in North Dakota and the Eagle Ford in Texas.
Prices Moving
LLS for immediate delivery rose 66 cents to $105.48 a barrel today, according to data compiled by Bloomberg. European Dated Brent slid 7 cents to $106.09. LLS averaged $2.45 a barrel more expensive than Brent last week.
Brent for September delivery slid 35 cents to $107.37 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate, the U.S. benchmark, fell 2 cents to $100.95 on the New York Mercantile Exchange.
Crude inventories in PADD 3 dropped to 196.9 million barrels in the week ended July 18, the lowest level since March. They climbed 447,000 barrels in the seven days ended July 25, the first weekly gain in one month.
U.S. refineries operated at 93.5 percent of their capacity last week, down from 93.8 percent the previous week.
To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Richard Stubbe, Charlotte Porter
By Matthew Campbell and Alex Webb Jul 30, 2014 11:12 PM GMT+0700
July 30 (Bloomberg) -- Atul Lele, chief investment officer at Deltec International Group, discusses finding investment opportunities in conjunction with Russian sanctions and the moral and legal issues involved. He speaks with Tom Keene on “Bloomberg Surveillance.”
BP Plc (BP/), Siemens AG (SIE) and Renault SA (RNO) are among European companies preparing for a downward turn in their Russian business following the European Union’s decision to impose its widest-ranging sanctions yet over President Vladimir Putin’s involvement in eastern Ukraine.
EU leaders announced plans yesterday to restrict the export to Russia of equipment to modernize the oil industry and forbid the sale of machinery, electronics and other civilian products with potential military uses. New arms contracts with Russia are also not allowed.
The sanctions will have a direct impact on companies like Siemens, which may no longer be able to sell oil equipment to Russia, and an indirect effect on many others like Renault, which expects the country’s auto market to contract more than 10 percent in 2014 as consumers hold back purchases. BP, owner of 20 percent of state-backed OAO Rosneft (ROSN), yesterday warned of risks to its profit and production due to the crisis.
“In Europe, for some companies this is becoming a major problem, and they can see it becoming an even bigger one,” said Andrew Kenningham, an economist at research firm Capital Economics. “The long-term impact of a standoff, if it continues, is clearly very bad for business confidence and future investment in Russia.”
Shares Decline
Renault shares declined 3.6 percent today, while Siemens slid 0.9 percent and BP fell 0.5 percent.
The Ukraine confrontation intensified with the July 17 downing of a Malaysian airliner by a surface-to-air missile over territory held by pro-Russian separatists in eastern Ukraine. All 298 aboard were killed. The U.S. this week said that Russian forces are firing artillery at Ukrainian units on the other side of their border, where the Kiev government is fighting a secession movement by pro-Russian separatists. The Kremlin says it isn’t supplying or otherwise backing the rebels.
German exports to Russia could contract 10 percent to 20 percent as a result of the escalating crisis, said Martin Wansleben, head of the Association of German Chambers of Commerce and Industry. German trade with Russia was worth almost $88 billion last year, according to data compiled by Bloomberg. Germany is the EU’s largest exporter to Russia.
U.S. Measures
The new EU measures also bar Russian state-owned banks from selling shares or bonds in Europe. Further U.S. sanctions announced yesterday target VTB Bank (VTBR), Bank of Moscow and the Russian Agricultural Bank, as well as United Shipbuilding Corp. The U.S. also is suspending government-backed financing for new deals in Russia and prohibiting export of some equipment used for oil exploration and production.
The pain from sanctions may be felt most sharply in the energy sector. Rosneft, led by Putin ally Igor Sechin, is trying to tap deposits of hard-to-access oil locked in shale formations and deep underwater, in order to compensate for stagnant production from Soviet-era conventional fields. The company is Russia’s largest oil producer.
European restrictions on the export of high-tech equipment could complicate those plans and threaten BP’s investment. Shares of Rosneft, which also has partnerships with Exxon-Mobil Corp. and Eni SpA (ENI) for Arctic exploration, have lost 14 percent of their value since June 30.
Siemens Impact
Siemens, whose 3,100 employees in Russia generated 2.2 billion euros ($2.95 billion) in sales from the country last year, counts the likes of OAO Gazprom (OGZD) and pipeline operator OAO Transneft among its customers. The Munich-based company is also providing electrical equipment for OAO Lukoil (LKOD)’s Filanovskaya oil platform in the Caspian Sea, while its train-making joint venture is working with Russian Railways to supply 675 freight locomotives by 2020.
Siemens Chief Executive Officer Joe Kaeser, whose March meeting with Putin was criticized by German Vice Chancellor Sigmar Gabriel, said in a July 2 interview that he told the Russian leader: “‘Hey, look, I committed, and you’d better make sure that this commitment, this cooperation, will last because if you don’t stop that crap then we’re going to be the first ones to obey the sanctions and put them in place.’” Siemens spokesman Marc Langendorf declined to comment.
Another supplier of energy gear, France’s Technip SA (TEC), lowered its outlook for profit margins on some types of projects this week because of uncertainty about how actions against Russia would affect progress on the giant Yamal LNG installation in Arctic waters. A Technip representative could not immediately be reached for comment.
Too Optimistic
Other European energy companies that had hoped to help extract some of the world’s largest oil and gas reserves are also pulling back. Total SA (FP), France’s largest oil company, stopped buying shares in Russian partner OAO Novatek after the Malaysian crash, “considering all the uncertainty it created,” chief financial officer Patrick de la Chevardiere said today. Total shares fell 4.9 percent in Paris.
The automotive industry is bracing for a further contraction of the Russian car market, which has already been in decline as a result of the crisis and a sluggish economy. Renault has greater exposure in Russia than other automakers because it controls Lada maker OAO AvtoVAZ with Japanese partner Nissan Motor Co.. (7201)
“We’re probably a little too optimistic; there’s a risk that it will be worse,” Renault Chief Performance Officer Jerome Stoll said yesterday before the sanctions measures were announced. “We’re in a political and economic environment that is absolutely uncertain.”
Strained Relationship
Despite targeting oil production, the EU sanctions have steered clear of the natural-gas sector -- leaving unscathed so far companies like BASF SE, the world’s biggest chemical producer, which gets about half its natural gas from state-controlled Gazprom, and other utilities like E.ON AG (TAG1Y) and RWE AG. On average, EU countries get 24 percent of their gas from Russia, according to Deutsche Bank -- meaning that confronting Gazprom could result in supply cut-offs.
For now, both European and Russian companies are trying to do business as best they can in an increasingly strained environment, said Logan Wright, the managing partner for Moscow at law firm Clifford Chance.
“The situation has gone to a level that almost no one was anticipating,” Wright said. “People are increasingly pessimistic about the impact.”
To contact the reporters on this story: Matthew Campbell in London at mcampbell39@bloomberg.net; Alex Webb in Munich at awebb25@bloomberg.net
To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net; Aaron Kirchfeld at akirchfeld@bloomberg.net Chad Thomas
By Grant Smith and Claudia Carpenter Jul 30, 2014 7:56 PM GMT+0700
Iraq’s semi-autonomous Kurds, sparring with the nation’s central government over their right to export crude, may almost double oil production next year and triple it this decade, Goldman Sachs Group Inc. said.
The Kurdistan Regional Government could bolster output to about 540,000 barrels a day by the end of 2015 if it can expand pipeline capacity and surmount marketing constraints, analysts including New York-based Head of Commodities Research Jeff Currie said in a report yesterday. The KRG and authorities in Baghdad have clashed over the Kurds’ attempts to sell oil independently, including over a tanker currently anchored off Galveston, Texas.
Iraq will be the biggest source of new capacity this decade in the Organization of Petroleum Exporting Countries, the group responsible for 40 percent of the world’s oil, according to the International Energy Agency. Brazil will the second-largest source of supply growth outside OPEC after North America, boosting output by 48 percent to 3.1 million barrels a day by 2019, the IEA predicts.
“With Brazil and South Iraq, it’s the largest growth potential in the industry outside North America,” Michele Della Vigna, the bank’s head of European energy research, said in an interview in London yesterday. “There will be enough buyers of Kurdish crude in the market. The greatest uncertainty at this point in time surrounds the payment mechanism to the producers and security of installations and pipelines.”
Reaching 540,000 barrels a day by the end of 2015 will require that Kurds have access to the main export pipeline to Turkey’s port of Ceyhan, and that the Baiji refinery is restarted, Goldman Sachs said. Output will be limited to 110,000 barrels a day at the end of next year if those conditions aren’t met.
Production could exceed 1 million barrels a day by the end of the decade, Goldman’s Della Vigna said. The Kurds are producing about 280,000 barrels a day currently, according to the report.
To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Rachel Graham, Sharon Lindores
By Paul Burkhardt Jul 30, 2014 5:21 PM GMT+0700
SacOil Holdings Ltd. (SCL) is in talks to buy what could be the South African oil and gas company’s first production asset, Chairman Tito Mboweni said.
The Johannesburg-based company has “the possibility of an OML,” or oil-mining license, for a project that is in production phase in Nigeria, the continent’s largest economy and crude producer, Mboweni, 55, said yesterday in an interview. He declined to provide more detail on the stage of negotiations or the location of the asset.
SacOil is buying assets in Nigeria and has operational blocks in Malawi, Botswana and Democratic Republic of Congo, whose government has opened up dozens of exploration blocks. Companies such as BP Plc have bought assets off Namibia on a bet that the southern African nation’s coastal shelf may mirror that of Brazil across the Atlantic, while Anadarko Petroleum Corp. is working in waters off Mozambique in the southeast of the continent, home to the biggest gas finds in a decade.
Royal Dutch Shell Plc (RDSA) selling operations in Nigeria “is good for us” and the company is also “sniffing around” for prospects in Namibia among other areas in Africa, Mboweni said.
Some of the company’s investors prefer oil and gas prospecting companies because of the potential for capital appreciation, he said.
“The debate within the company is whether we’re going to stay upstream oil and gas or vertically and horizontally integrated,” he said.
South Africa
SacOil isn’t interested in assets in South Africa, he said. The country’s semi-desert Karoo region may hold as many as 390 trillion cubic feet of natural gas and Total SA (FP) last week started operations to drill the country’s first deep-water well.
“We don’t have the capacity for that,” Mboweni said. “You could spend a lot of money and not get anything” from South African exploration, he said.
The company’s shares have more than doubled over the past 12 months in Johannesburg. They rose 1.9 percent to 55 cents at 12:08 p.m.
SacOil Chief Executive Officer Thabo Kgogo, who previously served as state-owned PetroSA’s chief operating officer, started the job last month. “His plan is that he needs something small, now, that produces say about 5,000 barrels,” Mboweni said. “Something that generates cash.”
As the debate over the direction of SacOil goes on, Mboweni envisages a company that will rival the majors.
“It’s astounding that with such major natural resources in Africa, we don’t have a pan-African giant,” Mboweni said. “That is part of the philosophy underpinning SacOil’s existence; we have to be that giant pan-African oil and gas company.”
To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net
To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net Ana Monteiro, Tony Barrett
Russia Sanctions Spread Pain From Putin to Halliburton
By David Wethe and Joe Carroll Jul 30, 2014 11:00 AM GMT+0700
As violence escalates in eastern Ukraine between government and separatist forces, the EU yesterday sought to punish Russia for its involvement by restricting exports of deep-sea drilling. Pictured is a damaged house in Horlivka, Ukraine, on July 2014.
U.S. and European Union sanctions against Russia’s Vladimir Putin threaten to shut off some of the world’s largest energy companies from one of the biggest untapped energy troves on the planet.
As violence escalates in eastern Ukraine between government and separatist forces, the EU yesterday sought to punish Russia for its involvement by restricting exports of deep-sea drilling and shale-fracturing technologies. The U.S. followed suit, with President Barack Obama announcing a block on specific goods and technologies exported to the Russian energy sector.
“Because we’re closely coordinating our actions with Europe, the sanctions we’re announcing today will have an even bigger bite,” Obama told reporters yesterday at the White House. “Russia’s energy, financial and defense sectors are feeling the pain.”
The new restrictions, which Obama described as the region’s most significant to date, “will make it more difficult for Russia to develop its oil resources over the long term,” he said.
Russia relies on companies including Exxon Mobil Corp. (XOM), BP Plc (BP/), Halliburton Co. (HAL) and Schlumberger Ltd. (SLB) for the latest technology and expertise it needs to develop an estimated $7.58 trillion in oil and natural gas resources that sprawl across nine time zones. Exploration and production companies like Exxon were expected to spend $51.7 billion in Russia this year, according to estimates from Barclays Capital Inc. -- much of which would go to service and equipment companies such as Schlumberger and Halliburton.
No Fracking
The U.S. and EU are restricting the transfer of certain oilfield technologies into Russia that are needed to develop its oil and gas fields in shale rock formations, deep water offshore and in the Arctic. That will include horizontal drilling and hydraulic fracturing, which has helped boost North American crude production and set the U.S. on a course toward energy independence.
Russia is the second-largest market for fracking services outside North America, after China. Russia’s demand for rock-crushing gear was forecast to double by 2018, according to research by PacWest Consulting Partners.
Russia Revenue
Oilfield service companies Halliburton, Baker Hughes Inc. (BHI) and Weatherford International Plc each generate 4 percent to 5 percent of their global sales from Russia, while Schlumberger gets 5 percent to 6 percent, according to RBC Capital Markets. The increased sanctions aren’t expected to drive the service companies out of Russia, Kurt Hallead, an analyst at RBC Capital Markets in Austin, said in a phone interview.
“It hurts from an earnings standpoint,” Hallead said. “They basically have to eat a lot of fixed costs if their revenue goes away.”
Subject to Sanction
Halliburton continues to operate in Russia while complying fully with all laws, Susie McMichael, a spokeswoman at Houston-based Halliburton, said yesterday in an e-mailed statement. A spokeswoman for Baker Hughes declined comment, and Weatherford representatives couldn’t be reached. Schlumberger wasn’t able to comment on the future impact of the sanctions, according to Stephen Harris, a spokesman.
“We are assessing the impact of the sanctions,” Alan Jeffers, an Exxon spokesman, said in an e-mailed statement.
Reviving Oilfields
“Production at many of the country’s older oil fields is being maintained only with the help of Western technology, such as horizontal drilling,” Philipp Chladek, an analyst at Bloomberg Intelligence, said in a July 29 note. Sanctions targeting exploration and production technology in Russia “may stymie output,” he said, in a country that produces one of every eight barrels of crude oil worldwide.
Sideways drilling and hydraulic fracturing developed by western energy firms have been a boon to Russian drillers. Oil wells that use those techniques are more than three times as productive as traditional vertical wells that are fracked, Chladek said, citing a presentation by OAO Rosneft, the state-controlled company and Russia’s biggest oil producer.
The latest round of sanctions isn’t expected to disrupt sales or operations for U.S. aerospace and defense manufacturers, although the potential impact “depends on how far the Europeans are really willing to go,” Joel Johnson, executive director, international, of Fairfax, Virginia-based Teal Group, said in an e-mail. “I think the real problems are likely to involve financial sanctions and under what circumstances U.S. companies and banks can do business with Russian banks.”
Boeing’s Worry
Boeing Co., the world’s largest planemaker, might see manufacturing costs rise if the imbroglio disrupts its access to titanium, a light-weight metal favored for jet aircraft such as its 787 Dreamliner. VSMPO-AVISMA, a Russian titanium producer, provided 35 percent of the supply used by Boeing’s commercial airplanes unit as of March, according to Boeing’s website.
“We are watching developments closely to determine what impact, if any, there may be to our ongoing business and partnerships in the region,” John Dern, a spokesman for Chicago-based Boeing, said in an e-mail. “We won’t speculate on the potential impact of sanctions or any other potential government actions.”
Exxon, the world’s largest oil company by market value, is “under pressure” to shun Russia’s biggest crude producer, Rosneft, and may be forced to quit offshore Arctic and Siberian shale projects budgeted to cost as much as $1 billion, Alexander Nekipelov, Rosneft’s chairman, said in an interview in Moscow yesterday. Russia is Exxon’s biggest exploration prospect outside of its home country.
European Sting
BP, the U.K. oil company that has a 20 percent stake in Rosneft and is the single-biggest foreign investor in Russia, warned that additional sanctions against the country could hurt its production, its earnings and its reputation, according to the company’s earnings statement.
Technip SA (TEC) lowered its outlook for profit margins on some types of projects this week because of uncertainty about how Russia sanctions would affect progress on the giant Yamal LNG installation in Arctic waters. A spokeswoman for Technip couldn’t be reached for comment yesterday.
CGG, a French seismic surveyor, could also be affected by the sanctions because its technology is used to map oil and natural gas reserves. The company has data on the Russian Arctic, according to its website.
To contact the reporters on this story: David Wethe in Houston at dwethe@bloomberg.net; Joe Carroll in Chicago at jcarroll8@bloomberg.net
To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Steven Frank
By Zain Shauk Jul 31, 2014 3:18 AM GMT+0700
Phillips 66 (PSX), the refining company that saw its shares drop last month on news of expanded U.S. oil exports, said second-quarter profit declined 9.9 percent as its effort to boost natural gas liquids sales fell short of analysts’ expectations.
Net income fell to $863 million, or $1.51 a share, from $958 million, or $1.53, a year earlier, the Houston-based company said in a statement today. Excluding one-time items, per-share profit missed the $1.69 average of 13 analysts’ estimates compiled by Bloomberg. Sales rose 5.5 percent to $45.5 billion, from $43.1 billion a year ago.
The largest U.S. refiner by market value is expanding its chemicals division and midstream business, which processes and moves products, in a bid to mitigate future refinery profit declines. The company has said it expects to see the beneficial price difference between U.S. and international gas prices remain in effect longer than the spread between West Texas Intermediate and global benchmark crude-oil prices.
Profit from processing and selling natural gas liquids, like propane and ethane, didn’t grow as much as expected after gains in recent quarters, said Rob Desai, an analyst for Edward Jones in St. Louis who rates the shares a hold and doesn’t own them. Coupled with lower earnings on diesel sales, the results fell short of expectations built on recent quarterly results, he said in a phone interview.
Prices for natural gas liquids sold by Phillips 66’s DCP Midstream joint venture with Spectra Energy Corp. fell 12 percent from the first quarter. Earnings from the natural gas liquids division dropped by almost two-thirds.
Record Earnings
The chemicals unit had record earnings for the quarter, rising 79 percent to $324 million and accounting for more than a third of profit. Earnings from the company’s branded gasoline stations and lubricants business dropped by more than half to $162 million from $344 million a year earlier.
Exports of refined petroleum products increased 30 percent to 181,000 barrels a day from 139,000 barrels in the first quarter.
Phillips 66 plans to spend $12 billion on growth in the next three years, 90 percent of which will be on its chemical and midstream businesses as the company sees North American natural gas prices remaining low.
Oil Exports
Changes in the ability to export oil could increase domestic crude prices, reducing the advantage for U.S. refiners paying less for oil than the international benchmark. News in June that the U.S. Commerce Department had relaxed its stance on the export of lightly processed oil sparked a sell off in refiner stocks, with Phillips 66 falling 4.2 percent on June 25. The shares have yet to recover from the decline.
“We believe the uplift between domestic crude prices and global product prices will not be as durable or as long-lived as the uplift that exists between North America natural gas or natural gas liquids and global crude prices, which is what our midstream business or our chemicals business operate on,” Clayton Reasor, senior vice president of Phillips 66, said in a May 21 speech.
Phillips 66 was spun off from ConocoPhillips in 2012 and last year sold units in a pipeline partnership that now has a market value of $5 billion. The shares, which have 13 buy and seven hold recommendations from analysts, fell 0.9 percent to $81.72 at the close in New York.
To contact the reporter on this story: Zain Shauk in Houston at zshauk@bloomberg.net
To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Tina Davis, Will Wade
on July 31, 2014 / in News 12:23 am / Comments
By Michael Eboh with agency report
Nigeria will be losing about N342.4 million ($2.14 million) daily, as Italian oil firm, Eni, yesterday, shut down its 20,000 barrels per day crude oil pipeline in Nigeria.
The shut down, according to the company, is due to sabotage on the pipeline, which had led to the interruption of 4,000 barrels a day it gets from its 20 per cent share in Nigerian Agip Oil Company.
Wall Street Journal reported that Eni’s disclosure confirmed information from a local activist, who stated that pipeline had been blown up late Sunday.
The activist had previously said Eni’s local operation is in a dispute with former security contractors on the project, a claim Eni spokesman failed to confirm or deny.
“Uncertainty coming from places like Libya and Iraq has been offset by the fact. Physical cargoes of oil in the Atlantic Basin, Nigeria for one, remain well supplied,” Dominick Chirichella, analyst at the Energy Management Institute, said in a note.
Shell Petroleum Development Company, SPDC, had a couple of weeks ago, declared force majeure on exports from a key pipeline in the south of the country because of damage caused by bad weather.
The company said daily production of 40,000 barrels of crude was suspended until repairs on the offshore platform in the EA field was completed.
The damage to the platform had prompted the shutdown of the facility, near Warri, in the Niger Delta region, it added.
“Force majeure” is a legal term releasing a company from contractual obligations when faced with circumstances beyond its control.
- See more at: http://www.vanguardngr.com/2014/07/nigeria-loses-n342m-daily-eni-shuts-pipeline/#sthash.XMz34Z5s.dpuf
Oil production at the giant Kashagan oilfield will be resumed in 2016, a Tengriews.kz journalist reports, citing the country’s Oil Minister Uzakbai Karabalin as saying.
“At Kashagan both the oil and gas pipes have to be fully changed. 200 km of pipes have to be purchased to replace the damaged pipes. When it comes to scenarios of laying the pipes, there are two possible options. If the optimistic scenario works out, the oil production will be resumed in the first half of 2016; should we apply the second scenario, the expected time of resumption is the second half of 2016. The estimates may be adjusted (…)”, he told a briefing July 30.
Earlier the country’s media reported that Kashagan would see a new operating vehicle. The Oil Minister said late May 2014 that “both subcontractors and the Ministry were dissatisfied with the system in place up to now. It has been too costly; decision-making took a lot of time due to complexity of the hierarchy”.
When speaking July 30, he said production of the new pipes was to stat in August, with the first batch to be supplied in December 2014. “One of the key conditions for the works to be in line with the schedule is availability of barges to lay the pipelines in the Caspian Sea. It is an important issue the subcontractors are working on. The project budget is to be adjusted as soon as conditions of the delivery and prices for the pipes are defined”, he said.
The most probable time to resume the commercial production at the giant Kashagan oilfield is late 2015, the country’s Vice Minister of Oil and Gas Magzum Myrzagaliyev said May 22.
Commercial production at Kashagan started September 11, 2013. However, it was suspended 2 weeks later due to a gas leakage. The production process was resumed shortly. However, another leakage was detected in October.
The Kashagan field, named after a 19th century Kazakh poet from Mangistau, is located in the Kazakhstan sector of the Caspian Sea and extends over a surface area of approximately 75 kilometers by 45 kilometers. The reservoir lies some 4,200 meters below the shallow waters of the northern part of the Caspian Sea and is highly pressured (770 bar of initial pressure). The crude oil that it contains has high ‘sour gas’ content.
The development of Kashagan, in the harsh offshore environment of the northern part of the Caspian Sea, represents a unique combination of technical and supply chain complexity. The combined safety, engineering, logistical and environmental challenges make it one of the largest and most complex industrial projects currently being developed anywhere in the world.
According to Kazakhstan geologists, geological reserves of Kashagan are estimated at 4.8 billion tons of oil. According to the project’s operator, the oilfield’s reserves are estimated at 38 billion barrels, with 10 billion barrels being recoverable. Besides, natural gas reserves are estimated at over 1 trillion cubic meters.
“We expect Kashagan to come on stream shortly. The volume of crude to be produced hinges on the period of repairs currently under way. Our estimates stand at about 2 million tons for 2014”, Tengrinews.kz reported mid-January 2014, quoting the country’s Oil and Gas Minister Uzakbai Karabalin as saying at a press-conference following the sitting of KAZENERGY petroleum association.
Use of the Tengrinews English materials must be accompanied by a hyperlink to en.Tengrinews.kz
TengriNews English
BOGOTA, July 30 Wed Jul 30, 2014 6:54pm BST
(Reuters) - Colombia's state-run oil company, Ecopetrol, said on Wednesday it has begun producing crude oil from two Dalmatian field wells in the Gulf of Mexico operated by its partner Murphy Exploration & Production Co.
The new output boosts production of its North American subsidiary, Ecopetrol America Inc, to 6,700 barrels of oil equivalent per day, the company said in a statement, from the 1,700 barrels it was producing before the new wells came online, according to Reuters calculations.
One well in Block 4 of the Canyon DeSoto is producing around 9,500 barrels equivalent a day, of which more than a quarter, or a net 2,441 barrels, belong to Ecopetrol. The well has been operating since June 13.
The other well, in Block 48 of the same field, is producing around 60 million cubic feet of gas per day, a net 15.6 million cubic feet of which belong to Ecopetrol. Ecopetrol's net production in crude equivalent from both wells is 5,041 barrels, the company said in a statement.
Ecopetrol, which produces more than half of Colombia's roughly 1 million barrels of oil a day, will release its second-quarter earnings on Thursday evening after markets close.
Murphy Exploration & Production Co is a unit of U.S.-based Murphy Oil Corp.
(Reporting by Peter Murphy; Editing by Steve Orlofsky)
July 30, 2014
HOUSTON,— The buyer of Iraqi Kurdistan crude oil sitting off the coast of Texas is a company called Talmay Trading of the British Virgin Islands, CNBC has learned.
According to documents seen by CNBC, Talmay, using a London shipbroker, hired AET Offshore Services of Dallas, Texas, on July 17, 2014, to unload roughly 1 million barrels of crude in the United Kalavytra, currently located off the coast of Texas near Galveston.
Efforts to reach the ship broker were unsuccessful.
Talmay may never get custody of the oil because a Texas judge has ordered U.S. marshals to seize the cargo at the request of the Iraqi government.
The crude is controversial because the semi-autonomous region of Kurdistan in Iraq drilled and shipped the oil in defiance of the Iraqi central government, who says the shipment is a violation of the Iraqi constitution.
In a court filing on Monday, Iraq laid claim to the cargo that it says was sold by the regional government of Kurdistan without permission from Baghdad, which has said such deals amount to smuggling.
To carry out the order from Magistrate Judge Nancy K. Johnson of the U.S. District Court for the Southern District of Texas, the Marshals Service may need to rely on companies that provide crude offloading services.
The judge's order said the vessel would be allowed free movement after the cargo is unloaded.
The case is Ministry of Oil of the Republic of Iraq v. Ministry of Natural Resources of Kurdistanwww.Ekurd.net Regional Governate of Iraq et al, U.S. District Court, Southern District of Texas, No. 3:14-cv-00249.
Talmay appears to have additional offices in Dubai and Moscow, and historic news reports show it has traded in Russian oil from the Urals.
By Michelle Caruso-Cabrera CNBC. Reuters contributed to this report.
Copyright ©, respective author or news agency, cnbc.com
CARACAS, Venezuela -- Rosneft President and Chairman of the Management Board Igor Sechin and Venezuelan Minister of Petroleum and Mining and PDVSA President Rafael Ramirez signed a cooperation agreement to implement offshore projects in Rio-Caribe and Mejillones blocks (Phase II of the Mariscal Sucre Project).
As part of the document, the parties expressed their interest in continuing negotiations with the goal of reaching an agreement on key technical requirements, commercial and legal terms for the potential establishment of JVs to develop the Rio-Caribe and Mejillones blocks in accordance with Venezuelan legislation. The parties also held negotiations on LNG plant construction.
The parties also agreed to set up a JV to engage in activities related to well drilling, re-completion and well infrastructure development, as well as to provide any services related to the procurement of equipment, devices, materials and services within Rosneft/PDVSA joint projects.
In the course of their negotiations, Rosneft and PDVSA agreed to extend the Petrovictoria JV Establishment and Operation Agreement with the purpose of prolonging the Carabobo-2 project entry bonus agreement.
Speaking at the signing ceremony, Igor Sechin said: “To highlight, today we reached an agreement on setting up a service company for servicing production projects and promoting advanced technologies. Our agreement to set up a construction JV is equally important. Our cooperation is substantial and natural. The 8 MMbpd we produce is a material production level. This underpins the energy security of several countries. We are set to develop our cooperation. We are now working on a number of new agreements and I am confident we will come to terms. The bonus agreement will allow us to pay $440 million, which will serve to strengthen the Venezuelan economy.”
07/30/2014
Arab News
LONDON: OPEC’s oil production rose in July from June, a Reuters survey found, as a fragile recovery in Libyan supply outweighed fighting in Iraq and reduced output from Angola.
Saudi Arabia raised supply modestly, in part because of a greater need for crude in domestic power plants, industry sources said. Some sources said exports had increased.
Despite the increase, unrest in Africa and the Middle East is still weighing on supply. That could hinder OPEC’s ability to boost output later in the year, when the International Energy Agency expects demand for OPEC crude to rise.
Supply from the Organization of the Petroleum Exporting Countries has averaged 30.06 million barrels per day (bpd) in July, up from 29.92 million bpd in June, according to the survey based on shipping data and information from sources at oil companies, OPEC and consultants.
This puts OPEC’s output close to the group’s nominal target of 30 million bpd. Outages in the group, such as in Iraq and Libya, are effectively helping OPEC to balance the market, rather than voluntary cutbacks, say analysts.
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The 12-member OPEC pumps a third of the world’s oil. In July, the largest increase has come from Libya, where supply rose by 210,000 bpd to 430,000 bpd, the survey found.
Still, a reversal of the rising production trend in the last few days, as well as battles between rival militias in the capital Tripoli and fighting in Benghazi, Libya’s second city, put the extent of the recovery in doubt.
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Nigerian output edged higher in July, according to export schedules and crude buyers.
Of the countries with falling output, Iraq’s supply declined by 70,000 bpd, as domestic crude use fell because of the closure of the Baiji refinery, which was attacked by militants in June.
Supply of Iraqi crude to world markets increased as exports from Iraq’s southern terminals rose to more than 2.5 million bpd from 2.42 million bpd in June, when technical issues slowed down shipments, according to shipping data.
Total estimated Iraqi production in June was revised higher to 3.15 million bpd because production in Iraq’s Kurdistan region was higher than previously thought.
Iranian output slipped in July, the survey found, reflecting a lower export schedule for the month. Exports had been rising since late 2013 following a softening of Western sanctions on Iran over its nuclear work.
By Maria Armental
Murphy Oil Corp.'s second-quarter profit fell sharply as costs surged and the company took loss from discontinued operations.
The El Dorado, Ark., company spun off its U.S. retail marketing business last year and now focuses mainly on gas-and-oil extraction in the U.S., Canada and Malaysia.
For the most recent period, Murphy posted a net profit of $129.4 million, or 72 cents a share, down from $402.6 million, or $2.12 a share, a year ago.
Earnings from continuing operations fell to $142.7 million, or 79 cents a share, compared with year-ago results of $259.9 million, or $1.37 cents a share. Excluding certain items, including mark-to-market loss on crude oil derivative contracts and other items, adjusted per-share earnings from continuing operations fell to 90 cents from $1.38 a share.
Revenue edged up nearly 2% to $1.35 billion.
Analysts polled by Thomson Reuters had expected profit of $1.21 a share and revenue of $1.42 billion.
Looking ahead, Murphy Oil said it expects total annual world-wide production of about 220,000 to 225,000 barrels of oil equivalent a day, primarily reflecting reductions at two properties and revisions for further production risks.
Shares were largely flat in recent after-hours trading.
Through Wednesday's closing, the company's stock was up nearly 3% for the year.
Write to Maria Armental at maria.armental@wsj.com
