The world’s biggest miner, which booked writedowns of $7.2bn against its US shale unit earlier this year, said recovering oil prices and efforts to lower costs are making investment opportunities more attractive.
BHP’s board will decide within six months on its investment in the BP operated Mad Dog 2 oil and gas project in the Gulf of Mexico, it said Wednesday. The company earlier flagged its share of the project at $2.5bn. Additional investments of as much as $2.5bn in existing project options are also being considered, said Steve Pastor, the producer’s petroleum operations president.
“While currently well supplied, underlying fundamentals suggest both oil and gas markets are improving more quickly than our minerals commodities,” he said. “Petroleum is well placed to maintain its position as BHP Billiton’s highest margin business and to grow its free cash flow contribution.”
Melbourne-based BHP’s petroleum unit has oil and gas assets in five nations including the United States and Australia. Over the past 15 years the unit has had an average margin for earnings before interest, taxes, depreciation and amortization of 64 per cent, compared with 54 per cent from iron ore, Macquarie Group analysts said.
The company said it struck oil at its Caicos deepwater exploration well in the Gulf of Mexico and plans to drill the nearby Wilding well in November, adding it is “optimistic” about commercial development in the area.
While US crude is trading at three-month highs around $50 a barrel, it remains short of $100 a barrel in 2011 when BHP first made its foray into the shale business. It acquired Chesapeake Energy’s Fayetteville assets for about $4.8bn and later that year completed a $12.1bn takeover of Petrohawk Energy.
Culled from The National Business.
The Nigerian National Petroleum Corporation (NNPC) has claimed the country’s crude oil and gas reserves are declining at a fast pace. The organisation’s managing director, Maikanti Baru, saidNNPC was ready to cooperate with stakeholders and exploration companies to increase Nigeria’s reserves and productivity in the petroleum sector.
“Our national gas demand forecast to year 2020, domestic plus export, indicates a rapid growth to 15 billion Standard Cubic Feet per day [bscfd], meaning current reserves level can only sustain that production for 35 years, if we do not increase the 2bscfd gas reserves base that require three trillion cubic feet [tcf] to replace production yearly,”Baru said during an eventin the federal capital of Abuja.
He added that the country should increase oil production to 4 million barrel per day (bpd) and meet the gas demand of 15 bscfd per day by 2020, in order to advance the country’s industrialisation.
Oil production declines
Baru further claimed that Nigeria’s current oil production – 1.6m bpd – was low, partly due to oil theft and vandalism.
Nigeria is Africa’s biggest oil producer. However, the country’s production has been affected by repeated bomb attacks on oil pipelines and facilities in the volatile Niger Delta region since the beginning of 2016.
Attacks blamed on the Niger Delta Avengers (NDA) militant group, which emerged earlier this year, have brought Nigeria’s oil production to a 30-year low. In September, vice-president Yemi Osinbajo claimed the country now loses “over one million barrels of crude oil on a daily basis”.
Earlier this year, Nigeria’s lower house of parliament ordered an investigation into whether $17bn (£13.3bn) of oil and liquefied natural gas exports have been stolen between 2011 and 2014.
In August, Nigerian President Muhammadu Buhari acknowledged his country had become poorersince he took office in 2015. The leader said Nigeria’s economy was deteriorating due to a fall in oil production and prices.
“It has been a very difficult year for Nigeria. Before we came to office, petroleum sold for about $100 per barrel. Then it crashed to $37, and now oscillates between $40 and $45 per barrel,” the leader said, according to a statement by his spokesperson Femi Adesina.
Buhari’s remarks came as South Africa regained the title of Africa’s largest economy, a position held by Nigeria for the past two years.
Culled from IBTimes UK
ORE Catapult in Aberdeen has urged the UK oil and gas sector to take advantage of the growing offshore renewables industry.
Britain’s experience in oil and gas could be harnessed to put the country at the forefront of the offshore clean energy market, which is set to spend £210bn in the coming decade, it said.
“Aberdeen, and the UK as a whole, has extensive experience in oil and gas and the skills base, both in exploration and drilling, could be invaluable to the growth and development of offshore renewables,” ORE Catapult commercialisation manager Andrew Tipping said.
“The value of this should not be underestimated, particularly at a time when the oil and gas sector continues to contend with lower oil prices and a need to reduce operating costs,” he said. “Diversifying into renewables provides greater resilience for companies at the same time as providing an opportunity to take an early lead in what will be a huge global industry.”
The UK’s technology innovation and research centre for marine energy has unveiled innovation challenges for the oil & gas sector today, inviting companies to develop solutions for a number of issues facing the offshore renewables industry.
These follow six broad themes including blades, electrical infrastructure, foundations, operations and maintenance, powertrain innovation and wave and tidal.
“Many of the challenges we’re presenting today are not unique to offshore renewables,” Tipping said. “Similar issues will be faced by oil and gas companies and related subsea sectors.
The emergence of offshore renewables could be Britain’s new oil boom – the potential is absolutely huge.”
Culled from reNEWS
Companies buying energy assets in Saskatchewan and British Columbia are facing higher deposit costs for environmental remediation after a precedent-setting court case in Alberta that dealt with abandoned oil and gas wells.
In a letter sent last month to operators of wells, pipelines and other energy assets in Saskatchewan, the provincial Ministry of Economy (ECON) warns that all applications to transfer government licences for wells as part of sales transactions will be treated as “non-routine” from now on.
“All licence transfer applications will be reviewed in detail and ECON will consider all relevant factors in calculating transfer deposit requirements,” it says. “In addition to increased deposit requirements, ECON may incorporate additional conditions with licence transfer approvals which may impact the decision to proceed with certain transactions.
“In particular, licence transfers involving a high percentage of potentially uneconomic infrastructure will be very closely reviewed and deposit requirements set accordingly.”
Ruling on case-by-case basis
In an email, spokesman Phil Rygg of the B.C. Oil and Gas Commission said it, too, is requiring security deposits for certain assets being sold in cases where deposits would not have previously been required.
“This decision is applied on a case-by-case basis,” he wrote.
Regulators in Western Canada are watching closely after a ruling from the Alberta Court of Queen’s Bench in May granted the receiver for bankrupt producer Redwater Energy the right to sell the private company’s best assets, thus gaining the best payback for its creditors, and disclaim or abandon inactive assets for which estimated environmental cleanup costs were higher than resale value.
The receiver had advised the Alberta Energy Regulator that of the 127 wells, pipelines or other infrastructure for which Redwater Energy held licences, it would only take possession of about 20.
In response, the regulator issued a directive for companies trying to sell assets before licence transfers would be allowed. According to the directive, a company’s asset value has to be twice as much as the costs of environmental remediation of orphan wells.
Abandoned well numbers keep growing
The regulator later softened its stance, saying companies can apply for special consideration or make a deposit to allow transactions to go ahead.
Over the summer, the number of orphan wells in Alberta has ballooned by 500 to more than 1,280, said Brad Herald, chairman of the Alberta Orphan Well Association, which is administered by government and industry associations.
He said the Redwater decision has added to the rising count of orphan wells, but it’s unclear by how much, given general industry hardship caused by more than two years of low oil prices.
He said the higher number of orphan wells is bound to put “upward pressure” on the $30 million per year currently paid by the province’s energy industry to secure and clean up abandoned oil and gas wells.
Brad Wagner, director of liability management for Saskatchewan’s Ministry of Economy, said the decision to send a warning letter to operators was made after his department saw a report this summer from the receiver assigned to sell the assets of bankrupt oil and gas producer Tuscany Energy.
The report suggested Tuscany Energy’s assets — including dozens of heavy oil wells in Saskatchewan — might be sold in pieces, a process that could result in the best assets finding buyers and the worst being abandoned, Wagner said.
Licence transfers scrutinized
He said the Alberta decision has the potential to affect Saskatchewan because many energy companies operate in both provinces.
“We’re putting each (licence) transfer under a microscope,” said Wagner.
He said no licence transfers have been denied as yet but the size of deposits has been steadily rising. The deposits are held as a guarantee for environmental remediation and refunded to the company once it has proven it has the financial ability to clean up oil and gas wells.
An appeal of the Redwater decision launched by the Alberta government, the AER and the Alberta Orphan Well Association is to be heard in October.
Both B.C. and Saskatchewan have applied to intervene in the case to present evidence of its potential impact in their jurisdictions.
“If the decision is upheld, I think we would look to more permanent policy change, regulation change,” said Wagner.
Perusing the Inter-web, we found State Street Global Advisors SPDR S&P 500 FOSSIL FUEL FREE ETF, and just wondered “is that even possible.” No. Well, that didn’t take long.
According to State Street: “The ETF Fund may purchase a subset of the securities in the “Index” in an effort to hold a portfolio of securities with generally the same risk and return characteristics of the Index. The Index is designed to measure the performance of companies in the S&P 500 Index that do not own fossil fuel reserves. For purposes of the composition of the Index, fossil fuel reserves are defined as economically and technically recoverable sources of crude oil, natural gas and thermal coal but do not include metallurgical or coking coal, which are used in connection with steel production. The Index is a subset of the S&P 500 Index (the “Underlying Index”), which serves as the initial universe of eligible securities for the Index. In constructing the Index, the initial universe is screened in an effort to exclude companies with any ownership of fossil fuel reserves, including for third-party and in-house power generation, as determined by publicly available information, such as annual reports and other company publications.”
An FYI – this is not an offer to buy or a solicitation by Oil & Gas 360® to purchase, sell, short, calculate a Sharpe ratio, or care about Alpha, Beta, or if the Broncos, Cowboys and Patriots have QB controversies with the Fossil Fuel Free ETF.
The top five holdings of the Fossil Fuel Free ETF as of December 31, 2015, are: Apple, Inc., Microsoft, GE, Johnson & Johnson and Amazon. As of December 31, 2015, the fund’s asset allocations included the stocks of companies operating as: Electric Utilities, Multi-Utilities, Energy, Equipment & Services, Oil, Gas & Consumable Fuels, Road & Rail, Air Freight & Logistics, Airlines, Automobiles, Auto Components, and Independent Power Producers. These groups represent 8.2% of the fund’s Net Assets at year-end 2015.
In November 2013, The Atlantic Monthly released a list of the 50 Greatest Breakthroughs, aka the “50 Greatest Innovations” since the wheel. Here’s an abbreviated list of those innovations, by ranking:
- 2: Electricity
- 4: Semiconductor electronics
- 7: Internal combustion engine
- 9: Internet
- 10: Steam engine
- 15: Airplane
- 16: Personal computer
- 18: Automobile
- 35: Oil refining
- 36: Steam turbine
- 39: Oil drilling
- 42: Paper money
We believe the entirety of the 50 Breakthrough Innovations are mostly, if not entirely dependent on fossil fuel to work.
Can you image how the Frac Moms in Boulder, Denver and Larimer counties of Colorado feel knowing that their offspring are dependent on fossil fuel to live their lives of luxury? As one Frac Mom told us: “Hey, I drive a Prius, so I’m using electricity.” You can’t fix stupid. It goes all the way to the bone.
Iran signed the first oil output contract under a new, less restrictive model on Tuesday, Iranian oil officials were quoted as saying, with a firm identified by the United States as part of a conglomerate controlled by Iran’s Supreme Leader.
Iran hopes its new Iran Petroleum Contracts (IPC), part of an effort to sweeten the terms it offers on oil development deals, will attract foreign investors and boost production after years of sanctions.
The National Iranian Oil Company signed the contract with Persia Oil & Gas Industry Development Co., an Iranian firm, according to the oil ministry’s official website SHANA. (http://bit.ly/2dGKi8h)
The U.S. Treasury Department named Persia Oil & Gas in 2013 as part of Setad Ejraiye Farman-e Emam, or Setad, a secretive and powerful organization overseen by Iranian Supreme Leader Ali Khamenei.
With stakes in nearly every sector of Iran’s economy, Setad built its empire on the seizure of thousands of properties belonging to religious minorities, business people and Iranians living abroad, according to a 2013 Reuters investigation, which estimated the network’s holdings at about $95 billion. (http://reut.rs/1g1qkCg)
The U.S. Treasury in 2013 sanctioned Setad and 37 companies it said it oversees, calling it “a major network of front companies controlled by Iran’s leadership.” Those sanctions were lifted in January, as part of the historic nuclear deal reached between Iran and world powers in 2015.
Under the contract signed on Tuesday, Persia Oil & Gas will develop four oil fields and reservoirs in southwest Iran, working to increase their output from 185,000 barrels per day now to at least 260,000 bpd, said Ali Kardor, National Iranian Oil Company managing director, SHANA reported. He pegged the project to be worth $2.2 billion.
“Working with Iranian firms is easier, and the contract was signed with them more quickly,” Kardor said on the sidelines of the signing ceremony in Tehran.
Naji Sadooni, managing director of Persia Oil & Gas, predicted one of the fields, Yaran, will produce 30,000 barrels of oil per day within the next three weeks, according to SHANA, calling the deal to develop the field “100 percent Iranian.”
“Of course in some cases where it was needed we have used foreign goods, but mostly Iranian manufacturers have been used in this plan,” Sadooni said.
Persia Oil & Gas did not immediately respond to a request for comment. In response to Reuters’ findings in 2013, a Setad spokesman said at the time the information presented was “not correct,” and did not elaborate.
The new Iranian Petroleum Contract, or IPC, has been delayed several times due to opposition from hardline rivals of Iran’s President Hassan Rouhani. It ends a buy-back system dating back more than 20 years under which Iran did not allow foreign firms to book reserves or take equity stakes in Iranian companies.
The new IPC has more flexible terms that take into account oil price fluctuations and investment risks, a senior Iranian oil official told Reuters in November.
Oil majors have said they would only go back to Iran if it made major changes to the buy-back contracts, which companies such as France’s Total or Italy’s Eni said made them no money or even incurred losses.
Iranian media reports did not say why Persia Oil & Gas had been singled out for the new contract. But granting the first IPC to a firm closely linked to Khamenei could be a way around the domestic opposition, because hardliners would be less likely to challenge an agreement with a company associated with the highest echelons of power.
Khamenei said in July that no new oil and gas contract for international companies would be awarded without necessary reforms.
Iranian Oil Minister Bijan Zanganeh said Iran will sign more IPC contracts by March but declined to give details, according to SHANA. Iran’s semi-official Tasnim news agency said NIOC will sign the second IPC contract on Wednesday.
OPEC member Iran seeks to raise its crude output to pre-sanction levels of 4 million bpd.
“Iran’s crude oil production capacity must reach 5.2 to 5.7 million bpd in the future,” Kardor said on Monday, according to SHANA. (Additional reporting by Babak Dehghanpisheh in Beirut, editing by Michael Williams and Cynthia Osterman)
The Basic Law of Saudi Arabia (Royal Decree No. A/90 dated 27/8/1412 H (1 March 1992)) vests all of the Kingdom of Saudi Arabia’s oil and gas wealth in the Government. The Ministry of Energy, Industry and Mineral Resources (“MEIM“) (previously the Ministry of Petroleum and Mineral Resources) develops and implements policies relating to oil and gas and represents the Kingdom’s oil production and pricing policies internationally. In May 2016, the Kingdom announced reorganisations of the oil and gas sector, including the replacement of oil minister Ali Al-Naimi, who had served in that position since 1995, with Khaled Al-Falih, chairman of Saudi Arabian Oil Company (“Saudi Aramco“), the Kingdom’s national oil company.
The oil and gas sector is, by a significant margin, the most important contributor to the Kingdom’s economy, which traditionally runs a significant annual current account surplus, as well as a major source of the country’s global financial and political influence. The Kingdom has some 265 billion barrels of proven and recoverable oil, accounting for up to a quarter of global oil reserves, and up to 258 trillion cubic feet of natural gas, the fourthlargest reserves in the world.
Oil Price Crash
In 2014, the world saw a stunning fall in oil prices from a peak of US$115 per barrel (Brent) in June 2014 to under US$35 at the end of February 2016. OPEC’s Annual Statistical Bulletin reported that petroleum export revenues for OPEC Countries fell in 2015 to US$518.2 billion, a drop of nearly 46% compared with 2014 and the lowest level since 2005. Total OPEC crude-oil exports, meanwhile, stood at 23.6 million barrels a day in 2015, up 1.7% from 2014, with nearly 62% of OPEC’s oil exported to the Asia Pacific region. World oil demand rose by 1.7% to 93 million barrels a day, with the largest increases taking place in Asia Pacific countries such as India and China.
During the OPEC Conference in Vienna in June 2015, proposals were made to curb oil production in reaction to the tumbling price by reducing the aggregate 30 mb/d ceiling. The Kingdom played a key role in OPEC’s ultimate decision to block any such production cuts by arguing that OPEC must seek to protect its market share from US shale oil producers. The Kingdom’s then-current oil minister, Ali Al-Naimi, was emphatic in his support of maintaining high production levels, stating, “demand is going to increase anyway … nothing has been curtailed. We have a responsibility to maintain our 12.5 million-barrels-a-day capacity.” The Conference noted that the global economic recovery had stabilised, albeit with growth at moderate levels, and that the sharp decline in oil prices witnessed at the end of 2014 and the start of 2015—caused by oversupply and speculation—had abated, with prices moving slightly higher in the months leading up to the Conference. The Conference noted that world oil demand is forecasted to increase in the second half of 2015 and in 2016, with growth driven by non-OECD countries.
The Kingdom maintained its stance on production with crude oil exports from the Kingdom during the first half of 2016, with supply 3.5% higher than during the same period in 2015. The Kingdom exported 61% of its crude oil to Asia in 2015. This figure has risen to 65% in 2016. The International Monetary Fund expects that the Kingdom’s oil production will average 10.34 MMbpd in 2017, as compared to 10.22 MMbpd in 2016.
However, the expectation of a further rise in crude oil production from the Kingdom will likely have a negative impact on already struggling crude oil prices. As at the time of writing, the Brent crude price is moving within a tight range surrounding US$50.
Impact of Saudi Vision 2030
It is against the backdrop of reduced oil prices and the correspondingly reduced oil revenues, upon which the Kingdom has been historically so dependent, that the Kingdom’s “Saudi Vision 2030”, which seeks to diversify the economy away from reliance on hydrocarbons, is driving significant structural changes to the governance of the oil and gas sector. Saudi Vision 2030 aims to address the impact that these reduced oil revenues are having on the Kingdom’s economy by:
- seeking new sources of revenues to replace the lost oil revenues, which is why the Government is aiming to see the Kingdom’s non-oil revenue increase from SAR163 billion to SAR1 trillion by 2030; and
- reducing Government expenditure, through down-sizing the Government and the public sector, privatising government enterprises and promoting private sector investment (both domestic and foreign) in areas like social infrastructure.
The Government also plans to list up to 5% of Saudi Aramco’s shares with foreign investors invited to participate in the listing. The proceeds of the Saudi Aramco listing will go to Public Investment Fund, a sovereign wealth fund that will also hold the government’s remaining portion of Saudi Aramco’s shares.
Refineries and Petrochemicals Projects
The Kingdom’s refining and petrochemical sector has registered a strong double digit growth year-on-year since 2007. Ten percent of global petrochemical export products have been manufactured in Jubail and Yanbu on the Kingdom’s east coast. These dedicated industrial cities are the centre of the Kingdom’s petrochemical industry and play a key part in the Kingdom’s determination to develop its hydrocarbon-based industries further down the value chain. Despite the global economic downturn, we understand that the Kingdom plans to expand its petrochemical industry three-fold over the next 10 years to build new plants, expand existing ones and integrate refineries with new or existing petrochemical units. Saudi Aramco (which is described further below) or SABIC (to a lesser extent) are always participants in new refineries or petrochemicals projects in the Kingdom.
While functionally independent from MEIM, Saudi Aramco is directly overseen by the highest levels of Government and its board comprises the Ministers of Energy, Industry & Mineral Resources, Finance and Communications together with the secretary of the Supreme Council of Saudi Aramco, the rector of King Fahd University of Petroleum and Minerals, three overseas representatives and Saudi Aramco’s new president and CEO, Amin Nasser.
Saudi Aramco is responsible for all exploration, drilling and production activities in the Kingdom. International oil companies operate through joint ventures with Saudi Aramco in Saudi oil fields and refineries. Examples of Saudi Aramco’s recent major projects include:
- Petro Rabigh – the largest integrated refining and petrochemical complex in the world. It is a joint venture between Saudi Aramco and Japan’s Sumitomo Chemical.1
- Saudi Aramco Mobil Refinery Co. Ltd. – a joint venture between Saudi Aramco and Mobil Yanbu Refining Company Inc., which processes approximately 400,000 barrels of Saudi Aramco’s crude oil per day.
- Saudi Aramco Total Refining and Petrochemical Co. – a joint venture between Saudi Aramco and France’s Total Oil Co. for 400,000 bpd refinery with integrated petrochemical production at Jubail.
- Sadara Chemical Company (“Sadara“) – a US$20 billion joint venture between Saudi Aramco and The Dow Chemical Company, which is the world’s largest chemical complex ever built in a single phase, with 26 integrated world-scale manufacturing plants that produce more than three million tons of products every year.2