David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Shale Drillers Are Now Free to Export U.S. Oil Into Global Glut

    This article by Joe Carroll for Bloomberg may be of interest to subscribers. Here is a section: 

    U.S. shale drillers will soon be able to sell their oil all over the world. Too bad no one needs it right now.

    A congressional deal to lift the 1970s-era prohibition on shipping crude overseas has the potential to unleash a flood of oil from Texas and North Dakota shale fields into markets already flush with cheap supplies from the Persian Gulf, Russia and Africa.

    The arrival of U.S. barrels in trading hubs from Rotterdam to Singapore will intensify competition for market share between oil-rich nations, publicly traded producers and trading houses, adding pressure to prices that have tumbled 67 percent in the past 18 months. In the longer term, it may also extend a lifeline to shale drillers strapped for cash after amassing huge debt loads during the boom years.

    “The winners in all of this are the U.S. oil producers who now have a bigger market for their shale” output, said Gianna Bern, founder of Brookshire Advisory and Research Inc. in Chicago and a former BP Plc oil trader. “Unfortunately, it’s coming at a time when there’s already way too much crude on the global market.”

    U.S. oil explorers from Exxon Mobil Corp. to Continental Resources Inc. have been agitating for an end to the export ban for most of this decade as technological advances in drilling and fracking opened up vast, untapped reserves of crude. The so- called shale revolution has lifted U.S. oil output for seven straight years, making the nation the world’s third-biggest producer behind Russia and Saudi Arabia. 

     

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    U.S. Gas Slumps to 13-Year Low as Forecasts Keep Getting Warmer

    This article by Christine Buurma for Bloomberg may be of interest to subscribers. Here is a section: 

    Natural gas output is on course to reach a fifth straight annual record this year, even as prices decline, government data show. Production will rise 6.3 percent to 79.58 billion cubic feet a day as output from the Marcellus and Utica shale formations expands, according to the U.S. Energy Information Administration.

    Gas inventories totaled 3.88 trillion cubic feet as of Dec. 4, 6.5 percent above the five-year average. Withdrawals from storage will be smaller than average as warm weather curtails demand, Dominick Chirichella, senior partner at the Energy Management Institute in New York, said in a note to clients.

    “With mild temperatures still looming through the end of December (and possibly beyond) weekly withdrawals are likely to underperform versus history for several weeks to come,” Chirichella said.

     

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    Oaktree's Marks Likens Distressed Conditions to Post-Lehman

    This article by Devin Banerjee for Bloomberg may be of interest to subscribers. Here is a section:

    “Post Lehman there was too much to do and now there is again,” Marks said Tuesday, referring to the financial crisis that followed the collapse of the investment bank in September 2008. “For the credit investor we have our first opportunities in several years. It’s been a long, long time."

    After Lehman’s bankruptcy, Oaktree deployed billions of dollars in distressed debt, reaping a handy profit. Its Opportunities Fund VII, which did the bulk of the investing, has so far distributed $22 billion to clients on $13.5 billion of drawn capital, according to its recent third-quarter earnings statement.

    Oaktree’s top executives, including Marks and co-Chairman Bruce Karsh, had bemoaned a dearth of distressed-investment opportunities since at least 2013, when the Standard & Poor’s 500 index was still in the middle of a four-year run-up. That changed in August, when investor concern that China’s economic growth was slowing quicker than expected sparked a selloff in stocks and high-yield bonds. Energy companies have been hit particularly hard as oil prices continue to slide.

    “What you saw in the third quarter of this year could well be a harbinger of things to come in the next year or two,” Karsh said in October. “We’re in the later stages of this credit cycle. We saw the psychology beginning to really roll over and change and people starting to get fearful. We started to see a lot of cracks.”

     

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    Statoil Is Offered Oil Assets Daily as Slump Hits Rivals

    This note by Francois de Beaupuy and Mikael Holter for Bloomberg may be of interest to subscribers. Here is a section: 

    Statoil is flooded w/ offers of assets for sale from rivals squeezed by drop in crude prices, CFO Hans Jakob Hegge says in interview in Paris.

    Co. not biting yet because valuations still too high; there are “a lot of unrealistic price assumptions from the sellers”

    Statoil is cutting capex, opex, but not planning large-scale asset sales

     

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    Who's Who in the New Argentina: Macri's Five Key Ministers

    This article by Charlie Devereux for Bloomberg may be of interest to subscribers. Here is a section: 

    The creation of a new energy ministry speaks of the increasing importance of Argentina’s burgeoning oil industry.

    Aranguren, former CEO of Shell Argentina, will be in charge of attracting investment to the Vaca Muerta formation, the world’s second-largest shale gas deposit and fourth-largest shale oil reservoir. He’ll also head up attempts to unravel the current government’s system of utility bill subsidies that contributed to an estimated budget deficit of 7.2 percent of gross domestic product this year.

    An outspoken critic of the current government who frequently sparred with some of its officials, Aranguren has already made clear his different outlook, saying he would prefer to import energy while prices are low rather than maintain subsidies on oil. His double role as mining minister suggests Macri’s government may be more proactive in developing that sector after years of stagnation.

     

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    Musings From The Oil Patch December 1st 2015

    Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may be of interest. Here is a section on oil shares:

    A final batch of questions focused on how important major oil company dividends were to holding up their share prices? We believe it is an important consideration, but the question of dividends and the major oil companies may actually foreshadow a discussion of their future business models. If a company is stuck in a low-growth industry, which oil certainly is, then spending inordinate sums of money to lift the growth rate may not be worth it. For oil companies, the cost for finding and developing new oil production to boost a company’s output growth rate from 2% to 3% to say 5% to 6%, without the company having any control over the price it receives for the product, should raise questions about their long-term business strategy. Maybe it is better to develop a steady, albeit low, production growth profile while using the surplus cash flow to maintain, and potentially increase, the dividend to shareholders. That might be a way to sustain a company’s stock market valuation and secure stable shareholder support. This strategy implies that capital spending would always be at risk in low commodity price environments, but the strategy could lead to stable employment, which is critical for securing and sustaining the technical talent required in the petroleum business. This strategy, however, wouldn’t work for smaller E&P companies needing capital to grow as their ability to tap the capital markets likely requires that they demonstrate rapid production growth. As we are learning, that strategy can be deadly in a period of low commodity prices. So if major oil companies were to adopt slow-growth production goals while defending and increasing their dividends, their share prices might not decline.

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    The Silicon Valley Idea That's Driving Solar Use Worldwide

    This article by Mark Chediak and Chris Martin for Bloomberg may be of interest to subscribers. Here is a section: 

    SolarCity took the leasing model that SunEdison Inc. first developed for the solar industry by a graduate student named Jigar Shah. He founded the company and sold its first power purchase agreement with Whole Foods Market Inc. in 2003, according to his book, Creating Climate Wealth.
    SolarCity adapted that model for residential consumers in 2008 and many more offered similar arrangements including Sunrun Inc., which developed the first one in September 2007, and Vivint Solar Inc. In August, SolarCity bought a developer in Mexico that was offering the first leases to businesses in that country and plans to expand it to homes there.

    And now the idea is spreading to other industries trying to sell expensive capital equipment that reduce pollution and fossil fuel consumption. Cambrian Innovation, a startup out of Massachusetts Institute of Technology, has developed onsite wastewater treatment plants. While the high cost make them difficult to sell, when they combine all the benefits to a consumer like a brewery -- lower disposal fees, water use, energy use and carbon emissions -- they can finance leases and offer savings at no cost to the consumer.

    “SunEdison developed the solar power-as-a-service that helped the industry take off,” Matthew Silver, chief executive officer of Boston-based Cambrian, said in an interview. “Now we’re offering clean water as a service that municipal utilities can or won’t do.”

     

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    Email of the day on an uptick in geopolitical risk:

    Geopolitical risk just escalated dramatically - and the American public seems to still be mainly concerned about the lack of decorations on their Starbucks cups.

    The Turks shot down a Russian SU-24 Fighter this morning. Think this will improve Russia-Turkish relations? 

    The US-sponsored rebels in Northern Syria shot down a Russian Search and Rescue helicopter using a US-provided missile, murdered the crew as they parachuted to the ground, and kindly provided video of the shoot-down. 

    Al-Qaeda (Nusra) kindly provided a video showing they are using US-provided TOW missiles. 

    The US warned the oil tanker drivers that they were going to attack their trucks, 45 minutes before the attack. The US proudly stated they destroyed 156 trucks. The Russians claimed to have destroyed 1,000 (even if they only destroyed 500, it seems the US is being pretty hesitant to seriously harm ISIS). Why?

    No one has yet identified the oil trading company that is helping ISIS - yet the authorities in Europe and the US must know who it is that is buying this much oil... it just can't be that hard to find out. 3 
    This is dangerous and feels... like the West is playing a really scary game, while a lot of people die.

     

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    Time to add wind developers

    Thanks to a subscriber for this report Deutsche Bank which may be of interest. Here is a section: 

    After years of efforts, China achieved breakthroughs in nuclear export this year with two mega-size contracts signed with Britain and Argentina, respectively. In October 2015, China General Nuclear Corporation (CGN) reached an agreement with state-owned EDF Energy to co-invest in a Hinkley Point C nuclear project in England with respective 33.5% and 66.5% stakes in a deal worth GBP18bn. It is also worth mentioning that China will be able to bring its own Generation III nuclear technology of Hualong One to a subsequent project Bradwell B.

    In November 2015, China National Nuclear Corporation (CNNC) sealed a USD6bn deal with Argentina to build the country’s fourth nuclear plant. According to media reports, CNNC also reached a framework agreement with Argentina on a fifth plant, which will use Hualong One technology if the deal is finalized. 

    China’s first nuclear project based on Hualong One, Fuqing 5, achieved FCD in May. Its construction and operation, together with the recognition of developed countries with advanced nuclear tech and experience such as Britain, will help open doors to more markets for Hualong One. However, all these projects will take at least seven to eight years to complete, which suggests limited near-term upside potential for nuclear equipment exports. 

     

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