Qatar Petroleum to push ahead with expansion despite Gulf crisis
From: REUTERS NEWS AGENCY / 8 Mayo
State energy giant continue with expansion strategy to be on par with oil majors, despite Gulf crisis embargo.
Tag Archive for: OIL PRICES
Mexico Spent About $1.26 billion on 2018 Oil Hedges
From Oil&Gas People / 1 de Diciembre de 2017
Mexico spent some 24.1 billion pesos ($1.26 billion) on contracts to hedge its 2018 oil exports, Finance Ministry Chief Economist Luis Madrazo said on Tuesday, part of government’s efforts to stabilize its budget.
Madrazo did not specify the number of barrels of export production that Mexico had hedged with derivatives contracts nor did he detail the average price per barrel of put options that the government has purchased.
In September, the Finance Ministry proposed a 2018 budget that based expected oil export revenue on an estimate of $46 per barrel. Members of Congress increased that estimate to $48.5 per barrel earlier this month as global oil prices rose.
For more than a decade, Mexico’s government has paid for a hedge every year in a bid to guarantee its revenues from oil exports by state company Pemex. The program is seen as the world’s top sovereign derivatives trade.
Last year, the government bought put options at an average price of $38 per barrel to cover 250 million barrels of crude at a cost of $1.03 billion and underpin the 2017 budget, which was based on an average price of $42 per barrel.
The government set aside $4 a barrel from a special fund to make up the difference between its put options and the budgeted price.
This year, Mexico is on track to not see any income from its oil hedge as prices for Mexican crude are currently near $54 per barrel, well above the put options. In 2016, Mexico saw a $2.65 billion payout from its oil hedge.
Mexico hedges its crude every year and deals are closely watched by the market since the trades are big enough to affect prices. The program is a longstanding part of the country’s strategy for safeguarding oil revenues from market volatility.
Mexico used to receive about one-third of federal revenues from oil sales, but it now funds less than one-fifth of the budget with oil sales after the collapse crude prices in late 2014 and a decline in production.
From Oil&Gas People / 1 de Diciembre de 2017
Stacked Oil and Gas Make Permian Deals Costly in Spite of Rout
Oil prices are depressed, but Texas shale has never been more valuable.
A recent spate of land deals in the sprawling Permian Basin illustrates a counter-intuitive trend: Real estate in the country’s most active oil field is even more expensive today than it was before commodity prices crashed.
QEP Resources Inc. agreed to pay a price that works out to close to $60,000 per net acre in June for a slice of the Permian, in the basin’s priciest land deal on record.
That’s more than double the average $30,000 per net acre explorers paid for Permian land during the first nine months of 2014, when oil topped $100 a barrel, according to data from Citigroup Inc. Oil has been hovering at $45 to $50 per barrel since mid-August.
Over the past few months, at least four other explorers agreed to pay more than $30,000 per net acre to expand in the Permian: Concho Resources Inc., Parsley Energy Inc., SM Energy Co., and Silver Run Acquisition Corp., according to data compiled by Bloomberg.
“The valuations are pretty lofty,” said Bryan Lastrapes, managing director at Moelis & Co. “When you look at the prices being paid for a flowing barrel, they are higher than when oil was at $100.”
Unusual Geography
The obvious question: With oil so much cheaper today, why has Permian land become so pricey? There are a few explanations. The first comes down to the same reason a dingy is more valuable on a sinking ship.
“It’s about scarcity,” said Bruce Cox, global head of energy acquisitions and divestitures with Credit Suisse Group AG.
The Permian is one of the few places in the U.S. where drilling remains profitable amid low prices, thanks to its unusual geography, in which different layers of oil- and gas-soaked rock are stacked like layers in a cake, he said. An explorer can drill multiple horizontal wells after digging straight down.
“What you can’t find in most plays is the Permian hydrocarbon column,” Cox said. “Companies can drill two to four times as many wells over a 10-year development period” in the Permian than in other basins.
QEP Rationale
This is a key part of the rationale QEP used to justify the price it agreed to pay for the 9,400 net acres in the Permian in June.
The company told investors it sees a chance to drill more than 400 horizontal wells along four different benches of shale, more than a half-mile down, where it has already determined there is oil. It sees additional upside potential drilling riskier, wildcat wells on three other benches. So it isn’t buying just one field, but as many as seven.
That deal also addresses a perpetual critique from investors that QEP isn’t big enough in the Permian, by increasing its position there by 50 percent, Richard Doleshek, QEP’s chief financial officer, said in August.
“From a dollar-per-acre standpoint, we heard a lot of conversation about how that was a big number,” Doleshek said during a presentation at an oil and gas conference sponsored by Enercom Inc., according to a transcript compiled by Bloomberg.
“When you look at it on a target basis, it’s relatively reasonable,” he said. “It’s pristine acreage.”
Lower Costs
Another factor driving up Permian land prices is the fact that it has some of the lowest break-even costs in the world. The area has more than a half-dozen fields where drilling can stay profitable even when oil falls below $30 a barrel, according to data compiled by Bloomberg.
The oil rout has set off a land grab for that reason, said Ron Gajdica, co-head of energy acquisitions and divestitures with Citigroup.
“When oil prices were high, there was a high supply of acreage with economic drilling opportunities,” he said. “Now, in a $40 to $50 oil price environment, acreage with economic locations is scarcer. There are only a limited amount of opportunities and many of them are in the Permian.”
A couple of other things are driving up the price of Permian land. First, development costs have come down sharply during the downturn, thanks to lower service costs, technological advances and more efficient techniques, Gajdica said. That means explorers can justify paying higher prices for land.
Second, Wall Street is helping the trend. Publicly traded Permian explorers such as Concho and Parsley trade at a premium to other shale players. They paid for their recent acquisitions with stock. Since their currency is worth more, they can afford to pay up.
In addition, other explorers with operations elsewhere, such as QEP and SM, saw their share prices spike after striking deals in the Permian, which could spur even more dealmaking in the area.
“The market tends to respond favorably when these Permian deals are announced,” Gajdica said.
Copyright: Bloomberg
‘Well-Timed’ OPEC Talk Forces Oil Bears Into Record Reversal
OPEC has done it again.
Talk of a potential deal to freeze output helped push oil close to $50 a barrel and prompted money managers to cut bets on falling prices by the most ever. West Texas Intermediate, the U.S. benchmark, went from a bear to a bull market in less than three weeks.
OPEC is on course to agree to a production freeze because its biggest members are pumping flat-out, said Chakib Khelil, the group’s former president. Saudi Energy Minister Khalid Al-Falih said that the talks may lead to action to stabilize the market.
“This is all courtesy of some very well-timed comments from the Saudi oil minister,” said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. “They’ve been successful over the last year in jawboning the market, and this is the latest example.”
Hedge funds trimmed their short position in WTI by 56,907 futures and options during the week ended Aug. 16, the most in data going back to 2006, according to the Commodity Futures Trading Commission. Futures rose 8.9 percent to $46.58 a barrel in the report week and closed at $48.52 a barrel on Aug. 19. WTI is up more than 20 percent from its Aug. 2 low, meeting the common definition of a bull market.
“This was a very short market so we were bound to get some covering,” said Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania. “You probably won’t hear a lot from OPEC with prices up here, but if we get down to where we were a few weeks ago we can expect to hear more.”
Informal Talks
The Organization of Petroleum Exporting Countries plans to hold informal talks to discuss the market at the International Energy Forum next month in Algiers. Russian Energy Minister Alexander Novak said that the nation was open to discussing a freeze.
Talks to implement a production freeze collapsed in April when Saudi Arabia said it wouldn’t take part without Iranian participation. Iran was restoring exports after sanctions over its nuclear program were lifted in January.
Saudi Arabia, Iran, Iraq and non-member Russia are producing at, or close to, maximum capacity, Khelil said in a Bloomberg Television interview on Aug. 17. Saudi Arabia told OPEC that its production rose to an all-time high of 10.67 million barrels a day in July, according to a report from the group.
Ample Stockpiles
Declining crude and gasoline stockpiles in the U.S. also bolstered the market last week. Crude supplies dropped by 2.51 million barrels as of Aug. 12, Energy Information Administration data show. Gasoline inventories slipped 2.72 million barrels during the period. Stockpiles of both crude and gasoline remain at the highest seasonal levels in decades even after the declines.
“There’s a high level of uncertainty right now, so fairly small news can move the market a lot,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It still remains the case that we have a huge surplus of supply and aren’t going to see it disappear anytime soon.”
Money managers’ short position in WTI dropped to 163,232 futures and options. Longs, or bets on rising prices, increased 0.1 percent, while net longs advanced 56 percent, the most since July 2010.
In other markets, net-bearish bets on gasoline climbed 54 percent to 1,970 contracts. Gasoline futures rose 5.7 percent in the report week. Net-long wagers on U.S. ultra low sulfur diesel increased more than fivefold to 10,835 contracts. Futures advanced 9.8 percent.
Copyright: Rig Zone
Mexico Said to Begin Quietly Hedging 2017 Oil Price in June
Mexico started quietly buying contracts to lock in 2017 oil prices when futures were near their peak in June, signaling the start of what has in prior years been the world’s largest sovereign petroleum hedge, according to people familiar with the deal.
The Latin American country bought put options, which give it the right to sell crude at a predetermined price, in June and July, earlier than the usual period of late August to late September, said the people, who asked not to be identified because the process is private.
Brent crude, the global benchmark, peaked at nearly $53 a barrel in early June. Since then, prices have declined about $10 a barrel as the outlook for the global economy soured and OPEC countries boosted production. The people didn’t say how much Mexico was able to hedge before prices fell back.
In response to a list of e-mailed questions, the Mexican Finance Ministry’s press office declined to comment on the status or progress of Mexico’s oil hedge negotiations.
The Latin American country has spent an average of almost $1 billion a year over the past decade buying put options through deals with banks that in the past have included Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley, BNP Paribas SA, Barclays Plc and HSBC Holdings Plc, according to government documents. Mexico’s annual hedge is the largest undertaken by a national government and often roils the market.
Mexico and its bankers try to keep the hedge under wraps as long as possible, to avoid others front-running the trade and making the insurance more expensive. In the past two years, however, some details of the hedge emerged because of new regulations introduced in the U.S. with the Dodd-Frank Act.
Dodd-Frank
The rules forced U.S. banks to report some details of the deal through public swap data repositories. But this year not a single deal bearing the marks of the Mexican hedge has emerged, and two of the people familiar with the program said Mexico and its bankers were using non-U.S. branches of the banks to bypass the reporting rules.
The move to hedge 2017 oil prices comes as Mexico stands to take in about $3 billion from this year’s hedge, which was put on from June to August 2015, if prices remain around current levels. That follows last year’s record payout of $6.4 billion.
Despite Mexico’s hedging success — it received $5 billion in 2009 after oil prices plunged — few other commodity-rich countries have followed suit. Ecuador hedged oil sales in 1993, but losses triggered a political storm and the nation never tried again. More recently, oil importers Morocco, Jamaica and Uruguay have bought protection against rising energy prices.
Copyright: Rig Zone
Raymond James: Get Ready for $80 Oil
Rebounding after a two-year collapse, it’s only this month that oil prices have pushed up past $50 a barrel, but Raymond James & Associates says this is just the beginning for higher prices.
In a note to clients, analysts led by J. Marshall Adkins say West Texas Intermediate will average $80 per barrel by the end of next year — that’s higher than all but one of the 31 analysts surveyed by Bloomberg.
“Over the past few months, we’ve gained even more confidence that tightening global oil supply/demand dynamics will support a much higher level of oil prices in 2017,” the team says. “We continue to believe that 2017 WTI oil prices will average about $30/barrel higher than current futures strip prices would indicate.”
The team went on to lay out three reasons for their bullish call, all of which are tied to global supply — the primary factor that precipitated crude’s massive decline.
Here’s how the rebalancing of the global oil market will be expedited from the supply side, according to the analysts:
First, the analysts see production outside the U.S. being curbed by more than they had previously anticipated, which constitutes 400,000 fewer barrels of oil per day being produced in 2017 relative to their January estimate. In particular, they cite organic declines in China, Columbia, Angola, and Mexico as prompting this downward revision.
“When oil drilling activity collapses, oil supply goes down too!,” writes Raymond James. “Amazing, huh?”
Adkins and his fellow analysts also note that the unusually large slew of unplanned supply outages will, in some cases, persist throughout 2017, taking a further 300,000 barrels per day out of global supply.
Finally, U.S. shale producers won’t be able to get their DUCs in a row to respond to higher prices by ramping up output, the team reasons, citing bottlenecks that include a limited available pool of labor and equipment.
Combine this supply curtailment with firmer than expected global demand tied to gasoline consumption, and Adkins has a recipe for $80 crude in relatively short order.
“These newer oil supply/demand estimates are meaningfully more bullish than at the beginning of the year,” he writes. “Our previous price forecast was considerably more bullish than current Street consensus, and our new forecast is even more so.”
The only analyst with a higher price forecast for 2017, among those surveyed by Bloomberg, is Incrementum AG Partner Ronald Stoeferle. He sees West Texas Intermediate at $82 per barrel next year. The consensus estimate is for this grade of crude to average $54 per barrel in 2017.
Over the long haul, however, Raymond James’ team sees WTI prices moderating to about $70 per barrel.
Copyright: Rig Zone
Success through more efficient use of technology – DEA at EAGE 2016 in Vienna
From 30 May to 02 June, DEA is presenting recent projects and technology highlights at Europe’s most important technology event of the oil and gas industry, the 78th EAGE Conference and Exhibition.
“In exploration and production of oil and gas, sustained quest for technical solutions and the constant search for efficiency-enhancing concepts are daily business”, says Manfred Böckmann, Senior Vice President Exploration DEA Deutsche Erdoel AG.
These measures are a prerequisite for a continuing assurance of our high safety and environmental standards on the one hand and the economic viability of the projects on the other. In times of low oil prices, this is becoming increasingly important and the EAGE offers an ideal platform for the essential exchange of ideas and the discussion of new approaches, together with the experts of other E&P companies, the service industry and the representatives of science”, Böckmann adds.
At DEA’s booth (Stand No. 2230, Hall B), the visitors can experience live presentations of case studies from international DEA projects and are invited to discuss current industry topics with the DEA experts during the coming days.
DEA Deutsche Erdoel AG is an international operator in the field of exploration and production of crude oil and natural gas based in Hamburg. Its focus is on safe, sustainable and environmental conscious exploitation of oil and gas. DEA has 117 years of experience working along the whole upstream value chain as operator or project partner. With a staff force of 1,400 employees DEA has shares in production facilities and concessions in, among others, Germany, Norway, Denmark, Egypt and Algeria. Moreover, in Germany, DEA also operates large subsurface storage facilities for natural gas.
Copyright: Your Oil and Gas News
Oil Ends Steady Near $50; Best Monthly Gain in Brent in 7 years
Oil prices ended steady on Friday after hitting 2016 highs but finished April trading about 20 percent higher, with Brent crude having its best monthly gain in seven years. A weaker dollar and optimism that a global oil glut will ease have lifted crude futures by more than $20 a barrel since they plumbed 12-year lows below $30 in the first quarter. Brent futures settled just a penny lower at $48.13 a barrel, after reaching a 2016 peak at $48.50. It rose 21.5 percent in April, its largest monthly advance since May 2009. U.S. crude futures closed 11 cents lower at $45.92 a barrel, after hitting a year-to-date high at $46.78. It gained 20 percent in April, the biggest monthly gain in a year.
With prices less than $5 away from $50 a barrel, investment bank Jefferies said the market “is coming into better balance” and would flip into undersupply in the second half of the year. But others warned that the rally was driven by investors holding large speculative positions, while oil stockpiles were still high, with a Reuters survey showing OPEC output in April rising to its most in recent history. “The issue is that we haven’t seen price rallies … correlate with fundamentals,” said Hamza Khan, senior commodity strategist at ING. “The fundamentals – high stocks, high production – haven’t changed.” Technical analysts said crude could cruise to $50 a barrel but stiffer resistance before $55 could spark profit-taking on the market’s biggest rebound in two years. Analysts polled by Reuters raised their average forecast for Brent in 2016 to $42.30 per barrel, the second consecutive month of increases.
Bank of America Merrill Lynch said in a note that “non-OPEC oil supply is indeed hanging off a cliff”, and estimated that global output would contract year-on-year in April or May for the first time since 2013. The OPEC survey aside, Saudi oil output was expected to edge up by 350,000 barrels per day to around 10.5 million bpd, sources told Reuters, as tankers filled with unsold oil floated at sea seeking buyers. The discount in spot U.S. crude to the next trading month meanwhile whittled to its smallest since January, reducing the advantages of storing oil in the United States for later delivery. (Additional reporting by Libby George and Karolin Schaps in LONDON and Henning Gloystein in SINGAPORE; editing by David Gregorio and Marguerita Choy)
Copyright: Rig Zone
Credit Suisse: The Death of Oil Demand has been Greatly Exaggerated
Even as U.S. oil production started to slide in the second half of 2015, the downside risks to oil prices continued to dominate.
In the third quarter, broad-based manufacturing softness and financial market turmoil threatened to derail growth in developed markets, bringing some focus back to the demand side of the ledger. Annual oil demand growth proceeded to drop off in the fourth quarter from above 2 percent to 1.2 percent with acute cracks in China and advanced economies, seemingly confirming analysts’ worst fears.
But Credit Suisse Group AG Global Energy Economist Jan Stuart concludes that oil demand “growth appears to be re-accelerating” in 2016, with the recent bout of softness attributable to a warm winter, subdued activity in resource-extracting industries, and persistent weakness in select sputtering emerging markets like Russia and Brazil.
“Oil demand growth is alive and well,” he writes in a recent note. “We think that with hindsight this winter will look like a dip in an otherwise still unfolding fairly strong growth trend that is partly fueled by the ongoing economic recovery of in North America and Europe and longer standing trends across key emerging market economies.”
While concerns about global growth linger, demand for crude doesn’t match the narrative that a worldwide recession is imminent. In particular, for the world’s two largest economies, the U.S. and China, Stuart notes that oil demand growth has rebounded following a sluggish fourth quarter.
“While on balance oil demand growth appears relatively sluggish still in the first quarter; February data either improved on January (e.g. Brazil, the U.S.); or extended strong growth (e.g. India, South Korea), while in China demand appeared to have rebounded as well,” he writes.
Demand for oil has been increasingly attributable to passenger vehicles rather than its use as an input in the production process, as the middle classes in emerging markets swell.
In light of this, Credit Suisse anticipates that crude demand will keep running hotter than industrial production:
“We forecast modestly re-accelerating demand growth over the course of this year, so long as a recession continues to be avoided,” asserts Stuart. “We project in fact that oil demand should continue to outperform historic correlations with industrial production.”
This outlook for demand bolsters the analyst’s confidence that oil prices could hit $50 per barrel in May.
Copyright: Bloomberg
Russia says better Iran-Saudi Arabia ties would help oil prices: RIA
Russia wants to see improved relations between Iran and Saudi Arabia at a time when joint action is needed to influence global oil prices, the RIA news agency on Monday quoted Zamir Kabulov, a senior official at Russia’s Foreign Ministry, as saying.
Russia, one of the world’s top oil producers, has repeatedly refused to cooperate with the Organization of the Petroleum Exporting Countries in recent years despite the falling price of oil, the lifeblood of its economy.
Any hope of sealing a global output deal has so far foundered on Iran’s position. Tehran is boosting production to try to regain market share after sanctions were lifted, paving the way for it to re-enter the market after a long absence.
The prospect of cooperation between Iran and leading producer Saudi Arabia is further complicated by the fact that the two countries are geopolitical foes who support different sides in conflicts in both Syria and Yemen.
“We all need stability on the oil market and a return to normal (crude) prices,” RIA quoted Kabulov as saying.
“And these are the key nations, especially Saudi Arabia and Iran, which is striving to return to the oil market, anticipating the removal of sanctions.”
Some OPEC countries are trying to achieve a consensus among the group, while some non-members back an oil production freeze, sources familiar with the discussions said last week, a possible attempt to tackle the global glut without cutting supply.
Top exporter Saudi Arabia might be warming to the idea, though it was too early to say whether it would give its blessing because any deal would mainly depend on a commitment by Iran to curb its plan to boost exports, the sources said.
Even as officials on both sides discussed the possibility, Russia and OPEC continued to pump oil at some of the highest levels in recent times last month, suggesting both were locked in a fierce struggle for market share.
Benchmark Brent crude LCOc1 has fallen around 70 percent since mid-2014
Copyright: Reuters
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