The nonsense of releasing US Strategic Petroleum Reserves

Trump is on a mission to contain oil prices and has been sending strong tweets and messages blaming OPEC and supposed ally Saudi Arabia for the current levels of “high” oil prices. The Trump administration’s policies are in complete dissonance as tampering with the Iranian sanctions is a key cause of the tightening of global oil supply and strong noises around US energy independence is in complete opposition to Trump asking OPEC to pump more oil, which illustrates that the US is far from energy independence and still needing to call up OPEC in times of need.

Trump is now considering tapping the US strategic petroleum reserves (“SPR”) in an attempt to lower oil prices in the run up to the US midterm elections; logic being that this will translate into lower prices at the pump. However, his administration may be wrongly conflating the two with no guarantee that a release of SPR will lower gasoline prices.

A release of SPR crude will likely do little to alleviate pump prices. US refiners are already running at near full capacity and additional crude will have limited ability to be absorbed and converted to gasoline domestically. In fact, additional crude on the market will likely depress WTI and increase the profits of the refiners rather than the benefits trickling through to the pumps. Furthermore, the SPR holds light crude whereas the feed slate for US Gulf refiners is typically heavy crude from South America.

The SPR was established in 1975 following the Arab oil embargo in 1973. The US, together with 28 other countries, are required by the International Energy Agency to hold no less than 90 days of import cover measured against the previous year’s net imports. It is designed to meet domestic demand in the case of supply disruptions. In the US, the SPR is held across four sites on the Gulf Coast with a total of 660mmbbl of mostly light crude. They can be released with a 13-day window once the POTUS gives the decision.

Read More

Ophir lost in space

Ophir’s Equatorial Guinea Fortuna FLNG project faces further uncertainty as the government threatens to pass the Block R licence which contains the gas field to another company in December when it expires. It has given Ophir an ultimatum to present a firm financing plan and progress the FLNG project.

The FLNG concept is still relatively new technology and together with the geography, Ophir has found it challenging to raise bank financing or secure partners over the past few years when the global LNG outlook was uncertain. With the improving LNG demand outlook, Ophir now faces competition from US LNG which has accelerated miles ahead.

The government has not named who it will pass the licence to in December, but this could be the likes of Perenco, who started export at its own FLNG project in Cameroon earlier this year, or Kosmos who is pursuing the Tortue FLNG project with BP in Mauritania/Senegal.

Shortly after the government’s intention were made public, Ophir announced that it had entered into a farm-out agreement on its EG-24 licence in Equatorial Guinea to Kosmos, further lending credence to the hinted company being Kosmos. Under the farm-out, Kosmos will acquire a 40% non-operated interest and fully carry the cost of a block 3D seismic survey. For Kosmos, the deal supplements its recently acquired positions in Okume and Ceiba back in 2017.

Read More

Karish and Tanin to supply Cyprus

Energean announced earlier this month that it is seeking approval to build a pipeline from its Karish and Tanin fields to the shores of Cyprus from the Cypriot government. The company has already contracted 4.2bcm p.a. from its fields with Israeli buyers and is progressing with further gas supply contracts. The Karish and Tanin project has already been sanctioned, so further supply contracts are not necessary for FID but will strengthen the commercialisation of the project. Energean’s FPSO once online will have capacity to handle c.800mmcfpd.

There are ample of buyers in the Eastern Mediterranean for gas given gas shortages and growing demand in the region. Cyprus in particular is a country keen to secure more gas as it has just put out a tender for LNG import and Floating Storage and Regasification Unit construction.

Reuters noted that Energean will bid for further supply contracts in Israeli power plants with the coal-to-gas switching initiative providing further opportunities for the company.

Read More

ConocoPhillips' mix of a North Sea portfolio

ConocoPhillips' is one of the largest operators in the UK North Sea, being the operator of the Britannia area, the J-Area and large swathes of the Southern North Sea. ConocoPhillips is also a non-operated partner in the giant Clair field.

Clair is one of the largest oil fields in the UK offshore and located in the West of Shetlands which is making a name for being the last frontier of the UK and is increasingly attracting further exploration activity. The Clair field was brought onstream in 2005 and is currently undergoing a second phase of development (Clair Ridge). Clair Ridge is planned to come onstream in Q4 2018 with operator BP targeting an additional 640mmbbl which will extend the life of the Clair Area beyond 2050. As soon as Clair Ridge is onstream, the partners will be planning for the Phase 3 of the development known as Clair South.

On the operated assets, Britannia is one of the largest gas fields in the UK which has acted as a hub for various tie-backs over the years. The J-Area, although now beginning to mature, has been a highly successful gas hub in the Central North Sea where more infill drilling and exploration activity is planned into 2019 and 2020.

The Southen North Sea assets are the most mature with some going into decommissioning. ConocoPhillips has widely announced the closure of the Theddlethorpe gas processing plant which is the terminus for its CMS pipeline. This will lead to early/forced decommissioning of all the fields which currently utilise the CMS pipeline as the export route including the Faroe and Tullow Schooner and Ketch fields which will cease production in August 2018.

The ConocoPhillips' UK portfolio is concentrated around a few hubs and excluding the Southern North Sea, has a good amount of life remaining with current production at c.80mboe/d.

Read More

Saudi and Russia dominate gossip columns in run up to June OPEC meeting

As we approach the June OPEC meeting, all eyes on Saudi Arabia and Russia for any clues on the direction they will go on 22nd June. With the sanctions on Iran and imminent collapse of Venezuela, Trump has asked the two power weights to step in to avoid oil prices going any higher. This in itself is ironic as the US has been trying to wean itself off imports and attain energy independence from OPEC, yet it is now openly asking Saudi Arabia to help.

In recent days, both Saudi Arabia and Russia have hinted at wanting to increase production by 300mbopd, although the details remain to be thrashed out- i.e. will it be these two countries shouldering the increase or will it be spread amongst the OPEC members. The path this will take and desire to increase production will be dictated by whether consensus can be reached next week.

On the one hand, keeping a lid of oil prices is important for OPEC to avoid a wave of US production coming onstream with producer hedging. On the other hand, a number of OPEC nations urgently require cash flow from higher oil prices to balance precarious budgets.

If consensus can be reached to increase production, the additional barrels can be met by Saudi Arabia and Russia making up the production but will likely be criticised by other OPEC members of using the opportunity to snatch market share. An alternative would be for the members’ quotas to be renegotiated although this will open up another can of worms. In the case of the latter, it is noted that not all members are in a position to raise production (e.g. Venezuela, Nigeria, Libya which are fraught with domestic difficulties). Finally, OPEC members have been in over compliance so there remains running room to utilise the existing quotas, although this will again be shouldered by Saudi Arabia and Russia.

In the medium and longer term, fundamentals point to a supply shortfall so gradually raising production now will keep prices under control although the path ahead will remain choppy.

Read More

Putumayo smart crude marketing

Putumayo producers are blessed with having multiple export routes and the flexibility that affords in maximising sales netbacks.

The most direct route is the OTA pipeline to Tumaco. However this route has historically been plagued by attacks leading to downtime and the South Blend crude at Tumaco also fetches one of the biggest discounts to benchmarks vs. other region blends.

This has led to producers accessing Ecuadorian export routes through either the OCP or SOTE pipeline to Esmeraldes. At the port of Esmeraldes, the two key blends are Napo (19° API) and Oriente (24° API). Oriente being the lighter crude fetches a higher price.

Another option that has been employed is the trucking or part truck/part pipe of crude to Coveñas. At this port, the Vasconia blend fetches a good price and sells into the Caribbean market.

At the end of 2016, Amerisur completed its OBA pipeline linking its Platanillo field directly to Ecuadorian export infrastructure. Previously, Amerisur had to truck crude to a pipeline entry point to the OSO or OTA pipeline. The OBA link allowed Amerisur to reduce average transportation costs from c.USD14/bbl to below USD4/bbl. The link, despite taking many years to complete, cost USD18 million and in February 2018 Amerisur announced that the pipeline had been paid by within 15 months with cost savings achieved to that date of USD20 million.

Related link: Bienvenido Victor Hugo

Read More

Shamaran acquires more of Atrush

Shamaran has acquired an additional 15% interest in the Atrush field for USD60 million. This takes its share from 20.1% to 35.1%. The remaining owners are TAQA 39.9% and KRG 25%).

The field began producing in July 2017 and currently has capacity to produce at 30mbopd. There are longer term plans to debottleneck and add future phases, potentially taking production beyond 100mbopd.

The field’s potential is underpinned by its 102.7mmbbl 2P reserves and c.300mmbbl 2C resources.

The Atrush partners continue to receive regular payments from the KRG and Shamaran has taken the opportunity to refinance and upsize its bond to USD240 million.

Read More