Tuesday, February 2, 2016

Updates

February 3, 2016: I don't think this story adds much but it re-emphasizes how bad things are in the oil and gas industry right now. As noted below, BP will cut 7,000 jobs. What is missing is the fact that the BP results were the worse for two decades. Remember: this is the country that Hussein said he would put his foot on the neck of this company and kill it. From NPR at the time:

The Obama Administration clearly wants to send the signal that it's keeping the pressure on BP to do everything humanly possible to stop the uncontrolled flow of oil in the Gulf of Mexico and to get the company to pick up the cost for cleaning up the mess and the economic losses to people in the gulf region.

So the administration has embraced the violent imagery of Interior Secretary Ken Salazar who said administration officials would keep their "boot on the throat" of the energy giant to make sure the company does all it can and more to address the problems caused by its uncontrolled ocean gusher.

And they say Trump is a buffoon with the language he uses.

January 20, 2017, can't come soon enough. Even Bernie Sanders sounds more civil.

From the Rigzone story yesterday:

Super major BP revealed Tuesday that it expects to reduce its workforce by a further 7,000 employees in 2016 and 2017 after the firm reported its worst set of results for more than two decades. BP said that approximately 4,000 staff and contractor roles would go in the Upstream segment of its business during 2016 and that it will lose up to 3,000 of its Downstream workers by the end of 2017.

BP's results showed that the company made an 'underlying replacement cost profit' of $5.9 billion for the whole of 2015, compared with $12.1 billion in 2014 – a fall of 51 percent.

The underlying results for the fourth quarter of 2015 was just $196 million, compared with $2.2 billion for 4Q 2014. BP registered production of 2.37 million barrels of oil equivalent per year during the final quarter of 2015 (8.3-percent greater than its production of 4Q 2014).

But despite this strong performance and growing cost reductions, the firm said that the lower underlying result was predominantly driven by the impact of steeply-lower oil and gas prices in BP's Upstream business.

The Upstream segment reported a loss of $0.7 billion in 4Q 2015, compared to a profit of $2.2 billion in 4Q 2014.

But BP highlighted a few positives in its Upstream business, such as the firm gaining new access in the Egypt and Gulf of Mexico markets as well as it extending its relationship with Rosneft in Russia.

Meanwhile, three major upstream projects – one in Australia and two in Angola – began production in 2015 and another in Algeria is due to start up shortly. BP took final investment decisions on four major upstream projects during 2014, including the large West Nile Delta project in Egypt.

This comes on top of the bad news that was posted on January 12, 2016, when BP announced huge cuts even before the most recent earnings report came out. 

Original Post 

Reporting Tuesday, February 2, 2016:

• Baxter, huge beat; 37 cents vs forecast 32 cents; revenue falls short, hit by dollar strength;
• XOM, huge beat at 67 cents vs forecast 64 cents, but results so poor, shares slump; 2016 CAPEX cut 25%;
• UPS, huge beat; $1.57 vs forecast $1.42;
• BP plunges; reports biggest ever annual loss; 

... a loss of $6.5 billion; will cut 3,000 more jobs; 2016 CAPEX guidance lowered; showing that even one of the nimblest oil producers is struggling in the worst market downturn in over a decade. The British oil and gas company, which is still grappling with about $55 billion of costs from the oil spill in the Gulf of Mexico in 2010, said it would cut 7,000 jobs by the end of 2017, or nearly 9 percent of its workforce; the company's definition of net income, came in at $196 million, well below analyst expectations of $730 million.

oil drops about 3% and stock futures sink

• Black Hills Corp, forecast 67 cents after market close,

No: this is not an investment site. Do not make any investment, financial, or travel decisions based on anything you read here or think you may have read here. 

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Back to the Bakken

Active rigs:

	2/2/2016	02/02/2015	02/02/2014	02/02/2013	02/02/2012
Active Rigs	45	145	192	187	201

RBN Energy: The #1 hit for natural gas markets.

The US natural gas market is in a precarious state. CME/NYMEX futures contract prices have been settling at historic lows for this time of year. Producer returns are dismal in most shale basins.  

Yet production volumes remain robust, and the supply/demand balance is way out of whack. The surplus in storage is soaring at more than 500 Bcf above last year and more than 400 Bcf above the 5-year average. It’s clear something has to give. But how will the imbalance get resolved and how will the resolution impact the price of natural gas? To help you navigate market signals and stay ahead of upcoming turning points, today we introduce our new daily NATGAS Billboard: Natural Gas Outlook report featuring storage and price forecasts plus a daily market outlook.

Before we get to our current market outlook, first a bit of background on the new report. We have teamed with our good friends at Criterion Research, including ace gas market forecaster Kyle Cooper to develop NATGAS Billboard – a daily morning update on the U.S. natural gas market. Each morning, we will go through the same exercise that dozens of in-house analysts perform for their trading shops. Taking the latest iterations of the raw fundamental data, (including weather forecasts, pipeline flow data, storage facility postings, weekly electricity demand data, CME/NYMEX price action and the weekly EIA inventory data), we will mesh it all together in our proprietary models and come up with our best interpretation of what it all means for storage and ultimately price. We will then share the answers with you in a clean, concise report. As new data comes in each day, we’ll continue to revise our outlook. 

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Minimum Blogging  

Blogging will be at a minimum and will be sporadic the next few days due to family commitments.

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Quick Notes

Russia

Russia is willing to talk "oil cuts."  WSJ is reporting:

Russian Foreign Minister Sergei Lavrov reiterated Tuesday that the country is ready to take part in a potential meeting of top oil producers in February, Russian news agencies reported.

Last week, Alexander Novak, the energy minister of Russia, which isn’t a member of the Organization of the Petroleum Exporting Countries, said the world’s major oil-producing countries could discuss possible cuts to production at talks in February. His statement caused oil prices to shoot above $35 per barrel for the first time since early January and Russian stocks to rally.

“If there is interest in holding a meeting that our Venezuelan friends are talking about—to hold a meeting between OPEC members and countries that are not a part of this organization—we will naturally join such a consensus and will work under these parameters,” Mr. Lavrov said, Interfax reported.

Putin in desperate need to raise cash. Financial Times is reporting:

Russia is lining up seven major state companies, including Aeroflot, Alrosa, the diamond miner, and Rosneft, for potential privatisation as the Kremlin debates drastic options to replace dwindling oil revenues.

The decision to consider the first such comprehensive push in years comes as the latest slide in crude prices is expected to drive Russia into a second year of recession and has ripped a gaping hole in its budget.

Moscow has continuously sold small state company stakes over the years, but progress has slowed since Vladimir Putin’s return to the presidency in 2012. Memories of the privatisation wave with which Russia’s liberal economic policymakers tried to force a transition from the Soviet economy in the 1990s remain traumatic as it vastly enriched a small number of people, creating the country’s oligarch class.

The heads of Alrosa, Rosneft and fellow oil company Bashneft, Russian Railways, state bank VTB, Aeroflot and Russia’s largest shipbuilding company Sovcomflot were summoned on Monday to a meeting where Mr Putin discussed privatisation plans for this year with his economic team.

Wow, so many story lines. I wish I had more time. So much of this needs to be read in conjunction with the fairly recent biography of Ayn Rand, by Anne C. Heller, c. 2009.

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The Big Disconnect

Obama and Oil

From USA Today:

“What we have here is a failure to communicate.”

Much of the communication problem centers on whether the world still needs oil and gas and how long that need will last.

In the president’s annual address to Congress, one of the big applause lines came when he pointed out that the U.S. has reduced oil imports by 60% under his administration and, “gas under $2 a gallon ain’t bad either.” Both Democrats and Republicans cheered for that.

Then he continued, “Rather than subsidize the past, we should invest in the future, especially in communities that rely on fossil fuels. We do them no favor when we don’t show them where the trends are going.”

What trend? The political and diplomatic efforts to address global warming. But the President missed, or chose not to recognize, another trend – the world is not decreasing its use of oil and gas; it is increasing it.

That information was highlighted a couple of weeks later when the ExxonMobil analysis was released. That study looks ahead to the year 2040 and projects that fossil fuels will still provide 80% of the world’s energy need.

And then USA Today provides the Cliff Notes.

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Texas Wind

From Business Insider:

You have to hand it to Texas. The state that is perhaps most closely identified with oil production is now doing a good job of diversifying its investments and positioning itself well for the future, and it’s starting to show. Texas has long been a champion producer of convention energy sources, but thanks to its natural landscape and sage investments by the state government, Texas also appears poised to be one of the dominant producers of wind power in the future.

Despite Texas’ long history of success in the oil fields, the state has not rested on its laurels. Texas was the second state after Iowa to pass a renewable portfolio standard requiring a certain amount of electricity come from renewable sources. Texas has also invested billions in developing the infrastructure to support that renewable portfolio including putting up high voltage power lines to link cities like Austin with windy west Texas. That investment is paying off big for Texas — for instance, last December 20, Texas wind farms set a new all-time record for energy produced from wind power with wind providing 45 percent of the state’s total energy needs at its peak. That amounted to 13.9 gigawatts of power.

Texas wind farms are actually generating so much power that the state leads the country in wind production despite competition from green friendly states like California. Amazingly, Texas utilities are generating so much power from wind energy that some utilities in the state are literally giving power away to consumers for free. The free electricity is limited, of course — it only runs from 9 p.m. to 6 a.m. and it is offered by TXU Energy to customers coupled with slightly higher rates for power during the daytime.

The interesting thing is that our electric rates in Texas are higher than they need to be, because of wind. Electric rates in Texas at 11.48 cents/kw-hour vs 9.31 cents in North Dakota.  Wind has no redeeming features, but the jury is out. Americans love spending money on wind/solar.