Fitch Sees Saudi's Oil Price Averaging $35/Bbl In Current Calendar Year -- April 13, 2016

Updates

April 14, 2016: how Saudi Arabia hopes to transform itself economically. I'm post this article because it confirms the "price point" I made in the original post (pasted one day ago):

People familiar with the National Transformation Plan said it was born late last year in discussions between Prince Mohammed and a few other top officials. At the time, oil was sinking below $30 (£21.1) a barrel, about half the low point that had been expected. That saddled the kingdom with an annual budget deficit near $100 billion and strengthened the case for radical changes.

The plan is still "secret" but based on what is known about it, it's an incredibly small step to be taken by a very, very conservative (medieval) monarchy.
 

Original Post

 

The headline caught my attention: Saudi Arabia gets credit rating downgrade, as reported in USA Today. But the real story was in the fourth paragraph:

The move stemmed from Fitch's assumption that oil prices will average about $35 per barrel in 2016 and about $45 per barrel in 2017.

For as long as most folks can remember, Saudi Arabia set their national budget based on $100 oil. Then in 2015, Saudi Arabia set their 2016 (this year's) budget on $60 oil, which seemed to confirm the "word on the street" that Saudi Arabia never expected oil to drop below $60/bbl as an average for an entire year.

I've run the numbers under several scenarios. I don't know how "we" get to $60 oil as an average this year. Fitch suggesting that the 2016 (this year's) average will be $35/bbl, suggests that Fitch sees new lows this year. 

Three (3) New Permits -- April 13, 2016

Active rigs:

	4/13/2016	04/13/2015	04/13/2014	04/13/2013	04/13/2012
Active Rigs	30	91	189	186	208

Three (3) new permits --

• Operator: EOG
• Fields: Parshall (Mountrail)
• Comments:

Oasis renewed a Linda permit in McKenzie County.

One producing well was completed:

• 31353, 797, Hess, BL-Davidson-155-96-0211H-7, Beaver Lodge, a Devonian well, unitized, t3/15; cum --

Wells coming off confidential list Thursday:

• 30225, SI/NC, BR, Sun Notch 42-32MBH, Sand Creek, no production data,
• 30951, SI/NC, EOG, Van Hook 70-1411H, Parshall, no production data,
• 31981, 109, Denbury, CHSU ML24014SH 15, Cedar Hills, a South Red River B well, t12/15; cum 10K 2/16;
• 32031, 1,275, Hess, EN-Pederson-LW-154-94-0408H-7, Alkali Creek, 50 stages, 3.5 million lbs, t2/16; cum 19K over 13 days;

**********************************************

32031, see above, Hess, EN-Pederson-LW-154-94-0408H-7, Alkali Creek:

Date	Oil Runs	MCF Sold
2-2016	18206	30127

31981, see above, Denbury, CHSU ML24014SH 15, Cedar Hills:

Date	Oil Runs	MCF Sold
2-2016	3795	593
1-2016	3764	529
12-2015	1927	444

Venezuela -- Tick, Tick, Tick -- April 13, 2016

Schlumberger will "reduce activity" Venezuela. Bloomberg is reporting:

Schlumberger Ltd. will reduce activity in Venezuela after the world’s largest oil services provider failed to collect enough payments from the national oil company.

The reduction will take place this month in close coordination with all customers in Venezuela to continue servicing those with available cash flow, the Houston- and Paris-based contractor said in a statement Tuesday.

Venezuela, which holds the biggest oil reserves of any country, has been battered by the collapse of prices as most of the government’s revenue comes from petrodollars.

In October, Schlumberger was said to be shifting some of its workers from Brazil to Venezuela, reinforcing the contractor’s commitment at the time as others in the industry pulled back. By late January, Schlumberger said it had entered into a deal with Petroleos de Venezuela SA during the fourth quarter to receive certain fixed assets in lieu of payment of about $200 million of accounts receivable.

The "Venezuela story" is tracked here. 

Update On The Panama Canal Expansion -- April 13, 2016

Updates

April 14, 2016: this is pretty cool. Yesterday RBN Energy had a great update on the Panama Canal. Today, the EIA tweets on ship-to-ship propane transfers across the canal. Very, very cool.

Original Post 

Active rigs:

	4/13/2016	04/13/2015	04/13/2014	04/13/2013	04/13/2012
Active Rigs	30	91	189	186	208

Update on the Panama Canal expansion -- RBN Energy (article is archived).

On Monday, September 3, 2007, dignitaries and thousands of Panamanian citizens watched a huge explosion level a hill near Paraiso, a village north of Panama City. That day launched work on a project that would eventually cost more than $6 billion (U.S.) to double the capacity of the Panama Canal and allow for the passage of longer and wider ships. Nearly nine years later on June 26, 2016, the expansion is finally scheduled to be open for business.   The new canal capacity will be a major event in global energy markets, especially for growing volumes of U.S. natural gas, liquified petroleum gas (LPG) and petroleum product exports.   In honor of this historic development, RBN will take you there!   Rusty will be traversing the canal this Thursday, April 14^th and will have the skinny on what is happening in Panama right now, with pictures to show for it. 

In today’s blog we set the stage for our voyage across the Panamanian Isthmus.

The Panama Canal expansion has been a frequent topic in the RBN blogosphere.  We did a primer on the subject a few years back and subsequently have reviewed the impact of the expansion on the full range of hydrocarbon markets. 

In Courtesy of the Red, White and Blue we saw how the shipping distance from the U.S. Gulf Coast to Asia for large LNG tankers will drop from 16,000 to 9,000 miles when the canal expansion opens, cutting freight costs by more than 40%. 

Stayin’ Afloat with the LP Gees examined how the largest LPG vessels carrying propane and butane (very large gas carriers, VLGCS) cannot fit through the Panama Canal today, but will be able to after the expansion goes into service.   

In Rock the Boat Don’t Rock the Boat—Jones Act Vessels Through the Panama Canal? we looked at the possibility of moving US crude from the Gulf Coast to the West Coast either via the Panama Canal or the Transpanama pipeline (TPP). 

And in A Man, A Plan, An Expanded Panama Canal— Cutting Travel Times For LNG And LPG-Laden Ships we examined the benefits that canal expansion offers to LNG and LPG exports.   Today we consider what the upcoming expansion does for the Canal’s capabilities, and what the new capacity will mean for energy markets.

Data points regarding the expanded Panama Canal:

• Panama Canal Expansion Project: Third Set of Locks project, 9-year project; does two things:
• creates a new traffic lane
• first new line since canal built 100 years ago: allows for larger ships
• previous restrictions: no longer than 965 feet; no wider than 106 feet; draft capped at 40 feet (ships up to this size and draft: Panamax vessels
• new restrictions: 1,200 feet in length; 160 feet in width; 50 feet of draft: "New Panamax" or post-Panamax
• ultra large crude carriers (ULCCs) nearly 5x larger than the maximum capacity of the current canal; most other big crude vessels won't fit
• after the expansion: only 10% of LNG carriers won't fit (vs 90% currently)
• the only LNG carriers that will not be able to use the canal because of their width are Q-Flex (164 feet wide) and Q-Max (180 feet wide) -- the larger vessels pioneered by Qatar Gas to move staggering volumes of LNG (up to 157 metric tons for the Q-Flex and almost 200 MT for the Q-Max)
• it's possible, the Q-Flex will eventually be allowed to use the canal
• for LPG (propane and butanes); "very large gas carriers" (VLGCs) are preferred; between 375 MBbl and 550 MBbl; currently only 20% of the 180 global VLGC's can fit through the cana; once the new canal is operational, virtually every VLGC will be able to use the waterway
• expansion will help movement of refined petroleum products
• still a problem: only one port on the Gulf Coast can handle ULCCs, VLCCs, and Suezmax size vessles: LOOP; designed for imports; huge infrastructure costs if flexed to export; these large ships can't transit the new canal
• competition from the Trans-Panama Pipeline (TPP) or Transisthmian Pipeline: ports at either end and handle Suezmax and VLCC ships
• bottom line: expanded Panama Canal is a very big deal for LNG, LPG, and petroleum product exports from the US Gulf Coast; less significant for crude oil exports;

Iraq Coming Apart At The Seams? -- GlobalData Consulting Firm -- April 13, 2016

From a GlobalData press release:

The resignation of Iraqi Oil Minister Abdul-Mahdi last month came at a tough time for upstream development in Iraq, which has been losing pace over recent months due to dropping oil prices. Indeed, one of the most significant global oil production growth drivers has been derailed, according to an analyst with research and consulting firm GlobalData.

Despite the country’s wealth of resource, budgetary constraints caused by low oil prices, political disputes, and a prolonged conflict with ISIS have impacted the Iraqi government’s ability to maintain the tremendous levels of capital investment required to realize targeted production levels. This has resulted in the Iraqi Oil Ministry revising its production targets from 9 million barrels per day (mmbd) to 6 mmbd by 2020.

Ali Al-Killidar, GlobalData’s Analyst covering Oil and Gas, says that current production is around 4.3 mmbd, and GlobalData forecasts closer to 5 mmbd by 2020, primarily due to budget cuts faced by consortiums across the whole of Iraq.

Al-Killidar explains: “Generally, revenues from Iraq’s southern fields, which account for 95% of the state’s budget, are not enough to cover all the state’s budgetary expenses and repay oil companies for their investments in the upstream sector, and Abdul-Mahdi warned operators about this. According to Iraqi officials, the potential for a low price environment was overlooked when the contracts were initially drawn up.

“In May 2015, BP agreed to cut its budget for the Rumaila field by US$1 billion from the initially-planned US$3.5 billion, leaving production steady at the current rate of 1.4 mmbd. Although the 2016 budget for the field has not been reported, a similar cut in investment is expected, with the primary focus of the operator shifting to offset the natural decline, at 17%.”

Despite the numerous adverse events the Iraqi oil industry has experienced of late, Iraqi authorities have retaken oil fields from ISIS with international support, opening up the possibility of redevelopment.

Al-Killidar adds: “As a consequence of the conflict, field infrastructure sustained extensive damage during fighting and the Iraqi government has lost up to 400,000 barrels per day of production during the conflict.

“Redevelopment to salvage the fields has yet to be planned, partially due to the lingering threat of ISIS. However, should the group be eliminated, the government is likely to reinvest in the restoration of these fields over the long term.”