Saturday, September 9, 2017

Schlumberger? The Next Oil Major? -- September 9, 2017

At Reuters two days ago, data points:
  • Schlumberger: world's largest oilfield services company
  • spending billions of dollars buying stakes in its customers' oil and gas projects
  • business model could upend rivals such as GE's unit Baker Hughes
  • these other companies considering Schlumberger's model
  • carries huge risks; some thing Schlumberger may be over-extended
  • Schlumberger launched Schlumberger Production Management division in 2011
    • generated $1.4 billion in revenue in 2016
    • as of 1H17, SPM has investment portfolio of $2.6 billion
    • SPM co-managed about 230,000 bopd at the end of 2016; about as much as one of the largest US independent producers, Pioneer Natural Resources
  • Schlumberger: now, something new -- this year opened a standalone investment fund; size of fund not disclosed
  • two of Schlumberger's newest partnerships:
    • off the coast of Equatorial Guinea
    • Argentina shale development with YPF SA

Update On Venezuela -- September 9, 2017 -- My Reading Of The Update? China Owns Venezuela; Russia Wants A Piece

Disclaimer: I know nothing about The DVA Group nor The Selinger Group. I'll sort that out later. I don't know how reliable their website Venezuelan Daily Brief is or if the group has an agenda. This is the first time I've come across the blog. Interestingly enough, it uses the very same "blogger" application that I use and the very same domain.

The website is updated "bi-weekly" or every two weeks. The most recent update is dated August 29, 2017. The previous post was dated August 17, 2017.

These are the data points from the current post that jumped out at me:
  • Venezuela exports to the US: huge drop since 2006; nothing new; data is posted frequently on this blog, and a link provided; what I'm interested in is more current, weekly data
  • Venezuelan oil minister and the state oil company president will switch roles; the latter will go on a series of foreign trips to strengthen alliances
  • the new president of PDVSA will  will be tasked to strength partnerships with foreign companies operating in the Orinoco Belt by improving their stakes
  • the oil minister will Russia and Saudi Arabia head of an OPEC, non-OPEC monitoring ministerial committee meeting in Vienna, set for September 22, 2017
  • PDVSA said it was negotiating the continuation of its lease of Curacao's Isla refinery but was open to Chinese partners following a preliminary deal between the island and China's Guangdon Zhenron Energy to operate the complex
  • the cash-poor PDVSA has been reluctant to invest some US$ 1.5 billion that Curacao authorities requested several years back to modernize the 335,000 bopd facility
  • op-ed: 
    • Venezuela is on the verge of becoming a failed state
    • the implosion will not drive up global oil prices
    • Venezuela will protect oil exports at all costs
    • even if unsuccessful, percentage of total demand is small and easily offset by other OPEC and non-OPEC nations
    • if production were cut off, it would not stay cut off
    • Venezuela has huge debts outstanding with the US, China, and Russia -- any government desperately needs oil revenue
  • more at the op-ed
    • White House sanctions may scare off Venezuela vulture investors -- see article
    • sanctions are severe, but if Maduro doesn't meet Trump's demands, Trump could make them even more severe -- see article
  • Venezuelan cash:
    • "disposable reserves": down to US$ 700 million
    • international reserves available for imports, debt service, contingencies, etc, were down to $US$ 9.855 billion on August 22, the lowest level in 15 years -- but now the situation is even worse -- see article
    • most "disposable reserves" are being held in gold bullion
    • remember: "disposable reserves" at $700 million and PDVSA must pay US$2.9 billion in debt service during October and November
    • the government is considering using gold bullion to leverage additional resources
  • walls close in on Venezuela with US bond sanctions -- see article
  • Venezuela has a US$ 3.5 billion bond payment coming due by November
  • Trump's sanctions may make it impossible for Venezuela to re-structure its obligations
  • Goldman Sachs? the company bought US$2.8 billion of notes issued by PDVSA in May, 2017 -- sharp criticism in the US, but the bonds were exempt from Trump's orders/sanctions
  • a member of the pro-regime "Constitutional Assembly" says that the Maduro regime is negoatiating with China for the resale of Venezuelan bonds; hold that thought:
    • shortages have ameliorated but shortages have not gone away; shelves are fuller than Venezuela has seen for months (see why at the article) but most shelves contain a single variety of any given product, much of it imported from China
    • China stopped lending Venezuela new money but in 2016 still had a reported US$ 20 billion of loans outstanding
When I put that all together, this would be the 30-second, elevator speech: China owns Venezuela and Venezuela is already negotiating with China on certain oil sector assets.

For newbies, it is not unusual for cash-strapped countries and/or companies in the oil business to trade oil production in exchange for services or other production. For example, oil service companies like Schlumberger will take "payment" in the form of oil production in some cases

Hurricane Activity Along The Coast -- For Energy, Two Different Outcomes -- September 9, 2017

From Mason Hamilton and EIA via Twitter:
  • Hurricane Harvey disrupted oil and gasoline supplies out of Texas and Louisiana; putting upward pressure on the price of fuel;
  • Hurricane Irma, on the other hand, will disrupt demand, which could put downward pressure on prices for crude oil / gasoline outside of Florida.

Miscellaneous List Of Items Under-Reported By The Mainstream Press -- September 9, 2017

For the archives. A list of miscellaneous data points that seem to get less attention in the mainstream media than they deserve.

Democrats in the US Senate appear that they don't want Catholics in the Federal judiciary. The press barely reported this.

End of crude oil exploration. Perhaps the most stunning news in the oil sector this past week was the announcement by France that exploration of crude oil is coming to an end for that country. The announcement was stunning. The reality is unchanged. The implications are staggering. It's not because France does not have oil (it does, and it has a lot of oil); it's a political decision. Imagine if the US had banned fracking ten years ago. This is going to be huge for US distillate exports (see graph at same link.)

Venezuela is imploding (will become a failed nation). Venezuela crude oil imports (into the US) have reached a new low. Likewise, imports from Saudi Arabia have dropped to half that we saw in 2003. Combing that with $45 oil and some suggest that Saudi Arabia could deplete its cash reserves in less than five years.

Easy money. 10-year-Treasury-bond yields have "never" been so low. Just look at that graph at this post. Staggering. The low was last year (1.51%, August 8, 2016); currently, 2.04%. The yield hit 5.03% on  June 25, 2007 and has been on a downward trend since then. One has to go all the way back to the 1960s when the yields were below 5%. From 1962 - 1966, yields ranged between 4% and 5%.

Economic indicators: folks seem a bit more optimistic with regard to GDP than might be realistic, but at least we're trending toward 3% growth rather than 1% growth. During the last few years of the Obama administration there was a fair amount of chatter worried about the US sliding into another recession; that talk ended after November 8, 2016.
  • Investor optimism is now at record highs.
  • The 30-year mortgage rate hit another 2017 low, now down near 3.75% (same link as above).
  • The US is now at "full employment" and has been for quite some time; there is little evidence of wage inflation. Politico noted that US tightening of work visas meant that US companies had to hire more Americans at higher pay during this past summer. And somehow that was seen as "bad." At full employment, it appears "underemployment" will get increased emphasis.
Strange bedfellows. The "sweet spot" for investors may occur when an alt-right president starts cutting deals with the alt-left. I do not recall in modern history how quickly and how quietly the US debt limit was lifted; government shutdown was averted; and, a huge amount of infrastructure federal money was approved by Congress -- all in two days, this past week. Expect another huge amount of infrastructure money to be released two weeks from now once Hurricane Irma is history.

ObamaCare: death by a thousand cuts. Regulatory rollbacks by the Department of HHS; minor tweaks by Congress; the end of "advertising" by the White House; insurance companies pulling out of states across the US. In everything but name, the program is essentially over. There is still much to do with regard to costs, but the market will take care of that.

  • the end of ISIS is near; the speed of its demise was staggering once the US ROE changed
  • Saudi is in deep financial trouble; did the unthinkable when it met with Iraq to discuss common enemy
  • the current issue of The London Review of Books has an incredibly good analysis of what's going on inside Saudi politics; hopefully I'll find time to post highlights
The Red Queen is dead: the number of onshore US rigs is trending down; crude oil production continues to increase; in the natural gas arena, it appears to be the same, perhaps more so. Mike Filloon is one of the very few analysts are talking about new completion strategies and how that will be the next shale story.

Re-balancing supply / demand crude oil: re-balancing has occurred much more quickly than I expected but a) we're still talking 30 weeks, which puts us well into 2018; and, b) there's not guarantee the situation will improve for the oil companies.

The Keystone XL is back in the news.

EVs: the jury is still out but California scrapped a $3-billion-EV-subsidy bill. Tesla missed August deliveries by 25% and no one noted that. Tesla guidance: 100 Model 3 vehicles in August, up from 30 in July, but, in fact, delivered only 75 Model 3 vehicles in August. Next milestone: 1,000 vehicles/week. If Tesla is unable to meet their goal, it suggests that those who talked about the wiring complexity in manufacturing EVs were right. The "real" price of the Tesla Model 3 is being under-reported.

EVs: the jury is still out but the graphic at this link is not reassuring for the EV industry

Wind energy: the just is still out, but the excitement seems to be over, at least in California. Iowa has more installed wind energy capacity than a state many times larger.

A bridge too far? We already know that Saudi Aramco is selling 2% - 5% of its "assets" as an IPO in the near future to shore up its financial situation. Is this a bridge too far: PDVSA - Rosneft - CNOOC with a 50% - 25% - 25%.  Or more likely, PDVSA, 51%; CNOOC, 49%. One can find many links to others suggesting this may not be "crazy thinking."

$5-Milliion Williston Animal Shelter Could Be Opened By Next Spring --- September 9, 2017

A little over six years ago we noted the passing of a great pioneer in the Williston Basin oil patch: "Buck" Scheele. One of his legacies will be the construction of a $5 million animal center. Neither the press release from the office of the  City of Williston Economic Development or The Williston Wire provided the back story (if either did, I missed it) but it was reported that the "Buck Scheele Family Animal Center is back on track."

The goal is to have the center opened by the spring of 2018.

The center is located out by Spring Lake Park and the Frontier Museum. The story was not more specific but that sounds like the center will be either north or south of the Frontier Museum across the road from Spring Lake Park.