Monday, July 30, 2018 / 08:20 AM / Oilprice.com
Oil prices started the week moving upwards after geopolitical tensions
threatened both Iranian and Saudi Arabian oil, but a rising rig count on
Friday has all but erased those gains.
Friday, July 27, 2018
It was mostly a quiet week for oil prices, rising on the back of geopolitical
tensions at the start of the week before losing those gains on Friday as the
oil rig count increased. Earnings reports started trickling in this week, with
strong performances across the board. The recovery of oil markets in the last
year is starting to be reflected in earnings, although some share prices were
battered as Wall Street had expected more.
Shell posts strong
earnings, initiates $25 billion share buyback. Royal Dutch Shell (NYSE: RDS.A) nearly
tripled its profits
in the second quarter, year-on-year, and announced the beginning of a $25
billion share buyback program. Investors weren’t convinced, and Shell’s stock
sunk nearly 4 percent on the news. The skepticism may have been the result of
the 1.5 percent decline in production, which stemmed from field declines and
asset sales. Also, Shell’s earnings came in a little under expectations.
Shell’s gearing, or debt ratio to capitalization, declined from 24.7 percent in
the first quarter to 23.6 percent in the second, another sign of
progress.
BP to pay $10.5 billion
for BHP shale assets. BP (NYSE: BP) agreed to purchase
BHP’s (NYSE: BBL) shale
assets for $10.5 billion. BHP has been trying to unload its shale assets for a
while, after losing some $19 billion on shale, so the sale is welcome. For BP,
the acquisition is an enormous splash, making it a major player in U.S. shale.
The assets are located in the Eagle Ford, Permian and Haynesville shales. “This
is a transformational acquisition for our (onshore U.S.) business, a major step
in delivering our upstream strategy and a world-class addition to BP’s
distinctive portfolio,” BP Chief Executive Bob Dudley said in a statement. BP
also hiked its dividend for the first time in almost four years and also
announced a $6 billion share buyback.
Chevron doubles
earnings, Exxon’s up 18 percent. Chevron (NYSE: CVX)
reported earnings of $3.8 billion for the second quarter, more than twice as
much as a year earlier. Like some of the others, earnings still came in a bit
under expectations – shares were down 2 percent on the news. Meanwhile, ExxonMobil (NYSE: XOM) fell
4 percent in early trading on Friday after undershooting expectations. The oil
major said that production fell 7 percent in the second quarter, year-on-year,
even as Permian and Bakken production jumped. Exxon earned just under $4
billion for the quarter, up 18 percent from a year earlier.
Saudi Arabia halted
shipments through Bab el-Mandeb. Saudi Arabia halted
shipments through the crucial chokepoint of Bab el-Mandeb this week after
Houthi rebels attacked two Aramco tankers. Nearly 5 million barrels per day of
oil volumes pass through the narrow strait between the horn of Africa and
Yemen.
Airlines cutting
capacity because of fuel costs. Many of the largest U.S.
airline companies are trimming flights and raising fares in reaction to rising fuel prices.
Trump calls off trade
war with Europe…maybe. President Trump boasted about a
breakthrough in trade relations with Europe this week, seeming to support a
free trade proposal that resembles the one that the Obama administration and
Europe had been considering. He said the two sides would have talks on “zero
tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial
goods.” Trump also suggested that Europe would buy up American soybeans – hit
hard in the current trade fight with China – and American LNG. Light on
details, the market did not know what to make of the announcement, but welcomed
the easing of relations. But already, the vague breakthrough is running into
trouble, with both sides far apart on whether
or not agriculture should even be considered as part of the negotiations.
Saudi Arabia pressures
Aramco to take on debt. With the IPO of Saudi Aramco on
ice, the Saudi government is pressing Aramco to raise tens of billions of
dollars in debt to fund the country’s economic transformation, according to the WSJ. Saudi
officials want Aramco to raise debt to buy a controlling stake in SABIC, a
Saudi petrochemical company, currently owned by the sovereign wealth fund. The
move would effectively transfer $50 to $70 billion to the Saudi sovereign
wealth fund, handing a mountain of cash to the government.
CNPC to spend $22
billion through 2020 to boost production. China’s
state-owned CNPC announced plans to spend $22 billion by 2020 to boost oil and
gas production in its western region of Xinjiang, according to Reuters. The move
would help offset declining production from mature fields in China’s
northeast.
Occidental Petroleum
considers sale of pipeline assets. Occidental Petroleum (NYSE: OXY)
is exploring the sale of
its pipeline assets, which could be worth as much as $5 billion. The move would
give the company resources to boost exploration and production. The sale of
pipeline assets is timely given the high valuation for midstream assets.
Indian refiner cancels
purchase of Iranian oil. India’s Hindustan Petroleum Corp. cancelled the
purchase of an Iranian oil cargo because it couldn’t obtain insurance for the
shipment, due to U.S. sanctions. The cancellation suggests U.S. sanctions will
be more effective than once thought.
Deepwater drilling picks
up. “The broad-based recovery is now also reaching the
offshore market,” Patrick Schorn, executive vice-president of wells at Schlumberger (NYSE: SLB),
told analysts last week. “We are preparing ourselves further for deepwater.”
Schlumberger, along with Halliburton
(NYSE: HAL), warned investors that the Permian could see a
slowdown. But Schlumberger, more internationally-focused than Halliburton,
struck a more optimistic tone regarding offshore drilling, noting that
drilling could rise by 10 percent this year. According to analysts at
Bernstein, there could be 40 final investment decisions on offshore projects
this year, up from just 29 in 2017 and 14 in 2016.
Chesapeake Energy to
sell $2 billion Utica assets. Chesapeake Energy (NYSE: CHK)
is selling its
remaining assets in the Utica shale for $2 billion in order to slash the company’s
debt.
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