Permian independents yet to show merger value

Spanish Market: Crude oil, Natural gas
01/04/19

US independents that undertook two multi-billion dollar mergers in the Permian basin last year insist that their deals are paying off — but their share price performance suggests that investors are looking for more.

Concho Resources purchased smaller peer RSP Permian for $7.6bn in shares while taking on $1.7bn of debt in March 2018. This was followed by Diamondback Energy swooping up fellow Permian producer Energen in an all-stock $9.2bn transaction, including $830mn of net debt. The Energen purchase also came just days after Diamondback bought Ajax Resources for $1.25bn. Debt and equity investors saw the deals as ushering in a needed wave of consolidation in the US shale industry to cut costs and improve efficiencies in a volatile oil market.

Yet the stock market response to the successes the two say they have had in achieving their synergy and cost-reduction targets has been muted at best. Concho — producing 307,000 b/d of oil equivalent (boe/d) in the fourth quarter — is trading at around $111/share, compared with $158/share in March last year when the deal was announced. Diamondback — with fourth-quarter output of 182,600 boe/d — is trading at around $102/sharecompared with $138/share when its deals were announced in August 2018. The crude price slide in the fourth quarter of last year and continuing volatility may partly explain the share price drops, yet they overshoot the S&P 500 Energy Index's fall of just 2pc since March last year (see graph).

Concho's acquisition was expected to help save $2bn through operational synergies such as optimising development plans, sharing infrastructure and improving efficiency, the company said at the time. But it has since lowered its capital expenditure (capex) guidance for 2019 and 2020, cut its rig fleet for this year and pared its output growth expectations for 2019 and next year.

Concho says it has met its $60mn target of cuts to general and administrative costs. But the bulk of savings are due to come from drilling longer lateral wells and larger multi-well pads, which it is still working towards.

The company has not lost sight of its goals, chief executive Tim Leach says. "We are redoubling our focus on cost control, capital discipline and growing free cash flow and returns," Leach says. Concho's operating cost target for this year is $6-6.50/boe, against $6.14/boe in 2018. But it expects oil service costs to decline in the coming months as producers pare activity. And the firm will continue to shed non-core assets. US bank Tudor Pickering Holt expects Concho to deliver substantial free cash flow after 2020, when it has achieved its development and cost-saving goals.

Diamondback on track

Diamondback's capture of Energen similarly aimed to deliver it $2bn in cost savings. Key synergies included well drilling and completion cost reductions of $200/lateral ft across more than 2,000 locations in the Midland basin, and administrative savings of $30mn-40mn/yr. Diamondback is also looking at selling non-core assets. These plans are all on track, the firm says.

Diamondback's 2019 cost guidance of $785/lateral ft for the Midland basin is a saving of $215/lateral ft compared with Energen's second-quarter 2018 cost. That implies it has already achieved 95pc of the target laid out at the time of the deal.

"The benefit of size, scale and buying power on service costs has been greater than originally anticipated," chief operating officer Michael Hollis says. Diamondback expects additional savings of $150mn this yearin the Midland basin. The firm expects to lower well costs in the Delaware basin by about 7pc this year compared with 2018, saving $50-60/lateral ft. And it expects "even more capital, operating, midstream and mineral synergies,"Hollis says.

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25/04/24

US reimposes Venezuela oil sanctions

The US' decision reopens the door for Chinese independent refiners to procure Venezuelan Merey at wide discounts to other crude grades, writes Haik Gugarats Washington, 25 April (Argus) — The US administration reimposed sanctions targeting Venezuela's oil exports and energy sector investments on 17 April, and set a deadline of 31 May for most foreign companies to wind down business with state-owned oil firm PdV. The decision rescinds a sanctions waiver issued in October, which allowed Venezuela to sell oil freely to any buyer and to invite foreign investment in the country's energy sector. The waiver was due to expire on 18 April, with an extension dependent on Caracas upholding a pledge to hold free and fair elections. Venezuelan president Nicolas Maduro's government reneged on that deal by refusing to register leading opposition candidate Maria Corina Machado or an alternative candidate designated by her, a senior US official says. The US considered the potential effects on global energy markets and other factors in its decision but "fundamentally the decision was based on the actions and non-actions of the Venezuelan authorities", the official says. China's imports of Venezuelan Merey — often labelled as diluted bitumen — decreased following the instigation of the waiver in October. Independent refiners in Shandong previously benefited from wide discounts on the sanctioned crude, but they drastically cut back their Merey imports as prices rose. Meanwhile, state-controlled PetroChina was able to resume imports under the waiver. The reimposition of sanctions this month was widely expected and Merey's discount to Ice Brent began to widen in early April, before the decision was announced. Merey's discount to Brent averaged $9/bl in March, but had reached $12/bl by the start of April and $13/bl after the reimposition of sanctions was formally announced. Buyers are expecting final deals for May at discounts of $14/bl or lower, and for prices to drop by a further $3-4/bl in the short term. Longer-term prices for Merey will be influenced by supply and prices for Iranian crude — another mainstay of Shandong independents. Venezuela's crude output reached 850,000 b/d in March, up by 150,000 b/d on the year, according to Argus estimates. PdV has begun looking to change the terms of its nine active joint ventures with international oil companies, in an effort to keep production elevated now sanctions are back in place. Chasing the deadline The end of the waiver will affect Venezuela's exports to India as much as those to China. India emerged as a major destination for Venezuelan crude after sanctions were lifted, importing 152,000 b/d in March. Two more Venezuelan cargoes are expected to arrive in India before the 31 May deadline. The 2mn bl Caspar left Venezuela's Jose port on 14 March and is expected to arrive in India on 26 April, and Suezmax vessel Tinos is due at India's Sikka port on 30 April. Separate sanctions waivers granted to Chevron and oil field service companies Halliburton, SLB, Baker Hughes and Weatherford will remain in place. Chevron can continue lifting oil from its joint venture with PdV, solely for imports to the US. Oil-for-debt deals between PdV and Spain's Repsol and Italy's Eni are expected to be allowed to continue. Repsol imported 23,000 b/d of Venezuelan crude into Spain last year and 29,000 b/d so far this year, according to data from oil analytics firm Vortexa. And a waiver enabling a Shell project to import natural gas from Venezuela's Dragon field to Trinidad and Tobago is expected to remain in place. The US says it would consider other requests for sanctions waivers for specific energy projects. It will consider lifting sanctions again if Maduro's government allows opposition candidates to participate in the July presidential election. The resumption of sanctions "should not be viewed as a final decision that we no longer believe Venezuela can hold competitive and inclusive elections", a US official says. Chinese imports of Venezuelan crude Venezuelan crude exports Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

LNG Energy eyes sanctions-hit Venezuela oil blocks

25/04/24

LNG Energy eyes sanctions-hit Venezuela oil blocks

Caracas, 25 April (Argus) — A Canadian firm plans to revive two onshore oil blocks in Venezuela, but the conditional deals signed with struggling state-owned PdV come just as the US is reinstating broad sanctions on the South American country. LNG Energy Group's Venezuela unit agreed two deals with PdV to boost output in five fields in the Nipa-Nardo-Niebla and Budare-Elotes blocks, which produce about 3,000 b/d of light- to medium-grade crude, the company said on Wednesday. The Canadian company, which operates in neighboring Colombia, would receive 50-56pc of production of the blocks. Venezuela's oil ministry declined to comment. But finalizing the contracts depends on providing required investment to develop the fields within 120 days of the contract signing on 17 April, LNG Energy said. And the signing came on the same day as the US reimposed oil sanctions on Venezuela and gave most companies until 31 May to wind down business. LNG Energy Group said it intends to comply with existing and upcoming US sanctions, noting that the conditional contracts were executed within the terms of the temporary lifting of sanctions — general license 44 — but it will abide by the new license 44A. The reimposition of US sanctions on Venezuela prohibits new investment in the country's energy sector, at the threat of US criminal and economic penalties. "The company will assess in the coming days the applicability of license 44A to its intended operations in Venezuela and determine the most appropriate course of action," LNG Energy said. "The company intends to operate in full compliance with the applicable sanctions regimes." The two blocks are in the adjacent Anzoategui and Monagas states, part of the Orinoco extra heavy oil belt. Most of Venezuela's output is medium- to heavy-grade crude. Both PdV and Chevron have drilling rigs working in those two states, in separate workover and drilling campaigns. Venezuela is now producing above 800,000 b/d, after the US allowed Chevron to increase production and investment under separate waivers. By Carlos Camacho Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US economic growth slows to 1.6pc in 1Q

25/04/24

US economic growth slows to 1.6pc in 1Q

Houston, 25 April (Argus) — The US economy in the first quarter grew at a 1.6pc annual pace, slower than expected, while a key measure of inflation accelerated. Growth in gross domestic product (GDP) slowed from a 3.4pc annual rate in the fourth quarter, the Bureau of Economic Analysis (BEA) reported on Thursday. The first-quarter growth number, the first of three estimates for the period, compares with analyst forecasts of about a 2.5pc gain. Personal consumption slowed to a 2.5pc annual rate in the first quarter from a 3.3pc pace in the fourth quarter, partly reflecting lower spending on motor vehicles and gasoline and other energy goods. Gross private domestic investment rose by 3.2pc, with residential spending up 13.9pc after a 2.8pc expansion in the fourth quarter. Government spending growth slowed to 1.2pc from 4.6pc. Private inventories fell and imports rose, weighing on growth. The core personal consumption expenditures (PCE) price index, which the Federal Reserve closely follows, rose by 3.7pc following 2pc annual growth in the fourth quarter, although consultancy Pantheon Macroeconomics said revisions to the data should pull the index lower in coming months. The Federal Reserve is widely expected to begin cutting its target lending rate in September following sharp increases in 2022 and early 2023 to fight inflation that surged to a high of 9.1pc in June 2022. By Bob Willis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

India’s Gail to shut Dabhol LNG terminal for monsoon

25/04/24

India’s Gail to shut Dabhol LNG terminal for monsoon

Mumbai, 25 April (Argus) — Indian state-controlled gas distributor Gail is planning to shut its 5mn t/yr Dabhol LNG terminal on the west coast from 15 May, ahead of monsoon rains. Gail will also stop importing LNG from mid-May at the terminal, a company official told Argus . This is because of the lack of a breakwater facility at the terminal, which prevents it from anchoring ships in turbulent seas. The breakwater facility was expected to be completed in January, but the cause of the delay is unknown. The terminal is likely to resume operations from the end of September, similar to its plans in 2023 , as this shutdown over the monsoon season is routine. Gail is set to receive a total of 139,635t LNG at the Dabhol terminal in May, which will arrive in two separate shipments from the US' 5.75mn t/yr Cove Point export facility. Both cargoes will be the last that the terminal will receive before it shuts in mid-May. It has received 583,326t of LNG at the terminal since the beginning of the year, lower by 4pc on the year, data from market analytics firm Kpler show. The Dabhol terminal only receives about 2.9mn t/yr of LNG, despite having a nameplate capacity of 5mn t/yr, because it is not used during the monsoon season. Gail intends to gradually increase the capacity of the Dabhol terminal to 12mn t/yr by April 2030–March 2031. By Rituparna Ghosh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Barge delays at Algiers lock near New Orleans

24/04/24

Barge delays at Algiers lock near New Orleans

Houston, 24 April (Argus) — Barges are facing lengthy delays at the Algiers lock near New Orleans as vessels reroute around closures at the Port Allen lock and the Algiers Canal. Delays at the Algiers Lock —at the interconnection of the Mississippi River and the Gulf Intracoastal Waterway— have reached around 37 hours in the past day, according to the US Army Corps of Engineers' lock report. Around 50 vessels are waiting to cross the Algiers lock. Another 70 vessels were waiting at the nearby Harvey lock with a six-hour wait in the past day. The closure at Port Allen lock has spurred the delays, causing vessels to reroute through the Algiers lock. The Port Allen lock is expected to reopen on 28 April, which should relieve pressure on the Algiers lock. Some traffic has been rerouted through the nearby Harvey lock since the Algiers Canal was closed by a collapsed powerline, the US Coast Guard said. The powerline fell on two barges, but no injuries or damages were reported. The wire is being removed by energy company Entergy. The canal is anticipated to reopen at midnight on 25 April. By Meghan Yoyotte Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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