The recent surge in crude prices may have already delayed the day when the oil market can stage a major, sustained recovery and buoy Houston’s economy again.

In a new report Tuesday, Morgan Stanley said oil hedging among petroleum producers is “already rampant” amid the oil rally, which came just a few weeks after oil prices fell below U.S. shale break-even costs and pushed the nation’s oil production toward a steep drop.

Short positions among oil producers, which are helping them lock in higher prices for the oil they produce, have recently reached a new high since January, data from the U.S. Commodity Futures Trading Commission shows. That could fix some balance sheet problems, give some drillers access to capital markets and prompt others to finally pump crude from wells they’ve drilled but left offline, Morgan Stanley said.

“Higher crude prices and hedging can ultimately slow the U.S. production decline,” Morgan Stanley said. “Hedging could keep supply more stable and less responsive to prices, just as excitement about declines was building.”

Some oil companies, faced with high debt burdens and stricter banks, have been forced to lock in prices for the oil they produce. But other healthy, mid-sized and large drillers in the Permian Basin — the last U.S. shale play to stall out — have also secured positions.

And some could turn on drilled-but-uncompleted wells. At least one major U.S. oil producer has said it could turn on its backlogged wells at the $40 to $45 per barrel range, close to current levels for future contracts that go months out, “which could support rapid rigless production.”

Estimates vary widely on how big that production surge could be. Goldman Sachs says the dormant wells could produce 620,000 barrels a day for six months if they were all brought into production at the same time. But others say the number of wells in inventory have been vastly over-counted, with analysts including in their calculations a naturally occurring tail of wells that are drilled but left dormant because of technical problems. Those wells, analysts say, will likely never be turned on.

Either way, this recent oil-price rally resembles the one in the second quarter of 2015 that sent prices up to levels where it was profitable again to order drilling equipment and pump out more crude. That rally didn’t last long, but it was enough to keep U.S. producers going months longer. Oil prices over the past four weeks have been bolstered by an improved economic outlook, a weakening dollar and other more transitory factors like pipeline outages in the Middle East.

But the world still gets more oil than it needs, and global energy markets won’t get back into a supply-demand balance until U.S. crude output falls enough to stem the oversupply.

“Such false rallies can actually be harmful for the recovery,” Morgan Stanley said. “Hedging 2017 at these elevated prices could help companies lock in returns, and/or support higher rig counts than (the) recent flat price would have suggested.”

http://fuelfix.com/blog/2016/03/15/oil-producer-hedging-already-rampant-after-price-surge/?utm_source=twitterfeed&utm_medium=twitter

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Pipeline leaks and shipping disruptions are doing more to reduce the global oil glut than producers who can’t seem to agree on whether to cap output.

Outages from Iraq and Nigeria have disrupted more than 800,000 barrels a day of supply and tightened the Brent market, according to Citigroup Inc. That’s coincided with a 20 percent jump in Brent prices toward $40 a barrel since a proposed production cap from Saudi Arabia and Russia captivated the market and helped turn sentiment bullish. No deal has been struck and Iran has spurned the idea as it seeks to maximize output.

“Actual disruptions and cuts we’re seeing in the background are largely going unnoticed,” Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Sydney, said by phone. “U.S. supply is declining and we’re seeing other little disruptions occur here and there. Those types of things are slowly chipping away at the surplus.”

Brent oil has gained about 40 percent since slumping to a 12-year low in January. The International Energy Agency predicts prices may have bottomed as shrinking supplies outside the Organization of Petroleum Exporting Countries and disruptions inside the group erode the global glut. JBC Energy Asia estimates the market, facing a surplus of about 2 million barrels a day in the first three months of the year, will start to rebalance during the third quarter.

Shrinking Output

Saudi Arabia, Russia, Qatar and Venezuela agreed they would freeze output at January levels if other producers followed suit to tackle a global oversupply. While Nigeria hoped producers would meet this month, talks are now most likely to occur in April, said Gulf OPEC delegates, who asked not to be identified because the matter isn’t public.

The pipeline disruptions in Iraq and Nigeria are temporary and production is expected to come back online, returning more supply to the market.

Damage to a pipeline in Iraq affected about 630,000 barrels a day of supply, according to a March 14 note from Citigroup. Disruptions continue, even after its repair. Exports from Kirkuk to the Turkish port of Ceyhan halted on oil ministry orders, hours after pumping resumed following a prolonged shutdown, the Al-Mada newspaper reported, citing an unidentified official at North Oil Co.

Nigerian daily exports next month are scheduled to be the lowest since Nov. 2013. Loading at the Forcados facility was halted after a leak was discovered Feb. 14, according to the operator Royal Dutch Shell Plc. While the company stopped short of citing sabotage, it said damage was “consistent with the application of external force.” The shutdown cut oil production by 300,000 barrels a day and repairs will take as long as eight weeks, according to Minister of State for Petroleum Emmanuel Ibe Kachikwu.

http://www.bloomberg.com/news/articles/2016-03-16/oil-leaks-and-disruptions-doing-the-job-that-producers-won-t

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After a year of plunging oil prices, all eyes were on Ibrahim Al-Assaf, Saudi Arabia’s finance minister for two decades, to deliver a budget that could restore confidence in the kingdom’s finances.

Yet it was Adel Fakeih, economy minister for just eight months, who strode onto a shiny green television set to announce spending cuts and subsidy reductions. Another familiar face missing that day was oil minister Ali Al-Naimi, whose words continue to move global crude markets as they have since 1995. Changes to domestic energy prices were explained by Khalid Al-Falih, chairman of Saudi Arabian Oil Co. and health minister.

The lineup at the end of December was one of the first signs of a shift in power to officials seen closely aligned with King Salman’s influential son, Deputy Crown Prince Mohammed bin Salman, as Saudi rulers confront a harsh new era of lower crude prices. With many of the new policy makers holding private-sector resumes, their mission is to overhaul one of the world’s most generous welfare systems through measures that were unthinkable a decade ago.

The world’s largest oil exporter can no longer rely on “the old way of doing things,” said Fahad Nazer, who worked at the Saudi embassy in Washington and is now a political analyst at JTG Inc. “The economic and demographic challenges to the kingdom are too great, and they need to be resolved and confronted and addressed forcefully and quickly.”

For a country that “has very effectively avoided any genuine structural reform at an essential level for forever” turning around its fortunes will be very tough, said Crispin Hawes, London-based managing director at Teneo Intelligence. “The basic structure of the Saudi economy is what it was 30 years ago.”

Net foreign assets fell by $115 billion last year as the government plugged a $98 billion budget deficit by issuing bonds and drawing on reserves. After decades of talk of diversification, more than 70 percent of government revenue came from oil in 2015 and the state still employs two-thirds of Saudi workers. Foreigners account for nearly 80 percent of the private-sector payroll.

Leading the attempted revamp will be the economic council headed by 30-year-old Prince Mohammed and the economy ministry, which under Fakeih has moved from being a peripheral body that churned out repetitive five-year plans to the center of policy deliberations.

Its officials reassure the international bankers flying to Riyadh alarmed by dire headlines of economic implosion, explaining how the still-vague National Transformation Program will overhaul the Saudi economy and government by 2020. Fakeih relies heavily on foreign consultants, earning for his department the moniker “Ministry of McKinsey.”

http://www.bloomberg.com/news/articles/2016-03-15/new-guard-rises-in-saudi-arabia-as-oil-crisis-forces-rethink

Russia’s Novatek said Tuesday it has completed the sale of a 9.9% equity stake in the $27 billion Yamal LNG project to China’s Silk Road Fund. The deal is worth 1.08 billion euros ($1.2 billion).

Following the deal completion, Novatek owns a 50.1% stake in the giant LNG project, while Total and CNPC have 20% each.

Earlier in December 2015, as part of the transaction, Novatek received a 15-year loan worth about 730 million euros from SRF for the financing of the Artic LNG project.

Yamal LNG project includes the construction of a liquefaction plant with annual capacity of 16.5 million tons per annum based on the feedstock resources of the South-Tambeyskoye field.

The production from the LNG project is scheduled to start in 2017.

http://www.lngworldnews.com/novatek-chinas-silk-road-fund-finalize-yamal-lng-stake-sale/

Portuguese oil company Galp Energia has a project breakeven price below $30 a barrel, making it one of the lowest cost producers in the industry, its chief executive said on Tuesday.

"Our projects breakeven price is below $30 a barrel and we have room to improve," said Carlos Nuno Gomes da Silva at Galp's capital markets day in London.

http://www.reuters.com/article/galp-energia-outlook-breakeven-idUSL9N10701N

The European Commission is looking into allegations that Gazprom abused its dominant position in the Bulgarian wholesale gas market, the Russian gas producer said in a prospectus for a bond issue.

The Bulgarian case increases the pressure on the Kremlin's energy champion within the European Union, where it has already come under fire in eight countries for allegedly abusing its dominant position and overcharging customers.

"The European Commission sent to Gazprom and Gazprom Germania an official request for information in connection with an alleged violation of EU antitrust legislation related to natural gas supplies to Bulgaria," Gazprom said.

"We have always supported competition in the gas market and have sought to comply with all international, European and national laws and regulations in countries where we operate," it said in its March 11 prospectus for a eurobond.

Gazprom supplies roughly a third of the EU's gas and it has been accused in an ongoing EU case of abusing its dominant position and overcharging customers by up to 40 percent in Poland, Hungary and six other countries.

An EU source said the Commission was looking separately into the alleged interruption of gas deliveries from Gazprom to Bulgaria's Overgas.

In January, Bulgaria's state energy regulator launched emergency checks into Overgas after Gazprom suddenly halted supplies to the private company on Jan. 1.

Overgas, which is 50 percent controlled by Gazprom and its export unit, supplies about 10 percent of Bulgaria's gas.

Gazprom and its exporting arm, Gazprom Export, have agreed to exit Overgas by the end of April and an Overgas spokeswoman has said problems around deliveries at the start of the year were probably linked to the pending shareholder changes.

"The European Commission is closely following the competitive conditions as regards the Bulgarian gas market," the Commission spokesman, Ricardo Cardoso, told Reuters.

http://www.reuters.com/article/russia-bulgaria-gas-eu-idUSL5N16N3KC

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Indonesia’s Pertamina is offering three to four uncommitted LNG cargoes from its Bontang facility, according to Sampe L. Purba SKK Migas vice president of gas commercialisation.

Purba did add that in case of interest from the domestic buyers, priority will be given to them for domestic use, Reuters reports.

He went on to say that these are Indonesia’s only uncommitted cargoes for 2016 when the country is expected to consume 60 LNG cargoes.

According to Purba, around 80 percent of the volumes will be used in power generation.

In December last year, Salis S. Aprilian, President Director and CEO of Badak NGL, said that the Bontang plant is expected to produce 147 standard cargoes of LNG in 2016.

Badak NGL is Pertamina’s unit that operates the 22.5 mtpa LNG plant located in Bontang, East Kalimantan.

http://www.lngworldnews.com/report-pertamina-selling-uncommitted-lng-cargoes/

Rosneft (acting by the wholly owned subsidiary RN-Razvedka i Dobycha), Oil India, Indian Oil and Bharat Petroresources signed a legally binding share sale agreement relating to 29.9% participatory share in Taas-Yuryakh Neftegasodobycha. The document was signed by Rosneft Chairman of the Management Board Igor Sechin, Oil India Limited Chairman of the Board of Directors Upendra Singh, Indian Oil Corporation Chairman of the Board of Directors Balasubramanian Ashok and Bharat Petroresources Limited Managing Director Raji Kumar in the presence of the Indian Minister of Petroleum and Natural Gas Dharmendra Pradhan.

The document provides for the entry of the Indian companies' consortium into the joint venture (JV) established by Rosneft and BP on the basis of Taas-Yuryakh Neftegasodobycha. Price parameters of the transaction with Indian companies are similar to the terms of the agreement with BP signed at the St-Petersburg Economic Forum in June 2015. Rosneft will retain a majority stake in the JV. The transaction will be closed after set of condition precedents are accomplished and Rosneft's Board of Directors approval is obtained.

Attracting strategic investors will give additional momentum to the development of Srednebotuobinskoye field, one of the largest oil and gas condensate fields in East Siberia, currently producing about 20 thousand barrels of oil per day. The JV is planning to create the infrastructure for further exploration and development of the reserves in the region.

Commenting on the agreement signed, Igor Sechin said, 'The joint venture with our Indian and British partners allows to make the most of the technological, resource and commercial potential of all of the JV's participants. Joined efforts of Rosneft, BP, Oil India, Indian Oil and Bharat Petroresources allow a significant acceleration of the Upstream projects' implementation by virtue of increasing JV financial potential as well as open new prospects for marketing the East Siberian hydrocarbons'.

Following the document signing, the Indian Minister of Petroleum and Natural Gas Dharmendra Pradhan said: 'Russia is a longstanding and time-tested partner of India. I am happy, that India and Russia have high levels of understanding and cooperation in almost all areas of the bilateral relationship. We are committed to work together to further strengthen the India-Russia relations in the hydrocarbon sector'.

http://www.oilvoice.com/n/Rosneft-attracts-a-consortium-of-strategic-investors-to-participate-in-the-TaasYuryakh-Neftegasodobycha-Project/0e37d2aa6113.aspx?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+OilvoiceHeadlines+%28OilVoice+Headlines%29

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Russia's Gazprom has said certain countries in southeast Europe may be at risk of defaulting on their payments for gas supplies.

In an upcoming Eurobond prospectus, Gazprom says Bulgaria, Greece, Macedonia and Serbia could all miss payments for gas supplies given the current state of their credit rating, Russian daily Vedomosti reported Tuesday.

"Most of Gazprom's European customers have high credit ratings, but there are some countries in southern Europe that could defer payments or not pay at all," Vedomosti cited the document as saying.

A similar prospectus for a 2013 Gazprom Eurobond prospectus did not mention a similar risk.

The four countries mentioned in the prospectus -- which have all suffered recent credit rating downgrades -- accounted for a total of 6.83 Bcm of Russian gas supply in 2015, up from 5.95 Bcm the year before.

While the markets are only small -- representing 4.3% of Gazprom's total exports to Europe and Turkey of 158.56 Bcm in 2015 -- they are of strategic importance to Gazprom, especially Bulgaria and Greece.

Gazprom said last month it wanted to build a sub-Black Sea pipeline to Greece and Italy through unnamed third countries, one of which would have to be Bulgaria.

Russia and Bulgaria, whose relations in the energy sector have been strained for a number of years, also now seem to be rekindling their relationship, with Russia looking seriously at helping develop a Balkan gas hub in Bulgaria.

Russia has also traditionally been a close ally of Serbia, and Gazprom's oil arm is the majority shareholder in Serbian oil and gas company NIS.

Analysts played down the risk to Gazprom, saying any default would not have a material impact on its business.

"[Gazprom] is unlikely to reflect any sizeable provisions in its financials with respect to this," analysts at VTB Capital said in a note Tuesday.

http://www.platts.com/latest-news/natural-gas/london/russias-gazprom-warns-of-southeast-europe-gas-26397141

The Obama administration reversed course on Tuesday on a proposal to open the southeastern Atlantic coast to drilling as an oil price slump and strong opposition in coastal communities raised doubts about the plan.

Besides market and environmental concerns, the U.S. Interior Department said it also based its decision on conflicts with competing commercial and military ocean uses.

The decision reverses a January 2015 proposal for new leases in the Atlantic as part of the department's five-year plan to set new boundaries for oil development in federal waters through 2022.

“We heard from many corners that now is not the time to offer oil and gas leasing off the Atlantic coast,” Interior Secretary Sally Jewell said.

“When you factor in conflicts with national defense, economic activities such as fishing and tourism, and opposition from many local communities, it simply doesn’t make sense to move forward with any lease sales in the coming five years.”

The proposal would have opened up drilling sites more than 50 miles off Virginia, North and South Carolina, and Georgia to oil drilling by 2021.

Coastal communities in these states protested the administration's plan, fearing the possibility of an oil spill like the BP Horizon accident in 2010 on the U.S. Gulf Coast, and its effects on tourism and their economies.

"With this decision coastal communities have won a ‘David vs. Goliath’ fight against the richest companies on the planet, and that is a cause for tremendous optimism for the well-being of future generations,” said Jacqueline Savitz, environmental group Oceana's vice president for U.S. oceans.

Virginia officials had welcomed the initial plan to allow offshore drilling, saying it would bring economic benefits. On Tuesday, Senator Tim Kaine, a Democrat from Virginia, said he was surprised that the Department of Defense had raised concerns about naval installations, one of which is off the state's coast.

"The DOD has been relatively quiet during this public debate and has never shared their objections with me before," he said.

The American Petroleum Institute said on Tuesday that the decision to reverse course on Atlantic drilling goes against the will American voters, governors and members of Congress who support more development.

“The decision appeases extremists who seek to stop oil and natural gas production which would increase the cost of energy for American consumers and close the door for years to creating new jobs, new investments and boosting energy security,” said API President Jack Gerard.

The Interior Department also announced Tuesday that it would evaluate 13 other potential lease sales in other areas of the country - 10 in the Gulf of Mexico and three off the coast of Alaska.

"The proposal focuses potential lease sales in areas with the highest resource potential, greatest industry interest, and established infrastructure," Jewell said.

The Interior Department said that in the Gulf, resource potential and industry interest are high and infrastructure already exists.

It proposes two annual lease sales that include the Western, Central, and part of the eastern Gulf of Mexico not subject to the current congressional moratorium.

It also includes a potential sale each in the Chukchi Sea, Beaufort Sea, and Cook Inlet planning areas in Alaska. The department would take comments on other options, including an alternative that includes no new leasing.

http://www.reuters.com/article/us-usa-oil-atlantic-idUSKCN0WH1WI

Sources at the Organization of the Petroleum Exporting Countries (OPEC) said a meeting of producers led by Saudi Arabia and Russia to discuss an output freeze will take place on April 17, even without Iran.

Producers are considering pegging output at January levels, when both Saudi Arabia and Russia were both producing near record levels of over 10 million barrels per day (bpd).

Iran's production, however, was still low due to sanctions that cut its output to little over 1 million bpd, and Tehran has said that it would only participate once its production hits 4 million bpd from a current 3 million bpd.

Analysts said that talks about freezing output would do little to rein in a global glut that sees over 1 million barrels of crude produced every day in excess of demand.

"Any such deal would still not be a game changer. It would really just maintain the excess supply that is now in place," Thomas Pugh of Capital Economics said in a note.

Prices also received support from expectations of lower U.S. production resulting from financial distress.

http://www.reuters.com/article/us-global-oil-idUSKCN0WI03Y

Linn Energy, which has been struggling with a heavy debt burden, has engaged financial and legal advisers to analyze strategic alternatives, including refinancing through a private restructuring, the company said in the "risk factors" section of its annual regulatory filing on Tuesday.

Chapter 11 bankruptcy filing may be "unavoidable".

The company, which exercised its 30-day grace period for paying a total interest of about $60 million that was due on Tuesday, said it was evaluating strategic options to shore up its balance sheet.

"The uncertainty associated with Linn's ability to meet its obligations as they become due raises substantial doubt about the company's ability to continue as a going concern," Linn Energy said in a statement on Tuesday.

The company, which had previously suspended distributions in October, said in February it exhausted its credit facility by drawing down the remaining $919 million, which took its total borrowings to $3.6 billion.


http://www.reuters.com/article/us-lnn-going-concern-bankruptcy-idUSKCN0WH1LJ

In what appears (to us) to be a complex financial transaction, Ascent Resources (formerly Aubrey McClendon’s American Energy Partners’ Utica Shale company) is floating 2.2 billion (with a “b”) common units in order to raise $500 million.

Ascent then plans to use that money to pay off existing notes, or IOUs. What confuses us is that Ascent is an LLC, a Limited Liability Company (i.e. corporation). Common units are the equivalent of shares of stock for an MLP, or Master Limited Partnership–a different form of company often used for midstream companies.

How can a corporation/LLC issue common units as if it’s an MLP? Perhaps one of our sharp MDN readers can enlighten us? The bottom line in all of the financial mumbo jumbo you’ll read below is this: Ascent is selling more of the company (equity) in return for retiring notes (debt). It is trading equity for debt. That’s the upshot of this latest offering…

http://marcellusdrilling.com/2016/03/ascent-resources-sells-more-of-company-to-pay-down-debt/?utm_source=dlvr.it&utm_medium=twitter