Global oil demand growth is slowing at a faster pace than first thought, the International Energy Agency (IEA) said in its latest market update, warning that markets would have to wait "a while longer" for markets to rebalance.

"Global oil demand growth is slowing at a faster pace than initially predicted. For 2016, a gain of 1.3 million barrels a day (mb/d) is expected," the IEA said in its September report published on Tuesday, equating to a downgrade of 100,000 barrels a day from its previous forecast.

The downgrade was "due to a more pronounced slowdown" in the third quarter of 2016, it said before forecasting a further slowing next year. "Momentum eases further to 1.2 mb/d in 2017 as underlying macroeconomic conditions remain uncertain."

The predictions will be worrying for oil markets at a time when a delicate rebalancing of supply and demand is hoped to be taking place. Oil prices have dropped steadily since mid-2014 on the back of a glut in global oil supply and the failure of demand to keep pace.

The glut was exacerbated by OPEC, a 14-member oil producing group which includes major Middle Eastern producers, to defend its market share in the face of rivals rather than the oil price. The strategy has put pressure on the cartel's members, who have seen oil export revenues fall, while having the planned effect of putting rival non-OPEC producers out of action.

The IEA noted on Tuesday that non-OPEC supplies continued to decline. "World oil supplies fell by 300,000 barrels a day in August, dragged lower by declines in non-OPEC," the IEA said although it noted that this decline in global supply was offset by a rise in OPEC production, which has defensively kept its own output at record levels.

"At 96.9 mb/d, global oil output was 300,000 b/d below a year ago, but near-record OPEC supply just about offset steep non-OPEC declines," the IEA said.


Uphill struggle ahead

The price of benchmark Brent crude and West Texas Intermediate (WTI) are currently hovering around the $45-$47 mark with prices fluctuating every time a piece of data signals whether oil demand could rise or fall and on how much of the oil glut remains.

On Tuesday, for example, oil prices fell in early trade on Tuesday on concerns over increased drilling in the United States, Reuters reported, and as investors took profits after oil prices rose close to 1 percent in the previous session.(103934220)

Ultimately, oil markets are currently in what the IEA called a waiting game, pondering when demand and supply will return to balance. The outlook was not clear or necessarily rosy, the agency cautioned.

"When will the world oil market return to balance? That is the big question today. With the price of oil at current levels, one would expect supply to contract and demand to grow strongly. However, the opposite now seems to be happening. Demand growth is slowing and supply is rising. Consequently, stocks of oil in OECD countries are swelling to levels never seen before," the IEA said.

"Our latest numbers provide some clues as to why. Recent pillars of demand growth – China and India – are wobbling. After more than a year with oil hovering around $50 a barrel, the stimulus from cheaper fuel is fading. Economic worries in developing countries haven't helped either. Unexpected gains in Europe have vanished, while momentum in the U.S. has slowed dramatically."

"The result has been a slump in oil demand growth from a robust 1.4 mb/d in the second quarter to a two-year low of 0.8 mb/d in the third. Even with a modest weather-related uptick forecast for the end of the year, oil demand growth in 2016 will struggle to get above 1.3 mb/d. Refiners are clearly losing their appetite for more crude oil.

During the fourth quarter, they are expected to process only 0.1 mb/d more crude than a year ago."

As such, the IEA warned that the data suggested "that this supply-demand dynamic may not change significantly in the coming months."

"As a result, supply will continue to outpace demand at least through the first half of next year. Global inventories will continue to grow: OECD stockpiles in July smashed through the 3.1 billion barrel wall. As for the market's return to balance - it looks like we may have to wait a while longer."

http://www.cnbc.com/2016/09/13/iea-oil-report-rebalancing-the-market-will-take-longer-than-we-thought.html

OPEC flipped its forecasts for rival supplies in 2017, predicting an increase in output from outside the group instead of a decline, the latest sign that the global surplus is persisting.

Production from outside the Organization of Petroleum Exporting Countries will grow by 200,000 barrels a day next year, according to the group, which a month ago had projected a drop of 150,000 a day. The gain is driven by the startup of the Kashagan oil field in Kazakhstan. That means the organization’s total output of 33.24 million barrels a day in August was 757,000 a day higher than the average amount the world will need from OPEC in 2017.

“For 2017, non-OPEC supply growth has also been revised up,” the organization’s Vienna-based research department said in its monthly market report. “This is mostly due to new production from Kashagan next year.”

Oil climbed above $50 a barrel last week on speculation that OPEC may reach an accordon output levels with competitors such as Russia at informal talks scheduled in Algeria later this month. Prices have since retreated amid doubts that any agreement will mean a reduction of supplies as long as producers are resolved to defend their share of world markets.

Stockpiles in developed nations remained 341 million barrels above their five-year average in July, OPEC estimated. The surplus is poised to diminish in the coming months as a result of surprisingly strong demand in major consuming nations, according to the report.

“This, along with a potentially improving oil supply picture, would contribute to a reduction in the imbalance of market fundamentals,” it said.

Still, the report indicates that the market will continue to be defined by abundant supply in 2017. As a result of OPEC’s increased projections for rival output, the group cut estimates for the volume of crude it will need to provide next year, by 500,000 barrels a day to 32.5 million a day.

Representatives of producing nations held a flurry of meetings last week ahead of their gathering in Algiers, with Saudi Arabia’s influential Deputy Crown Prince Mohammed bin Salman meeting with Russia President Vladimir Putin on Sept. 4, and OPEC’s Secretary-General Mohammed Barkindo speaking with Saudi and Algerian ministers on Friday.

Kashagan Boost

OPEC pumped 33.24 million barrels a day in August, according to external sources compiled by the organization. Output was 23,100 barrels a day lower than July, as a result of declines in Libya, Nigeria and Venezuela.

OPEC’s revised outlook for Kazakhstan’s long-delayed Kashagan project follows a similar change made by the International Energy Agency, the adviser to oil-consuming nations, in its report a month ago. The startup of the field by a consortium including Total SA and Eni SpA dragged on for more than a decade, prolonged by the need to build remote islands to support drilling equipment. U.S. output is still projected to decline next year by 170,000 barrels a day.

The organization kept its estimates for world oil demand unchanged, forecasting that consumption will increase by 1.15 million barrels a day next year to average 95.42 million a day, driven by growth in India, China and the U.S.

http://www.bloomberg.com/news/articles/2016-09-12/opec-flips-forecast-to-predict-rebound-in-rival-supply-next-year-iszxarku

---

Attached Files

Google Inc. searches for the idea that once helped propel oil prices to nearly $150 per barrel have dwindled to almost nothing, according to a Sanford C. Bernstein analysis.

The theory that oil prices would have to rise as supply inevitably declined gained hold on popular imaginations in the mid- to late 2000s, but has since languished in internet obscurity, as new discoveries and technology, including the shale revolution that helped push U.S. oil production to a 40-year high, have ensured plentiful amounts of crude in recent years.

Underscoring the trend is the fact that Google searches for "too much oil" recently outstripped searches for "Peak Oil." Prices per barrel are currently languishing around $45.

"As interest in shale-led supply peaks, then naturally interest in the old concern of 'Peak Oil' has all but disappeared after the surge in focus on this during the mid-2000s," Oswald Clint and Mark Tabrett, Bernstein analysts, wrote in a note lamenting the "short-termism" of the oil market and its tendency to seize on a particular narrative to predict future price moves.

While Google searches might not capture the entirety of oil investors — including professional traders who presumably have access to data not available to curious web browsers — they are a useful indicator of the ideas currently capturing the market's collective hearts and minds, Bernstein argues. Since early 2015, for instance, searches for "oil inventories" have dominated and surpassed searches for "oil demand" and "oil supply," as investors attempt to gauge the size of the supply glut — particularly in the U.S.

"When it comes to oil markets, short-termism remains rife," the analysts said. "This is evident from changes in Google search trends. Shortly after oil prices started to fall, searches for oil inventories picked up and have only increased since. Oil demand related searches have increased over the same time but oil supply searches have hardly changed."

http://www.bloomberg.com/news/articles/2016-09-12/here-s-one-sign-that-peak-oil-is-dead

China's state oil refiners are readying to export more diesel and gasoline in coming months as a bleak outlook for what is typically the nation's period of greatest consumption sends shivers through an already saturated global market.

Even with winter heating demand looming and drivers expected to hit the roads for a week-long national holiday in October, more than a dozen refiners, traders and analysts in the world's second-largest oil consumer said the fourth quarter will be governed by a supply glut and sluggish local uptake.

Slackening demand this year and surging output from China's small independent refiners have swollen local inventories and spurred state-owned oil companies to sell refined products abroad. In July, such shipments hit a record, with the country becoming a net exporter of fuel for the first time in at least three years.

"Sales guys at refiners are now really scratching their heads worrying about meeting monthly targets," said Li Yan, a Zibo Longzhong Information Technology analyst, of the difficulty the state companies are having in their domestic markets.

Analysts from Zibo Longzhong and China Sublime Information Group now say combined demand for diesel and gasoline will fall in the fourth quarter for the first time on an annual basis since the world economic crisis of 2009.

Sources at four plants - owned by Sinopec, PetroChina and CNOOC and ranked among China's top ten oil refineries - said the outlook leaves them little choice but to branch out further into foreign markets.

PetroChina's Dalian plant, its largest with a capacity of 410,000 barrels per day (bpd), illustrates the dilemma the refiners face.

Instead of preparing for a seasonal uptick in domestic demand, the plant is looking to sell more in foreign markets in November and December as local margins weaken, a senior manager at the plant told Reuters. He declined to be named because he's not authorised to speak to the press.

Struggling to find local buyers for its products, PetroChina has also already cut the Dalian plant's utilization rate to 80 percent from 85 percent in recent months.

"The start of the fishing season (in October) will bring more diesel demand for us, but (the) market remains saturated with oversupply," the manager said.

DIVERGING FORTUNES, MOUNTING TENSION

While refineries along the coast and near big cities are making decent profits as demand is more robust, in the north and south margins have declined as consumption has waned and a supply glut has ballooned.

"Cutting runs will be our last resort if the overseas markets are full and we cannot export," said a senior manager at CNOOC's major plant in Huizhou in southern Guangdong province.

China's rising exports and the managers' complaints about low refinery profits are the latest signs of the diverging fortunes and mounting tension between state-owned players and their upstart independent rivals.

Since Beijing allowed the refiners known as teapots to import cheap crude last year, this small, nimble group of mostly private companies has ramped up output and undercut the state refiners in retail markets.

That pain has intensified as gasoline and diesel demand fell 7 percent in the first seven months of 2016, according to Reuters calculations.

That compares with gasoline and diesel demand growth of 3 percent in 2015 and 6 percent in 2014.

Fourth quarter demand - though expected to be down versus a year ago for the first time in seven years - will improve slightly from the previous quarter, but not enough to wipe out the glut, analysts and industry insiders said.

'SKY HIGH' EXPORT LEVELS

Threats of more exports will be tough to swallow for a region already reeling from China's accelerating pace of shipments.

The shipments also intensify the battle for market share with rivals in South Korea and Japan, sources in those countries said, with repercussions to be felt well beyond Asia.

"A step up from current levels is sky high. The middle distillates market will die if that's true," said an official with a refiner based in Japan.

A manager at Sinopec's Guangzhou refinery in South China said that PetroChina's plans to launch its 260,000 bpd plant in southwest Yunnan province in October will exacerbate the market's woes.

Sinopec has said it expects to cut domestic sales in the second half of the year by 3 percent to 84 million tonnes.

It made no forecast on overseas sales, but Sinopec's product exports rose 18 percent in the first half of 2016, outpacing a 3 percent rise in home deals.

http://www.reuters.com/article/china-fuel-exports-idUSL3N1BA2J0

---

Attached Files

China’s crude oil output dropped to the lowest in more than six years as the country’s state-run energy giants continued to pump less from aging, high-cost fields.

Production during August in the world’s largest energy consumer dropped 9.9 percent from a year ago to 16.45 million tons, according to data from the National Bureau of Statistics on Tuesday. That’s about 3.89 million barrels a day, the lowest since December 2009, according to Bloomberg calculations. Output is down 5.7 percent during the first eight months of the year.

“As crude prices fluctuate at a relatively lower level, there is no incentive for China’s high-cost producers to raise output any time soon,” Tian Miao, an analyst with policy researcher North Square Blue Oak Ltd., said by phone before the data were released. Production will continue to decline through the rest of the year, Tian said.

Output from China, which was the world’s fifth-biggest producer last year, has been sliding as state-run companies shut fields too expensive to operate after prices fell earlier this year to the lowest since 2003. The country is forecast to lead production declines across Asia, helping tighten the global market as the world’s largest-consuming region relies more on overseas supplies. China’s importsrebounded last month to the highest since April.

Supply Destruction

“The global oil market rebalancing is progressing,” said Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Kong. “Massive capital expenditure cuts have translated to more oil supply destruction.”

The country’s biggest producer, PetroChina Co. cut its 2016 domestic crude outputtarget to 103 million tons (about 2.06 million barrels a day), a drop of about 6 percent from the previous year, as it shuts some high-cost fields. Production from China Chemical & Petroleum Corp., known as Sinopec, is on track to shrink by a similar amount to about 763,000 barrels a day, company forecasts show.

“China’s crude output won’t see an apparent rebound unless Brent recovers to $60 a barrel level, as most of China’s aging oilfields can’t make a profit below this price,” Tian said. Brent crude, the global benchmark, has lost about half it’s value in the past two years. Prices have averaged almost $43 a barrel this year, compared with $99 in 2014.

While coal production in August rose 3 percent from the previous month to 278.09 million metric tons, production was down 11 percent from the same period last year, according to the statistics bureau. Coal mining in the first eight months slowed 10.2 percent to 2.18 billion tons.

http://www.bloomberg.com/news/articles/2016-09-13/china-oil-output-drops-to-6-year-low-as-state-giants-shut-fields

Oil giant Petroleo Brasileiro SA’s cutbacks are reverberating in the bond market.

QGOG Constellation SA, which rents rigs to Brazil’s state-controlled crude producer, has seen its $700 million of notes due in 2019 drop 11 percent in the past three months.

The slump reflects mounting concern that Petrobras, as the oil company is known, may not renew rig-leasing contracts with QGOG. Petrobras, the world’s most indebted major oil producer, plans to slash investments to $17.5 billion this year, the lowest in a decade.

That’s a problem for QGOG, which has five contracts expiring in the next two years. The prospect of a decline in revenue means QGOG may need additional financing to repay the bonds, said Lucas Aristizabal, an analyst at Fitch Ratings. QGOG has $700 million in notes outstanding and another $469 million in loans, according to data compiled by Bloomberg.

“You’re exposed to contract renewals, and it’s looking very difficult for the company because Petrobras has decreased demand for units,” he said.

In an e-mail, Petrobras said it’s adjusting the size of its drilling fleet to a new level of demand, considering the current scenario in the oil industry. It also said it doesn’t comment on specific contracts. QGOG referred all questions on contract renewals to Petrobras.

Oil prices are down 62 percent from their high in 2011.

While QGOG is making bond investors uneasy, its sister company, QGOG Atlantic/Alaskan Rigs Ltd., is inspiring confidence. That’s because the latter is on pace to repay its notes due in 2018 before any of its contracts with Petrobras expire. There’s currently just $201.5 million outstanding of the original $700 million bond. The securities also are backed by the rigs themselves, which means bondholders can seize them if the company defaults. The QGOG Constellation bonds aren’t backed by any physical assets.

QGOG Atlantic/Alaskan Rigs -- which like QGOG is a unit of of industrial conglomerate Queiroz Galvao SA -- also has surpassed performance targets, said Fitch’s Aristizabal.

“The cash flow from the contracts pay the debt in full before the expiration,” Aristizabal said. “That’s why its performance is key. The risk of a unilateral cancellation is low if total performance continues to be high.”

http://www.bloomberg.com/news/articles/2016-09-12/petrobras-cost-cutting-is-making-traders-in-oil-rig-bonds-uneasy

China, the world’s largest oil consumer, has been increasing oil imports and feasting on the low crude oil prices. Could Russia and Saudi Arabia’s plan to stabilize crude oil prices cut into China’s oil hoarding plans?

Chinese oil imports have increased to 32.85 million tons in August, the second highest figure after the record 33.19 million tons import figures of December 2015. It’s a 7 percent increase over the same period last year, and a 6 percent increase over July. Currently, the Asian giant imports 66 percent of its crude oil requirements.

“Chinese oil majors are no longer under orders to increase domestic production, as they were doing so at a loss,” said Adam Ritchie, executive general manager for supply at Caltex Australia Ltd. “China’s change to let economics decide between imports and domestic production is a big change,” reports Bloomberg.

Russia and Saudi Arabia, the two largest suppliers, have been battling it out to increase their market share in China. While Russia has increased its market share in China from 12.6 percent last year to 13.6 percent this year, Saudi’s have seen their share dip from 15.1 percent to 14 percent during the same period.

“There’s a market-share battle going on mainly among the Middle East producers and Russia,” Olivier Jakob, managing director of Petromatrix, said by phone from Zug, Switzerland. “Rivals are making a big push into China,” reports Bloomberg.

An agreement between both the competing producer nations reduces the bargaining power of the Chinese refiners, who had started to choose the spot sales offered by Russia against the long-term contracts policy of Saudi Arabia.

Nevertheless, the Chinese can breathe easy, because like many other experts globally, even the Chinese analysts are not confident that the deal between Saudi Arabia and Russia will result in any substantive action.

"It will be very difficult to implement this agreement, as the volume for each exporter country is different. Many countries - producers of oil and gas rely on exports, so they are unlikely to agree to the terms of the agreement," a senior consultant for Sinopec Yang Qixi said.

However, Saudi Arabia’s Minister of Energy, Industry and Mineral Resources Khalid Al-Falih is optimistic that other large oil producers will join forces with Russia and Saudi Arabia to take appropriate steps to stabilize the markets.

"We are optimistic that Algiers meeting will provide a forum, and pre-Algiers that consultations which will take place bilaterally and in groups will bring us to Algiers with some sort of coordinated decisions. But the two countries agree that even if there is no consensus, we will be willing to take joint action when necessary," said Al-Falih.

Along with this, China and the U.S. announced their formal joining of the Paris agreement. China has to wean the economy away from the use of fossil fuels if it expects to achieve its target of carbon emissions by 2030. In order to realize this shift, China will have to make an initial investment of $5.2 trillion in lean energy technologies, which will lead to $8.3 trillion in savings by 2050, according to a study Reinventing fire: China.

Hence, as a major importer of oil, China will want the recently announced cooperation between Saudi Arabia and Russia to fail so prices will remain low. If that happens, China can postpone investments into fossil fuels and divert that money towards clean technology, which will help it to reduce its carbon footprint.

http://www.zerohedge.com/news/2016-09-12/crude-slides-44-handle-china-deliberately-trying-de-rail-russiasaudi-oil-deal

China's biggest independent refiner Dongming Petrochemical is looking at acquisitions of domestic rivals, with the refining landscape in the country set undergo massive restructuring and consolidation over the coming years, Zhang Liucheng, a vice president at the company, said Thursday.

Speaking on the sidelines of the S&P Global Platts Asia Pacific Petroleum Conference 2016 in Singapore, Zhang also said that a deal between Dongming and two Qatari companies is still being negotiated.

In April 2015, QID Group and Hamad Bin Suhaim Enterprises announced plans to invest $5 billion in Dongming for a 49% stake.

"As oil prices fell, the companies have been under pressure for investment, while Dongming's value has grown significantly since the MOU was signed," Zhang said.

Against the backdrop of consolidation in China's refining sector that will likely eventually leave the country with around 10 big state-owned and independent refining companies, instead of the numerous small ones that currently exist, Dongming is "looking at possibly acquiring some independent refinery," Zhang said.

Dongming's strategy is in line with the government's guideline to support and upgrade refineries with potential and shut down the ones that cannot be improved, he said, adding that a number of small independent refineries are likely to shut down.

The independent refining sector accounts for around 25-30% of China's total 15 million b/d refining capacity. In Shandong province, where most of these refineries are located, there are around 38 refineries which have a primary processing capacity of above 1 million mt/year (20,000 b/d), while the number of refineries with lower capacity is even higher.

In Dongying City, one of the three refining hubs in Shandong, there are about 80 independent big and small refineries.

In addition to Dongming, independent trading company CEFC Energy is also keen to acquire around 10 million mt/year independent refining capacity in Shandong, a source close to the matter told Platts on the sidelines of APPEC.

PRODUCT EXPORTS

Zhang said oil product exports from independent refineries will rise in the future but this hinges on certainty about the government's export policy, which would enable refiners to invest in the necessary infrastructure.

"The current [export] volume is limited by concerns about policy issues, which stops us from investing in infrastructure... because we are not sure if the government will still allow us to export after the end of this year," Zhang said.

The Ministry of Commerce in mid-November last year said it would allow independent refiners that have already won crude import quotas the right to export oil products, but the permission is only effective until end 2016.

The independent refineries have exported 421,000 mt of oil products so far this year and have total product export quotas of 1.26 million mt, Platts data showed.

This is only a small proportion compared to China's total oil product exports of 29.74 million mt over the first eight months, according to data from the General Administration of Customs.

High land freight is a big challenge the sector faces in boosting exports. With no pipeline connecting the independent refineries with the ports, every barrel needs to be transported via trucks.

However, even if the sector starts to invest in infrastructure, the projects will require long lead times to get approval from all stakeholders.

For example, the long-expected Yanzi crude oil pipeline for independent refineries in Shandong took five years to build and was completed in July. Zhang said he expects the pipeline to be launched by the end of this year.

CRUDE OIL IMPORTS

The China Petroleum Purchasing Federation of Independent Refineries, a union of 18 independent refiners, plans to secure 60% of the members' feedstock via term contract in 2017, Zhang, who is chairman of the union, said.

Currently, Dongming and its Singapore-based trading arm Pacific Commerce has signed three supply agreements on behalf of the union with BP, Shell and Unipec, according to Zhang.

But these framework agreements are more symbolic than binding as they lack details on price, volume and specification.

So far, Dongming has only bought 2 million barrels from BP since they signed the agreement in November last year for 8 million barrels of crude supply over a year.

"In the first half this year, the union has imported around 5.7 million mt (41.78 million barrels) of crude oil -- Dongming took 3.7 million mt while 2 million mt were for the other union members," said Zhang.

Dongming early this year spearheaded a union of refineries with the purpose of collaborating on crude procurement. It currently has 18 members, all of them independent Chinese refiners. Twelve of them are crude imports quota holders, with total 980,000 b/d quota.

Zhang also said the company will expand its Singapore trading arm from current over 10 staff to 20 by the end of this year to strengthen its trading ability.

http://www.platts.com/latest-news/oil/singapore/appec-2016-dongming-eyes-acquisitions-in-chinas-26542906?hootpostid=1d6c24a29ca91fe469e2de77002c72dd

---

Attached Files

Oil Search and ExxonMobil, partners in the US$19 billion PNG LNG project, have agreed to purchase acreage in the Gulf of Papua from a company owned by China’s CNOOC Limited.

The two companies entered into agreements with Gini Energy Limited to acquire each a 40% interest in PPL 374 and PPL 375, located approximately 150 kilometres south of Port Moresby in the deep water section of the Gulf of Papua. Gini will retain a 20% interest in each licence, Oil Search said in a statement on Monday.

The licences cover a combined area of 24,936 km2 , with water depths ranging between 1,000 and 2,500 metres.

Commenting on the farm-ins, Oil Search’s Managing Director, Peter Botten, said: “During 2015/16, we undertook a comprehensive study of exploration opportunities in PNG. This work identified the offshore Papuan Gulf as an area where there is significant gas potential, with several multi-tcf gas leads and prospects already delineated in these licences.

We are delighted to be partnering with ExxonMobil, which has significant experience in exploration and production in deep water, and we also welcome the opportunity to work with CNOOC Limited for the first time. Entering these licences is consistent with the company’s strategy to focus on areas that have the potential to support the company’s expanding LNG portfolio.”

The completion of the farm-in agreements and the acquisition of the licence interests is subject to conditions precedent, including regulatory approvals.

http://www.lngworldnews.com/oil-search-exxonmobil-buy-exploration-acreage-offshore-png/

Last week, the Wall Street Journal reported on an energy bonanza. A company discovered a new field with “the equivalent of at least two billion barrels of oil” that “has the promise to become one of the biggest energy finds of the past decade.”

But the discovery wasn’t made by a foreign company in the Amazon, or deep in the waters off the coast off Africa, or in Kazakhstan—or any of the other politically treacherous, high-risk, low-infrastructure places where Big Oil has been prospecting for gigantic new gushers. Instead, the lucky firm was Texas-based Apache Corporation, which struck black gold in Texas’s Permian Basin, one of America’s most prolific and picked-over sources of oil and natural gas for decades. It’s as if vintners discovered millions of acres of previously unknown prime grape-growing territory in the Loire Valley. Or the owners of Vail Mountain suddenly happened upon miles of previously untouched ski slopes.

What has been dubbed the “Alpine High” is just the latest output of an energy equation that works for America and American firms in a way that doesn’t work anywhere else. You start with an embarrassment of natural resources arrayed across an expansive territory, multiply it by new technology and innovation that allows for the efficient mining and harnessing of the resources, add capital, and then raise it to an exponential power through the propensity to scale. The result? While many parts of the world suffer from energy and power scarcity (I just returned from Tanzania, where only about one-quarter of the population has electricity), and while many companies and countries are looking far beyond their borders for the fuel that can satisfy their customers, the U.S. is solving the problem of expensive energy and forging new domestic industries.

It’s as if the owners of Vail Mountain suddenly happened upon miles of previously untouched ski slopes.

Let’s take Apache’s big find first. The oil and natural gas have always been there, locked in the rocks. But it wasn’t until the U.S. developed a new technology (hydraulic fracturing, or fracking) that it became apparent that it could be liberated. That story has been written several times over. But an equally significant story has received less notice. In the last several years, a global glut of natural gas and oil production has developed, thanks to higher U.S. production and the desire of OPEC members to pump more oil in the face of lower prices. But rather than sit on their hands or shut wells, the U.S. fracking industry has evolved and innovated. Fracking has become a cheaper, more refined, and more effective means of getting at fossil fuels. So while the price of both natural gas and oil has fallen sharply in recent years, so too has the break-even point for profitable extraction.

Rather than go into hibernation, Apache was able to raise capital, hoover up several hundred thousand acres in a new region, and start drilling for resources on a profitable basis. In doing so, it has “discovered” an asset that is essentially reinventing an already large company. “This is a giant onion that is going to take us years to unveil and peel back,” Apache Chief Executive John Christmann IV told theJournal. “The industry dogma about this area, all the fundamental premises that most people had about it, were just wrong.”

We see evidence that this same cycle is playing out in other sectors of the energy and power industry. America’s oil and natural gas industries got started in Pennsylvania in the 1860s, then petered out in a few decades. But in the past decade, Pennsylvania’s Marcellus Shale has been one of the epicenters of the shale gas revolution. Again, the increase of raw production is a well-told story. But the application of technology and infrastructure at scale—the construction of pipelines and multi-billion-dollar terminals that enable export—is creating new industries. Earlier this year I noted that ethane distilled from natural gas in Pennsylvania is being sent to industrial plants in Europe. You can watch the progress of tankers like the Ineos Inspiration and Ineos Ingenuity as they ply the cold waters of the North Atlantic from the Marcellus Hook Terminal in Pennsylvania to Norway. In February, ahuge terminal in Louisiana constructed at immense expense began shipping natural gas to distant points. By the end of the second quarter, the terminal’s owner, Cheniere Energy, said it had shipped five cargoes of liquefied natural gas. Meanwhile, investments in infrastructure outside the U.S. are encouraging the export gas industry to scale more rapidly. This summer, a tanker that left Cheniere’s Sabine Pass terminal became the first ship to carry natural gas through the expanded Panama Canal.

It’s happening in renewables, too. Wind has always been a force on the Great Plains, and farmers harnessed it for years on a very small scale. But in recent years, wind has been “discovered” as a major supply of fuel for producing electricity. In the middle of the country, there are abundant wind resources. There’s the availability of land—vast, unused acreage that allows the establishment of extensive onshore wind farms. Companies have developed and harnessed the latest technology—i.e. larger and more powerful wind turbines. Capital has been raised to finance scale—the construction of wind turbines and the build-out of transmission lines that can convey wind power to population centers. So instead of building a few small turbines as an adjunct to the power system, developers in Iowa are now planning to construct a 2-gigawatt field that will make wind a major power source.

I’m old enough to have lived through more than one energy crisis. It turns out the answers to them were here all along.

http://www.slate.com/articles/business/the_juice/2016/09/apache_corporation_found_tons_of_oil_in_texas_permian_basin_still_how.html

In the tentative upturn in the US shale oil industry since May, most of the additional drilling and much of the acquisition spending has been focused on one hotspot: the Permian basin of western Texas and eastern New Mexico.

This formation, about 300 miles long and 250 miles wide, holds some of North America’s most accessible shale oil reserves. Companies that have been lucky enough, or smart enough, to build strong positions there — such as Pioneer Natural Resources and Concho Resources — can expect to have a competitive advantage over other oil producers, in what remains a very difficult market.

As share prices of US exploration and production companies have rebounded this year, those focused on the Permian have been the best performers. Shares in Diamondback Energy and RSP Permian, for example, have been hitting record highs, up 48 per cent and 66 per cent respectively over the past 12 months.

Even ExxonMobil and Chevron — the two largest US oil groups, which were left behind by smaller, more innovative rivals as the shale boom took off — now have opportunities in the Permian to make up some lost ground.

Although the Permian was not immune as activity across the US oil industry slumped after the crude price crash of two years ago, it has proved the most resilient of the “big three” US shale regions. From peak production, crude output has dropped by 40 per cent in the Eagle Ford shale of south Texas, and by 25 per cent in the Bakken formation centred on North Dakota. In the Permian, by contrast, the drop is only 2 per cent.



In a sign of the region’s attractions, EOG Resources, one of the most successful of the independent US shale producers, last week announced a $2.5bn deal to buy privately-held Yates Petroleum. Yates’ most valuable assets are drilling rights on 324,000 acres of the Permian.

EOG pioneered oil development in the Eagle Ford, and it is still the largest producer there. But William Thomas, EOG’s chief executive, told analysts on a call last month that it would spend 45 per cent of next year’s capital budget in the Delaware, a sub-basin on the western side of the Permian.

Since May, the number of rigs drilling horizontal shale oil wells in the US has risen by 77 to 325, according to the oilfield services company Baker Hughes. Of those, 49 were added in the Permian, compared with just four in the Eagle Ford and six in the Williston Basin, which includes the Bakken.

At the same time, the Permian has been a focus for deals. Of the $30.4bn spent on mergers and acquisitions in the US exploration and production sector so far this year, 48 per cent has gone to the Permian, according to research company Wood Mackenzie.

Companies have been attracted to the Permian because it holds some of the lowest-cost oil in North America.

Production costs can vary widely within each area, and the best spots in the Eagle Ford and Bakken are still competitive but overall the Permian has the most attractive economics. At current crude prices, bringing a well in the Delaware basin into production will generate an internal rate of return of about 18 per cent on average, according to Platts Analytics. That is higher than for any other shale region.

Coming relatively late to the shale party, behind the Bakken and the Eagle Ford, the Permian has offered greater scope for companies to cut costs and raise production. Since 2012, average peak output per well has risen by 122 per cent in the Permian, compared with 67 per cent in the Eagle Ford and 78 per cent in the Bakken, according to data analysis firm NavPort.

Meanwhile, costs are falling sharply. Concho Resources told investors at a Barclays conference last week that it had cut the cost per foot of its wells by about 40 per cent since the first quarter of 2015.

Long-term prospects for the region were also underlined last week when Apache, the US exploration and production company, announced the discovery of a “significant new resource play” in the Permian, which could hold more than 3bn barrels of oil and 75tn cubic feet of gas, in a part of a formation that had been neglected by other companies.

Geologists sometimes describe the Permian as a “layer cake” of multiple different oil-bearing formations, with names such as Wolfcamp, Spraberry and Bone Spring. Companies are experimenting with techniques to optimise production from as many of these layers as possible.

Exploration in the Permian has a long history, with the first oil struck in 1923, and west Texas has experienced several cycles of boom and bust. Drilling rights are often held by smaller companies that are prepared to sell out, giving larger operators a chance to build positions. That also opens the door for private equity investors such as Blackstone, which last month committed $1.5bn to two oil producers to buy Permian assets.

Exxon and Chevron also see great potential in the region. Exxon came into the Permian through its takeover of XTO Energy in 2010, and added on subsequent smaller acquisitions, while Chevron has a large legacy position. But they see similarly bright prospects.

Exxon said last month that it had cut unit development costs on the Permian by 70 per cent over the past two years, and “a large part” of the inventory of wells it could drill would be economically viable with crude at about $40 a barrel.

Chevron said it had cut unit development costs by 30 per cent since last year, and raised production by 24,000 barrels per day. It was using six rigs there last month, and plans to raise that to 10 by the end of the year.

Heightened levels of M&A activity suggest other companies will add more rigs, too, even if the oil price remains at its present level of about $45 for US crude. “You don’t typically do a billion-dollar deal and then wait for market conditions to improve,” points out Benjamin Shattuck of Wood Mackenzie. “You get rigs in the field.”

On that basis, the Permian seems set to remain a hot location for a long time to come.

http://www.ft.com/cms/s/0/ac4c922a-7510-11e6-b60a-de4532d5ea35.html#axzz4K0V6mjLV

---

Attached Files

The oil price recovery isn't quite strong enough to support a program targeting production growth from North Dakota, energy company Hess Corp. said

Hess last year set a 2016 spending target of between $2.9 billion and $3.1 billion. By January, the company revised its full-year guidance lower to $2.4 billion, 40 percent below 2015 spending levels.

In July, the company said it was upbeat about the potential for growth in North Dakota, where exploration and production had shown some recovery. Speaking from the podium of an energy conference in New York, CEO John Hess said the market still wasn't ripe enough for a strengthened focus on operations in the state's Bakken shale oil reserve, however.

"We do not believe that it makes sense to accelerate near-term production in this low-price environment and drill up our best locations at the bottom of the cycle," he said in a transcript provided over email by the company.

Hess said the company has moved to cut its exploration and production budget considerably as the pressure from lower oil prices endures. In the Bakken, he said the company is nevertheless in a good position once the market recovers.

"This is all from operating improvements and efficiency," he said.

The inventory in North Dakota is there to support a stronger portfolio, but the company does not want to "give the oil away" if oil hovers near the $40 range for West Texas Intermediate.

"As WTI prices approach $60 per barrel, we plan to increase activity which would allow us to both resume production growth and generate free cash flow from the Bakken," the CEO said.

The price for WTI, the U.S. benchmark price for crude oil, was around $45 per barrel early Monday.

http://www.upi.com/Hess-North-Dakota-ready-once-oil-prices-recover/6411473677042/

Getting a pre-packaged bankruptcy today is like ordering a McDonalds Happy Meal–just order and drive up to the window and pick it up. Simple.

In July Halcon Resources, a Utica Shale driller that “guessed wrong” by leasing 140,000 Utica Shale acres in the northern part of the play (in Ohio) and currently doesn’t drill on any of that acreage, filed for a pre-packaged bankruptcy.

Less than a month and a half after first filing, Halcon has emerged from bankruptcy court with $1.8 billion worth of debt magically erased. When Halcon filed back in July, they listed $3.12 billion in debt and $2.85 billion in assets.

In August the company’s market capitalization, calculated as the number of outstanding shares of stock times the per share price, otherwise know as the company’s “worth” or “value”–was under $50 million . When debtors have no other choice than to accept a plan turning their debt into equity (shares of stock), it doesn’t take long to file the paperwork and be on your way.

http://marcellusdrilling.com/2016/09/halcon-resources-exits-bankruptcy-in-just-1-5-months/

Freeport McMoRan Inc said on Monday it will sell its deepwater Gulf of Mexico oil and natural gas assets to Anadarko Petroleum Corp for $2 billion as it looks to cut its heavy debt load.

The sale to Anadarko, which is betting the deal will help more than double its U.S. Gulf production within five years, comes after earlier attempts by Freeport to sell all or part of its oil and gas business failed. In May, Freeport withdrew plans to launch an initial public offering for that business.

Anadarko said it would offer 35.3 million shares to fund the deal. Secondary stock offerings tend to be unpopular with existing shareholders and shares of Anadarko fell 2.9 percent in after-hours trading to $57.79 per share.

Shares of Freeport gained 7.7 percent in Monday trading, closing at $11.08, though the stock was not trading in after-hours sessions.

After the deal closes, which is expected by the end of the year, Freeport's 2016 asset sales will exceed $6 billion, Freeport Chief Executive Richard Adkerson said in a statement.

Freeport, the world's biggest publicly listed copper miner, said in July it was confident of cutting its $18.8 billion of net debt to as low as $10.5 billion by the end of 2017 on the back of asset sales and cash earned.

The transaction comes as something of a surprise after Freeport failed to find a buyer for all or part of its oil assets last year and earlier this year, said Clarksons Platou Securities analyst Jeremy Sussman.

"It was probably a combination of stronger oil prices and better operational results that ultimately led to a transaction that was frankly better than expected," Sussman said.

The deal, which is effective Aug. 1 and is expected to close in the fourth quarter, will help Anadarko add about 80,000 net barrels of oil equivalent per day.

Anadarko said it expected to increase its 2016 full-year capital guidance, not including the acquisition, to a range of $2.8 to $3.0 billion, primarily reflecting the increased activity in the Delaware and DJ basins.

Anadarko plans to add two rigs in the U.S. Gulf by the end of the year, with more in 2017. Within five years, Anadarko said it expects its U.S. Gulf production to more than double to 600,000 barrels of oil equivalent per day.

Anadarko offers 35.25 million shares in a secondary offering.


http://www.reuters.com/article/us-freeport-mcmoran-divestiture-anadarko-idUSKCN11I2EZ

---

Attached Files