Cnooc Ltd. plans to raise capital spending for the first time since crude began its crash in 2014 as China’s biggest offshore oil and gas producer prepares for life after the slump and a second year of falling output.

The Beijing-based explorer will increase expenditure, including in the Gulf of Mexico, to 60 billion to 70 billion yuan ($8.7 billion to $10.2 billion) for 2017 after cuts in the last two years, according to a statement to the Hong Kong stock exchange and a press conference on Thursday. It set its production target to between 450 million to 460 million barrels of oil equivalent after last year posting the first output decline since at least 1999.

“As a pure upstream player, Cnooc has to invest for the future, especially in exploration as it needs to find new reserves to keep sustainable development,” said Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd. “Higher capital spending for 2017 is line with improved sentiment on crude prices since late last year.”

The oil industry is expected to boost spending for the first time in three years after slashing almost half a million jobs globally during crude price’s downturn, according to industry consultant Graves & Co. Brent averaged about $45 a barrel in 2016, more than 50 percent below levels in 2014, and is expected to rise above $55 this year, according to the median of 45 analyst estimates compiled by Bloomberg. Cnooc is more exposed to the price of the commodity compared with its Chinese peers as it earns almost all its income from exploration and production.

Cnooc said in a separate online presentation that it spent 50.3 billion yuan last year. The company produced an estimated 476 million barrels of oil equivalent during that time, meeting the lower end of its 470 million to 485 million barrel target, it said Thursday.

The deep-water Gulf of Mexico fields, Appomattox and Stampede, will take a majority of overseas spending this year, Chairman Yang Hua said at a press conference in Hong Kong. The two fields, along with Egina in Nigeria, “meet our principles of investing capital in high-return projects around the world,” Yang said.

Preferred Play

The explorer posted its first-ever half-year loss in August as crude oil’s plunge and writedowns on assets including Canadian oil sands crimped earnings. The explorer reported a 15 percent fall in third-quarter sales as output declined with capital spending. Domestic production fell more than 9 percent because of declines from existing fields and weak natural gas demand, the company said in October.

Still, the explorer is a preferred stock among analysts. Of the 23 analysts tracking the company, 13 rate it a buy, seven as hold and three as sell. Analysts at Nomura Holdings Inc., Morgan Stanley, and Sanford C. Bernstein & Co. had forecast before Thursday’s release that the company will raise spending this year by between 10 percent to as much as 30 percent. Cnooc shares lost 0.4 percent to close at HK$10 before the statement was released.

China’s crude oil output has fallen 6.9 percent in the first 11 months of 2016 to about 4 million barrels a day as its state-owned producers struggled to support output at the country’s aging fields. Imports last year grew at the fastest pace in six years -- and the nation was the world’s biggest buyer in December -- as the cheapest crude in more than a decade triggered stockpiling and as independent refiners accelerated purchases.

Cnooc also said Thursday:

Five new projects are expected to start this year; 20 projects are under construction
Plans to drill 126 exploration wells this year from 118 last year
Targets net production of 455 million to 465 million barrels of oil equivalent for 2018; targets 460 million to 470 million barrels for 2019
Exploration accounts for 18 percent of this year’s spending, while development is 66 percent and production is 15 percent
China to account for 64 percent of production, 52 percent of spending in 2017; overseas projects to make up 36 percent of production, 48 percent of spending
2017 total production seen as 83 percent oil, 17 percent gas

https://www.bloomberg.com/news/articles/2017-01-19/china-s-cnooc-to-raise-spending-first-time-since-oil-s-plunge

Indonesia has adopted a new scheme for future oil and gas production sharing deals so that contractors shoulder the cost of exploration and production, rather than being reimbursed by the government.

Under the shake-up, flagged late last year, contractors will retain a bigger portion of the oil and gas they recover in return for paying more upfront costs.

The shift, designed to ease the burden on Jakarta's budget, will only apply to new contracts and will not disrupt existing agreements using the current cost-recovery system.

Big global firms such as Chevron, Exxon Mobil and Total operate in Indonesia, but the country has struggled to attract fresh investment and to develop new fields.

Speaking at a press conference late on Wednesday, Energy Minister Ignasius Jonan said the base split for gas production would be 52 percent for the government, with the rest going to a contractor. For oil output, the government will get 57 percent.

Contractors could be awarded a bigger share of production if conditions make working on a field more difficult and expensive, he added.

Under the previous system, the government received a share of 70 percent for gas and 85 percent for oil.

The first contract under the new scheme was signed on Wednesday with PT Pertamina for the Offshore North West Java (ONWJ) block, in which the government gets 37.5 percent of any gas and 42.5 percent of oil.

"This gross split (mechanism) means all expenses would be the responsibility of the contractor, no longer burdening the state budget," Jonan told reporters.

Pertamina's chief executive Dwi Soetjipto said the increased split for the ONWJ block would not cover its costs, but that he hoped to retrieve them by "making efforts on efficiency".

Last year, oil and gas contractors operating in Indonesia asked for more than $11 billion reimbursement for costs, much bigger than the $8.4 billion initially planned.

Indonesia's crude oil output peaked at around 1.7 million barrels per day in the mid-1990s. But with few significant oil discoveries in Western Indonesia in the past 10 years, production has fallen to roughly half that as old fields have matured and died.

The industry is a vital part of the Indonesian economy, but its contribution to state revenue has dropped from around 25 percent in 2006 to an expected 3.4 percent this year, according to data compiled by consulting firm PricewaterhouseCoopers.

http://www.reuters.com/article/indonesia-energy-idUSL4N1F92DN

China became the dominant purchaser of Russian eastern crude grade ESPO in 2016, having bought over two-thirds of all cargoes loaded from the Kozmino port in Russia's Far East last year, and significantly outstripping other buyers, data from national oil pipeline operator Transneft showed Tuesday.

Russia exported a total of 31.8 million mt (or 636,868 million b/d on average) of ESPO crude from Kozmino in 2016, up 4.6% year on year and estimates the deliveries to remain roughly flat this year as the volumes have been exceeding the port's installed capacity.

Of the total, China bought 22.2 million mt, up 51% year on year, taking its share of total ESPO cargoes delivered from Kozmino to 69.8% in 2016, compared to just over 48% in 2015, when it was competing with Japan as the biggest purchaser of ESPO cargoes from Kozmino.

The increase in Chinese imports was due to a significant boost in purchases by independent refineries, which received the right to import crude in 2015.

In addition to Rosneft's term buyers CNPC and ChemChina, independent refineries, including Luqing Petrochemical, Kenli Petrochemical, and Hongrun Petrochemical, Haiyou Petrochemical, as well as trading companies Kunyang and Yijia, took delivery of the barrels.

Russia, which also pumped around 23.5 million mt of pipeline crude to China, competing with Saudi Arabia as the main crude supplier to China through the year.

Apart from China, Malaysia was the other country which significantly increased purchases by ESPO blend, becoming the fourth-biggest buyer of the Russian crude.

The imports rose eightfold to 1.6 million mt, although from a low basis of just two cargoes, each 100,000 mt, bought in 2015, Transneft data showed.

Russia was the second-largest supplier to Malaysia in 2016 after Saudi Arabia, even knocking the Saudis off the top spot in some months.

JAPAN, SOUTH KOREA IMPORTS DOWN

Other traditional buyers of ESPO blend from Kozmino, including Japan and South Korea, reduced their offtake.

The two countries were increasingly buying alternative crude blends, primarily from Saudi Arabia and Iran.

Nonetheless, Japan remained the second biggest buyer of ESPO cargoes in 2016, even though it more than halved its purchases to just 3.9 million mt on the year.

South Korea also maintained its position as the third-largest ESPO buyer, while its offtakes reduced by 25% year on year to 2.4 million mt.

Transneft estimates crude deliveries via Kozmino at between 31.3 million and 31.8 million mt in 2017, as the supplies have already reached the port capacity and exceeded it slightly following the dredging of the port.

Russia's ESPO blend, a medium-sweet crude popular among North Asian refiners, typically loads in 100,000 mt Aframax-sized cargoes.

In late 2015, larger, Suezmax-sized cargoes started loading at the port for the first time since deliveries from Kozmino began at the end of 2009.

In 2016, the company completed the dredging work of the port and its two berths are now able to load 140,000 mt tankers, Transneft's first vice-president Maxim Grishanin said Friday.

Nonetheless, standard cargoes of 100,000 mt enjoy greater interest from buyers, he said.

Kozmino is the end point of the East Siberia-Pacific Ocean pipeline, which runs across East Siberia, and also sends over 330,000 b/d of crude to China, via a pipeline offshoot from Skovorodino to Mohe.

http://www.platts.com/latest-news/oil/moscow/analysis-china-buys-70-of-russian-espo-cargoes-27753440

Russian energy giant Gazprom posted a net profit of 102 billion roubles ($1.7 billion) in the third quarter of 2016 as it benefited from a stronger rouble.

Moscow-based Gazprom logged a loss of 2 billion roubles in the same quarter a year ago after a foreign-exchange loss.

The company said its third-quarter sales were down to 1.26 trillion roubles from 1.29 trillion in the same period in 2015 as its gas sales to Europe dropped to 570 billion roubles.

In the nine-month period that ended September 30, 2016 net sales of gas to Europe and other countries rose 8 percent to 1.55 trillion roubles.

This was mainly driven by “the increase in volumes of gas sold by 28 %, or 35.6 bcm, which was partially compensated by the decrease in average Russian Ruble prices,” Gazprom said.

Gazprom is Europe’s largest supplier of natural gas and generates more than a half of its revenue from selling gas to Europe.

http://www.lngworldnews.com/russias-gazprom-swings-to-profit-in-q3/

Oil and gasmajor Santos reported record production and sales volumes for 2016, which MD and CEO Kevin Gallagher on Friday described as a “year of significant change” for the Australia-based company.

The ASX-listed company produced a record 61.6-million barrels of oil equivalent in the year ended December, up 7% on 2015’s production and at the upper-end of its guidance.

Sales volumes increased by 31% to 84.1-million barrels of oil equivalent, which Santos said was also a new record.

Fourth quarter production reached 15-million barrels of oil equivalent, up 1% on the previous corresponding period and sales volumes for the December quarter increased to 21.9-million barrels of oil equivalent, up 27% on the previous corresponding period.

Liquefied natural gas (LNG) sales volumes also reached record highs of 2.8-million tonnes in 2016, up 89% on the previous corresponding period, following the ramp-up of the Gladstone LNG project, in Queensland, and strong performance from the Darwin LNG project, in the Northern Territory, and the Papua New Guinea LNG project.

Gallagher said Santos should be “proud of what was achieved” in 2016.

“We restructured the business, removed substantial cost and generated free cash flow for the first time in many years. Our production cost per barrel has reduced, and we are free cash flow positive below $38/bbl, down from $47/bbl at the start of 2016.”

He noted that in addition to the cost out success, Santos also implemented a new organisation structure, which sought to maximise production, and developed a clear new strategy. The group also enjoyed exploration success in Western Australia and Papua New Guinea.

Furthermore, the company sold its noncore assets and strengthened its balance sheet for a lower oil price environment through an institutional placement completed in December.

“We enter 2017 with a clear strategy and a solid platform off which we can build and grow. Our business turnaround will continue as we reshape and focus our organisation to support five core, long-life natural gas assets; Cooper Basin, Gladstone LNG, Papua New Guinea, Northern Australia and Western Australian gas.

“This singular focus will also allow Santos to become a leaner, lower cost and high performance business with significant upside opportunities across our portfolio.”

For 2017, Santos expected sales volumes to reach between 73-million and 80-million barrels of oil equivalent, with production expected to reach between 55-million and 60-million barrels of oil equivalent.

The major is expected to spend between $700-million and $750-million in capital during 2017.

http://www.miningweekly.com/article/santos-hits-new-production-and-sales-records-2017-01-20

An increase in export volumes for March has weighed on premiums paid for Australian heavy sweet crudes to date this month and the downside correction could continue amid growing competition from Brazilian arbitrage supplies, Asian traders said Thursday. S&P Global Platts assessed Vincent crude at a premium of $2.60/b to Platts Dated Brent crude assessments on an FOB basis Wednesday, the lowest differential since December 15 last year, when it commanded a $2.55/b premium. Trade sources said Quadrant Energy and BHP Billiton could have each sold a 550,000-barrel cargo of Pyrenees crude for loading in March at a premium in the range of $3.10-$3.40/b to Platts Dated Brent crude assessments, weaker than the premium of around $4/b heard paid for a February-loading cargo in the previous trading cycle. "It's double the export volume [for Australian heavy sweet Pyrenees crude in March from February] so it's natural to see the premium slide," said a North Asian sweet crude trader.

Indications of heavy sweet crudes to be exported from Australia in March reflected a much bigger program, with Pyrenees seeing a 100% increase in exports from the month before.

There are no Vincent crude cargoes available for loading in February, but Woodside Petroleum holds one 550,000-barrel cargo for loading over March 7-11.

The March Vincent cargo was recently sold to an Asian customer at about 30 cents/b below the latest March Pyrenees value, a source with direct knowledge of the sales told Platts Thursday.

"Quite often we achieve numbers pretty similar to Pyrenees," the source added.

However, some North Asian crude traders said the Vincent cargo was likely sold at around Dated Brent plus $2.50/b, putting it roughly 60-90 cents/b below the premiums heard paid for March Pyrenees cargoes.

Regional sweet crude traders said price differentials for Australian heavy sweet grades could extend losses in the near to medium term amid growing concern that China's state-run and independent refiners, the major customers of Pyrenees and Vincent, could shift focus elsewhere for cheaper supplies.

One Singapore-based sweet crude trader said Australian crude producers could surrender some market share in China to South American suppliers, with latest data showing a growing number of Brazilian crude exports to the world's biggest energy consumer.

"It's not like Australia is the only place for China to acquire heavy low sulfur crudes... of course they can look elsewhere like South America," the Singapore-based trader said.

COMPETITION FROM BRAZIL

December 2016 saw a dramatic increase in Brazilian crude imports to 1.05 million mt, more than doubling from 529,000 mt the month before, Platts data showed.

January shipping fixtures seen by Platts indicated that Petrobras has fixed the New Vanguard, Cosglory Lake, GC Fuzhou and Saham to move a combined 1.06 million mt of crude oil for January loading from Brazil to the Far East and India.

Petrobras has also fixed the Maran Cassiopeia to move 130,000 mt of crude for February 2 loading from Brazil to the Far East, according to the latest February shipping fixtures.

"[Brazilian crudes that Chinese have bought for Q1 delivery are also] sweet and heavy [but they are] cheaper than the similar grades produced in the Far East and West Africa," a trader with knowledge of China's recent purchases from South America said.

The influx of Brazilian crude supplies into Asia is expected to continue throughout the first quarter as WTI continues to weaken relative to Brent and Dubai, making WTI-based crudes more price competitive than those linked to the Middle Eastern and European benchmarks, market participants said.

The front-month swap spread between Dubai crude and WTI has narrowed significantly over the past month or so, with the February Middle East crude benchmark swap at one stage commanding a premium over its US counterpart early in the month.

In addition, the front-month Brent-WTI swaps spread in Houston has averaged $2.49/b so far this month, compared with an average of $2.41/b in December and $1.53/b in November.

The trader with knowledge of the recent Brazilian supply deals declined to confirm the exact crude grades purchased from Petrobras, but market sources said the cargoes could be Marlim, Roncador and Lulu crude.

Marlim has a gravity of 19.2 API and 0.78% sulfur, while Roncador Heavy has a gravity of 18 API and 0.688% sulfur. Petrobras also exports Lula with 29.3 API and 0.35% sulfur.

Australia's Vincent is a heavy sweet crude with a gravity of around 17.4 API and sulfur content of 0.37%. Pyrenees has a gravity of 19.3 API with 0.19% sulfur, according to the grade's assay report dated September 16, 2011.

http://www.platts.com/latest-news/oil/singapore/australian-heavy-sweet-crude-premiums-fade-amid-27754233

Explorers in the world’s fastest-growing oil market are seeking lower taxes on crude produced domestically to encourage fresh drilling as India tries to reduce its dependence on energy imports.

State-run Oil & Natural Gas Corp. and the biggest private producer Cairn India Ltd.want Finance Minister Arun Jaitley to at least halve the tax on crude oil production in the federal budget due Feb. 1. India surprised some explorers last year with its 20 percent levy on crude produced locally, moving from a fixed charge. Companies pay more now with crude near $50 a barrel than they did under the old system when it was double the price.

“Globally, given the low oil price scenario, governments have provided incentives to stimulate and attract investments,” said Sudhir Mathur, interim chief executive officer at Cairn India. “In India, the cess rate of 20 percent acts as a disincentive to increase production and commit incremental investments.”

Attracting investments to boost output from local fields is key for Prime Minister Narendra Modi, who has made energy security a priority and set a target of cutting oil imports by 10 percent in the next five years. Reducing the levy will help explorers including ONGC and Cairn India, which Oil Minister Dharmendra Pradhan estimates will spend $25 billion by the end of this decade.

India’s hydrocarbon resources are highly undeveloped and production has been declining for the past several years, prompting the government to nudge companies to invest in reversing the fall and increase energy supplies.

New Delhi-based ONGC is spending over $5 billion for its biggest development plan in a deep-sea block in the Bay of Bengal off the country’s east coast. Cairn India also plans to spend as much as $4 billion over the next few years to drill for oil.

Asia’s third-largest economy meets about 80 percent of its crude oil requirements through imports.

“We need some money to be left behind so that we are able to flow back into the investment cycle,” said A.K. Srinivasan, finance director at ONGC, the nation’s biggest explorer. “Otherwise there will be cash shortage. Already, we are going to run cash shortages.”

At a price of $55 a barrel, ONGC may have to pay about $11 as cess, compared with $9 when prices were $100 a barrel and the tax was fixed charge, he said. “With crude prices firming up, the cost impact of this tax is quite high.”

Brent oil prices have risen about 17 percent since the Organization of Petroleum Exporting Countries’ agreed in November to cut production for six months starting in January. The fuel traded above $100 as recently as September 2014.

Firming crude prices may also allow the government to reduce the levy on retail prices for gasoline and diesel, according to Dhaval Joshi, an analyst at Emkay Global Financial Services Ltd.

India didn’t pass on to consumers the entire benefit of crude’s price decline from July 2014, increasing excise duty on the two fuels nine times and mopping up about 960 billion rupees ($14 billion) in the previous two fiscal years.

The government may now look at easing prices as one way of cushioning the impact of its Nov. 8 ban on high-denomination currency notes, which impactedthe rural population the most, as it prepares for five state elections this quarter.

The consumer price of diesel, the most-used fuel in the country, is at a record while that of gasoline is at the highest since August 2014, according to state-run fuel retailer Indian Oil Corp.’s website.

“Yes, taxes have come and we have not hidden it,” Pradhan, the oil minister, said in New Delhi on Jan. 16. “If the prices start pinching the consumers, we’ll see.”

https://www.bloomberg.com/news/articles/2017-01-19/explorers-in-oil-s-bright-spot-seek-tax-sops-to-lift-india-spend

The Brazilian oil workers' union has accepted a proposal from state-controlled Petrobras for a collective wage deal, the union said in a statement on its website on Thursday.

According to the statement, the union's managing board recommends workers approve the company's offer.

http://www.reuters.com/article/petrobras-workers-idUSE6N14A043

U.S. crude oil refinery inputs averaged about 16.5 million barrels per day during the week ending January 13, 2017, 639,000 barrels per day less than the previous week’s average. Refineries operated at 90.7% of their operable capacity last week. Gasoline production decreased last week, averaging about 9.0 million barrels per day. Distillate fuel production decreased last week, averaging over 4.7 million barrels per day. 


U.S. crude oil imports averaged 8.4 million barrels per day last week, down by 674,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.2 million barrels per day, 4.5% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 588,000 barrels per day. Distillate fuel imports averaged 152,000 barrels per day last week. 


U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.3 million barrels from the previous week. At 485.5 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 6.0 million barrels last week, and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 1.0 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 7.4 million barrels last week but are in the upper half of the average range. Total commercial petroleum inventories decreased by 2.0 million barrels last week. 


Total products supplied over the last four-week period averaged over 19.3 million barrels per day, up by 0.1% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 8.6 million barrels per day, down by 2.4% from the same period last year. Distillate fuel product supplied averaged over 3.5 million barrels per day over the last four weeks, up by 6.6% from the same period last year. Jet fuel product supplied is up 8.5% compared to the same four-week period last year.


Cushing down 1.2 mln bbls


http://ir.eia.gov/wpsr/wpsrsummary.pdf

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                                                       Last Week  Week Before  Last Year


Domestic Production '000 ............ 8,944            8,946         9,235
Alaska ................................................... 513              515            532 
Lower 48 .......................................... 8,431            8,431         8,703



http://ir.eia.gov/wpsr/overview.pdf

Dresser-Rand, part of Siemens Power and Gas, has commissioned its first micro-scale natural gas liquefaction system at the Ten Man LNG facility in Pennsylvania, U.S.

The modular, portable solution, developed by the Dresser-Rand, allows the operator, Frontier Natural Resources, to monetize stranded gas assets at Tenaska Resources’s Mainesburg field, located in the Marcellus shale play.

The scope of supply included a standardized LNGo solution consisting of four different modules, each handling one step of the liquefaction process, Siemens said in its statement

The Ten Man facility commenced production in mid-September last year, just four months from contract signing, and has produced approximately half a million liters of LNG since startup.

Siemens further added that the micro-scale LNGo solution eliminates the need for establishing gas pipeline infrastructure or arranging for long-distance trucking of LNG from centralized plants to point of use.

http://www.lngworldnews.com/dresser-rands-first-micro-scale-lng-solution-starts-up/

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