Crude crash will test majors’ devotion to spending discipline

Category : News

By Kelly Gilblom and Irene García Pérez on 11/14/2018

LONDON (Bloomberg) — For more than a year, the world’s biggest oil companies have been saying that by keeping a tight rein on spending today, they’ll be fortified against the next crude-price collapse. What they didn’t expect was for that caution to pay off so soon.

Oil has entered into a bear market, falling for 12 straight days as of Tuesday. As usual, it’s brought giant oil companies down with it, with shares in both Royal Dutch Shell and BP trading in London dropping to their lowest level since April on Wednesday.

This looks a bit like a repeat of 2014, when crude prices unexpectedly collapsed and stayed low, forcing companies to endure major financial losses. Except, it’s a lot different. The world’s biggest oil companies have undertaken broad efforts to strengthen their balance sheets, in preparation for the next bear market. That work will now be put to the test.

“Higher volatility means they will continue to review if their economics work in a more bearish environment,” said Christyan Malek, head of the European, Middle East and Africa oil and gas research desk at JPMorgan Chase & Co. “It will probably create paralysis around project sanctioning and continued discipline around capex, which is a good thing.”

Company break-even price:

BP $46 CFO Brian Gilvary, Q3 earnings call: “We continue to expect 2018 organic free cash flow break-even to be around $50/bbl. Beyond this, we expect the oil price break-even to steadily reduce to around $35 to $40/bbl by 2021.”

Total $55 CFO Patrick de la Chevardiere, 2018 investor day: “By 2014, we needed a Brent well above $100/bbl to cover capex and dividend. By 2017, we cut that down to about $50/bbl, which is about where we are this year.”

Shell $58 CFO Jessica Uhl, Q3 earnings call: “Vito is a great example of projects at break-even prices below $40. The next suite of projects will continue to have the same level expectations around break-even prices.”

Equinor $48 U.S. country manager Hans Hegge, Q2 earnings call: “We are on track with the break-even of $50.”

Eni $59 CFO Massimo Mondazzi, Q1 earnings call: “What I could say that nowadays, when we decide to take an FID and to commit ourselves for a new project, definitely, our aim is to take our overall cash break-even at $30; even lower than $30.”

Repsol $55 CEO Josu Jon Imaz San Miguel, Q4 2017 earnings call: “We have reduced our group’s free cash flow break-even to around $40/bbl by the end of 2017.”

Source for break-even price: JPMorgan estimates.

The critical number to look at is company break-evens, or where oil prices must be for projects to be profitable. Shell CFO Jessica Uhl said on Nov. 1 that new projects must make money with crude at $40/bbl. BP and Total said their break-evens were about $50/bbl, while the British oil major’s CFO said that could fall to $35 by 2021.

All of those levels are at or well below where Brent is current trading — about $66/bbl. But it also leaves less room to maneuver. Companies need their extra cash flow to cover capital expenditures, reduce debt and reward shareholders for sticking with them through the last downturn.

BP in particular is banking on the extra money it’s pulling in from a crude rally earlier this year. CFO Brian Gilvary said in October that he was so confident in firming oil prices that the company would pay for a $10.5 billion acquisition of shale assets from BHP Billiton entirely in cash. Initially, BP was to pay for half with equity.

Crude prices have dropped more than 13% since he said that on Oct. 30. Earlier this week CEO Bob Dudley said on Bloomberg TV that he still isn’t worried about the purchase or about completing a $5 billion to $6 billion divestment program associated with it. Eni and Total also should stay focused on discipline, according to Malek, because they have “less competitive cash flows.” BP declined to comment. Total and Eni didn’t immediately respond to requests for comment.

Fatih Birol, boss of the International Energy Agency said Tuesday in an interview that things could always turn around, and that there was more volatility in oil prices than he’d ever seen, mostly due to political events in Saudi Arabia, the U.S. and Iran. He warned that short-term moves could mask a potential supply crunch in the 2020s, suggesting oil’s fall may only be a blip.

“At this level we probably should be fine, for now, but the risks are there, absolutely,” said Marija Veitmane, a senior multiasset strategist at State Street Bank & Trust on Bloomberg TV. “I find it quite ironic; it’s probably not longer than a month ago we were talking about oil prices going to $100.”

Packers Plus creates the Toe-XT Hydraulic Sleeve, replacing two tools

Category : News


Calgary -– The latest innovation from Packers Plus Energy Services Inc. brings simplicity and reliability to operators for stimulating the first stage of oil and gas wells. The Toe-XT Hydraulic Sleeve is specially designed to enable a maximum casing pressure test before activating the sleeve for stimulation operations.

While these two key operations – pressure test and stimulation – have been combined into one tool, the mechanisms in the Toe-XT for each procedure are completely separate. This provides the operator with no time constraints and operational flexibility in meeting regulatory requirements and completing the well, ensuring capital expenditures are minimized.

During field trials, 4.5-in. and 5.5-in. versions of the Toe-XT Hydraulic Sleeve combined for successful installation and operation in more than 50 wells across North America. Among these installations was a well in the Eaglebine formation of East Texas, where the operator conducted a 30-min. pressure test at 11,450 psi, and then came back a week later to begin stimulation operations.

“Early runs of the Toe-XT Hydraulic Sleeve have been very promising in providing our clients with certainty and operational flexibility,” said Packers Plus President and CEO Ian Bryant. “This innovative tool is complementary with the rest of our multi-stage completion systems, providing an effective way to initiate any completion program.”

The Toe-XT Hydraulic Sleeve is one of a suite of cemented liner options, including a wet shoe tool and rupture disc sub, offering customers flexibility for the toe stage to meet all their technical requirements. The Toe-XT Hydraulic Sleeve is part of the TREX Cemented Product Line, a suite of high-quality technologies designed to increase the efficiency and reduce the operational risk in cemented completions for operators worldwide.

Natural gas soars 20% in U.S. on concerns about winter supplies

Category : News

By Christine Buurma, Rachel Adams-Heard and Simon Casey on 11/14/2018

NEW YORK and HOUSTON (Bloomberg) — Natural gas soared the most in nine years as forecasts for lingering U.S. cold spurred concern that supplies may not be adequate to meet demand over the winter.

Gas for December delivery rose as much as 20% to $4.929/MMbtu, the highest since February 2014, when a “polar vortex” brought an arctic chill to the midwest and eastern U.S. The volume of trading on the New York Mercantile Exchange was more than seven times the 100-day average.

It was only on Tuesday that gas exceeded the $4 mark for the first time in four years. The rally also comes amid turmoil in international crude markets, with U.S. benchmark prices falling 7.1% Wednesday.

But although the autumn chill has helped push gas higher, the magnitude of Wednesday’s rally suggests traders aren’t just reacting to weather forecasts and supply estimates, according to Mizuho Securities USA. While money managers are net-long in gas contracts, short positions rose as recently as last week, government data show.

Wednesday’s jump “has no basis in market fundamentals,” said Bob Yawger, director of the futures division at Mizuho. “It is getting cold, it might snow” and storage is lower than normal, “but that is not why we are 12% to 15% higher on the day.”

Gas has surged this month amid concern that stockpiles, at a 15-year seasonal low, won’t be enough to meet winter heating needs, even as production hovers near a record. The U.S. is exporting record volumes of the fuel to Mexico and overseas, and domestic demand from power plants and industrial users has climbed to an all-time high.

Futures were up 10% at $4.512 on Wednesday. Shares of gas producers also advanced, with Range Resources up 6% in pre-market trading. Cold conditions in parts of the U.S. are stoking concern that production may be interrupted due to the freezing of well heads. “We may be seeing the first freeze-offs of the winter,” market data and analysis company Genscape Inc. said in a report Wednesday.