Pemex seeks to reverse oil declines, balance budgets

Category : News

By Amy Stillman on 7/16/2019

MEXICO CITY (Bloomberg) — Mexico’s Petroleos Mexicanos aims to balance its budget by 2021 and reverse a decade and half of declining crude production as early as next year.

Under the presidency of Andres Manuel Lopez Obrador, Pemex will invest 1.95 trillion pesos ($102 billion) by 2024, it said in an emailed document ahead of the release of its business plan on Tuesday. Of that amount, 269 billion pesos between 2020 and 2022 will come from tax breaks and government allocations. Another 108 billion pesos through 2023 is expected to come from so-called integrated exploration and extraction contracts, a new type of service contract for drilling, Pemex said.

The state-owned firm is focusing on exploration in shallow and onshore areas, said its chief executive officer Octavio Romero during Lopez Obrador’s daily morning conference.

Romero has sought to cut costs by renegotiating drilling service contracts and has merged subsidiaries in a bid to streamline processes. He’s also said that the company won’t increase its net indebtedness between 2019 and 2021, after which it will reduce debt with higher cash flows from oil production until 2024.

Pemex is the biggest borrower of any oil company, with $106.5 billion of debt. Many fear that a government decision to freeze oil auctions and Pemex joint-ventures that enabled it to develop oil fields with partners will stunt output growth. While Pemex aims to boost production in shallow-water and onshore fields, critics point out that the deep-waters areas have the greatest potential for big discoveries. And the focus on building a seventh refinery could divert attention from its main job: drilling.

“Pemex is trying to be too many things at the same time under the new government policy, and its portfolio is very inefficient,” said Pablo Medina, V.P. of Welligence Energy Analytics. The only way for Pemex to dig itself out of the hole they are in is to sell non-core assets and restart joint-ventures, said Medina. “They need to take advantage of what the energy reform allows, leverage capital and stop trying to do it all by themselves,” he said.

On the whole, the yield on Pemex’s benchmark 2027 bond has fallen over the year, though it spiked in June after Fitch Ratings cut the company’s credit rating to junk. Another junk rating for Pemex could lead to widespread forced selling as the credit drops off the major investment-grade indexes.

Pemex, which has failed to meet output goals every year for at least the past decade, aims to increase oil output to 2.7 MMbpd by 2024, a 58% increase from current levels. Output is less than half of what it was in 2004 and Mexico’s proven oil reserves have fallen 77% in two decades. It will invest 58 billion pesos in its refineries this year, up from 14 billion last year, it said.


Hurricane Barry halts large portion of GOM oil output

Category : News

By Saket Sundria and Alex Longley on 7/15/2019

SINGAPORE and LONDON (Bloomberg) –Oil traded near $60/bbl after a storm shut almost three-quarters of U.S. Gulf of Mexico crude production, even as lingering demand concerns continue to dent the outlook.

Futures rose 0.2% in New York. About 73% of crude output in the Gulf of Mexico was halted as of Sunday but some producers are preparing to return workers to offshore platforms as storm Barry weakens after making landfall. The shutdown countered the impact of China’s economy slowing to a three-decade low in the second quarter amid a prolonged trade dispute with the U.S.

Crude has gained this month because of shrinking U.S. stockpiles and rising tensions in the Middle East. The U.K. and its allies are considering beefing up their military presence in the Persian Gulf to deal with the threat to shipping posed by Iran. Still, there are concerns over the longer-term outlook for the oil market with OPEC warning of a glut in 2020 while the IEA pointed to a surprise increase in global inventories in the first half of this year.

“The basic message is that the second half of this year will see some depletion in global oil inventories, but this will be followed by a dismal 2020,” PVM Oil Associates analyst Tamas Varga wrote in a report.

West Texas Intermediate for August delivery added $0.12 to $60.33/bbl on the New York Mercantile Exchange. Brent for September settlement was $0.24 higher at $66.96/bbl on the ICE Futures Europe Exchange. The benchmark crude traded at a premium of $6.53/bbl to WTI for the same month.

Exxon Mobil and Chevron are among companies returning workers to their offshore platforms and restarting output in the Gulf of Mexico following storm Barry. The region accounts for 16% of total American crude oil production and under 3% of natural gas production, according to the Department of Energy.

The International Energy Agency said Friday that production cuts by OPEC and its allies failed to prevent the return of a surplus in the first half of 2019 as supply exceeded demand at a rate of 900,000 bpd. China’s gross domestic product rose 6.2% in the second quarter from a year earlier, below the 6.4% expansion in the first quarter.

Oil Market News

Hedge funds haven’t been this indifferent to crude in six years. Their combined bets on WTI crude rising or falling reached the lowest since March 2013 in the week ended July 9, according to U.S. Commodity Futures Trading Commission data released Friday.

France, Germany and the UK called on Iran to act responsibly and fully comply with commitments made in a 2015 international nuclear agreement amid rising tensions in the Persian Gulf.

There are no more oil tankers left inside the Persian Gulf flying the flags of the UK, the Isle of Man, or Gibraltar, according to ship-tracking data compiled by Bloomberg.


Callon to acquire Carrizo in $3.2-billion stock transaction

Category : News

7/15/2019

HOUSTON — Callon Petroleum Company and Carrizo Oil & Gas announced that their boards of directors have unanimously approved a definitive agreement under which Callon will acquire Carrizo in an all-stock transaction valued at $3.2 billion. This highly complementary combination will create a leading oil and gas company with scaled development operations across a portfolio of core oil-weighted assets in both the Permian Basin and Eagle Ford Shale.

Under the terms of the agreement, Carrizo shareholders will receive a fixed exchange ratio of 2.05 Callon shares for each share of Carrizo common stock they own. This represents $13.12 per Carrizo share based on Callon’s closing common stock price on July 12 and a premium of 18% to Carrizo’s trailing 60-day volume weighted average price. Following the close of the transaction, Callon shareholders will own approximately 54% of the combined company, and Carrizo shareholders will own approximately 46%, on a fully diluted basis. The all-stock transaction is intended to be tax-free to Carrizo shareholders.

“We are excited about this transformational transaction, creating a differentiated oil and gas company by integrating core asset bases in premier basins. Together with Carrizo, we will accelerate our free cash flow, capital efficiency and deleveraging goals through an optimized model of large-scale development across the portfolio. We will also benefit from leading cash margins to navigate commodity price volatility and allow for reliable, continuous development of the combined asset base. With a deep inventory of high rate-of-return well locations in well-established areas and substantial upside opportunities for organic inventory delineation, we will be able drive differentiated growth deploying our life-of-field development model for many years to come,” said Joe Gatto, president and CEO of Callon. “As a larger organization, Callon will be well-positioned to benefit from an expanded infrastructure footprint and critical mass for our production marketing and supply chain functions and also leverage our technology and data capture initiatives across a broader base. Importantly, this combination brings together two organizations grounded in strong values and a shared commitment to responsible operations, integrity, and a drive to deliver leading results. We look forward to welcoming Carrizo’s employees and joining forces as a Houston-based company focused on the development of a premier Texas asset base to create enhanced value for all of our stakeholders.”

S.P. “Chip” Johnson, IV, president and CEO of Carrizo, commented, “We believe that Callon is the ideal partner for Carrizo. Through our combination, we bring together a strong foundation of Midland Basin and Eagle Ford Shale assets and overlay a substantial Delaware acreage position and value proposition that will be unlocked through an integrated plan of large-scale program development. This all-stock transaction provides Carrizo shareholders with the opportunity to participate in the significant near- and long-term upside potential of the merged company. We look forward to a bright future for our employees and all of our stakeholders and expect a seamless integration.”