Oceaneering International, Inc. (NYSE: OII) has reported record fourth quarter and annual earnings for the periods ended December 31, 2013.

For the fourth quarter of 2013, Oceaneering earned net income of $93.4 million, or $0.86 per share, on revenue of $894.8 million. During the corresponding period in 2012, net income was $80.6 million, or $0.74 per share, on revenue of $780.9 million. For the year 2013, Oceaneering reported net income of $371.5 million, or $3.42 per share, on revenue of $3.3 billion. For the year 2012, net income was $289.0 million, or $2.66 per share, on revenue of $2.8 billion.

Fourth quarter 2013 results included a $3.3 million charge to establish an allowance for doubtful accounts related to Remotely Operated Vehicles (ROV) receivables from OGX Petróleo e Gás S.A., which initiated a court-supervised restructuring under Brazilian bankruptcy law during the period. This charge was recorded as an ROV selling, general and administrative expense.

Quarterly EPS increased year over year due to profit improvements by all oilfield business operations, led by ROV and Subsea Products. Subsea Products achieved record quarterly operating income.

Annual EPS increased as all operating segments attained higher income. Four of five segments achieved record operating income. Although not a record, Subsea Projects operating income increased by 48%. Overall operating margin was the second highest in Oceaneering's history.

M. Kevin McEvoy, President and Chief Executive Officer, stated, "Results for the fourth quarter and the year were exemplary as we achieved record EPS in each period. Our ability to produce these exceptional results is largely attributable to our global focus on deepwater and subsea completion activity, the business expansion strategy we have in place, and our solid operational execution.

"We achieved record ROV operating income for the tenth consecutive year on higher global demand to provide drill support and vessel-based services and the expansion of our fleet. We increased our days on hire by more than 9,000, to over 91,000 days for the year. Our fleet utilization rose to 85% from 80% in 2012. During 2013 we put 26 new ROVs into service, retired 10, and transferred 1 system to Advanced Technologies for non-oilfield use. At year end, we had 304 vehicles in our ROV fleet.

NYC-based PIRA Energy Group believes that low inventories are currently supportive for oil prices. On the week, U.S. product stocks draw while crude builds, while in Japan crude and finished product stocks ease. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast

Significant momentum in major developed economies should provide a lift for emerging markets, eventually easing financial market pressure. Low inventories are currently supportive for oil prices. Diesel cracks stay strong for two to three more weeks before seasonally weakening, while gasoline cracks will benefit from a substantial refinery maintenance program. Cushing crude stocks will drain, supporting WTI, while also weighing on LLS, but then back pressure on WTI will occur until refiners return from maintenance. Political risks were balanced in January and PIRA assumes disruptions remain high but will decline in 2014, although it is by no means a sure bet.

U.S. Product Stocks Draw While Crude Builds

Total commercial inventories decreased this past week with major draws in products partially offset by a large build in crude. The drivers behind this week were mostly due to a weather-related demand surge and a crude import surge to over 8 MMB/D for the first time since September (which was also partly weather-related as imports bounced back from earlier port delays). Products drew (and crude built) even with higher crude runs and higher product imports.

Japanese Crude and Finished Product Stocks Ease

Crude runs eased on the week and the crude import rate backed down from 4.2 MMB/D to 3.66 MMB/D. The 1.6 MMBbl crude stock draw was a reversal of the build seen the previous week. Finished products drew 1.5 MMBbls with a modest decline in gasoline and gasoil and more substantial declines in jet-kero and fuel oil. The indicative refining margin was modestly lower with all the major product cracks declining slightly.

U.S. Propane Continues to Lead the NGL Market

U.S. propane storage is at a new all-time period low for the latest week. The weather will remain quite cold with stocks drawing further. The imbalances in the Midcontinent are being somewhat relieved as movements are redirected. The flow of product from the USGC is expected to slow given current adverse trade economics.

U.S. Ethanol Prices and Margins Tumble

U.S. ethanol prices and margins tumbled in January. Higher corn and natural gas prices and lower co-product DDG credits also put downside pressure on margins. RIN prices soared due to uncertainty in the timing of the EPA finalizing the biofuel requirements for 2014. 

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets. 

Liftboats have come a long way. Since breaking out of the Gulf of Mexico the global fleet of these self-propelled, self-elevating vessels has grown by over a third and now stands at more than 300 units worldwide. They are now tried and trusted in West Africa, the Persian Gulf and the North Sea. In South East Asia, they are finally gaining a foothold with key operators. Unlike immobile jack-up barges, liftboats offer more, typically performing well intervention, maintenance and installation workscopes. They are now being used for offshore EOR campaigns and we would not be surprised to see a growth in such deployments. The concept is also making a big impact in the offshore wind turbine installation business.

Here at DW, we have been monitoring the oil and gas liftboat markets and as a conservative forecast, we expect the demand for liftboats outside the Gulf of Mexico to increase by more than 3,500 days over 2014-2018. A number of factors will contribute to this, the two most important being their improved specifications and the increased recognition from operators of the value liftboats represent.

With the latest generation of liftboats offering increased water depth capabilities they are able to access an increasing proportion of existing fixed platforms. The increased deck space they offer enables them to carry more equipment, such as coiled tubing or chemicals for well intervention work – here their value is underlined by Halliburton's decision to invest in a fleet of five for its Gulf of Mexico slickline services. But arguably the biggest factor behind the increase in demand will be the attitude of E&P operators who are renowned for their conservatism; their aim in the race for new approaches is usually to finish second. However, despite this, liftboats have broken through. And demand is growing.

Douglas-Westwood

Business Monitor has just released its latest findings on Ghana’s burgeoning Oil & Gas sector in its newly-published Ghana Oil & Gas Report.

As the Jubilee field, which secured Ghana's place as a West African oil exporter, approaches peak output of 120,000 barrels per day following a series of technical problems, the nascent producer is increasingly looking to continue the boom as interest in the region's untapped deepwater potential remains high. Approval of the TEN project will see Ghana's second major oil development come online from late 2016; however, Business Monitor see risks that without a positive investment decision on a number of promising new discoveries under appraisal and/or new finds, the country's overall output will begin to gradually slip from the end of the decade. Although the Jubilee gas project now seems on track, tensions between Eni and the government over the Sankofa project will result in delays to Ghana's push to bring online more gas. This could see the government turn to liquefied natural gas to meet the shortfall in the wake of a precarious outlook for imported gas via pipeline from Nigeria.

Examples of the main trends and developments discussed in the report:

■ After a troubled start, output from the Tullow Oil-operated Jubilee field is on track to reach the target production rate of 120,000 barrels per day (b/d) by the end of 2013. According to Tullow's H213 operational update, output was averaging 110,000b/d and remained on track to reach the plateau rate of 120,000b/d the end of the year. With operators Tullow and Kosmos noting that current well deliverability at Jubilee exceeds the current capacity of existing infrastructure, further development may be required to allow for maximum monetisation of the field. Further development of Jubilee poses upside risk to Business Monitor’s forecasts, with plans designed to extend the fields plateau.

■ In another sign of strength for Ghana's oil sector, regulatory approval was given to the Tullow-led Tweneboa-Enyerna-Ntomme project (TEN), which will see peak output of 80,000b/d (less than the 100,000b/d initially planned) and is due to come online by late-2016. Tullow is in the process of seeking a buyer for up to 20% stake by Q114 in order to fund the US$4.9bn project.

■ This increased upstream activity will support rising production, which Business Monitor expect will grow from around 110,000b/d in 2013 to 243,000b/d by the end of their forecast period in 2022. However, these volumes assume the contribution of new supplies beyond fields currently approved, namely liquids from Eni's Sankofa development. With the introduction of new supplies from fields under appraisal such as the Mahogany, Teak, Akasa and Banda (MTAB) or the Cape Three Points Block, Business Monitor see risks that output will begin to fall from the end of the decade. There is added downside risk to this view from the prospect of a faster-than-expected rate of decline at the Jubilee field.

■ New production will be important, in line with a strong macroeconomic picture; oil demand is expected to rise, which will in turn reduce the amount of oil available for export, hitting earnings. However, with added supplies, should Ghana fail to invest in its downstream, it will continue to rely on expensive imports of refined products from abroad as the ageing refinery at Port Tema falls short of domestic demand.

■ A deal announced in late September would see Tema upgrade aging equipment in order to increase capacity from 45,000b/d currently to 60,000b/d by 2015. Current utilisation is 60% according to Tema officials, but the facility has struggle in the past given financing and equipment woes since 2009. Ghana continues to seek private investment, with the government acknowledging it alone will be unable to finance operations. There is a chance capacity could rise to as much as 245,000b/d over the long term if new facilities come online toward 2018. An absence of firm plans prevents inclusion of new capacity in Business Monitor’s current forecast.

■ Business Monitor see that the outlook for gas is promising, but as indicated by recent delays to the US$700mn project to capture gas from the Jubilee field, there are a number of risks to developing the necessary infrastructure to monetise gas, given the primary target for operators is liquids. After Sinopec halted work and threatened to completely pull-out of the Jubilee gas project following a row over missed financial obligations by the Ghanaian government, Business Monitor pushed back first gas to 2014. While the project is likely to come online next year, they see risks to future phases from both a lack of funds and the prospect that greater volumes of gas will be directed to increasing recovery rates from the Jubilee oil field as output plateaus.

■ While Business Monitor see scope for Ghana to eliminate its reliance on imported gas, uncertainty regarding supply and demand calls leads them to maintain a small import requirement fed by the WAGP for the duration of their 10-year forecast period.

To find out more about this report please click here.

For several years we have been voicing our concerns over a tide of issues facing the oil majors; firstly it seems that their oil production has peaked, then one year ago we noted that the spiraling capital expenditure was unsustainable – some will remember that the likelihood of 'Capex Compression' was the subject of our first 'DW Monday'. And it is now happening. Hess's 2014 spend is to be 30% lower than that of two years earlier, Shell is reducing by 20% compared to 2013, BG's is also set to fall and BP's Bob Dudley has stressed the importance of "capital discipline".

The upstream spend of the publicly listed international oil majors totaled about $270bn in 2013, approximately one-third of industry upstream spend. If we project the trajectory of Shell to the other IOCs then we might expect their Capex to fall by 20% over the next two or three years. This would equate to about 7% of the total industry's annual upstream Capex. The brunt is likely to be felt in the high Capex segment, notably in arctic, deepwater and LNG projects, reflected in our forecasts being somewhat more conservative than other firms.

However, there is the other 93% of Capex to go for, possibly in excess of $650bn in 2014. There are two other important groups of players in the game – the highly innovative smaller independent oil companies responsible for the surging onshore production of oil & gas from the US shales and at the other end of the scale the national oil companies such as Saudi Aramco. The NOCs are typically characterised by long-term spending programmes, and commit to long contracts for equipment and services. The NOCs are in the main continuing their spend – as we will show in a later edition, they are having to drill more and more holes for less and less oil. Indeed, in the latest Barclay's Capital industry survey, the NOC's expected their spend to grow at some 11%.

So what of the impact on the oilfield services companies? The cutback in high Capex projects will impact on the unprepared and those who do not have diversified offerings and client base. But all downturns bring major opportunities for well financed companies able to take the long term view – oil & gas is not a short-term business. Indeed, our research in Middle East tells us that the process of becoming an accepted vendor to NOCs such as Saudi Aramco can take several years.

Finally it must be remembered that E&P is not just Capex – the oil and gas must be kept flowing and the associated maintenance, modifications and operations (MMO) spend keeps slowly ramping upwards.

Douglas-Westwood

Speaking to investors today, new Shell CEO Ben van Beurden updated on the company’s priorities: improving Shell’s financial results and achieving better capital efficiency, as well as continuing to strengthen operational performance and project delivery.

Van Beurden, who became the new CEO of Royal Dutch Shell plc (“Shell”) on 1 January 2014, said Shell’s strategy overall is sound. The company has a high quality portfolio and key strengths in technology and project delivery. Shell will continue to invest in new projects that deliver more energy to customers, and create value for shareholders. The strategy is designed to deliver through-cycle growth in cash flow, to drive competitive returns and a growing dividend.

Van Beurden said: “Our ambitious growth drive in recent years has yielded a step change in Shell’s portfolio and options, with more growth to come, but at the same time we have lost some momentum in operational delivery, and we can sharpen up in a number of areas.”

“Our overall strategy remains robust, but 2014 will be a year where we are changing emphasis, to improve our returns and cash flow performance”, he continued, highlighting three priorities:

•    Improved financial performance, including restructuring in some areas of the company

•    Enhancing capital efficiency, with hard choices on new projects, reduced growth investment,

    and more asset sales

•    Continued strong delivery of new projects, and integration of recent acquisitions.

The landscape the company had expected has changed. Factors such as the worsening security situation in Nigeria in 2013, and delays to non-operated projects in several other countries, have altered the outlook. Oil prices remain high globally, but North America natural gas prices and associated crude markers remain low, and industry refining margins are under pressure. Restructuring and improving profitability in North America Upstream resources plays, and Oil Products world-wide, is a particular focus for the company.

The recent Ninth Circuit Court decision against the Department of the Interior raises substantial obstacles to Shell’s plans for drilling in offshore Alaska. As a result, Shell has decided to stop its exploration program for Alaska in 2014. “This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” van Beurden said. “We will look to relevant agencies and the Court to resolve their open legal issues as quickly as possible.”

The company will increase the pace of asset sales, which are expected to be $15 billion for 2014-15 combined in Upstream and Downstream. “We are making hard choices in our world-wide portfolio to improve Shell’s capital efficiency”, van Beurden said.

With a changing operational landscape and the streamlining of Shell’s portfolio, the company will no longer be updating against previous cash flow and net spending targets. “I want Shell to be measured on our competitive performance”, van Beurden said.

Capital spending will be reduced. In 2013, this totaled $46 billion, including $8 billion of acquisitions. In 2014, Shell expects total capital spending of around $37 billion, including $2 billion of previously announced acquisitions.

Innovative large-scale projects such as Pearl gas-to-liquids have been the main drivers behind Shell’s recent increase in cash flow, which reached over $87 billion in 2012-13 combined, an increase of 35% on 2010-11. Recent start-ups and Shell’s latest projects and acquisitions – dominated by liquefied natural gas, and deep-water oil in the Gulf of Mexico, Brazil and Malaysia – are expected to build on this growth in 2014.

Shell has distributed more than $11 billion to shareholders in dividends and repurchased $5 billion of shares in 2013. Reflecting confidence in the potential for free cash flow growth in 2014, the company is expecting the Q1 2014 dividend to be $0.47/share, an increase of over 4% compared to Q1 2013, and total dividends announced in respect of 2014 to be potentially over $11 billion.

Coastal Energy Company ("Coastal") (TSX:CEN) (AIM:CEO) announces the successful completion of the previously announced merger (the "Merger") with Condor Acquisition (Cayman) Limited (the "Purchaser"), a newly-incorporated entity controlled by Compañía Española de Petróleos, S.A.U. ("CEPSA") and in which Strategic Resources (Global) Limited ("SRG") is an investor. Pursuant to the Merger, the Purchaser acquired all of Coastal's issued and outstanding shares (the "Common Shares") for consideration of C$19.00 per Common Share with effect from January 17, 2014.

With the completion of the Merger, the Common Shares are expected to be delisted from the Toronto Stock Exchange ("TSX") 2 to 4 business days following closing. In addition, the depositary interests representing Common Shares will be delisted from the AIM market operated by the London Stock Exchange plc ("AIM") with effect from 7:00 am (UK time) on January 21, 2014. Coastal intends to apply to the relevant securities regulatory authorities to cease to be a reporting issuer in the applicable jurisdictions in Canada.
Advisors and Legal Counsel

Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC acted as financial advisors to Coastal. Stikeman Elliott LLP, Cleary Gottlieb Steen & Hamilton LLP and Walkers acted as legal advisors to Coastal. Goldman Sachs International acted as financial advisor to CEPSA. PriceWaterhouseCoopers acted as a financial advisor to CEPSA and SRG. Freshfields Bruckhaus Deringer acted as legal advisor to CEPSA. Blake, Cassels & Graydon LLP, Baker & McKenzie International and Conyers Dill & Pearman acted as legal advisors to CEPSA and SRG.

NYC-based PIRA Energy Group reports that midcontinent fundamentals improve as weather turns cold.  In the U.S., product stocks build while crude draws.  In Japan, there is a big crude stock draw, but weaker product demands. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Midcontinent Fundamentals Improve as Weather Turns Cold

Crude oil fundamentals improved throughout the Midcontinent in December, with stocks declining at least modestly at Cushing, Patoka, West Texas, the Rockies, Western Canada and the Gulf Coast. Winter has begun with a vengeance in the Midcontinent – from ice storms in Texas and Oklahoma to subzero temperatures in the Far North. Production impacts are likely to be most pronounced in the oil sands of Alberta and rural areas of North Dakota. Weather is also affecting truck and rail deliveries, with the latter exacerbated by yet another crude-by-rail accident.

U.S. Product Stocks Build while Crude Draws

Total commercial inventories increased this past week with a decline in crude oil more than offset by an increase in products. Crude runs remained very high. Reported demand was down largely due to the New Year’s Holiday as well as severe winter weather impacts (less travel, power outages, people hunkered down in many areas). For the same week last year, stocks built, so the year-on-year stock deficit widened.

A Big Japanese Crude Stock Draw, but Weaker Product Demands

The most notable items were a sharp drop in crude stocks for the latest week (1/4) and the relatively weak demands to begin 2014, which strongly built finished product stocks. The overall balance in total commercial stocks, however, rose only 1.1 MMBbls from the data that had last been reported on 12/21. We expect the data to normalize in the next week or so, with demand rebounding for all the major products.

U.S. Propane – Market Leader

U.S. propane continues to provide market leadership as stocks ended the year at a historically quite low level. The warming this coming week will provide some relief to end-users, and enable more resupply downstream, but cold will likely resume thereafter, keeping propane as the leader of the NGL complex. International markets have been generally pressured lower by the arrival of cargoes from the USGC and West Africa, in addition to milder weather especially in Europe. The arb has shifted to favor USGC exports to Europe over Asia, although Latin America will certainly remain the prime outlet for US product.

U.S. Ethanol Prices Decline

Ethanol prices fell the week ending December 27 due to reduced demand for gasoline blending. In addition, inventories in PADD II were the highest since May. Shortages of rail car space supported prices on the coasts.

Ethanol Production Increases

U.S. ethanol production started the year by rising to 919 MB/D from 913 MB/D during the prior week. The manufacture of ethanol-blended gasoline tumbled for the second consecutive week after having reached a record 8,856 MB/D during the week ending December 20. 

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets. 

NYC-based PIRA Energy Group reports that western Canadian and Bakken crude price differentials strengthened in January. On the week, U.S. stocks declined. In Japan, crude and product stocks also drew. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Western Canadian and Bakken Crude Price Differentials Strengthened

Western Canadian and Bakken crude price differentials strengthened in January, as frigid temperatures in the North slowed production growth, and rail volume continued to rise. Cushing stocks were flat in January, but WTI moved into backwardation in anticipation of large stock draws following the recent startup of TransCanada's Gulf Coast pipeline.

Another U.S. Stock Decline

January has been remarkable with U.S. oil inventories falling over 700 MB/D or some 22 million barrels. This past week contributed 5.3 million barrels of the decline, all of which was in products since crude oil inventories built slightly

Japanese Crude and Product Stocks Draw

Total commercial stocks drew 5.9 MMBbls on the week. Crude runs rose slightly and implied crude imports eased sufficiently to draw crude stocks 2.4 MMBbls. Finished product stocks also drew with declines in kerosene, fuel oil, and a more modest draw on gasoil stocks. Gasoil demand was relatively strong at 960 MB/D. Kerosene demand was surprisingly lower, but a low yield allowed for a strong stock draw rate of 139 MB/D for the week.

Aramco Crude Price Differentials for March

Saudi Arabia's formula prices for March were recently released. Pricing adjustments for the key markers were lowered for Asian destinations on all grades of crude, other than Arab Heavy. The greatest reduction was on the lightest grades, which saw more generous terms by as much as $1.40/Bbl. European pricing differentials were raised across the board, with the greatest increase at the heavy end. Pricing for purchases destined to the U.S. were left unchanged.

U.S. Propane Remains the Market Leader

U.S. propane remains the market leader as low inventories and on-going cold weather provides price support. The economics of moving cargoes from the USGC to either Europe or Asia has turned negative. Indeed, North Sea cargoes are due to arrive in the Northeast, as some U.S. export shipments are also canceled. The redirection of propane to the mid-continent seems to have been effective in taking some of the froth out of the market.

Ethanol Prices Higher

U.S. ethanol prices increased the week ending January 31 as weather-related production problems and rail car shortages persisted. Demand was strong as the manufacture of ethanol-blended gasoline rose to a five-week high, and inventories declined.

Ethanol Output Decreases

U.S. ethanol production declined to a three-week low of 895 MB/D the week ending January 31 from 900 MB/D in the preceding week as brutally cold weather and power shortages limited output. Inventories dropped by 193 thousand barrels to 16.7 million barrels, the largest week-on-week draw since October.

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

Shell announces an agreement to sell a 23% interest in the Parque das Conchas (BC-10) project offshore Brazil to Qatar Petroleum International for approximately US $1 billion, subject to closing

The transaction is subject to approval by the National Petroleum and Gas Agency (ANP, Brazil's Oil and Gas regulator) and the Administrative Council for Economic Defense (CADE, Brazil's anti-trust authority).

Shell will continue to operate BC-10 with a 50% working interest and retains a significant upstream presence in Brazil. In addition to the recent entry into the Libra oil discovery, Shell is currently operating two floating, production, storage and offloading (FPSO) vessels in Brazil's offshore – the Espírito Santo at Parque das Conchas and the Fluminense at the Bijupirá/Salema fields.

Currently, BC-10 is producing approximately 50,000 boe/d. Since coming on-stream in 2009, BC-10 has produced more than 80 million barrels of oil equivalent (boe). Phase 2 of the project, to tie-in the Argonauta O-North field, came online on October 1st 2013, with an expected peak production of 35,000 boe per day. The final investment decision for Phase 3 of the BC-10 project was taken in July 2013 and once online is expected to reach a peak production of 28,000 boe.

Shell has also other interests in Brazil, particularly our Lubricants business and our joint venture Raízen, the leading sugar cane ethanol producer.

New report reveals optimism in the sector but caution over rising costs and oil prices

Amid a positive outlook for the industry in 2014, senior oil and gas professionals have forecasted tighter monitoring of capital expenditure (capex) this year, according to new research published today by DNV GL, the leading technical advisor to the oil and gas industry. While nine in 10 (88%) respondents to the research are confident about the sector, concerns over rising operational costs, a shortage of skilled professionals and competition from international rivals are causing professionals to focus spending on the projects that will provide the greatest return on investment.

According to the report, the proportion of companies planning to increase investment in new projects has declined by 18 percentage points over the past three years, from a high of 63% in 2012 to just 45% in 2014. For the first time since 2011 and the aftermath of Macondo, overall confidence in the oil and gas sector has fallen – albeit only by one percentage point – signaling a shift in sentiment.

The findings come from a new research report, Challenging Climates: The outlook for the oil and gas industry in 2014, which was undertaken on behalf of DNV GL. The research provides a snapshot of industry sentiment about the year ahead and is based on a survey of more than 430 senior oil and gas professionals and in-depth interviews with more than 20 industry executives.

Key findings include:

•    Despite some signs of caution, the overall outlook for 2014 is confident among industry professionals: around nine in 10 (88%) are optimistic about the outlook for 2014

•    Respondents expect to keep a closer watch on costs: six in 10 (62%) intend to pressure suppliers to curb cost increases next year, especially across Asia

•    Uncertainty over oil and gas prices will be more prevalent in 2014: nearly one in four (23%) of industry professionals thinks oil and gas prices will weaken this year, while 36% remain unsure

The report revealed a number of other findings including the skills issue and related to various regions. More about this here:

Shortage of key skills will be greatest barrier to oil and gas industry growth, new research reveals
 

North Sea oil and gas investment softens

New report reveals confidence among Asia Pacific oil and gas professionals 


New report reveals: North America and Brazil to hold greatest growth opportunities for oil and gas industry in 2014
 

Elisabeth Tørstad, CEO of DNV GL – Oil & Gas, says: “Oil and gas industry projects are becoming increasingly complex as the industry continues to operate in more challenging environments. The cost of exploration and production is rising, the industry’s pool of skilled professionals is decreasing and companies are feeling greater pressure on their overheads. This is all leading to great focus and a degree of ‘belt tightening’ across the industry with a view to keeping a tighter rein on capital expenditure. Although confidence is still high, for the first time since 2011 and the aftermath of Macondo, overall confidence in the oil and gas sector has fallen marginally, signaling a slight shift in sentiment.

“We’re also starting to see signs of greater consolidation across the oil and gas industry supply chain. Our research gives clear signs that pressure will be put on suppliers to become more innovative, to reduce costs and to show value in 2014 by providing access to scarce, in-demand skills and by demonstrating real quality in the products and services they deliver.”
 

Greater consolidation 


In response to rising costs, operators will seek to rely on larger supply chain partners which are more capable of providing a consistent global service, according to the report. About one in five (22%) survey respondents says that their company will increase its work with larger partners, compared with just 6% in 2012.
Furthermore, more than a third (37%) of operators say that their companies intend to acquire partners with the specialist knowledge and skills they need as they move into tougher exploration and production sites, with almost half (49%) saying they will need to increase alliances with others to share knowledge in order to cope with more challenging environments.

In turn, DNV GL’s research affirms that operators will focus on controlling risks and costs by seeking greater standardization in their procurement approaches. This gives rise to greater interest in oil companies centralizing, standardizing and streamlining their supply chain to avoid costs in creating new solutions.
Future investment

The report also reveals that the US, Brazil and Australia are the top investment destinations for 2014, with larger operators seeking to expand into challenging new environments such as deepwater sites in East Africa and the Arctic.
 

Download a complimentary copy of Challenging Climates from: http://www2.dnvgl.com/2014-challenging-climates.pdf
 

A bill for what is arguably the most liberal energy reform in Mexico to date presents an opportunity for ending an inertia situation that has surrounded the region's oil and gas industry for longer than necessary; however, a number of clarifications are required in the secondary laws that are due to be drafted and negotiated later in 2014, says an analyst with research and consulting firm GlobalData.

Adrian Lara, GlobalData's Lead Analyst covering Upstream Oil & Gas, states that while Mexico's energy reform introduces new arrangements, such as profit-sharing contracts, production-sharing contracts and licenses, the most ground-breaking aspect is the change in the Constitution that will allow private companies to participate in exploration and production (E&P) activities under specific contracting schemes.

However, as Lara says: "The changed law does not specify which type of contract will be applicable to the different types of hydrocarbon E&P. Industry observers and participants will therefore have to wait for the so-called secondary laws that will frame the fiscal terms for the new contracts.

"This additional information will allow for a more rigorous test in assessing the effectiveness of the 2013 energy reform. While it is still not decided when this fine print will be drafted and voted on, the second half of 2014 could be viewed as the best-case scenario."

Progress towards the current reforms began in August 2012, when a proposal for reforming Mexico's energy sector was submitted to Congress. This argued that the bulk of the region's remaining hydrocarbon reserves are located in challenging areas, both from geological and engineering perspectives, and that sophisticated and expensive technology is required to recover these reserves.

Furthermore, while Mexico's Petroleos Mexicanos (Pemex) possesses ample expertise in shallow waters, it lacks the experience needed for entering more complex projects located in offshore deep waters or onshore shale plays.

Lara continues: "Pemex's necessities, in a way, indicate ideal opportunities for private investment. Deepwater, shale and even shallow-water areas can benefit from different combinations of technology transfer, capital expenditure in E&P and managerial expertise."

A crucial test of Mexico's reforms will be the reaction of international oil companies when the first new opportunities are offered, which will depend to a great extent on what exactly is offered. In any case, Lara believes there is a long way to go before the approved reform materializes in new production, or has a significant effect on the wider Mexican economy through lower energy prices.

The analyst concludes: "For the time being, this reform seems to bring about the opportunity for ending Mexico's inertia situation. The most important point is that the bill's passage removes the barrier of the Constitution from a wide range of future reforms, allowing Mexico's energy sector to adapt to prevailing conditions in the future."

Comments to be attributed to Adrian Lara, GlobalData’s Lead Analyst covering Upstream Oil & Gas.

Milbank, Tweed, Hadley & McCloy LLP has represented international lenders Mizuho Bank, Ltd. and Itaú BBA International plc in providing approximately $150 million in financing for the purchase of an innovative compact semi-submersible multi-service vessel destined for Brazil's most productive offshore oil and gas location.

The support unit, named Olympia, represents a groundbreaking new vessel design, which suppliers believe will change the long term landscape of the offshore vessel market. It was developed to help increase production in Brazil's Campos Basin, source of some 80% of the country's substantial oil reserves. DP-3 rated, meaning it has redundant systems designed to hold it in place in virtually all weather and sea conditions, the 276-foot (84.25 meters) craft was built in Fujian Province in southern China and holds up to 500 people.

Olympia is the first of a group of three sister vessels ordered by Rio-based oil and gas firm GranEnergia and will be leased to state-owned energy major Petrobras. Olympia is part of Petrobras'$5.6 billion program to increase operating efficiency in the Campos Basin, a 44,000-square-mile area off the coast north of Rio de Janeiro. The vessel, whose primary function is to act as a floating accommodation unit for rig personnel, will begin operating in the Campos Basin in the second quarter of 2014.

New York-based project finance partner Daniel Bartfeld led the Milbank deal team, which included London-based partner James Cameron, and associates Fernando Capellão, Russell King and Caroline Rasmussen. Milbank has previously advised on the financing of a new fleet of deepwater drillships produced in South Korea that are also on the frontlines of Brazil's burgeoning offshore oil recovery sector.

"

We're delighted to participate in this important financing for a new generation of advanced support and maintenance vessels for the Campos Basin, site of significant ongoing investment by Petrobras,, Mr. Bartfeld said. "

The Olympia is one part of a larger effort to increase productivity and efficiency in this mature drilling area, which, despite challenging conditions, remains Brazil's most productive offshore oil field."

NYC-based PIRA Energy Group reports that Brent crude prices have stayed strong this month. On the week, U.S. products draw while crude stocks build, while in Japan crude stocks jumped. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Brent Prices Strong This Month

Brent crude prices have stayed strong this month supported by relatively tight global supply-demand balances and low inventories but will trend lower later this quarter as refinery maintenance cuts crude demand, crude supply continues its unrelenting growth in the United States, and supply disruptions elsewhere directionally ease. 

U.S. Products Draw While Crude Stocks Build

Surprisingly low crude runs were largely responsible for the first crude inventory increase in eight weeks. They also contributed to a larger product stock draw versus the week earlier. A reported demand increase and increased product imports were also factors in the week-on-week product stock change. This past week's overall inventory change was 1.3 million barrels larger than the inventory decline for the same week last year, thereby widening the year-on-year stock deficit. U.S. commercial oil inventories are declining significantly this January and this has happened just once in the last ten years.

Another Jump In Japanese Crude Stocks

Another relatively high crude import rate produced a crude stock build on slightly lower runs. Modestly higher stock builds were registered on all the major products (mogas, gasoil, naphtha, jet, and fuel oil), though kerosene stocks drew seasonally. Margins were slightly softer with weaker light product cracks overshadowing higher fuel oil cracks. 

U.S. Propane Is Continuing To Exert Price Leadership

U.S. Propane is continuing to exert price leadership although developments in the mid-continent are certainly in a state of disequilibrium given high demand for tight supplies. The wide gap to the Gulf Coast is certainly encouraging flows north with the price level leading to demand destruction. 

Ethanol Prices and Margins Decline

U.S. ethanol prices resumed their downward trend the week ending January 17 as improving weather in the Midwest led to higher operating rates and reduced transportation problems. Manufacturing cash margins fell as a result of the decrease in ethanol and co-product values. 

China Quarterly Oil Demand Monitor

China’s apparent oil demand disappointed in 2013, as growth slowed meaningfully from 2012. Reasons for the slowing were not immediately apparent. The pace of GDP growth did not change between the two years, and physical indicators that can directly be tied to oil demand (such as vehicle sales, ethylene production, and air travel) recorded healthy increases last year. Looking to 2014, the key story for China is an ongoing push for structural reform. 

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets. 

NYC-based PIRA Energy Group believes that oil prices strongly supported by tight oil supply/demand balances. On the week, U.S. Stock Draw Led by Crude Oil, while Japanese Crude Stocks jumped. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Oil Prices Strongly Supported By Tight Oil Supply/Demand Balances (Asian Outlook)

Oil prices have been strongly supported by relatively tight oil market supply/demand balances that have lasted through the early part of 2014. As oil markets progress through the first quarter, supply/demand balances will soften and prices will likely weaken from today's levels but the erosion should be limited in scope. OPEC and Saudi Arabia, in particular, have the means to limit declines as output remains in their comfort zone and can be adjusted as needed. 

Massive U.S. Stock Draw Led by Crude Oil

This past week's inventory decline is the largest ever recorded for this particular week and drove the year-on-year stock deficit to 57.2 million barrels, or 5.2%. With reported (four week average) demand running 4.2%, or 780 MB/D above year ago levels, days' supply forward inventory cover is quite low, although not as low as in 2007/2008.

Big Jump in Japanese Crude Stocks

Of note on the week was a huge surge in crude stocks of 10.8 MMBbls as crude imports rose from 3 MMB/D to 5.5 MMB/D. Finished product stocks drew 1.2 MMBbls. While gasoline stocks built slightly, all the other major products drew. Gasoil demand rebounded from abnormally low levels. Kerosene stock draws resumed after a one week increase.

Fracking Policy Monitor

The BLM rules regarding fracking on federal lands remain without a finalization date and the diesel guidance has been mired at OMB for over 115 days. The Congressionally mandated study on drinking water safety – likely to inform regulations post-2016 – also faces issues that may bolster attacks on its legitimacy. PIRA believes that given President Obama’s support of fracking, we are unlikely to see new federal regulations or stepped-up enforcement before November 2014 elections.

U.S. Continues to Show LPG Price Strength

Propane continues to see upward price moves as storage is pulled to record lows, particularly in the Midwest. With the cold returning, and exports and feedstock use on-going, prices will remain relatively firm. Just as the U.S. was strengthening, international markets were relatively weaker, narrowing export arb opportunities.

U.S. Ethanol Production Drops

Ethanol production plummeted to a fourteen-week low 868 MB/D from 919 MB/D the week ending January 10 as frigid weather conditions in the Midwest negatively affected operations at several plants. PADD II stocks rose for the fifth consecutive week, bringing them to the highest level since the end of April 2013.  

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets. 

NYC-based PIRA Energy Group reports that Aramco formula crude prices for February cut for Asia and Europe, but U.S. raised. In the U.S., crude leads stocks lower. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Aramco Formula Crude Prices for February Cut for Asia and Europe, but U.S. Raised

Saudi Arabia's formula prices for February were recently released. Pricing adjustments for the key markers were lowered for the Asian and European destinations. The reductions for Asia were greatest on the lighter grades, though there was also a reduction in the Arab Heavy differential. European pricing while also reduced, was generally less aggressive than for Asia while the largest reduction was on the heaviest grades.

Crude Leads Stocks Lower

Total U.S. commercial inventories fell this past week with the entire decline occurring in crude oil. Product inventories increased marginally as crude runs stayed at an extremely high rate while reported demand fell on the week in large part because of the Christmas Holiday. For the same week last year, stocks fell so the year-on-year stock deficit narrowed.

U.S. Refinery Turnarounds, January

The first six months of 2014 are expected to experience above average turnaround related refinery downtime. This compares survey results from previous years and does not take into account the high level of unplanned events which occurred over the past several years and are quite likely to be experienced in the new year as well. For example, PIRA's U.S. Refinery Turnarounds survey published on December 31, 2012 expected an average planned crude unit downtime for the first half of 2013 of about 1.6 MMB/D, also the highest level for the five year period from 2009 to 2013. Actual outages turned out to be closer to 2.3 MMB/D.

Tanker Markets Exited 2013 On a High Note

Tanker markets exited 2013 on a high note, with rates in most crude trades hitting new highs for the year in December while exceeding earlier expectations by a wide margin. The recent seasonal improvement in tanker rates is a reflection of higher global refinery runs, which rebounded strongly from autumn maintenance, increasing by 3.8 MMB/D from October to December, with 2.4 MMB/D of the increase in the Atlantic Basin. Tanker markets in the Atlantic Basin also benefited from weather, and strike-related delays in December.

Tight U.S. Propane Market and Looser Overseas Conditions

U.S. propane storage continues to fall to record low levels, with PADD II especially low.  The extremely cold weather is causing production and logistical bottlenecks as well, and, of course pulling demand higher.  The relatively warm weather overseas, especially in Europe, falling crude prices and the arrival of cargoes from the USGC and West Africa have been pulling international LPG prices lower.

U.S. Ethanol-Blended Gasoline Reaches a Record High

U.S. ethanol-blended gasoline production reached an all-time high during the week ending December 20. Ethanol prices were mostly higher in the holiday-shortened week ending December 27, and manufacturing margins rose for the first time in three weeks.

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets.