3rd October 2023

Good morning team, this is Both Barrels. Your daily dose of all things oil, gas, and energy, without the hot air.

Here’s what’s happening:

• 🍦 We don’t sell ice cream

• 💪 Permian productivity still strong

• 📉 Renewable stocks taking a beating

plus a lot more. Let’s get to it…

📈 THE NUMBERS

WTI is back below $90/bbl and oil stocks have fallen sharply as the market shifts its focus back to high interest rates and economic growth concerns.

🗞️ WELL-HEADLINES

 🗽 North America

• Permian looking strong - Oxy’s CEO has said that the company is seeing continued improvement in well productivity, despite reports that some operators are suffering from declines. “I think the Permian still has enough additional oil to develop that will continue to grow over the next few years”, she said. Sounds like Permian will keep doing the heavy lifting for US shale volumes.

• US drillers staying disciplined - shale players are reinvesting just ~65% of their cashflows this year into new growth, far below the 120% in 2018 and 250% back in 2012. “I just don’t see producers getting all excited about near-term price…By nature, most of us will just say ‘lets stay disciplined. Let’s keep our production flat”, said Devon Energy’s CEO.

• Higher-than-usual refinery maintenance - the US is expected to lose 2.5 mmb/d of refining capacity between now and the end of the year during this year’s maintenance season. This represents an 11% increase in offline capacity compared with the same period last year and is largely due to a need to clear a backlog of maintenance that built up during COVID when refiners were trying to cut costs and defer any expenditures.

🏰 Europe

• Exxon’s Sakahlin stake - Russia is restarting efforts to sell Exxon’s 30% interest in the 220 kb/d Sakahlin-1 project after it seized the asset last year following Western sanctions. Only Russian buyers will be considered. Exxon took a heavy $4bn writedown when it left the country. Someone in Moscow is going to get very rich at Exxon’s expense…

🕌 The Middle East

• Aramco LNG just getting started - after its $500m investment into MidOcean Energy last week, which marked its first foray into LNG, the company’s Upstream President said “Aramco’s intention is to become a leading global LNG player.” Expect more deals soon, then.

• Petrofac wins ADNOC CCS gig - ADNOC has awarded a landmark $600m EPC contract for its Habshan CCS project to Petrofac. The contract includes delivery of carbon capture units, associated pipeline infrastructure, and a network of wells for CO2 recovery and injection.

⛩️ Asia

• More gas to come in Malaysia - PPTEP is looking to extend its licences at two offshore gas fields in Malaysia and is confident about the country’s long term gas prospects being able to contribute to energy security in the region.

🗿 Central & South America

• Revitalizing Mexico’s flagship field - Pemex is planning to invest $10bn over the next 12 years into the redevelopment of the shallow water Ku-Maloob-Zaap field. The field was discovered over 40 years ago and today produces ~580 kb/d of oil, which is about one third of the company’s total production. Pemex hopes the investment will unlock an additional 555 mmbbls of oil by 2034.

• Kiss and make up - Pemex and Vitol, the world’s largest independent commodities trader, have started doing business again after reaching a $30m settlement related to a corruption scandal. Vitol acknowledged back in 2020 that it had paid bribes to win business with Pemex and other countries in South America .

🌍 GEOPOLITICS & MACRO

• We don’t sell ice cream - “If you want to keep everyone happy, sell ice cream.’ We are not in the business of ice cream - and I’m reminded, there are people who are lactose intolerant.” This is what the Petronas CEO had to say at the ADIPEC conference in the context of balancing energy security with environmental considerations. Spot on. You can never please everyone, and nor should you try.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Low carbon stocks taking a beating - The S&P Global Clean Energy Index, comprised of 100 of the biggest companies in solar, wind and other low carbon sector, has fallen by 20% over the past two months. These companies have been hit particularly hard by higher interest rates. As the CEO of Orsted said recently, “the fuel of the renewable industry is capital”. Are wind and solar a low interest rate phenomenon…?

• China’s mega grid investment - state media reports that China is going to invest a cool $13.7 trillion between 2020 and 2060 into its electricity grid, which includes generation, transmission, and other infrastructure. China is targeting ~33% of power from renewables by 2025, up from 28.8% in 2020, and peak carbon emissions in 2030.

• Texas grid braces for winter - the Texan grid operator is seeking dispatchable generation capacity this winter over concerns the grid will be vulnerable during spikes in demand. The Texan grid has lurched from problem to problem in recent years due to extreme weather events and increased reliance on intermittent power sources.

• Good luck Ireland - while the rest of the world is understandably worrying about energy security, Ireland has rejected an application to build the country’s first LNG import terminal on environmental grounds. Have fun staying cold…

🛢️ BOTTOM OF THE BARREL

What can you get out of a barrel of crude?

👋 BEFORE YOU GO 

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Thanks for reading. Have a day out there. 🛢️🛢️