US independents raise their hedges
US independent producers are stepping up hedging of oil and natural gas production as a safety net for stable cash flow, despite some losing money from derivatives in the second quarter.
US producers' hedging plans have increased slightly, with 52pc of their 2018 output covered compared with 49pc as of March, "even with oil futures above long-term management budgets of broadly $50-$55/bl," US bank Goldman Sachs says. Producers are hedging at an average price of $58/bl this year, below the $70/bl touched this week. "Hedging [for 2019] has remained around normal levels" of up to 23pc of oil production against 16pc in the first quarter.
Current hedged prices of $60/bl for 2019 are slightly below the forward price of $63/bl, which may add some restraint against increased drilling, the bank adds. The majority of production growth this year is coming from well-hedged firms, although this is less the case in 2019, the bank says.
The increase in 2018 hedged oil production comes despite some producers reporting losses from their hedging last quarter as a result of higher-than-expected crude prices. Pioneer Natural Resources, one of the most well-hedged onshore operators, made a non-cash mark-to-market derivative loss in April-June of $170mn because of the increase in Nymex oil prices, chief financial officer Richard Dealy says. This compares with a gain of $71mn a year earlier. Pioneer has kept its hedge book largely unchanged for the rest of this year and 2019, with about 85pc of its 2018 oil production covered. Whiting Petroleum made a non-cash loss of $50mn against a gain of $16mn in the second quarter of 2017. Whiting has marginally raised its hedging to 72pc from 70pc at the start of this year.
Hess has continued to hedge its 2019 and 2020 output to protect its cash flow, as the firm is in the middle of funding the large ExxonMobil-operated Guyana project. "When we get to the free cash flow phases of Guyana we will be in a different position, and hedging may fall as we move forward," Hess chief financial officer John Rielly says.
An unintended consequence of hedging losses is increased capital discipline, Goldman Sachs says. Investors have pressured independents to manage their budgets within cash flows as the industry's share performance has lagged rises in crude prices and broader financial markets. A lack of gains from oil market upside is making the industry execute plans at a WTI price of $50-$60/bl, the bank says.
Peer pressure
An exception is Continental Resources, which removed all its oil hedges in 2014 on a prediction that the crude price slump was temporary. The firm was exposed to the price collapse in 2015 and 2016 but is now benefiting from the recovery. "We appear to be the only unhedged oil producer in our peer group able to fully participate in the higher oil prices today," chief executive Harold Hamm says.
Permian producers are also taking on hedges to protect the difference between the region's crude prices and benchmark WTI. Prices in the basin are under pressure because of pipeline constraintslimiting oil exports from the region. Large producers have about 60pc of their Permian oil output in 2019 "protected against a basis blowout", US bank Tudor Pickering Holt says, while small and mid-sized independents have about 45pc.
Apache is currently exposed to Midland basis price movements for just under 60pc of its 2018 oil output, which will increase by another 10pc next year if it does not take any further hedges later, chief financial officer Stephen Riney says. Energen, which is being acquired by Diamondback, took on differential hedges out to 2020 in the second quarter in case supply bottlenecks do not alleviate until then. "We thought it prudent to go ahead and take a decent hedge position," chief executive James McManus says.
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UK eyes new environmental guidance for oil, gas: Update
UK eyes new environmental guidance for oil, gas: Update
Adds comment from Shell London, 29 August (Argus) — The UK government will develop new environmental guidance for oil and gas firms, in the light of a recent Supreme Court decision that ruled consent for an oil development was unlawful, as the scope 3 emissions — those from burning the oil produced — were not considered. The ruling means that "end use emissions from the burning of extracted hydrocarbons need to be assessed", the government said today. The government will consult on the new guidance and aims to conclude the process "by spring 2025", it said today. It will in the meantime halt and defer the assessment of any environmental statements related to oil and gas extraction and storage activities until the new guidance is in place, including statements that are already being assessed. The Supreme Court in June ruled that Surrey County Council's decision to permit an oil development was "unlawful because the end use atmospheric emissions from burning the extracted oil were not assessed as part of the environmental impact assessment". The government also confirmed that it will not challenge judicial reviews brought against the development consent granted to the Jackdaw and Rosebank oil and gas fields in the North Sea. A judicial review in the UK is a challenge to the way in which a decision has been made by a public body, focusing on the procedures followed rather than the conclusion reached. Environmental campaign groups Greenpeace and Uplift launched legal challenges in December seeking a judicial review of the government's decision to permit Rosebank. Norway's state-owned Equinor and London-listed Ithaca hold 80pc and 20pc of Rosebank, respectively. Greenpeace in July 2022 separately filed a legal challenge against the permitting of Shell's Jackdaw field. "This litigation does not mean the licences for Jackdaw and Rosebank have been withdrawn", the government said. The Labour government, voted into office in July , pledged not to issue any new oil, gas or coal licences, but also promised not to revoke existing ones. Equinor is "currently assessing the implications of today's announcement and will maintain close collaboration with all relevant stakeholders to advance the project. Rosebank is a vital project for the UK and is bringing benefits in terms of investment, job creation and energy security", the company told Argus today. Shell is "carefully considering the implications of today's announcement... we believe the Jackdaw field remains an important development for the UK, providing fuel to heat 1.4mn homes and supporting energy security, as other older gas fields reach the end of production", the company told Argus . North Sea oil and gas production "will be a key component of the UK energy landscape for decades to come", the government said today. The UK government introduced a climate compatibility checkpoint in September 2022, designed to ensure that oil and gas licensing fits UK climate goals. The UK has a legally-binding target of net zero emissions by 2050. The checkpoint, though, does not take into account scope 3 emissions. These typically make up between 80pc and 95pc of total oil and gas company emissions. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Baghdad issues ultimatum to KRG to drive output down
Baghdad issues ultimatum to KRG to drive output down
Dubai, 29 August (Argus) — The federal Iraqi government has issued an ultimatum to northern Iraq's Kurdistan Regional Government (KRG) to reduce its crude output to "the minimum required", or face the possibility of not receiving its share of the budget. The move, communicated today by a senior official at Iraq's state marketer Somo, represents the latest attempt by Baghdad to pressure the KRG into cooperating to help bring Iraqi output below its Opec+ production target. KRG was asked "on several occasions" to cut its production according to the budget law "to the minimum required for their local refineries" — around 50,000 b/d, the official said. "Otherwise, the KRG will have to pay [the federal government] all the revenues they receive, for the extra barrels beyond what their refineries need". Iraq has emerged as the Opec+ group's biggest overproducer, failing to meet its target in any of the first seven months this year. The country, along with Kazakhstan and Russia, which are overproducing too, submitted updated plans to the Opec secretariat last week outlining how it intends to compensate for the extra volume. Iraqi officials said that a lack of visibility on KRG production are complicating efforts. Output has been gradually recovering in Kurdistan this year, even though the 400,000 b/d export pipeline that links fields in the north to the Turkish Mediterranean port of Ceyhan has been shut-in since March 2023 because of a dispute between Baghdad and Turkey. Crude production from the region collapsed below 100,000 b/d in the months following the pipeline closure, but has risen steadily, particularly from fields operated by foreign companies, as they find new outlets for their crude. Foreign operators operating in Kurdistan said they rely on trucking crude to local refineries to stay in business, but Kurdish crude is also being smuggled — by truck — across the border to neighboring Turkey, Iran and Syria, Argus understands. Different accounts Crude output from Iraqi Kurdistan is currently averaging around 350,000 b/d , a spokesperson for the Association of the Petroleum Industry of Kurdistan (Apikur) told Argus. Apikur is an industry body representing the foreign operators in the northern region . Argus assessed KRG production at 200,000-250,000 b/d on average in the first half of the year. But the federal government disputes those numbers, insisting that production from Kurdistan is around 150,000 b/d. "Any more than that will put huge pressure on the KRG," the official said. Assuming refining capacity of 50,000 b/d, the official labelled the higher estimates as "illogical." He pointed to the fact that about 500 trucks are already needed on a daily basis to export the region's 100,000 b/d, and that the state of the roads and service stations does not allow for the double amount of vehicles. Earlier attempts by the federal government to scale back Iraqi Kurdish production have failed, but the official thinks that Baghdad's latest ultimatum will have the desired impact. "These are serious steps," the official said. If KRG production remains above the 50,000 b/d needed for domestic refining, and it does not deliver the proceeds to Baghdad, it will not receive its share of the budget, which it is heavily dependent on to support its economy. Getting back on track Iraq's latest compensation plan put its overproduction in January-July at 206,000 b/d, compared with 197,000 b/d in January-June. Opec+ secondary sources estimated that output rose by 57,000 b/d on the month to 4.251mn b/d in July, some 251,000 b/d above the Opec+ target. The official said Iraqi production should fall to required levels from September. Somo canceled a spot cargo of 1mn bl this month, and Iraq is "working on deferring two similar shipments, before the end of the month," the official said. "That means we will be down around 3mn bl, or 90,000 b/d". He added that a 50,000 b/d decrease in domestic crude consumption resulting from increased gas imports from Iran and stronger domestic gas output will also help with the country's compliance. He said Iraq's August output levels will be down on the month, but dependent "on the position of the KRG". By Nader Itayim and Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Greek regulator approves 2025 gas tariff increases
Greek regulator approves 2025 gas tariff increases
London, 29 August (Argus) — Greek energy regulator RAEWW has approved 2025 gas transmission tariffs previously proposed by transmission system operator Desfa, with some alterations. The annual tariff for entry to the Greek grid is set at roughly €0.35/MWh for 2025, around 4pc higher than in 2024 (see data & download) . Exit tariffs at domestic and international points will be €0.59/MWh, a nearly 21pc increase on the year, while the LNG regasification tariff is set at €0.30/MWh, nearly 35pc higher than in 2024. Before annual capacity auctions in July, Desfa had proposed some differentiation in entry and exit tariffs for different interconnection points, but RAEWW has instead opted for equalising entry and exit fees regardless of the point. Multipliers for shorter-term capacities are set at around 1.38 for quarterly products, 1.48 for monthly products and 2.97 for daily products. These are the same multipliers which have been used for the past two years. RAEWW set the allowed revenue for transmission services at €149.2mn. A much larger portion of the allowed revenue will come from exit points, at around €90.5mn compared with €58.7mn at entry points. The regulator set an allowed revenue of €23.6mn for LNG services. It noted the Revithoussa LNG terminal has consistently exceeded its allowances since 2019, peaking at 312pc in 2023 as use of the terminal soared. RAEWW has also opened a public consultation on proposed changes to the rulebook of Greece's Henex exchange, which would create a new "trading-only" type of participant. The new category of participant does not need to be a registered user of the transmission system, but must have concluded a contract with exclusively one other participant who is registered, and guarantee that it will fulfil its obligations arising from any concluded trades. If the registered system user loses its registered status, then the trading-only participant also does. Any termination of contract between the two parties must immediately be reported to Henex. Interested parties can email responses to the consultation to RAEWW until 20 September. By Brendan A'Hearn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
UK plans new environmental guidance for oil and gas
UK plans new environmental guidance for oil and gas
London, 29 August (Argus) — The UK government will develop new environmental guidance for oil and gas firms, in the light of a recent Supreme Court decision that ruled consent for an oil development was unlawful, as the scope 3 emissions — those from burning the oil produced — were not considered. The ruling means that "end use emissions from the burning of extracted hydrocarbons need to be assessed", the government said today. The government will consult on the new guidance and aims to conclude the process "by spring 2025", it said today. It will in the meantime halt and defer the assessment of any environmental statements related to oil and gas extraction and storage activities until the new guidance is in place, including statements that are already being assessed. The Supreme Court in June ruled that Surrey County Council's decision to permit an oil development was "unlawful because the end use atmospheric emissions from burning the extracted oil were not assessed as part of the environmental impact assessment". The government also confirmed that it will not challenge judicial reviews brought against the development consent granted to the Jackdaw and Rosebank oil and gas fields in the North Sea. A judicial review in the UK is a challenge to the way in which a decision has been made by a public body, focusing on the procedures followed rather than the conclusion reached. Environmental campaign groups Greenpeace and Uplift launched legal challenges in December seeking a judicial review of the government's decision to permit Rosebank. Norway's state-owned Equinor and London-listed Ithaca hold 80pc and 20pc of Rosebank, respectively. Greenpeace in July 2022 separately filed a legal challenge against the permitting of Shell's Jackdaw field. "This litigation does not mean the licences for Jackdaw and Rosebank have been withdrawn", the government said. The Labour government, voted into office in July , pledged not to issue any new oil, gas or coal licences, but also promised not to revoke existing ones. Equinor is "currently assessing the implications of today's announcement and will maintain close collaboration with all relevant stakeholders to advance the project. Rosebank is a vital project for the UK and is bringing benefits in terms of investment, job creation and energy security", the company told Argus today. North Sea oil and gas production "will be a key component of the UK energy landscape for decades to come", the government said today. Argus has also contacted Shell for comment. The UK government introduced a climate compatibility checkpoint in September 2022, designed to ensure that oil and gas licensing fits UK climate goals. The UK has a legally-binding target of net zero emissions by 2050. The checkpoint, though, does not take into account scope 3 emissions. These typically make up between 80pc and 95pc of total oil and gas company emissions. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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