Oil & Gas July Update: Crude Oil Exports, U.S. Natural Gas & IBAP Increase

Harold Hamm, chairman ad CEO of Continental Resources and chairman of the Domestic Energy Producers Alliance recently wrote an opinion piece urgently encouraging Congress to end the ban of crude oil exports that has prevented the U.S. from becoming energy independent and has limited the nation’s geopolitical power. The article said that maintaining the ban would only hurt the hydraulic fracturing boom, worsen job losses, slow down the manufacturing industry make the nation dependent again on foreign oil and benefit the few. “Without the ability to export crude oil, we are chasing our allies into the open arms of dictatorial regimes,” he said.

A $48 billion stock-based takeover offer from pipeline magnate Keley Warren was firmly rejected by Williams Cos. The offer was specifically designed to derail consolidation of the North American natural gas and oil hauler. In a statement that did not identify the bidder, Williams said that the offer devalued the group and hired banks to explore alternatives. The offer was valued at $64 a share, a 32 percent premium to Friday’s closing price, Energy Transfer Equity LP said in a statement that confirmed it was the bidder. According to the statement, the offer is worth $53.1 billion, including debt and other liabilities.

A Stanford University study found that the volumes of wastewater injected into disposal wells may be linked to seismic activities or earthquakes in Oklahoma. However, Energy in Depth (EID) a research, education, and public outreach program launched by the Independent Petroleum Association of America, said the research did not consider a few accounts of seismic activity in the 1980s when high wastewater disposal volumes were also present.

Rising OPEC output was met with forecasts for a contraction in U.S. supply, causing hedge funds to reduce both bullish and bearish bets on oil for a fourth week.

Based on EIA estimates, daily production from shale formations such as North Dakota’s Bakken and Texas Eagle Ford is expected to shrink 1.3 percent to 5.58 million barrels this month. It is predicted to drop further in July to 5.49 million barrels, the lowest level since January.

The net-short position on U.S. natural gas dropped 23 percent to 75,742. The measure includes an index of four contracts adjusted to futures equivalents. Nymex gas rose to $2,894 per million British thermal units.

For the seventh time, U.S. oil inventories decreased to 457.9 million barrels in the week ending on June 12. However, that is still 80 million more than the year before. For the first time in eight weeks, supplies at Cushing, Oklahoma, the delivery point for WTI futures increased.

Sabine Oil & Gas Corp., Houston, has decided to skip a $21 million interest payment and enter a 30-day grace period to either make the payment or slide into a debt default. The company drills for oil and gas in Texas and Louisiana.

Data from Baker Hughes, Inc. reports that the U.S. drilling rig count decreased to 9 units during the week ended June 12 to settle at 859 working rigs.

The International Energy Agency (IEA) said that the climate change conference to be held in Paris in December has prospects of achieving meaningful commitments to reduce dioxide (CO2) emissions as key countries such as the U.S. and China offer increased concessions.

Energy-related CO2 emissions could decline at nearly twice the rate achieved since 2000 if the European Union honors it’s pledge to cut GHG (greenhouse gas) emissions by at least 40% by 2030 (relative to 1990 levels). The IEA said that would make it one of the world’s least carbon-intensive energy economies.

Respected analysts concur that U.S. propane prices could fall another 40%, a trend that could further drag down propylene prices while raising those for ethylene.

According to ICIS, American polymer-grade propylene (PG) prices fell to a six-year low, with the June contracts dropping to 40.00 cents/lb. ($644/ton).

ICIS analysts show that the European ICIS Basket of Automotive Petrochemicals (IBAP) rose for the third consecutive month in May, climbing to its highest level since November of 2014.

An ICIS margin report showed that U.S. spot ethylene margins rose 2.3% for the week ended 5 June, boosted mostly by a rise in spot prices. Margins for ethane-based spot ethylene rose to 30.15 cents/lb. ($665/ton) for the same period from 29.48 cents/lb. from the previous week. A drop in ethane costs also boosted margins, which dropped to 7.92 cents/lb. from 8.09 cents/lb.

As surging butadiene (BD) and aromatics values outweighed a drop in propylene values, Ethan cracker co-product credits rose to 2.57cents/lb. from 2.51 cents/lb.

Front-month June ethylene was hard bid at 35.75 cents/lb. against offers at 36.50 cents/lb.

PBF Energy, Inc. agreed to purchase the 189,000 barrel-a-day Chalmette, Louisiana refinery for $322 million from Exxon Mobil Corporation and Petroleos de Venezuela SA, marking the New Jersey-based Exxon’s first appearance on the Gulf Coast. The transaction is anticipated to close by year-end and boost 2016 earnings by 20 percent as PBF shares jumped 17 percent to $31.04.

The Bureau of Labor Statistics Producer Price Index reported that U.S. exploration and production companies realized a 19.6% decline in oilfield drilling costs from June 2014 to May 2015 as oil and natural gas prices dropped by 49% amid the price slump. The Energy Information Administration (EIA) said that lower rates from drilling service providers were driven by the “downward pressure” on E&P capital expenditures.

According to a Bloomberg Intelligence index of 62 companies, the debt that fueled the U.S. shale boom now threatens to be its downfall. The number of shale drillers that have interest expenses of more than 10% of their revenue went up from 12 last year, to 27 this year. While drillers’ revenues fell, the index revealed that their total debt at the end of the first quarter also went up 16% from the previous year to $235 billion. The companies also realized a higher expenses-to-income ratio in the first quarter amid a record high output, spending $4.15 per dollar of earnings compared with $2.25 in the previous year.