BP second quarter profit above expectations at $2.8 billion
Higher oil prices and increased output boosted BP’s second-quarter profit to $2.8 billion, four times that of a year ago. The company also confirmed it would increase its quarterly dividend for the first time in nearly four years, offering 10.25 cents a share. BP is turning a corner after the slump in oil prices and as it gradually shakes off a $65 billion bill for penalties and clean up costs of the deadly 2010 Deepwater Horizon spill. Underlying replacement cost profit, the company’s definition of net income, exceeded forecasts of $2.7 billion, according to a company-provided survey of analysts. It earned $0.7 billion a year earlier and $2.6 billion in the first quarter. First-half production rose to 3,662 million barrels of oil equivalent per day, including output at Rosneft, from 3,544 mboe/d a year ago. Benchmark Brent crude futures, currently over $74 a barrel, have risen around 16 percent over the first half of 2018 and around 60 percent since June 30 2017. In its biggest deal in nearly 20 years, BP last week agreed to buy U.S. shale oil and gas assets from global miner BHP Billiton, for $10.5 billion, expanding the British oil major’s footprint in oil-rich onshore basins. BP is also buying back shares to the tune of $200 million in the first half of this year. In the second quarter, it paid off $700 million for the spill on a post-tax basis. Gearing, the ratio between debt and BP’s market value, declined to 27.8 percent at the end of the quarter from 28.1 percent at the end of March. Net debt was $39.3 billion at the end of June compared with $40 billion at the end of March. Brandon McManus Womens Jersey
India’s natural gas production will double in four years: Oil Ministry
India’s natural gas production is expected to double to 72 billion cubic meter (bcm) in four years through 2022, the oil ministry recently told a Parliamentary panel. The government is currently working on a plan to shift the country towards a gas-based economy. The nation produced 35 bcm of natural gas last financial year (2017-18). Of this, state-owned explorer Oil and Natural Gas Corporation (ONGC) accounted for 24.2 bcm or 68 per cent, Oil India Ltd (OIL) produced 2.9 bcm and private firms and their joint ventures accounted for the rest 7.9 bcm. By 2021-22, this mix is expected to undergo a significant change with private JVs accounting for the largest chunk – 40.3 bcm – followed by ONGC’s production at 27.8 bcm and OIL contributing 3.7 bcm of gas. India’s natural gas production will double in four years: Oil Ministry The ministry told the Parliamentary Standing Committee on Petroleum and Natural Gas, the main reason for the shortfall witnessed in natural gas production during the 12thplan period (2012-17) was lower production from NELP deepwater block KG-DWN-98/3 operated by Reliance Industries (RIL) and the delay in production from ONGC-operated KG-DWN-98/2 coupled with the natural decline in ageing fields. The ministry added it has taken multiple policy initiatives to ramp up the country’s oil and gas production including gas pricing reforms, policy framework for early monetization of Coal Bed Methane (CBM), Discovered Small Field (DSF) policy, Hydrocarbon Exploration and Licensing Policy (HELP) and the operationalization of Open Acreage Licensing Policy (OALP). Asked how does ONGC plan to increase production, the company told the panel: “One of the biggest projects which we have undertaken, as on date, is going on schedule. From that discovery alone, we expect to get close to 4 million tonnes of oil which was only a gas discovery and almost 13-14 million cubic metre gas per day. This will take a while. This will come sometime around 2021-22.” RIL chief Mukesh Ambani, during the company’s recent Annual General Meeting, announced the firm plans to start natural gas production with its partner BP from its KG-D6 block by 2020, expecting to reach a peak of 30-35 Million Cubic Meter Per Day (MMSCMD) production by 2022. India’s natural gas production grew for the first time in six years in last financial year ended March 2018, primarily due to natural gas production from onshore blocks offsetting continuous decline from offshore blocks. Ja’Wuan James Authentic Jersey
Heartburn for ONGC: For HPCL, majority owner is still the President of India with 0% stake
Though oil refiner-retailer Hindustan Petroleum Corporation (HPCL) was taken over by Oil and Natural Gas Corporation (ONGC) in January this year, the former is yet to recognise the upstream major as its promoter in the mandatory quarterly filings with the stock exchanges. In the filings for Q4FY18 and Q1FY19 on both the BSE and NSE, HPCL clubbed ONGC which owns its 51.11% share among “public shareholders” while still mentioning the President of India (read the Union government) as its promoter with 0% stake. The “deviation” has caused much heartburn in ONGC and it has already approached the government for a resolution of the issue, sources said. The explorer had to fork out `36,915 crore to acquire a majority stake in the oil marketing company on being prodded by the government, which wanted to boost its non-debt capital receipts. An ostensible purpose of the deal was to further the government’s policy of creating an integrated oil major to compete with global and domestic private players. According to the sources, minority shareholders of ONGC could also raise the matter with the oil explorer’s board. “The matter is creating a lot of confusion,” an official said. HPCL’s move has no immediate precedent. After Indian Oil Corporation (IOC) bought a majority stake (51.89%) )in Chennai Petroleum Corporation in 2000-01, CPCL showed IOC as the promoter. Emails sent by FE to ONGC and HPCL remained unanswered till the time of going to press. Having acquired a controlling stake in HPCL, ONGC should be classified as promoter of the oil retailer according to Securities and Exchange Board of India rules, said Prithvi Haldea, chairman, PRIME Database. Though ONGC was not the original promoter, after it acquired a controlling stake in HPCL, it is deemed as promoter, he added. According to government sources, HPCL’s reluctance to identify ONGC as a promoter could be the outcome of a battle of egos at the helms of the two state-run entities. Prior to acquisition, HPCL was on the Fortune Global 500 list ranked 384 (2016) while ONGC was not on the list. Thanks to its majority stake in HPCL, ONGC is now ranked 197 (2017) on the list. The Fortune Global 500 is an annual ranking of the top 500 corporations worldwide as measured by revenue and the list is compiled and published annually by Fortune magazine. Dominique Easley Jersey
OMCs make provisions for PMUY losses
State-run oil marketing companies (OMCs) classified a section of loans provided to beneficiaries of the Pradhan Mantri Ujjwala Yojana (PMUY) in FY18 as ‘doubtful’ as recipients did not ask for LPG refill for a year. While Indian Oil has made a provision of Rs 162 crore for inactive beneficiaries at the end of FY18, HPCL and BPCL have also made provisions of almost half that amount each. Indian Oil is the leader in providing almost 50% of around 4.95 crore liquefied petroleum gas (LPG) connections released till date under the government’s flagship scheme. “Companies have already made provision in the accounts of (FY18) for those beneficiaries who have not taken refills for at least a year. If these beneficiaries continue the trend and do not come back for refills, these provisions will be classified as bad debt,” said a source, adding that this provision has been made on auditors’ insistence. Under the scheme, of an LPG connection cost of around `3,200 — including stove, refilled cylinder and safety hose — the government pays `1,600 as one-time assistance. The rest is to be borne by beneficiaries. The beneficiary can pay her share upfront, or opt for a loan, wherein the amount is realised by not repaying the beneficiary the amount of subsidy — transferred as a direct benefit to bank account — on subsequent refills till the loan amount is recovered. While the scheme was launched in May 2016 with an initial target of providing clean cooking fuel to 5 crore women beneficiaries belonging to the below-poverty-line category as per the Socio Economic Caste Census (SECC) 2011 list, the target has been increased to 8 crore. The initial allocation towards the scheme was `8,000 crore, but `4,800 crore was later added and the scope of the scheme has also been extended beyond the SECC. Data show that Indian Oil released around 62 lakh LPG connections under the PMUY in FY17. Of this, close to 9.5 lakh did not come back for refill by March 31, 2018. In FY18, Indian Oil released 48 lakh connections, of which around 27 lakh did not return for refill by the end of the year. Similarly, BPCL released close to 29 lakh LPG connections under the PMUY in FY17, of which 4.7 lakh beneficiaries were still using the installation refill by March 31, 2018. In FY18, BPCL issued around 30 lakh connections, of which 17 lakh did not return for a single refill by March 31, 2018. As per government figures, a PMUY beneficiary on an average takes four refills a year, compared with the national average of 7.2. The government claims that the dropout from the scheme is 20%, and that the rest 80% beneficiaries have at least come back for one refill. To promote more refills, OMCs stopped collection of payment from beneficiaries for six months starting end-March 2018. “The companies will have to decide whether to extend the scheme (non-collection of loan repayment) or not, once trends after six months are clear. The loan amount will be recovered once people start refilling,” the source said. Jeff Locke Authentic Jersey
Government taking steps to ease crude oil import cost: Dharmendra Pradhan
The Government is taking various measures, including focusing on biofuels, to ease the cost of crude oil import, Union minister Dharmendra Pradhan said today. He told the Lok Sabha that the government is focusing on biofuels such as first and second generation ethanol, biodiesel and bio-CNG as part of efforts for “import reduction, environmental benefits and increased income to farmers”. Besides, efforts are on for increasing domestic production of oil and gas, capitalising untapped potential in bio-fuels and other alternate fuels, and implementing measures for refinery process improvements, Pradhan said during the Question Hour. The Petroleum and Natural Gas Minister also said the government has notified the National Policy on Biofuels 2018, which allows use of damaged food grains for production of ethanol for blending with petrol. “There is also a provision to allow surplus food grains for ethanol production during the surplus phase as decided by the National Biofuel Coordination Committee,” Pradhan said. Multiple sources have to be there for energy, he said, adding the government continues to modulate the effective price of domestic LPG supplies to domestic consumers under the Direct Benefit Transfer of LPG. “The domestic price of LPG in the country is based on international price of LPG (ie. Saudi contract price) and is not linked to the cost of crude oil,” the minister said. Deion Sanders Womens Jersey
Ukraine has 12.7 bcm of gas in storage, shows data
Ukraine had 12.7 billion cubic metres (bcm) of gas in storage as of July 28 compared with 13.01 bcm at the same date in 2017, data from gas transport operator UTG showed on Monday. Ukraine is seeking to store at least 17 bcm of gas in readiness for the winter season which starts in mid-October, the government said last week. For the past heating season from October to April, Ukraine had 16.8 bcm of gas in reserve. Ukraine consumed 32.2 bcm of gas in 2017 and imported 14.1 bcm. Ukraine, which used to rely on Russian gas imports has not bought gas directly from Russia since November 2015 and instead now imports from Europe. Relations between Russia and Ukraine have suffered since Russia’s annexation of Crimea in 2014. Brandon Marshall Jersey
Govt to launch second oil and gas field auction on August 9
The government plans to launch the auction of 60 oil and gas fields being offered in the second round of bidding for Discovered Small Field (DSF) on August 9, regulator DGH said. DSF-II was supposed to be launched around mid-June, but it was deferred. “Launch of Discovered Small Field (DSF) Bid Round-II on August 9, 2018, in New Delhi,” the upstream regulator tweeted. The 60 discoveries have been clubbed into 26 contract areas spread over 3,100 sq km spread over eight sedimentary basins, it said. The fields are being offered in Rajasthan, Gujarat, Kutch & Cambay shallow waters, Mumbai offshore, Assam and Tripura, Mahanadi shallow water, Andhra Pradesh onland and KG offshore. DGH said the main features of DSF-II include a single license for conventional and unconventional hydrocarbon, prior technical experience not a pre-qualification criterion, no upfront signature bonus and full pricing and marketing freedom. “Royalty rates further reduced as compared to DSF-I,” it added without elaborating. The fields on offer hold an estimated 1.4 billion barrels of oil and oil equivalent gas. The government had in 2016 brought a new DSF policy, offering “idle” small discovered fields of state-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) in an auction on liberalised terms including marketing and pricing freedom and lower taxes. The Union Cabinet had in February approved the second round of DSF auctions, under which the government is offering a total of 60 discovered small fields with an estimated 194.65 million tonnes of oil equivalent (MMtoe). These discoveries have been clubbed into 26 contract areas spread over 8 sedimentary basins. Of the 60 fields which will be up for auctions, 22 fields belong to ONGC, five to OIL and 12 are relinquished discovered fields from the New Exploration and Licensing Policy (NELP) blocks. In DSF-I launched in May 2016, 46 contract areas consisting of 67 discovered fields spread across nine sedimentary basins were auctioned. The auctions attracted 134 e-bids for 34 contact areas of the 46 offered. Later, 22 companies were shortlisted for 31 contract areas of which 15 companies were new entrants with no prior experience in the sector. As many as 21 fields which did not receive any investor interest in DSF-I will also be part of the second DSF round. Post the February decision of the Cabinet, an Empowered Committee of Secretaries (ECS) comprising of Secretary (Petroleum & Natural Gas), Secretary (Expenditure) and Law Secretary have finalised and approved Model Revenue Sharing Contract, Notice Inviting Offer (NIO) and other documents for DSF Round-II. To expedite award, the Cabinet had authorised Minister of Petroleum and Natural Gas and Minister of Finance to approve of the winners based on the recommendations of the ECS. Brian Poole Authentic Jersey
EVs likely to pose threat to oil companies, says ICRA
Rating and research agency ICRA has observed in a recent report that the shift from petrol and diesel-driven vehicles towards electric vehicles will pose a threat to oil refining and marketing companies, particularly the newer ones. While this is intuitive, the assessment is significant because India’s downstream oil companies do not see electric vehicles as a threat. In a chat with this correspondent last December, the Finance Director of Indian Oil Corporation, AK Sharma, had said as much. He stessed that the high cost of EVs would make them unattractive. Costs of batteries And now, ICRA says the threat is real. Its analysis shows that costs of batteries are falling rapidly – from $800/kWhr in 2011 to $208 in 2017, and the expectation is that it could fall to $70 by 2030 or even earlier. (Battery capacity is measured in terms of the number of units of electricity (kWhr) it can hold, as well as the highest energy it can discharge (kW), and the number of times it can discharge-recharge (cycles) before going dead.) Crude oil prices ICRA believes that when battery costs fall below $100 per kWhr, and if crude oil prices are around $90 a barrel, EVs could take petrol and diesel-powered vehicles head on. “The high risk of electrifying the automobile fleet looms on the downstream players,” says the ICRA report. ICRA recognises the lack of infrastructure for charging vehicles – especially commercial vehicles that are used for longer hauls – as a “hurdle”. However, global companies, such as ABB, are keen on building the necessary infrastructure. Nevertheless, while the existing refineries might be able to withstand the weather, the demand disruptions because their assets are well depreciated and viability of greenfield refinery products would come under pressure in the long term, the agency cautions. It observes that Indian oil-refining and marketing companies are investing in brownfield and greenfield expansion of their refineries to satisfy the country’s growing demand. “Electrification of vehicles in the country will not mean that downstream companies will go out of business as petroleum products are also demanded by other sectors such as airways and petrochemicals,” the report notes. However, diesel and petrol form around 50 per cent of the total product volumes derived from every tonne of crude oil processed by a refinery, and a much higher share of 65 per cent in terms of value derived from crude oil, it notes. Thus, any impact on demand of auto-fuels, could have a significant bearing on the demand growth of crude oil and gross refining margins (GRMs) of refineries. San Francisco 49ers Jersey
OPINION: LNG becomes more volatile on heat wave, Trump’s trade war
Prices for spot cargoes of liquefied natural gas (LNG) in top-consuming region Asia have become more volatile amid a northern hemisphere heat wave, China’s switch to cleaner fuels and a side-helping of Donald Trump-inspired trade disruptions. The spot LNG price for September delivery in North Asia rose to $9.75 per million British thermal units (mmBtu) in the week to July 27, the first increase in six weeks. Soaring temperatures in Japan and South Korea were behind the move higher, as utilities ramped up electricity output to meet demand for air-conditioning. Japan even resorted to restarting old and dirty oil-fired power plants, in addition to boosting natural gas generation. The boost to prices last week was the latest turn in a spot LNG market that has become more volatile and sensitive to even relatively modest moves in supply and demand. The spot price reached $11.60 per mmBtu in mid-June, an unusual occurrence as it meant the peak summer price exceeded that for the previous winter for the first time since 2012. LNG has a seasonal pattern, with the peak price usually occurring in the northern winter, followed by a lower high in summer and troughs in autumn and spring. The mid-June price peak was built on strong demand from China, the world’s No. 2 importer, whose rapid growth took it past South Korea last year, although it still has some way to go to dislodge Japan from the top spot. Some supply outages at the same time in major producer Australia, as well as Malaysia and the United States, also drove prices higher in June. While the spot price has shifted up a gear, the extra demand has yet to show up in trade flows. Northeast Asia, which includes the three top LNG buyers of Japan, China and South Korea, is on track to import around 14.2 million tonnes of LNG in July, according to vessel-tracking and port data compiled by Thomson Reuters. This would be largely steady to June’s 14.8 million tonnes and 14.5 million tonnes in July last year. JAPAN DRIVING DEMAND Looking at the breakdown by country shows Japan on track to import about 6.4 million tonnes in July, up from June’s 6.03 million, but below last July’s 7.1 million. China will import around 3.85 million tonnes in July, down a tad from June’s 3.95 million, but up from 2.91 million in July of 2017. South Korea’s July imports are headed for 2.5 million tonnes, a 26 percent slump from June’s 3.4 million and also well below the 3 million from July a year ago. While China is still posting large year-on-year gains, it seems current demand for LNG is largely being driven by Japan. The dynamics of LNG flows are also shifting, partly as a result of US President Donald Trump’s escalating trade dispute with China. While trade in LNG isn’t restricted in any way as yet, it seems China is quietly discouraging its major oil and gas companies from buying from the United States. Only two cargoes arrived China in July from the United States, carrying just 0.13 million tonnes of the super-chilled fuel. This was an unchanged number of cargoes from June, but down on five vessels that arrived in May, and well below seven that unloaded in January this year. The winner in China is Australia, with imports totalling to 12.4 million tonnes in the first seven months of the year, up from 9.1 million tonnes in the same period last year. Australia has also upped its shipments to Japan, with 15.9 million tonnes arriving in the first seven months, up from 14.6 million in the same period in 2017. US LNG suppliers have had some success in shipping to Asian countries other than China, with Japan taking three cargoes in July, down from four in June and level with May. South Korea brought in four US cargoes in July, the same number as June and down from five in May. But with Chinese demand for US LNG under a cloud, it’s likely that US producers will have to offer more competitive prices to other buyers in Asia, or perhaps in Europe. This may prompt changes in the way LNG producers such as Qatar and Australia market spot cargoes, increasing volatility in a market that has shifted from being fairly predictable to one characterised by quicker and larger price swings. Kris Letang Jersey
FOCUS: How BP found shale profits with ‘crystal ball’ oilfield technology
In the pine forests of eastern Texas, oilfield workers equipped with virtual-reality goggles are helping BP’s shale business turn a profit for the first time. Thousands of automated wells feed data on their performance into the firm’s supercomputers each evening. If they show a need for maintenance, an Uber-style system summons a subcontracted repair firm to keep the shale wells flowing at optimal output and minimal cost. Such technology has helped slash BP’s shale oil and natural gas production costs by 34 per cent over five years. The shale business turned a profit for the first time in 2017, BP said, although the company declined to disclose the figure. BP’s progress in shale underpinned its $10.5 billion acquisition last week of BHP Billiton’s US shale operations. The deal highlighted BP’s newfound confidence in a sector that has challenged oil majors, which initially struggled to adjust to the quick pace and fast-evolving methods used to tap shale with horizontal drilling and hydraulic fracturing. BP and other majors that had traditionally focused on large, multi-year conventional drilling projects – such as Royal Dutch Shell and Chevron – were left behind when the shale boom took off a decade ago. The British energy giant is now catching up with smaller rivals, using technology and its institutional knowledge from global operations to push shale into a second phase that it hopes will reward its massive scale over the agility of smaller competitors. “We spent the last four years retooling our business and getting ready for this opportunity,” David Lawler, who heads BP’s shale business, said in a call with analysts after the BHP deal announcement. “We’re at the lowest production costs we’ve seen in many years. We’ll take that model, put that to work on these (BHP) assets and dramatically improve production and performance.” BP faces other large rivals in the race to grow US shale production and profits, including Exxon Mobil Corp, Chevron, Shell and Norway’s Equinor. All are expanding drilling and acquisitions, particularly in the Permian Basin of West Texas and New Mexico, the largest US oil field and the center of the shale revolution. They aim to capitalize on the vast resources unearthed by new drilling technologies, which also allow companies to start and stop production quickly in response to market shifts. That’s a key advantage over the long-term commitments of billions of dollars required by offshore oil or liquefied natural gas (LNG) projects. The BHP deal will transform BP into one of the world’s biggest shale oil and gas producers. BP’s total shale output will increase from 315,000 barrels of oil equivalent per day (boed) to more than 500,000 boed. Its reserves will jump 57 per cent to 12.7 billion barrels of oil equivalent. BP’s output of shale oil – which is worth more than natural gas – is poised to rise from about 10,000 barrels of oil per day (bpd) to about 200,000 bpd by the middle of the next decade. The deal, BP’s first major acquisition in 20 years, also marked a watershed moment for the company in the United States as it looks to leave behind the $65 billion fallout from the deadly 2010 explosion of its Deepwater Horizon rig in the US Gulf of Mexico. The BHP deal will also re-establish BP as a major player in the Permian Basin. BP had sold all of its assets there to Apache Corp in August 2010, right after the Gulf disaster. UBER, POKEMON AND OIL Today, BP operates more than 1,000 shale wells that produce mostly natural gas in the Haynesville basin, which straddles eastern Texas, Arkansas and Louisiana. It has used the data from its automated wells to create a streamlined system that farms out maintenance to a fleet of lower-cost contractors. The firm now orders up repairs much in the same way a homeowner uses a mobile app to hire a maintenance person or a passenger summons an Uber for a ride. BP puts repair work out for bid to pre-approved contractors, who then compete for jobs. Each contractor is rated after completing the work, and those with high rankings have a better chance of getting hired again. “This means we’re not hiring and firing staff all the time depending on market conditions,” said Brian Pugh, chief operating office of BP’s shale division, which the company created as a stand-alone unit in 2015. BP equips field staff and contractors with augmented reality goggles to make repairs more efficient, modeling its methods in part on “Pokemon Go,” a popular video game where virtual images appear to be in real-world surroundings on the player’s screen. The field workers are connected through their headsets to BP’s Houston offices, where experts can see and show staff how to perform repairs while they work. BP has started to collect many of these fixes in a video library so staff can call up videos, much like YouTube, to fix problems themselves without expert consultation. The company’s algorithms crunch data compiled from its wells each evening. Operators wake up each morning to a report telling them which wells may need repair, a task that once took hours each day as workers drove from well to well in search of problems. The systems, BP said, cut downtime for wells needing repairs by 50 per cent, boosting production last year by 70 million cubic feet of natural gas across its shale portfolio. The technology provides a panoramic view into the ongoing needs of the oilfield, said Kimberly Krieger, who overseas BP’s shale operations in eastern Texas. “It’s like looking into a crystal ball,” Krieger said. SLASHING COSTS, TURNING PROFITS The firm’s success in reducing costs reflects its ability to spend money automating its oil fields and overhaul work processes to drive down service and equipment costs. BP also separated its shale business from the main company to allow the business, now headquartered in Denver, to form its own culture. “We’re able to leverage the best parts of our global business to boost our shale