Thursday, March 21, 2019

Reliance sends fuel from India, Europe to Venezuela to sidestep U.S. sanctions

mukesh ambani
Mukesh Dhirubhai Ambani


NEW DELHI/MEXICO CITY (Reuters) - India's Reliance Industries is selling fuels to Venezuela from India and Europe to sidestep sanctions that bar U.S.-based companies from dealing with state-run PDVSA, according to trading sources and Refinitiv Eikon data.

Reliance had been supplying alkylate, diluent naphtha and other fuel to Venezuela through its U.S.-based subsidiary before Washington in late January imposed sanctions aimed at curbing the OPEC member's oil exports and ousting Socialist President Nicolas Maduro.

At least three vessels chartered by the Indian conglomerate supplied refined products to Venezuela in recent weeks, and another vessel carrying gasoil is expected to set sail to the South American nation as well, according to the sources and data.

A Reliance spokesman wrote to Reuters in an email and said: "Reliance is and will remain in compliance with the sanctions and shall work with the concerned authorities."

He also said "the volume of products supplied to and crude oil imported from Venezuela have not increased."

Reliance, an Indian conglomerate controlled by billionaire Mukesh Ambani, has significant exposure to the financial system of the United States, where it operates subsidiaries linked to its oil and telecom businesses, among others.

The Indian market is crucial for Venezuela's economy because it has historically been the second-largest cash-paying customer for the OPEC country's crude, behind the United States.

Additional sanctions against Venezuela are possible in the future, as U.S. President Donald Trump's administration has not yet tried to prevent companies based outside the United States from buying Venezuelan oil, a strategy known as "secondary sanctions."

Refinitiv Eikon trade data shows that Reliance shipped alkylate, a component for motor gasoline, to Venezuela on vessels Torm Mary and Torm Anabel in recent weeks. Those originated in India and passed through the Suez Canal.

It also shipped a gasoline cargo using tanker Torm Troilus to Venezuela and is preparing to send 35,000 tonnes of gasoil in a vessel called Vukovar to the South American nation.

"Reliance is also supplying some products from its Rotterdam storage," a source familiar with Reliance's operation said.

PDVSA did not reply to a request for comment.

In a statement last week, Reliance said its U.S. unit has completely stopped all business with PDVSA. Reliance also halted all supply of diluents including heavy naphtha to Venezuela and does not plan to resume such sales until sanctions are lifted, according to the release.

Venezuela has overall imported some 160,000 barrels per day of fuel and diluents for its extra heavy oil output since the U.S. measures were imposed, according to PDVSA and Refinitiv data, below levels prior to the sanctions but still enough to supply gas stations and power plants.

Reliance is among the biggest buyers of Venezuelan oil, although the company has recently said it has not increased crude purchases from Venezuela. In 2012, Reliance signed a 15-year deal to buy between 300,000 to 400,000 bpd of heavy crude from PDVSA.

Ship tracking data obtained by Reuters showed that Reliance's average purchases from Venezuela were less than 300,000 bpd in 2018 and in the first two months of this year.

Venezuela continues to supply at least some oil to India. A very large crude carrier (VLCC) is anchored off Venezuela's Jose port waiting to load oil bound for India, and at least six other vessels of the same size are underway to India's Sikka and Vadinar ports, according to the Refinitiv data.

PDVSA's second-largest customer in India is Nayara Energy, partially owned by Russian energy firm Rosneft, one of PDVSA's primary allies.

By Nidhi Verma and Marianna Parraga

(Reporting by Nidhi Verma in NEW DELHI and Marianna Parraga in MEXICO CITY; Editing by Henning Gloystein and Tom Hogue)

Wednesday, March 20, 2019

Citigroup Settles Venezuela Gold Swap Transaction

Citigroup Settles Venezuela Gold Swap Transaction


(Bloomberg) -- Citigroup Inc. has settled a Venezuela gold swap transaction and plans to sell the metal it received as collateral while also depositing about $260 million into a U.S. account formerly controlled by President Nicolas Maduro’s central bank, according to four people with direct knowledge of the matter.

After Venezuela’s Central Bank missed a March 11 deadline to buy back gold from Citigroup for nearly $1.1 billion as part of a financing agreement signed in 2015, the difference in price from when the gold was acquired to current levels will be deposited into an account, said the people, who asked not to be named speaking about a private transaction.

The development represents another financial blow to the embattled Maduro regime. It won’t be able to access the cash deposited in the U.S. account and could ultimately see the money be handed over to the parallel government being formed opposition leader Juan Guaido.

While Maduro has managed to maintain a stranglehold on power on the ground -- he still controls the military, the courts and government bureaucracy -- Guaido is leveraging the support he has from dozens of countries to slowly seize Venezuela’s financial assets abroad. Guaido, who’s seeking to topple the autocratic Maduro, has wrested control of Houston-based refiner Citgo Petroleum Corp from Petroleos de Venezuela SA and is also taking over diplomatic real estate. More importantly, he has gained access to cash, which he’s vowing to use to relieve a humanitarian crisis at home.

While no details about the U.S. accounts have been given, Venezuela’s opposition-controlled National Assembly said it identified $3.2 billion of funds being held at 20 bank accounts in the U.S. belonging to Maduro’s government. Earlier this year, the Bank of England refused to give back $1.2 billion worth of gold.

In response to Citigroup’s settlement, the central bank is weighing options including a declaration of force majeure -- a legal status commonly used in the commodities industry protecting it from liability if it can’t fulfill a contract for reasons beyond its control -- arguing U.S. sanctions prevented it from raising the cash it needed to pay for the gold. Another swap comes due next year, one of the people said.

Citigroup spokesman Daniel Diaz declined to comment. A press official for Venezuela’s central bank didn’t respond to requests for comment.

Maduro blew through more than 40 percent of Venezuela’s gold reserves last year, selling to firms in the United Arab Emirates and Turkey in a desperate bid to fund government programs and pay creditors. Pressure from Guaido and the U.S. derailed his administration’s plans to ship more gold to buyers in the UAE last month.

The U.S. sanctioned the state-run gold producer, Minerven, on Tuesday and described the precious metal trading as being essential to Maduro’s ability to keep loyalty from the military. Venezuela’s central bank has $8.7 billion of international reserves remaining, much of which is held in physical gold.

Citigroup, which has been in Venezuela since 1917, serves top multinational companies and affluent clients, according to its website.

--With assistance from Fabiola Zerpa.

To contact the reporters on this story: Patricia Laya in Caracas at playa2@bloomberg.net;Jenny Surane in New York at jsurane4@bloomberg.net

To contact the editors responsible for this story: Daniel Cancel at dcancel@bloomberg.net;David Papadopoulos at papadopoulos@bloomberg.net

Oil majors rush to dominate U.S. shale as independents scale back

https://farm3.staticflickr.com/2591/4204561138_95251dcc15_m.jpg

https://www.reuters.com/article/us-usa-shale-majors-insight/oil-majors-rush-to-dominate-u-s-shale-as-independents-scale-back-idUSKCN1R10C3

EDDY COUNTY, NEW MEXICO (Reuters) - In New Mexico’s Chihuahuan Desert, Exxon Mobil Corp is building a massive shale oil project that its executives boast will allow it to ride out the industry’s notorious boom-and-bust cycles.

Workers at its Remuda lease near Carlsbad - part of a staff of 5,000 spread across New Mexico and Texas - are drilling wells, operating fleets of hydraulic pumps and digging trenches for pipelines. 

The sprawling site reflects the massive commitment to the Permian Basin by oil majors, who have spent an estimated $10 billion buying acreage in the top U.S. shale field since the beginning of 2017, according to research firm Drillinginfo Inc. 

The rising investment also reflects a recognition that Exxon, Chevron, Royal Dutch Shell and BP Plc largely missed out on the first phase of the Permian shale bonanza while more nimble independent producers, who pioneered shale drilling technology, leased Permian acreage on the cheap. 

Now that the field has made the U.S. the world’s top oil producer, Exxon and other majors are moving aggressively to dominate the Permian and use the oil to feed their sprawling pipeline, trading, logistics, refining and chemicals businesses. The majors have 75 drilling rigs here this month, up from 31 in 2017, according to Drillinginfo. Exxon operates 48 of those rigs and plans to add seven more this year. 

The majors’ expansion comes as smaller independent producers, who profit only from selling the oil, are slowing exploration and cutting staff and budgets amid investor pressure to control spending and boost returns. 

Exxon Chief Executive Darren Woods said on March 6 that Exxon would change “the way that game is played” in shale. Its size and businesses could allow Exxon to earn double-digit percentage returns in the Permian even if oil prices - now above $58 per barrel - crashed to below $35, added Senior Vice President Neil Chapman. 

Exxon’s 1.6 million acres in the Permian means it can approach the field as a “megaproject,” said Staale Gjervik, the head of shale subsidiary XTO Resources, whose headquarters was recently relocated to share space with its logistics and refining businesses. The firm also recently outlined plans to nearly double the capacity of a Gulf Coast refinery to process shale oil.
“It sets us up to take a longer-term view,” Gjervik said.

The majors’ Permian investments position the field to compete with Saudi Arabia as the world’s top oil-producing region and solidifies the United States as a powerhouse in global oil markets, said Daniel Yergin, an oil historian and vice chairman of consultancy IHS Markit. 

“A decade ago, capital investment was leaving the U.S.,” he said. “Now it’s coming home in a very big way.” 

The Permian is expected to generate 5.4 million barrels per day (bpd) by 2023 - more than any single member of the Organization of the Petroleum Exporting Countries (OPEC) other than Saudi Arabia, according to IHS Markit. Production this month, at about 4 million bpd, will about double that of two years ago. 

Exxon, Chevron, Shell and BP now hold about 4.5 million acres in the Permian Basin, according to Drillinginfo. Chevron and Exxon are poised to become the biggest producers in the field, leapfrogging independent producers such as Pioneer Natural Resources. 

Pioneer recently dropped a pledge to hit 1 million bpd by 2026 amid pressure from investors to boost returns. It shifted its emphasis to generating cash flow and replaced its chief executive after posting fourth quarter profit that missed Wall Street earnings targets by 36 cents a share. 

Shell, meanwhile, is considering a multi-billion dollar deal to purchase independent producer Endeavor Energy Resources, according to people familiar with the talks. Shell declined to comment and Endeavor did not respond to a request. 

Chevron said it would produce 900,000 bpd by 2023, while Exxon forecast pumping 1 million barrels per day by about 2024. That would give the two companies one-third of Permian production within five years.

SMALLER PRODUCERS GET SQUEEZED

At first, the rise of the Permian was driven largely by nimble explorers that pioneered new technology for hydraulic fracturing, or fracking, and horizontal drilling to unlock oil from shale rock, slashing production costs.

The advances by smaller companies initially left the majors behind. Now, those technologies are easily copied and widely available from service firms. 

Surging Permian production has overwhelmed pipelines and forced producers to sell crude at a deep discount, sapping cash and profits of independents who, unlike the majors, don’t own their own pipeline networks. 

Even as the majors have ramped up operations, the total number of drilling rigs at work in the Permian has dropped to 464, from 493 in November, as independent producers have slowed production, according to oilfield services provider Baker Hughes. 

Shell, by contrast, plans to keep expanding even if prices fall further, said Amir Gerges, Shell’s Permian general manager. 

“We have a bit more resilience” than the independents, Gerges said. 

In west Texas, the firm drills four to six wells at a time next to one another, a process called cube development that targets multiple layers of shale as deep as 8,000 feet. 

Cube development is expensive and can take months, making it an option only for the majors and the largest independent producers. Shell has used the tactic to double production in two years, to 145,000 bpd.
The largest oil firms can also take advantage of their volume-buying power even if service companies raise prices for supplies or drilling and fracking crews, said Andrew Dittmar, a Drillinginfo analyst.
“It’s like buying at Costco versus a neighborhood market,” Dittmar said. 

The majors’ rush into the market means smaller companies are going to struggle to compete for service contracts and pay higher prices, said Roy Martin, analyst with energy consultancy Wood Mackenzie.

“When you’re sitting across the negotiating table from the majors, the chips are stacked on their side,” he said.

REBIRTH

The revival of interest in the Permian marks a reversal from the late 1990s, when production had been falling for two decades. 

“All the majors and all the companies with names you’ve heard left with their employees,” said Karr Ingham, an oil and gas economist. “Conventional wisdom was this place was going to dry up.” 

Chevron was the only major that stayed in the Permian. It holds 2.3 million acres and owns most of its mineral rights, too, but until recently left drilling to others. 

But this month, Chief Executive Mike Wirth called the Permian its best bet for delivering profits “north of 30 percent at low oil prices.” 

“There’s nothing we can invest in that delivers higher rates of return,” Wirth said this month at its annual investor meeting in New York.

‘HUNGER AND FEAR’

Matt Gallagher, CEO of Parsley Energy Inc, calls the majors’ investments “the best form of flattery” for independents operating here. 

Parsley holds 192,000 Permian acres - most of which was snatched up on the cheap during oil busts - and sees its smaller size as an advantage in shale.

“We’re not finished yet,” Gallagher said. “We can move very quickly.”
The majors have greater infrastructure, but independents continue to innovate and design better wells, said Allen Gilmer, a co-founder of Drillinginfo. 

“Nothing is a bigger motivator than, ‘Am I going to be alive tomorrow?’” Gilmer said. “Hunger and fear is something that every independent oil-and-gas person knows - and that something no major oil-and-gas person has ever felt in their career.”

Tuesday, March 19, 2019

Venezuela may divert U.S.-bound oil to Rosneft, says Jose generator working

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https://www.reuters.com/article/us-venezuela-oil/venezuela-may-divert-u-s-bound-oil-to-russia-says-jose-generator-back-online-idUSKCN1QZ1CA

Venezuela may divert oil originally bound for the United States to Russian oil company Rosneft or other destinations due to U.S. sanctions, Venezuelan oil minister and president of state-run oil company PDVSA Manuel Quevedo said on Monday. 

Speaking at a gathering of OPEC and other oil ministers in Baku, Azerbaijan, Quevedo added that the generator at Venezuela’s primary Jose oil terminal was now working after a blackout that halted crude exports last week. 

Quevedo said Caracas would decide where to ship its own oil and that its main goal was to strengthen ties with Russia, pledging to abide by oil supply contracts with Moscow. 

Rosneft, a state-owned company which has oil joint ventures with PDVSA in Venezuela, buys crude from PDVSA within the framework of oil-for-loan contracts and redirects the barrels to customers around the world, with Indian refineries key buyers. 

Asked about a Reuters report saying Rosneft believed it was owed hundreds of billions of dollars from the joint ventures because oil output was far lower than projected, Quevedo said Venezuela was “up to date” on its debts to Russia. 

“The contracts are being fulfilled,” he said. “We can send the oil which has been allocated for the United States to Russia or other clients.”


Earlier this year, the United States imposed heavy sanctions on Venezuela’s oil industry, looking to cut off President Nicolas Maduro’s primary source of revenue as part of efforts to oust the socialist leader from power. That cut off Venezuela’s largest export market of around 400,000 barrels per day, Quevedo said. 

Venezuela has responded by trying to boost crude exports to India, another top importer. But the U.S. government has pressed India to stop buying Venezuelan oil. 

“Now they have started persecuting our long-term commercial partners, they are threatening them,” Quevedo told reporters. 

Much of Venezuela, including parts of the capital Caracas, was left without power for several days, leaving people struggling to obtain water and food. That affected the Jose terminal, whose generator was not working at the time.

“At the moment, (Jose) is fully functioning,” Quevedo said via an interpreter. 

“It has suffered a lot from the blackout ... the oil industry of Venezuela suffered significantly,” he added.

Monday, March 18, 2019

Shell, HES to Start Low-Sulphur Bunker Fuel Project

HES Wilhemshaven

Shell and bulk-handling company HES International are planning to restart an oil refinery in Germany to produce low-sulphur bunker fuel ahead of new regulations going into force next year, Kallanish Energy learns.

The International Maritime Organization (IMO) approved the ban on high sulphur fuel oil (Hsfo) for vessels beginning in 2020. The International Energy Agency (IEA) expects a shake-up in the industry, as demand for Hsfo will fall from 3.5 million barrels per day (Mmbpd), to 1.4 Mmbpd.

HES is reinstalling the vacuum distillation unit (VDU) at Wilhelmshaven Tank Terminal, in order to produce low-sulphur bunker fuels to distribute as an alternative to Hsfo. Reuters reported they reached an agreement with Shell, under which the oil company provides the feedstock and receives the final product.

The terminal is located on Germany’s North Sea coast and is the largest independent liquid bunker terminal in the country. It has a 45-million-cubic-foot capacity and it holds several products, such as crude oil or liquefied petroleum gas.

Shell and HES said via email they aren’t commenting on the project.

http://tankterminals.com/news/shell-hes-to-start-low-sulphur-bunker-fuel-project/?utm_medium=email&utm_campaign=Subscribers%20-%20Week%2011&utm_content=Subscribers%20-%20Week%2011+CID_e96340b5b02b216934edd822e18f5481&utm_source=weekly&utm_term=Shell%20HES%20to%20Start%20Low-Sulphur%20Bunker%20Fuel%20Project

Venezuela to Pay ConocoPhillips $8.7bn for Unlawful Expropriation of Oil Investments

Hugo Chavez and Nicolas Maduro, pictured together in 2006

ConocoPhillips has announced that an international arbitration tribunal constituted under the auspices of the International Centre for Settlement of Investment Disputes (ICSID) has unanimously ordered the government of Venezuela to pay the company the amount of $8.7 billion in compensation for the government’s unlawful expropriation of ConocoPhillips’ investments in Venezuela in 2007, plus interest.

The ICSID tribunal ruled in 2013 that the expropriation of ConocoPhillips’ substantial investments in the Hamaca and Petrozuata heavy crude oil projects and the offshore Corocoro development project violated international law. The current ruling addresses compensation, and the timing and manner of collection remain to be determined.

We welcome the ICSID tribunal’s decision, which upholds the principle that governments cannot unlawfully expropriate private investments without paying compensation,” said Kelly Rose, Senior Vice President, Legal, General Counsel and Corporate Secretary of ConocoPhillips.

In April 2018, in a separate and independent legal action, an international arbitration tribunal constituted under the rules of the International Chamber of Commerce (ICC) awarded ConocoPhillips approximately $2 billion from PetrĂ³leos de Venezuela, S.A. (PDVSA), Venezuela’s state-owned oil company, and two of its subsidiaries. The ICC tribunal’s ruling arose out of PDVSA’s failure to uphold its contractual commitments in response to Venezuela’s unlawful expropriation of ConocoPhillips’ investments in the Hamaca and Petrozuata projects. In August 2018, ConocoPhillips announced that it entered into a settlement agreement with PDVSA to recover the full amount owed under that award.

ConocoPhillips also has a pending contractual ICC arbitration against PDVSA related to the Corocoro project.

In the early 1990s, Venezuela created a new fiscal framework to induce foreign investment in its heavy oil projects in the Orinoco Belt and elsewhere. Relying on these terms, ConocoPhillips helped Venezuela develop the Petrozuata, Hamaca and Corocoro projects by providing industry-leading technology and substantial long-term investments to the government of Venezuela. However, in the summer of 2007, the Venezuelan government expropriated ConocoPhillips’ investments in their entirety without compensation.

Friday, March 15, 2019

Another attempt to repeal the Jones Act

Photo of Sen. Mike Lee [R-UT]
US Senator Mike Lee (Republican-Utah)

http://www.tankeroperator.com/ViewNews.aspx?NewsID=10587

US Senator Mike Lee (Republican-Utah) has introduced the ‘Open America’s Water Act of 2019’, a bill which would repeal the Jones Act if passed.
 
In essence, it would allow all qualified vessels to engage in domestic trade between US ports.
 
“Restricting trade between US ports is a huge loss for American consumers and producers. It is long past time to repeal the Jones Act entirely so that Alaskans, Hawaiians, and Puerto Ricans aren’t forced to pay higher prices for imported goods—and so they rapidly receive the help they need in the wake of natural disasters,” he said.
 
In 1920, Congress passed the Merchant Marine Act (more widely known as the Jones Act), which requires all goods transported by water between US ports to be carried on a vessel constructed in the US, registered in the US, owned by US citizens, and crewed primarily by US citizens.
 
US-based Cato Institute estimates that after accounting for the inflated costs of transportation and infrastructure, the forgone wages and output, the lost domestic and foreign business revenue, and the monetised environmental toll, the annual cost of the Jones Act is in the tens of billions of dollars. And that figure doesn’t even include the annual administration and oversight costs of the law.