Tullow Oil nears end of tidying up after $4bn of write-offs

 Tullow’s founder Aidan Heavey

Tullow Oil’s chief executive Aidan Heavey said the group is nearing the end of a cycle of writing off billions of dollars of prior exploration costs as he prepares to hand over the reins this year to his chief operating officer.

The oil and gas group wrote off $723 million (€678.7 million) of exploration expenses last year, including a charge incurred against a Ugandan project in which it sold a stake this year, bringing total such charges to $4 billion over the past four years. Goodwill impairments rose by 200 per cent to $164 million, mainly tied to its ongoing sale of Norwegian assets.

“I don’t think there’s anything left [to write off],” Mr Heavey told The Irish Times, after the oil group reported a pretax loss of $597 million (€560 million) last year as a result of the write-offs and impairments.

Mr Heavey is preparing to step down as chief executive in April to become chairman for two years as the exploration group promotes chief operating officer, Paul McDade, to the top executive role. The changeover, signalled last month, follows an eventful six months, which saw the company’s TEN project off Ghana begin to pump oil while it sold most of its stake in a Ugandan oil project for a total consideration $900 million. This will ease its exploration costs in the coming years as it concentrates on cutting its debt burden.

The group’s share price has also surged by more than 40 per cent in the past 12 months following a rebound in oil prices, mainly as a result of the Organisation of the Petroleum Exporting Countries (Opec), led by Saudi Arabia, striking a deal for the first time in 15 years with non-Opec members, including Russia, in December to scale back the world’s oil supply.

On the negative front, Tullow’s flagship Jubilee project, also off Ghana, suffered technical issues on its floating production, storage and off-loading vessel during the year.

Tullow Oil ended 2016 with net debt of $4.8 billion and free cash of $1 billion.

The company extended its corporate facility on Tuesday by a further year to April 2019, albeit with commitments reducing from $800 million in April of this year to $400 million in October 2018.

Tullow is working on refinancing the larger $3.3 billion facility based on its oil reserves in 2017.

Mr Heavey said that talks on renegotiating the so-called reserve-based lending (RBL) facility will begin in April. He said that the “strong appetite” among banks involved in extending the corporate facility bodes well for the RBL refinancing as there is a large overlap in lenders involved in both.

“I don’t think we’ll have any real issues in refinancing the RBL,” Mr Heavey said. “All the big things are behind us now we’ve got TEN onstream, Jubilee is being fixed and the Uganda farm-out is done. All the things we said we’d do, we did.”

The Ugandan deal, announced last month, involves Tullow selling a 21.6 per cent stake in the Lake Albert Development Project, to French group Total for a total consideration of $900 million.While most of the accord is comprised of deferred payments, it eases the Irish company’s capital expenditure demands and leaves it with a remaining stake of 11.8 per cent.

Tullow booked an exploration write-off of $330.4 million against the stake as part of the transaction.

The earnings announcement on Wednesday provided no real update for the market on Tullow’s operations, with the group having briefed investors last month as it announced its leadership change plans.

Analysts have been largely disappointed by the group’s forecast that the field will only produce 50,000 barrels per day in 2017, as an ongoing border dispute between Ghana and neighbouring Ivory Coast affects its ability to drill new wells.

This may be resolved later this year by an international sea tribunal, with hearings on the case currently taking place.

China to take first cargo of Eastern Canadian crude: sources

http://www.platts.com/latest-news/oil/houston/china-to-take-first-cargo-of-eastern-canadian-21808474 

Eastern Canadian crude will make a first-of-its-kind voyage into the Caribbean and on to China, as weakening prices have opened the unique arbitrage to East Asia, crude traders said Monday.

The unusual voyage is also supported by depressed shipping rates, Brent's narrowing premium to benchmark Dubai and a shrinking Middle East supply due to OPEC-led production cuts.

Crude traders said a 710,000-barrel cargo of White Rose, 30.56 API and 0.28% sulfur, and a partial cargo of Hibernia, 36 API and 0.40% sulfur, will lift mid- to late February out of the NTL terminal in Whiffen Head, Newfoundland. It's unclear, however, which companies bought and sold the cargoes. Traders said the grades will first head to NuStar's Statia Terminal in St. Eustatius, where they will be co-loaded with an unspecified Latin crude grade onto a ship bound for China, likely a VLCC.

The East Coast Canada barrels will most likely be co-loaded with a cargo of Venezuelan extra-heavy sour crude Merey, according to an industry source familiar with the Latin American markets. Produced in Venezuela's Orinoco Belt, Merey crude has a typical API gravity of 16 degrees and sulfur content of 2.45%. In January, about 3.668 million barrels of Venezuelan crude were shipped from Jose Terminal to St. Eustatius, from where they are presumably distributed to buyers in other markets.

According to the latest import data from Platts China Oil Analytics, China imported an average of 403,000 b/d of Venezuelan crude in 2016, representing a year-on-year increase of 79,000 b/d, or 24.4%. A narrowing spread between the front-month swap value for Brent and Dubai has provided and incentive for imports of Brent-based crudes to China, including Venezuelan, Colombian and Brazilian grades, according to a second Latin American industry source.

During the past six months, the spread between front-month Brent and Dubai swap values has decreased $1.61/b, falling to $1.77/b on Monday.

Easing freight rates in the Americas have further opened the arbitrage window between the Americas crude markets and China, helping to keep total costs low for additional barrels needed to help make up for cuts in OPEC production. A majority of freight rates across vessel classes have trended downward since the start of the year.

The regional VLCC market experienced the deepest lull in activity in the previous two weeks, as holidays in Northeast Asia had put any deals on pause. Replenished tonnage and more newbuilds coming online in the Arab Gulf have lately flooded the global VLCC market, adding further pressure on rates in the Atlantic Basin.

Platts on Monday assessed the Caribbean-China run, basis 270,000 mt, at $5.8 million lump sum. That rate has gradually descended from an eight-month high of $6.3 million on January 11.

Freight for Suezmaxes had fallen as well, as the glut in tonnage appeared to be outpacing working cargoes system-wide, leading several market participants to brace for a bearish outlook.

The US Gulf Coast-Singapore trip, basis 130,000 mt, was assessed at $2.6 million lump sum on Monday. Trafigura placed a Heidmar vessel to be named on subjects for a USGC-Singapore voyage at $2.625 million lump sum for a February 16 fuel oil loading, but it was believed to be done prior to current market conditions.

"A lot of ships prompt," a broker said. "[There are] openings for today and tomorrow," suggesting that Suezmax rates in the Americas had not bottomed out.

The Eastern Canadian grades typically sell about 40 days before loading, meaning the cargoes were likely sold in early January as the price differentials for the crudes were on one of their biggest downward plunges of the past few years. S&P Global Platts assessed White Rose at Dated Brent plus 30 cents/b on December 30, and it fell to minus 30 cents/b by January 13. At the time, that was its lowest point since December 22, 2015, when it was Dated Brent minus 40 cents/b. Over the same period, Hibernia dropped from Dated Brent minus 55 cents/b to minus $1.15/b. That would put the outright price of the cargoes on January 13 at $44.735/b for White Rose and $53.885/b for Hibernia during the February loading period.

The grades have been pressured by competing Bakken grades and seasonal East Coast refinery maintenance.

Aligning with the weakened differentials was a decreased supply of Middle Eastern crudes, which often travel to China, due to OPEC-backed production cuts. The milestone 2016 agreement saw January output from the 13 members, not including Indonesia, at 31.16 million b/d in January, down 690,000 b/d from December, according to a Platts survey released Monday.

This will mark the second time in four months that an Eastern Canadian grade has made a breakthrough trip. Uruguay's ANCAP purchased a Hibernia cargo in October that lifted in mid-November. That trip was made possible by the grade's low price and high fuel oil yield. It's also the second time that White Rose will pioneer a move into Asia. In November 2013, Indian Oil Corp. bought about 1 million barrels of White Rose light crude produced by Husky Energy.

--Allen Reed, allen.reed@spglobal.com

--Mary Hogan, mary.hogan@spglobal.com

--Alex Ifkovits, alex.ifkovits@spglobal.com

--Edited by Annie Siebert, ann.siebert@spglobal.com

NuStar Energy said that it has finally exited the U.S. asphalt market, focusing on pipeline, storage and fuels marketing.

Brad Barron, CEO of NuStar Energy and NuStar GP Holdings, said, "we are very excited to have completed an immediately accretive acquisition in the fourth quarter and to finally eliminate all ties to our former asphalt business."

"From a financing perspective, we feel the non-cash impairment in the fourth quarter is a small price to pay to receive a $110 million cash payment in 2017 that when coupled with the $100 million of cash we repatriated from our international operations and the proceeds that we received from issuing $226.5 million of preferred units in 2016, will significantly reduce the amount of capital needed to be raised in the financial markets to fund our future growth capital needs."

Barron also said that he was very pleased to eliminate the need to provide up to $125 million in credit support to Axeon Specialty Products, an asphalt producer, and put a close to this chapter of its history once and for all.

Recapping 2016, Barron said, "Our base storage and pipeline operations performed very well in the face of a continued weak commodity price environment throughout the year. During 2016, our storage segment benefited from increased storage rates at some of our facilities, while our pipeline segment experienced higher overall refined product throughputs, due in part to some completed expansion projects in our Central East System and higher utilization at some of the refineries we serve."

"These positive developments, in combination with a decrease in operating expenses across both segments, allowed us to deliver solid results in 2016 despite significantly decreased Eagle Ford crude oil throughputs during the year," he said.

Barron said that the future looks bright as NuStar will benefit from the additional 2.5 million barrels of storage at its Piney Point, Md., facility, a newly renegotiated long-term storage lease at its St. Eustatius facility, expansion of NuStar's propane and distillate services on its Central East System and the synergies achieved by the acquisition of terminal assets in Corpus Christi that support its Eagle Ford operations.

NuStar reported a net loss applicable to limited partners of $24.3 million, or $0.31 per unit, for the fourth quarter of 2016 and net income applicable to limited partners of $99.1 million, or $1.27 per unit, for the year ended Dec. 31, 2016.

This is compared with a net income of $47.485 million in the fourth quarter of 2015 and net income of $257.366 million for 2015.

Fourth quarter 2016 earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations were $82.6 million, compared with $150.641 million in the corresponding period of 2015. For the year ended Dec. 31, 2016, the partnership reported $517.1 million of EBITDA from continuing operations. EBITDA for 2015 was $662.736 million.

All of these amounts include a $58.7 million non-cash charge related to the announced sale by Axeon of the asphalt marketing business (Axeon) that NuStar sold to Axeon in 2014, NuStar said. To facilitate this sale, NuStar agreed to reduce the value of its term loan to Axeon by $58.7 million and receive a $110 million cash payment to satisfy the remaining debt owed by Axeon under NuStar's term loan.

The sale is expected to close in the first half of the year, and once closed, NuStar expects to receive the $110 million cash term loan payment and an additional $2 million per year for storage space at its terminals in Jacksonville, Fla., and Baltimore, Md.

The transaction will also increase NuStar's borrowing capacity because it will eliminate NuStar's obligation to provide up to $125 million in credit support for Axeon, which was required under the previous agreements with Axeon.

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Arctic shuttle tankers set records

 

http://www.tankeroperator.com/ViewNews.aspx?NewsID=8345

Sovcomflot’s (SCF) three Arctic shuttle tankers in the ‘Shturman Albanov’ series have passed the one million tonnes crude oil shipment milestone.

 

The vessels ship oil produced at the Novy Port oil and gas condensate field from the Gulf of Ob (Kara Sea) to Murmansk.

The millionth tonne cargo of oil was loaded on ‘Shturman Albanov’ on 29th January, 2017 at the Arctic Gate marine terminal located near Cape Kamenny (Gulf of Ob).

By this time, the SCF tankers had completed 33 voyages carrying Novy Port grade oil since last autumn. The first cargo was loaded on the lead ship of the series, ‘Shturman Albanov’, on 12th September, 2016.

SCF’s three Arctic shuttle tankers – ‘Shturman Albanov’, ‘Shturman Malygin’ and ‘Shturman Ovtsyn’ – were designed to carry crude oil from the Yamal Peninsula to Murmansk all year round under a long-term contract with Gazprom Neft.

They fly the Russian flag and are registered at St Petersburg.

On her maiden voyage, ‘Shturman Ovtsyn’ sailed from South Korea across the Russian Arctic to the Novy Port oil terminal in winter.

In December last year, she left Samsung Heavy Industries shipyard in South Korea. On 21st December, she transited the Bering Strait and into the Chukchi Sea in a convoy escorted by the nuclear-powered icebreaker ‘50-Let Pobeda’.

The two other vessels in the convoy were a heavy lift carrier and a general cargo ship.

On 3rd January, the convoy arrived in the Gulf of Ob. While the other two vessels berthed at Sabetta, at the northern end of the Yamal Peninsula, the ‘Shturman Ovtsyn’ sailed deeper into the Gulf to Cape Kamenny and the Novy Port oil terminal without icebreaker assistance.

Never before has a convoy of commercial vessels transited the Northern Sea Route, from the east to the west, at this time of year, SCF claimed in its newsletter.

The three shuttle tankers were delivered by Samsung to SCF last year. Another three sister vessels are still under construction. All six will be deployed shipping oil between the Novy Port and Kola Bay, where the FSO ‘Umba’ is anchored as a transhipment storage vessel.

The new Arctic tankers are 259 m long, 34 m wide and have a deadweight of about 42,000 tonnes. They were all built to Arc7 Ice Class notation.

Designed for sailing in shallow waters, the ships have a draft of only 9.8 m and a wider beam than normal for tankers of this size. They are all of the double-acting type fitted with ABB Azipods and when going astern they are able to break through 1.8 m of ice and 1.4 m of ice while going ahead.

Rex Tillerson Is Confirmed as Secretary of State Amid Record Opposition

 

https://www.nytimes.com/2017/02/01/us/politics/rex-tillerson-secretary-of-state-confirmed.html?_r=0

Rex W. Tillerson, the former chairman and chief executive of Exxon Mobil, was confirmed by the Senate on Wednesday in a 56-to-43 vote to become the nation’s 69th secretary of state just as serious strains have emerged with important international allies.

The votes against Mr. Tillerson’s confirmation were the most in Senate history for a secretary of state, a reflection of Democratic unease with President Trump’s early foreign policy pronouncements that threaten to upend a multilateral approach that has guided United States presidents since World War II.

Thirteen senators voted in 2005 against Condoleezza Rice in the midst of a deteriorating Iraq war, and in 1825, Henry Clay was confirmed 27 to 14, the record for votes against until Wednesday, according to a tally provided by the Senate Historical Office.

In a brief swearing-in ceremony in the Oval Office on Wednesday evening, Mr. Trump said Mr. Tillerson understood “the importance of strengthening our alliances and forming new alliances to enhance our strategic interests and the safety of our people.”

Mr. Trump added, “It’s time to bring a clear-eyed focus on foreign affairs, to take a fresh look at the world around us, and to seek new solutions grounded in very ancient truths.”

Mr. Tillerson thanked him and promised to “represent the interests of all of the American people at all times.”

Mr. Tillerson is expected to appear at the State Department’s Foggy Bottom headquarters on Thursday morning, when he will address department employees.

How Senators Voted on Rex Tillerson

The Senate on Wednesday confirmed Rex W. Tillerson as secretary of state.

Mr. Trump’s unapologetically nationalistic approach has put into question the value of many alliances and multilateral institutions. How Mr. Tillerson’s translates Mr. Trump’s vow of “America First” into the kind of polite diplomatic parlance that will maintain vital ties will be a significant test.

Among his other challenges are dealing with Mr. Trump’s promises to recast relations with China and Russia, move the American Embassy in Israel to Jerusalem from Tel Aviv, and re-examine an international nuclear deal with Iran.

In a White House briefing on Wednesday, Michael Flynn, the national security adviser, issued a stern warning to Iran. “The Obama administration failed to respond adequately to Tehran’s malign actions,” he said.

Mr. Tillerson, 64, a Texan, earned an engineering degree from the University of Texas at Austin, got a job at Exxon in 1975 and climbed his way to the top, leaving only last year. Neither a diplomat, soldier nor politician, he is an unconventional choice for the job, but has vast international experience.

With operations on six continents, Exxon Mobil is in some ways a state within a state. As its chief executive, Mr. Tillerson struck deals with repressive governments — in at least one case, against the advice of the State Department. Environmentalists largely opposed his nomination.

But his views on international affairs are in many ways more conventional than those of Mr. Trump, which is why even Democratic-leaning foreign affairs experts said they welcomed his selection in hopes he would bring ballast to a turbulent administration.

“Rex Tillerson will have the most demanding and complex agenda to face a secretary of state in a very long time,” said R. Nicholas Burns, a Harvard professor and career foreign service officer.

Another crucial question will be how much influence Mr. Tillerson has on Mr. Trump. All cabinet secretaries must compete for power with White House aides who have long personal relationships with and frequent access to the president. But Mr. Trump’s reliance on a close circle of advisers to write and vet executive orders while keeping departments that must implement them largely in the dark is without precedent.

Mr. Trump invited Mr. Tillerson for a private lunch at the White House on Wednesday, the first time Mr. Tillerson has appeared on the president’s official schedule.

Mollifying allies infuriated by Mr. Trump’s orders could be a full-time job. A ban on refugee arrivals and entries from seven Muslim countries, for instance, has enraged Iraqi officials whose cooperation is vital in the fight against the Islamic State — a top administration priority. It has also infuriated many European leaders crucial to efforts not only in Syria, but Afghanistan and Libya as well, and it has tarnished what had been viewed as a successful trip by Prime Minister Theresa May of Britain, who on Monday said she opposed the ban.

Relations with Mexico have plunged to their lowest level in decades after Mr. Trump insisted he would build a border wall regardless of Mexican opposition.

The relationship with Chancellor Angela Merkel of Germany threatened to become toxic after Peter Navarro, the director of Mr. Trump’s new National Trade Council, denounced the relatively low value of the euro as an unfair currency advantage for Germany.

“Tillerson faces the most difficult task of any secretary of state in the postwar era in trying to reconcile President Trump’s intention to make a stark break from decades of bipartisan consensus U.S. foreign policy leadership with the reality that, if he succeeds, such a break could lead to global chaos,” said Ryan C. Crocker, who served as the United States ambassador to five Muslim countries.

Mr. Tillerson may also face difficult internal hurdles. Much of his department’s top leadership has departed — many because the Trump administration, like others before it, refused to keep political appointees. But the Trump transition team has been so short-handed and the pickings among Republican foreign policy veterans who had not criticized Mr. Trump so slim that dozens of positions are likely to remain empty for some time.

More worrisome, morale among the department’s rank-and-file career officers has plunged, with a dissent memo against the administration’s refugee and entry bans being submitted on Tuesday garnering more than 900 signatures, an extraordinary number.

Whether Mr. Tillerson meets these challenges with defiance or moderation will be a telling indication of his leadership.

Sean Spicer, the White House press secretary, said Monday that foreign service officers “can get with the program or they can go.”

Marathon Petroleum earnings blast past forecasts

http://www.marketwatch.com/story/marathon-petroleum-earnings-blast-past-forecasts-2017-02-01

Marathon Petroleum Corp.'s fourth-quarter earnings and revenue surged past expectations, the latest indication that the energy sector could be recovering.

Shares of the company climbed 2% in premarket trading to $49.

Many energy analysts have been raising their oil-price projections for the first time in nearly half a year, as the Organization of the Petroleum Exporting Countries has trimmed output by more than 1 million barrels a day.

Marathon reported a quarterly profit of $227 million, or 43 cents a share, up from $187 million, or 35 cents a share, a year earlier. Revenue improved 10.7% to $17.28 billion.

Analysts surveyed by Thomson Reuters expected a profit of 26 cents a share on revenue of $14.54 billion.

Last month, Marathon announced plans to accelerate so-called drop-down deals and conduct a strategic review of its Speedway assets, months after hedge fund Elliott Management Corp. raised concerns with the energy company.

Marathon said it would significantly accelerate a drop-down of assets with about $1.4 billion of annual earnings before interest, taxes, depreciation and amortization to MPLX LP, a master limited partnership formed by Marathon Petroleum to buy, develop and operate midstream assets.

The company also said a special committee of its board would conduct a review of Speedway, its brand of company-owned and operated convenience stores and gas stations.

Austen Hufford contributed to this article

Write to Ezequiel Minaya at ezequiel.minaya@wsj.com

U.S. Petroleum Trade With Latin America Flips To Surplus For First Time Ever

 

http://oilprice.com/Latest-Energy-News/World-News/US-Petroleum-Trade-With-Latin-America-Flips-To-Surplus-For-First-Time-Ever.html

In a change of trade patterns, the United States booked a surplus in its trade of crude oil and refined products with Latin America for the first time since records began in 1993, but a proposal of a border tax is a major wild card for the coming U.S.-Latin America petroleum trade flows.

According to data by the U.S. Energy Information Administration compiled by Bloomberg, the U.S. recorded its first ever petroleum surplus with Latin America in October last year at 89,000 barrels a day. The surplus then increased to 184,000 bpd in November.

The shift in trade patterns with Latin America comes as Mexico, for example, imports growing volumes of gasoline because its refineries are unable to meet surging demand.

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Crude oil production dropped last year in Venezuela, Colombia, Mexico and Argentina, on the back of low oil prices that sped up the natural decline of some oil fields. Among the large Latin American nations, production rose only in Brazil.

As for Mexico, according to EIA’s This Week in Petroleum issue from January 25, the volume of gasoline trade between Mexico and the United States is significant to U.S. refineries. Mexico is currently implementing an energy reform to switch pricing to market-based prices instead of government-set prices. The reform has led to soaring retail prices.

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Moreover, Mexico’s refineries have historically been running at low utilization rates because they are challenged to produce clean gasoline and distillate fuels from the available marginal barrel of heavy sour crude oil. Outages have also hampered Mexico’s six refineries recently. For the first 10 months of 2016, U.S. exports to Mexico accounted for 54 percent of total U.S. gasoline exports.

However, the so-called Border Adjustment Tax (BAT) is expected to have a huge impact on U.S. crude: it would not only impact import flows, but exports and domestic production as well.

By Tsvetana Paraskova for Oilprice.com