Daily Digest: March 19th, 2020

Upstream Has to Cut to Survive: WoodMac

The oil and gas sector is back in survival mode as the oil price rout deepens and debt and equity markets have closed. This is likely to lead to more companies slashing dividend, according to a new report by Wood Mackenzie.

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The Big Picture:

• Since the week of March 9, more than a third of the companies Wood Mackenzie covers in its corporate service have cut capex by 30% but more work will be needed if low prices linger, it says.

• At time of press, Brent crude was trading at $25.7/b.

Energean Says it Can Weather the Downturn

Mediterranean-focused Energean Oil & Gas has said it is "well-placed" to withstand the challenges of the coronavirus (Covid-19) pandemic and the Opec+ price war, despite suffering a sharp decline in earnings last year.

The Big Picture:

• Once the Edison E&P transaction is completed, around 70% of our production will be sold under long-term gas sales agreements that insulate our future revenues against oil price volatility," he said.

• Energean's Karish field in Israel is expected to deliver its first gas in 2021, and the company expects to be producing up to 200,000 boe/day once its Israeli projects reach full capacity.

Canada's Pembina Targets up to $755mn Cut in 2020 Capex

Canadian oil and gas transportation provider Pembina Pipeline announced on March 18 that it would slash its capital spending plan for this year by almost half, cutting between C$900mn and C$1.1bn ($617-755mn) in response to the Covid-19 pandemic and the steep decline in energy prices.

The Big Picture:

• The Calgary-based company's 2020 capex budget will now total C$1.2-1.4bn.

• It will also defer several projects, including the Peace Pipeline Phase VII, VIII and IX expansions, valued at C$1.55bn, while cancelling extra discretionary spending plans.
  

ConocoPhillips Cuts 2020 Expenditure by 10% 

ConocoPhillips will reduce its 2020 capital expenditure by $700mn, representing about a 10% decrease from the previously announced guidance, owing to a sharp drop in oil prices and Covid-19 outbreak, it said in a statement.

The Big Picture:

• The reduction will be sourced by slowing operated development activity in the Lower 48 states, expected decreases in non-operated activity in the Lower 48, and deferred drilling in Alaska, the company said.

• ConocoPhillips will also reduce its 2020 planned share repurchase programme to a quarterly run rate of $250mn beginning in Q2, from the previous run rate of $750mn.

US Regulator Approves Jordan Cove LNG Project

The FERC, voting notationally due to the cancellation of the commission’s regular meeting, has approved Pembina Pipeline’s controversial Jordan Cove LNG project and the accompanying Pacific Connector natural gas pipeline.

The Big Picture:

• It is the first ever approval by the commission of a US west coast LNG export project, and comes despite significant environmental opposition and difficulties acquiring critical state permits.

• Pembina has yet to make a final investment decision on the estimated US$10bn project, and said in May 2019 it would slow work on Jordan Cove while it sought federal and state approvals.

Russia Rolls Out Arctic Tax Relief

ConocoPhillips will reduce its 2020 capital expenditure by $700mn, representing about a 10% decrease from the previously announced guidance, owing to a sharp drop in oil prices and Covid-19 outbreak, it said in a statement.

The Big Picture:

• A zero rate of mineral extraction tax (MET) will apply to fields that supply gas to liquefaction trains as well as petrochemical enterprises, during their first 12 years of commercial operation or until their cumulative output reaches 250bn m³.

• The tax break will be a major boon for Novatek, which is preparing to launch its next major LNG export terminal, the 19.8mn mt/yr Arctic LNG-2, in 2023.

Pipelines Dip as LNG Rises in NW Europe: Marex

Europe's imports of pipeline gas remain low, down by 22% in northwest Europe and by 17% in eastern Europe, compared with the same week last year.

The Big Picture:

• According to analysis by Marex Spectron, any deficit "is clearly balanced by steady rates of LNG imports, which have however declined on a weekly basis."

Eni CEO Buys Company Stock

The CEO of Eni, Claudio Descalzi, has spent €200,000 ($214,000) of his cash on 29,300 shares, the Italian energy company said.

The Big Picture:

• At time of press, Eni shares were trading at €6.75, or about half their value in February, before the present crisis had got underway.