Is oil & gas capex on the rebound – perhaps?

RIG

Headlines this week suggest Exxon is breaking ranks from the pack and turning the capex tap back on. Exxon’s growth plan will require billions of dollars in spending spread across U.S. shale fields, along with refinery expansions and deepwater megaprojects. The company said investments should drive profit to $31 billion in 2025 with crude prices at or above current levels. Wall Street was not immediately impressed, but it is clear the big players cannot rely on cost cutting as a substitute for growth, forever.

Exxon said projects in Guyana and the Permian Basin region of Texas and New Mexico, as well as refining and chemical plant expansions, should drive earnings gains. It reported an adjusted profit of $15 billion in 2017. To achieve its goals, Exxon said it will boost spending on capital projects to $24 billion this year, $28 billion next year and an average of $30 billion from 2023 to 2025. Meanwhile, peers including Chevron are cutting spending or promising to hold budgets flat.

“Capex is the price you pay for cash flow,” said Exxon boss, Woods, who added that every dollar in capital spending by Exxon in the past decade has generated $1.20 in operating cash flow.

Separately Baker Hughes reported U.S. energy companies added 10 oil rigs this week, the biggest increase since June, as crude prices rose to their highest levels in three years, prompting drillers to return to the well pad. The total rig count rose to 752 in the week to Jan. 12, the most since September, 2017. The U.S. rig count, an early indicator of future output, is much higher than a year ago when only 522 rigs were active after energy companies boosted spending plans in 2017 as crude started recovering from a two-year price crash.

The increase in U.S. drilling lasted 14 months before briefly stalling in the second half of last year as some producers trimmed their 2017 spending plans after prices turned softer over the summer. U.S. crude futures traded around $64 a barrel this week, near its highest since December 2014. That compares with averages of $50.85 in 2017 and $43.47 in 2016. Looking ahead, futures were trading around $62 for the balance of 2018 and $58 for calendar 2019.

In anticipation of higher prices in 2018 than 2017, U.S. financial services firm Cowen & Co said 23 of the roughly 65 E&Ps they track have already provided capital expenditure guidance for 2018 indicating a 12 percent increase in planned spending over 2017.Cowen said the E&Ps it tracks said they would spend about $66.1 billion on drilling and completions in the lower 48 U.S. states in 2017, which was about 53 percent over what they planned to spend in 2016.

Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, this week slightly reduced their forecast for the total oil and natural gas rig count to an average of 996 in 2018 and 1,126 in 2019. Last week, it forecast 997 in 2018 and 1,126 in 2019. There were 939 oil and natural gas rigs active on Jan. 12. On average, there were 876 rigs available for service in 2017, 509 in 2016 and 978 in 2015. Most rigs produce both oil and gas.

Overall, U.S. production is expected to rise to an all-time high of 10.3 million barrels per day in 2018 and 10.9 million bpd in 2019, up from 9.3 million bpd in 2017, according to a federal energy projection this week. U.S. output peaked on an annual basis at 9.6 million bpd in 1970, according to federal energy data.

So perhaps we will see an uptick in used prices for good quality, comparatively new rigs and associated consumables/ parts, including drill pipe.

Silas Berry – AsiaConsult – asiaconsult.org

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Usually it’s surplus pipes and valves that go missing. Shell have now realised that they can also lose product.

Silas Berry – http://www.asiaconsult.org – Oil & Gas Surplus

SINGAPORE (Reuters) – Eleven men were charged in a Singapore court on Tuesday in connection with a large-scale oil theft at Shell’s biggest refinery, while police said they were investigating six other men arrested in a weekend raid. Police in the island-state said on Tuesday they had detained 17 men, whose ages ranged from 30 to 63, and seized millions of dollars in cash and a small tanker during their investigations into theft at the Pulau Bukom industrial site, which sits just south of Singapore’s main island. Oil refining and shipping have contributed significantly to Singapore’s rising wealth during the past decades. But the case underlines the challenges the industry faces in a region that has become a hotspot for illegal oil trading.

The investigation began after Shell contacted the authorities in August 2017, police said in a news release. After “extensive investigations and probes,” the Criminal Investigation Department, Police Intelligence Department and Police Coast Guard launched a series of simultaneous raids across Singapore, which led to the arrests. Nine Singaporeans were immediately charged in the theft, of which eight were employees of the Singapore subsidiary of Royal Dutch Shell Plc, court documents showed. Two Vietnamese nationals were charged with receiving stolen goods on a small tanker named Prime South (IMO: 9452804), the documents showed.

 

Shell confirmed on Tuesday that eight of the 11 men charged were current or former employees at Shell Eastern Petroleum (Pte) Ltd. Shipping data from Thomson Reuters Eikon showed the Prime South had been shipping fuel between Ho Chi Minh City, Vietnam, and Singapore for the past 30 days.

Tuesday’s cases could be just the first insight into a grander scheme. The charges seen so far allege three incidents of gasoil theft: on Nov. 21, 2017, of more than 2,322 tonnes valued at S$1.277 million ($958,564.78); and on Jan. 5 and 7 this year of a combined 2,062 tonnes of gasoil, valued at S$1.126 million.

The Vietnamese nationals were charged with receiving gasoil in the early evening hours of Jan. 7, at wharf 5 at the heart of Shell’s operations on Bukom island, the documents show.

Meanwhile, police say the other six men arrested remain under investigation.During raids on Sunday, police said they seized S$3.05 million in cash and the 12,000-deadweight-tonne tanker. They have also frozen suspects’ bank accounts.

Shell said on Tuesday it anticipated “a short delay” in its supply operations at Bukom, its largest wholly owned refinery in the world in terms of crude distillation capacity. It declined to say the total amount of oil stolen.

It is the second high-profile case of wrongdoing at companies in Singapore to hit headlines in recent weeks, after Keppel Corporation Ltd’s rig-building business agreed in December to pay more than $422 million to resolve charges it bribed Brazilian officials.

Singapore is one of the world’s most important oil trading hubs, with much of the Middle East’s crude oil passing through Singapore before being delivered to the huge consumers in China, Japan and South Korea. Singapore is also Southeast Asia’s main refinery hub and the world’s biggest marine refueling stop.

AsiaConsult - Oil theft

It’s not hard to swap cargos in the crowded waters of South East Asia

Shell is one of the biggest and longest established foreign investors in Singapore. Its oil refinery on Bukom island can process 500,000 barrels per day.

Illicit oil trading is widespread in Southeast Asia. In some cases, oil has been illegally siphoned from storage tanks, but there have also been thefts at sea, including whole ships being seized for the oil cargo.

The Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP) says that siphoning of fuel and oil at sea in Asia, including through armed robbery and piracy, saw sharp increases between 2011 and 2015.

There has been a modest decline since then, although the organization said in a quarterly report that oil theft was still “of concern,” especially in the South China Sea, off the east coast of Malaysia.

The stolen fuel is generally sold across Southeast Asia, offloaded directly into trucks or tanks at small harbors away from oil terminals.

Source – Reuters – Silas Berry – http://www.asiaconsult.org

China shows it still has cards to play on coal supply

High level machinations in China seem to be affecting the coal price. In the north they have just announced they will cut coal imports from North Korea whilst in the south they have been unofficially blocking imports in a customs go slow.

In Australia the thermal coal price has been recovering but it seems Beijing will cap these gains by allowing its domestic producers to come back on stream.

Guangzhou port, the largest coal hub in southern China, has halted foreign coal imports, according to traders who use the port and said they had been informed of the shutdown by customs authorities and senior company officials. Traders said the move caught merchants using Guangzhou by surprise – the port has 14 coal berths and can handle 60 million tonnes of shipments per year – and they also interpreted it as a sign that Beijing will bring local thermal coal supplies back on stream as prices start to rise.

“We were told by customs that the port has stopped accepting foreign shipments,” said one trader, who stressed he could not speak to the media in an official capacity.  “Starting this week, we will avoid using the Guangzhou port.” Another trader based at Guangzhou said his company has stopped booking supplies for October arrivals, despite increasing demand from utilities.  “And it’s not just happening in Guangzhou but right up the coast . . . ports have been given unofficial import quotas,” said the trader, who also asked not to be named. The person said ports had been ordered to “slow the whole system down” to add additional costs to imported coal, after imports of steaming coal for use in power stations surged 25 per cent during the first half of the year.

SOURCE: Reuters/AFR, Silas Berry, asiaconsult.org

china-coal_loans_pek04

Who wins and who loses – A380 bonds downgraded by Moodys as SQ parks them up

AsiaConsult  - Airbus A380

9VSKA on its first ever take off during pre-delivery testing

As the first Airbus A380 is returned to its German lessor (Doric/ Dr Peters) after just 11 years in operation, it is clear that this aircraft has not been the saviour that legacy carriers thought it might be. Apart from on a few routes to very busy slot constrained airports, it seems they just cannot fill the 500 plus seats.

Moody’s has also downgraded the certificates used by Doric to fund the leasing of a clutch of the aircraft operated by Emirates, last week. It cited weakening demand for ultra large aircraft with Airbus receiving only 5 new orders since 2013.

9V-SKA – the first Airbus A380 delivered to Singapore Airlines was taken out of service in June and is currently undergoing pre-return maintenance at Changi, prior to being handed back to the lessor. Four more SQ units will follow by June next year.

From a value perspective the interesting thing will be what happens next. Doric is essentially a financial engineering business. It has very little experience of selling end of lease aircraft but if its residual forecasts and lease terms were sound, it should be OK. However it is making some strange pronouncements. CEO Anselm Gehling suggestion that the planes might part out at USD 100 million (approximately 50% of their original purchase prices) looks pretty optimistic for 11 year old units. With relatively few aircraft in service, the parts market will be nowhere near as liquid as it was for the B747.  The fact that the newer, more fuel efficient A380’s have been substantially redesigned will further complicate the components market.

Of course, much depends on the detailed return conditions written into the leases. This is where the financiers often do well, by making sure aircraft are returned in almost ‘as new’ condition. With Malaysian and other carriers looking to get out of some of their units next year it will be interesting to see what a secondhand A380 is actually worth.

Over 120 autonomous haul trucks now in service – but all are retrofits

Nobody at the wheel at BHP’s Jimblebar iron ore mine site

Caption in here
Retrofitted CAT 793F ‘s

BHP’s Jimblebar mine will be the first operation in the mining giant’s Pilbara iron ore portfolio to move completely to driverless trucks.

In an email to staff, WA iron ore boss Edgar Basto and Jimblebar general manager Elsabe Muller said Jimblebar’s existing fleet of 25 Caterpillar 793F autonomous trucks would be expanded to 50 by the end of the year.

They said mine automation was part of the company’s strategy to improve safety, build capacity and remain globally competitive.

It is understood all affected staff will be offered alternative jobs or new roles working with the driverless trucks.

“Employees will be provided training to further develop their skill sets for the roles required to support autonomous haulage,” the email stated.

At last count, Rio Tinto had 76 driverless haul trucks operating across its Pilbara iron ore network with plans for its new Silvergrass project, coming online this year, to be fully automated. Haul trucks at its Yandicoogina, Nammuldi and Hope Downs 4 minesites are driverless.

Last month, Fortescue Metals Group announced it would convert another 12 CAT haul trucks at its Solomon Hub operations and 100 at its Chichester Hub to driverless.

FMG has 56 driverless trucks at its Solomon Hub, representing 75 per cent of its fleet at the operation.

Nothing Purpose Built…. yet

It seems that while the capex tap has been partially turned on to enable retrofitting of existing truck fleets,  none of the majors are prepared to invest in the new, purpose built bi-directional autonomous trucks unveiled at Minexpo last year.

No driver – no need for a cab

SOURCE – WEST AUSTARLIAN – 7th July 2017

Iron ore prices continue their slide

After a miserable May, iron ore is opening the new month on the back foot. Futures in Asia fell to the lowest level in seven months as rising concern about increased supplies steamrollered positive signs, including data from China that may signal record steel output in the top producer.

In Singapore, the SGX AsiaClear contract sank as much as 2.2 percent to $54.30 a metric ton, the lowest since October, after an 18 percent drop in May. Futures in Dalian fell 1.1 percent. On Wednesday, benchmark spot ore retreated 2.5 percent to $57.02 a ton in Qingdao, according to Metal Bulletin Ltd.

The commodity has been on a wild ride this year — coming close to challenging the $100 level in February before collapsing over the next three months — as investors sought to gauge the impact of greater supply and the outlook for steel demand in China. Iron ore’s latest leg down has happened even after a manufacturing gauge for the world’s largest steel industry rose to the highest in a year, suggesting another month of bumper production.

Cargoes from the four largest exporters have remained at high levels, causing port inventories to repeatedly hit new highs,” Dang Man and Ren Jiaojiao, analysts at Maike Futures Co., a Chinese brokerage, said in a note. While steelmakers may be churning out record output, “they’re making hand-to-mouth purchases of raw materials. Iron ore’s fundamentals are pretty weak.”

Iron ore has dropped even as mills in China boosted output to an all-time high in April. The data on Wednesday showed the industry’s purchasing manager’s index rose to 54.8 in May from 49.1 a month earlier, as an underlying gauge of production jumped to 58.2 from 56.2. Readings above 50 show expansion.

Steel prices also retreated on Thursday, extending the previous day’s losses. On the Shanghai Futures Exchange, reinforcement bar eased to a two-week low, while hot-rolled coil lost 0.5 percent.

Iron ore’s declines in recent months have hurt miners’ shares. In Sydney, Fortescue Metals Group Ltd. fell 3.7 percent to close at A$4.67, the lowest price since September. Rio Tinto Group and BHP Billiton Ltd. also dropped. The trio are the country’s largest shippers.

The global market will stay well supplied over the next five years as miners boost production further, according to BMI Research. Output from Brazil will jump more than 100 million tons by 2021 as Vale SA presses on with a ramp-up of its biggest project, S11D, the research arm of Fitch Group estimates.

Source: Bloomberg – asiaconsult.org – Silas Berry – Iron Ore Price Forecast

Residual value forecasts for Airbus A380 about to be tested

 

Airbus Group SE’s flagship jetliner, the A380 superjumbo, has been dealt another setback as Singapore Airlines Ltd. decided not to renew its lease on the first of the planes and suggested it may walk away from more of the double-decker jets.

Singapore Airlines operates the world’s second-largest fleet of A380s and was the first to fly the plane when it took delivery of the jet in October 2007. The lease on the first A380 expires in October next year and “we have decided not to extend it,” Singapore Airlines told The Wall Street Journal.

The Singapore flag carrier currently operates 19 of the double-decker jets. The first five were taken on a 10-year lease deal with Airbus. “Decisions will be made on the four others later,” a Singapore Airlines spokesman said.

Singapore Airlines also has five of the jets on order. It is sticking to plans to take delivery of those starting in the second half of next year.

Initial production jets are generally less popular with airlines as they are heavier and often come with teething problems as manufacturers work out kinks. But Singapore Airlines’ decision to give up its lease will put at least one secondhand plane on the market, potentially weakening already softened demand for new A380s.

Brendan Sobie, an analyst at CAPA Center for Aviation, expects Singapore Airlines to return all five of the early A380 jets in its fleet. “Their fleet plan and strategy has always been to replace those aircraft. Early model airplanes come with limitations and Singapore Airlines never wanted to be stuck with remarketing these five airplanes,” Mr. Sobie said.

Airbus in July announced it would slash production of the A380 to 12 planes a year in 2018 from 27 last year. The backlog of A380s to be delivered has eroded during years of no or few orders.

The A380’s size has become its disadvantage as airlines prefer relatively smaller planes such as the Airbus A350 and rival Boeing Co.’s 787 Dreamliner that can fly nonstop to their ultimate destinations, bypassing major hubs such as London and Singapore. The demand for point-to-point connectivity has grown faster than the traffic at major hub airports in recent years.

Airbus will again start losing money building A380 planes at the lower production rate, the Toulouse, France-based plane maker has said. It only last year delivered A380s that were no longer losing money, a decade after the plane first flew. Airbus for years struggled with development and production of the jetliner.

Bad news has continued to pile up for the A380. Airbus this year announced that French carrier Air Austral had canceled an order for two A380s, the latest in a raft of voided purchases of the plane. Air France-KLM SA this year said it had dropped plans to take the last two A380s it had ordered.

Previously, the India-based Kingfisher Airlines Ltd., founded by Vijay Mallya, ordered the plane before the carrier controversially folded in 2012. Russia’s No. 2 carrier Transero also was a buyer before it closed last year. Japan’s Skymark Airlines Inc. had ordered the A380 before the contract was voided over payment issues.

There are also doubts about some A380s in the Airbus order backlog. Virgin Atlantic Airways Ltd., the British airline founded by Richard Branson, has ordered six of the planes but has no plans to introduce them into service. The carrier this year also announced plans to buy Airbus’s A350-1000 long-haul plane, a more modern, twin-engine widebody. Ireland-based lessor Amedeo has ordered 20 of the planes, but so far failed to place them with airline customers.

The Singapore Airlines A380s are owned by German leasing company Doric GmbH, which will need to find a customer for the returning plane in the next 12 months. The leasing firm had no immediate comment.

Airbus wouldn’t comment on the Singapore Airlines decision, saying it doesn’t discuss individual airline fleet plans.

“We are confident in the market for secondhand A380s, which can be leased or acquired at attractive rates. This will offer a great opportunity for new entrants with new business models to start operating the A380,” a company spokesman said by email.

Despite years of trying, Airbus has struggled to win new orders for the A380, which costs $432.6 million each at list price. Airlines have shied away from the superjumbo jet that can seat more than 600 people, worried about how to fill all its seats.

Malaysia Airlines has decided to replace its A380 jets with the smaller A350 jets and is trying looking for customers to buy or lease its six jets, the airline’s chief Peter Bellew told The Wall Street Journal in a recent interview.

International Consolidated Airlines Group SA chief executive Willie Walsh this year said he would consider taking some used A380s to augment the 12 now in service with British Airways. Mr. Walsh has said taking secondhand planes would make more sense than exercising more expensive options for new A380s.

The biggest success for the A380 is Emirates Airline, by far the largest customer. The Dubai-based carrier, the world’s largest by international traffic, operates a fleet of more than 80 of the four-engine planes and has placed orders for 142 of the jets.

The A380 program received a rare boost when Japan’s All Nippon Airways Co. in December ordered three of the planes. Iran Air also has announced plans to take 12 of the Airbus flagship plane as part of a $27 billion deal with the European plane maker. The deal remains to be completed, absent U.S. export approvals and financing.

gaurav.raghuvanshi@wsj.com –

Silas Berry – asiaconsult.org –  27-05-2017 – A380 residual values