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The Disclaimer: Energy Tidbits is intended to provide general information only and is written for an institutional or sophisticated investor audience. It is not a recommendation of, or solicitation for the purchase of securities, an offer of securities, or intended as investment research or advice. The information presented, while obtained from sources we believe reliable as of the publishing date, is not guaranteed against errors or omissions and no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. This publication is proprietary and intended for the sole use of direct recipients from Dan Tsubouchi and SAF Group. Energy Tidbits are not to be copied, transmitted, or forwarded without the prior written permission Dan Tsubouchi and SAF Group. Please advise if you have received Energy Tidbits from a source other than Dan Tsubouchi and SAF Group.

Energy Tidbits

Dan Tsubouchi

Principal, Chief Market Strategist

[email protected]

Aaron Bunting

Principal, COO, CFO

[email protected]

Ryan Dunfield

Principal, CEO [email protected]

Alan Cooper

Vice President

[email protected]

Ryan Haughn

Principal, Energy

[email protected]

IEA OMR: Q1/20 Oil Surplus Vs Q4/19 Is 1.9 mmb/d From

Demand -1.3 mmb/d And Non-OPEC Supply +0.6 mmb/d

Welcome to new Energy Tidbits memo readers. We are continuing to add new readers to our Energy Tidbits

memo and energy blogs. The focus and concept for the memo was set in 1999 with input from PMs, who were

looking for research (both positive and negative items) that helped them shape their investment thesis to the energy

space, and not focusing on day to day trading. Our priority was and still is to not just report on events, but interpret

and point out implications therefrom. The best example is our review of investor days, conferences and earnings calls

focusing on sector developments that are relevant to the sector and not just a specific company results/guidance.

Our target is to write on 48 to 50 weekends per year and to send out by noon mountain time.

This week’s memo highlights:

1. Goldman lowers its US 2020 oil growth forecast for 2nd time in last month, now calling +600,000 b/d YoY. (Click

Here)

2. Carbo is a good example of US producers squeezing services for lower costs as they stretch cash flow. (Click

Here)

3. IEA OMR forecast has 1.9 mmb/d oil surplus in Q1/20 vs Q4/19 with demand down 1.3 mmb/d and non-OPEC

supply up 0.6 mmb/d. (Click Here)

4. Aramco sets IPO pricing range to reflect $1.6 to $1.7 trillion valuation. (Click Here)

5. Uniper “foreseeable shortage of reliable electricity” in Germany. (Click Here)

6. ESG, in particular the E, reducing capital flows to oil and gas from European capital providers. (Click Here)

7. Please follow us on Twitter at [LINK] for breaking news that ultimately ends up in the weekly Energy Tidbits memo

that doesn’t get posted until Sunday noon MT.

8. For new readers to our Energy Tidbits and our blogs, you will need to sign up at our blog sign up to receive future

Energy Tidbits memos. The sign up is available at [LINK].

Produced by: Dan Tsubouchi

Nov 17, 2019

https://twitter.com/Energy_Tidbits

http://www.safgroup.ca/research/trends-in-the-market/


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Energy Tidbits

Table of Contents Natural Gas – Natural gas injection of 3 bcf, storage now +491 bcf YoY surplus ....................................................5

Figure 1: US Natural Gas Storage ....................................................................................................................5

Natural Gas – Increasing Neutral probability means unlikely for El Nino winter ......................................................5

Figure 2: November CRC/IRI Forecast ............................................................................................................6

Natural Gas - EIA forecasts US gas supply +8.33 bcf/d YoY in 2019, +2.82 bcf/d in 2020 .....................................6

Figure 3: EIA STEO US Natural Gas Supply Forecasts By Forecast Month ...................................................6

Natural Gas – Japan spot LNG prices down 49% YoY to $5.50 ..............................................................................7

Figure 4: Japan Monthly LNG prices ........................................................................................................................7

Natural Gas – South Korea October LNG imports down 15.2% YoY ......................................................................7

Natural Gas – China’s modest electricity growth reminds of modest LNG import growth .......................................7

Figure 5: China Electricity Generation ......................................................................................................................7

Figure 6: China Electricity Generation From Natural Gas ........................................................................................8

Oil – US oil rigs down 10 to 674 oil rigs ....................................................................................................................8

Figure 7: Baker Hughes Total US Oil Rigs .......................................................................................................8

Oil – Total Cdn rigs -6 to 134 total rigs .....................................................................................................................8

Figure 8: Baker Hughes Total Canadian Oil Rigs ............................................................................................9

Oil – US oil production up 200,000 b/d to new record 12.8 mmb/d ..........................................................................9

Figure 9: Weekly US Oil Production .................................................................................................................9

Figure 10: US Weekly Oil Production ............................................................................................................ 10

Figure 11: YoY Change in US Weekly Oil Production ................................................................................... 10

Oil – EIA STEO increases 2020 US oil production growth forecast ...................................................................... 10

Figure 12: Estimated US Crude Oil Production By Forecast Month ............................................................. 11

Oil – Increasing associated natural gas and NGLs ratio in Bakken oil wells ......................................................... 11

Figure 13: North Dakota Statewide Gas-Oil Ratio ......................................................................................... 11

Figure 14: North Dakota Captured NGLs ...................................................................................................... 12

Oil – High associated natural gas/NGLs leading to STACK oil play slowdown..................................................... 12

Figure 15: Devon Asset Level Modelling Stats .............................................................................................. 13

Oil – More pointing to lower US oil growth in 2020 ............................................................................................... 13

IHS Markit – US production growth “heading for a major slowdown” .................................................................... 13


3

Energy Tidbits

Figure 16: US Oil Production Growth Forecasts ........................................................................................... 14

Oil – Gartman includes good commentary why API vs EIA weekly oil estimates ................................................. 14

Oil – Carbo reminds producers are squeezing services on costs ......................................................................... 15

Oil – Keystone oil pipeline restarted on Tues ........................................................................................................ 15

Figure 17: Keystone Pipeline And Edinburg Oil Spill .................................................................................... 16

Oil – Oil input into refineries up 154,000 b/d to 15.916 mmb/d ............................................................................. 16

Figure 18: US Refinery Crude Oil Inputs (thousand b/d) ............................................................................... 16

Oil – US “NET” oil imports down 589,000 b/d to 3.117 mmb/d ............................................................................. 16

Figure 19: US Weekly Preliminary Oil Imports By Major Countries .............................................................. 17

Oil – OPEC MOMR: Assumes US oil growth +1.50 mmb/d YoY in 2020 ............................................................. 17

Figure 20: OPEC MOMR Secondary Sources 2019 ..................................................................................... 18

Oil – IEA OMR Nov: Same Challenges, Q1/20 Oil Surplus, and 2020 Oil Surplus ............................................... 18

Figure 21: IEA OMR OPEC Oct 2019 Production Vs Quota Cut Levels ....................................................... 19

Oil – Iraq Grand Ayatollah warns Iraq will never be the same after the protests end ........................................... 19

Oil – Iran Ayatollah Khamenei warns “our dear people” about joining the protests .............................................. 20

Oil – Aramco IPO price range reflects $1.6 to $1.7T valuation ............................................................................. 20

Oil – No surprise, biggest Venezuela rally post Bolivia Morales resignation ........................................................ 21

Oil – BHP’s bullish view on oil only assumes global decline rate of 3% ............................................................... 21

Figure 22: Long Term Global Liquids Supply Outlook mmb/d....................................................................... 22

Imagine if BHP used Wood Mackenzies 4.5% or Exxon’s 7% decline rate .................................................. 22

Figure 23: Wood Mackenzie Global Supply Decline Rate 4.5% Per Annum ................................................ 23

Oil and Natural Gas – Another tough year as CAODC forecast almost zero change ........................................... 23

Figure 24: Operating Days And Wells Drilled ................................................................................................ 24

Oil and Natural Gas – Reminder why US states dominate provinces for oil policy ............................................... 24

Figure 25: Fraser Canada-US Policy Perception Index Ranking .................................................................. 24

Electricity – Uniper “foreseeable shortage of reliable electricity” in Germany ....................................................... 25

Capital Markets – Increasing impact of ESG on European capital providers to oil & gas ..................................... 25

Figure 26: Riksbank Climate Footprint For Canada and Australia ................................................................ 26

ESG is an increasing factor in capital provided to North Amerian oil and gas .............................................. 26

Figure 27: ESG in Credit Ratings .................................................................................................................. 27

Capital Markets – Peak oil demand already impacting long term capital allocators ............................................. 27

Capital Markets – Cdn tax loss selling season starting ......................................................................................... 27

Climate Change – Lancet Countdown 2019 climate change report released ....................................................... 27


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Energy Tidbits

Figure 28: Average Annual # of Days People Were Exposed to Wildfires in 2018 ....................................... 28

Energy Tidbits – Now on Twitter ............................................................................................................................ 28

Energy Tidbits – Sign up on our email distribution for tidbits and blogs ................................................................ 28

LinkedIn – Look for quick energy items from me on LinkedIn ............................................................................... 28

Misc Facts and Figures.......................................................................................................................................... 28

“Flygskam” not having any significant impact on jet fuel demand ................................................................. 29


5

Energy Tidbits

Natural Gas – Natural gas injection of 3 bcf, storage now +491 bcf YoY surplus

The EIA reported a 3 bcf natural gas injection, vs expectations of a 0 bcf injection. This brings storage to 3.732 tcf as of Nov 8. This is a narrowing of the YoY surplus to 491 bcf vs 530 bcf surplus last week and storage is now 2 bcf above vs the 5 yr average. The EIA’s new STEO for November forecasts gas withdrawals to fall below the 5 yr average over the withdrawal period, which combined with higher YoY production, will be a negative to HH prices. Below is the EIA’s storage table from its Weekly Natural Gas Storage Report. [LINK] Figure 1: US Natural Gas Storage

Source: EIA

Natural Gas – Increasing Neutral probability means unlikely for El Nino winter

The major forward looking oil and gas impact from El Nino forecasts is for winter weather and natural gas demand. Increasing probability of neutral conditions set the stage for a normal winter and not a warm winter. Its been a good start to Nov temperatures, and HH prices have reacted accordingly, but we need a cold winter to keep HH gas prices solid. On Thurs morning, we tweeted [LINK] on the NOAA monthly El Nino outlook that comes out the 2nd Thurs of every month [LINK]. The Nov update had much the same takeaway as last month – increasing probability of Neutral conditions in Dec/Jan/Feb. This month, the probability is 69% for Neutral vs 62% in Oct forecast and vs 58% in Sept forecast. This more neutral forecast means less chance of El Nino winters and El Nino tends to be associated with warmer winter. We continue to highlight that strong El Nino conditions are normally the only times there is a strong consensus for a winter forecast, which would be above normal and you won’t normally get forecasts for very cold winters. This week, Bloomberg Terminal story “No El Nino Ahead Means It Will Be Tougher to Forecast the Winter” reinforced this concern, and said “Weather across the U.S. may be less predictable this winter with forecasters unable to depend on the strong influences of the El Nino and La Nina climatic events That means forecasters must rely on other weather patterns to predict the severity of winter in the U.S. and growing seasons in South America and southeast Asia”. So when there is a normal forecast, it allows for a range of forecasts for the winter from very cold to normal to warm.

YoY storage at

491 bcf YoY

surplus

69% chance for

Neutral winter

temp

http://ir.eia.gov/ngs/ngs.html

https://twitter.com/Energy_Tidbits/status/1194984441468215296

https://iri.columbia.edu/our-expertise/climate/forecasts/enso/current/?enso_tab=enso-cpc_plume


6

Energy Tidbits

Figure 2: November CRC/IRI Forecast

Source: CRI/IRI

Natural Gas - EIA forecasts US gas supply +8.33 bcf/d YoY in 2019, +2.82 bcf/d in 2020

The EIA released its monthly Short Term Energy Outlook Nov 2019 [LINK] on Wednesday. The continuing major natural gas price factor is the significantly higher YoY US natural gas production in 2019 vs 2018. The EIA raised its natural gas production forecast, and even more so than would have been expected with the small increase in US oil production (discussed later in the memo). (i) For 2019, EIA forecasts YoY growth of +8.33 bcf/d (was +8.24 bcf/d last month) for a full year 2019 average of 92.13 bcf/d. (ii) For 2020, EIA now forecasts +2.82 bcf/d YoY to 94.95 bcf/d, which is up from last month’s +1.87 bcf/d growth. (iii) They don’t provide any detail for the higher natural gas production, but it has to point towards two potential items. One is the EIA increasing its estimate of well productivity in dry gas plays like Haynesville and Marcellus. The other explanation is the EIA increased its gas cut ratio in oil plays, which is realistic. But if so, we would have expected a lowering of the oil volumes ie. more gas and less oil in oil wells with associated natural gas (ie. Permian, Eagle Ford, etc.). Below is our table comparing EIA’s STEO forecast by forecast month. Our Supplemental Documents package includes excerpts from the new STEO and the EIA’s STEO forecast changes vs last month.

Figure 3: EIA STEO US Natural Gas Supply Forecasts By Forecast Month

Source: EIA, SAF

bcf/d 2018 Q1/19 Q2/19 Q3/19 Q4/19 2019 Q1/20 Q2/20 Q3/20 Q4/20 2020 YoY 19/18 YoY 20/19

Nov 19 83.80 89.29 90.48 93.02 95.66 92.13 94.83 94.91 95.15 94.89 94.95 8.33 2.82

Oct 2019 83.39 89.42 90.53 92.32 94.21 91.63 93.35 93.12 93.52 93.99 93.50 8.24 1.87

Sept 2019 83.39 89.42 90.60 91.98 93.52 91.39 92.97 92.92 93.54 93.32 93.19 8.00 1.80

Aug 2019 83.39 89.42 90.07 91.54 93.04 91.03 91.97 92.00 92.90 93.13 92.50 7.64 1.47

July 2019 83.39 89.24 90.62 92.21 93.26 91.35 92.41 92.43 93.13 93.16 92.79 7.96 1.44

June 2019 83.40 89.14 90.14 91.17 91.93 90.60 91.80 91.84 91.97 91.54 91.79 7.20 1.19

May 2019 83.40 88.92 89.58 90.65 91.88 90.27 92.13 92.26 92.39 91.98 92.19 6.87 1.92

Apr 2019 83.39 88.93 90.42 92.06 92.55 91.00 92.51 92.58 92.58 92.21 92.47 7.61 1.47

Mar 2019 83.35 89.34 90.52 91.29 91.75 90.73 91.74 92.00 92.22 92.13 92.02 7.38 1.29

Feb 2019 83.26 88.48 90.16 90.80 91.18 90.16 91.63 92.11 92.16 92.31 92.05 6.90 1.89

Jan 2019 83.31 89.39 90.17 90.43 90.77 90.19 91.48 91.98 92.37 93.05 92.22 6.88 2.03

EIA forecasts 2019

gas supply +8.33

bcf/d

https://www.eia.gov/outlooks/steo/


7

Energy Tidbits

Natural Gas – Japan spot LNG prices down 49% YoY to $5.50

LNG prices continue to be weak, and this week, Japan’s Ministry of Economy, Trade and Industry reported [LINK] Japan contract-based spot LNG price for Oct was $5.50, down 49% YoY but up from $5.40 in Sept. The story here is unchanged, oversupplied global LNG markets lead to weak LNG prices, and this oversupply pressure was heightened in the second half of October as buyers finished their winter stockpiling. Below is our table of monthly Japan LNG import prices.

Figure 4: Japan Monthly LNG prices

Source: Japan Ministry of Economy, Trade and Industry

Natural Gas – South Korea October LNG imports down 15.2% YoY

LNG World News reported South Korea LNG imports for Oct were 5.0 bcf/d, down 15.2% from 5.85 bcf/d YoY, but up 15% MoM from September. The MoM increase was attributed to increased consumption in city gas and power, and colder temperatures will increase gas demand as coal and nuclear output expected to stay flat going into December. Unfortunately for LNG prices, inventory levels are high in South Korea, meaning there is limited space for additional stockpiling, and this backs up to LNG demand.

Natural Gas – China’s modest electricity growth reminds of modest LNG import growth

We have been noting the modest, relative to the past few years, growth rates in China’s LNG imports driven by the warm winter and the slowing China economy. On Friday, we tweeted [LINK] on a good related reminder of these trends, when Bloomberg terminal reported “China power consumption rose 4.4% on year in the first ten months, National Development and Reform Commission spokeswoman Meng Wei says in a briefing, according to webcast.” Our tweet said “China electricity (flow thru to #NatGas and #LNG imports) story is modest YoY increases in consumption from slowing economy, mild last winter, etc. Only +4.4% YoY in YTD Oct 31. Well below 7.2% annual increase for last decade and 7.7% in 2008. Hope for cold winter and US deal.” The 4.4% increase is well below the annual increases for the past decade. Our tweet referenced the BP historical electricity generation data (see below table) that has China’s average annual growth rate for the past 10 years was 7.2% per annum, and 2018 was +7.7% YoY. China has been increasing its use of natural gas for electricity generation, which is why there is a higher growth rate. China’s electricity generation from natural gas average annual growth rate for the past 10 years was 19.6% per annum and in 2018 was +10.3%.

Figure 5: China Electricity Generation

Source: BP

2014 2015 2016 2017 2017/2016 2018 2018/2017 2019 2019/2018

Jan $10.20 $7.10 $8.40 18.3% $11.00 31.0% $8.30 -24.5%

Feb $7.60 $6.50 $8.50 30.8% $10.60 24.7% $7.50 -29.2%

Mar $18.30 $8.00 n/a $6.30 n/a $8.80 39.7% $6.40 -27.3%

Apr $16.00 $7.60 $4.20 $5.70 35.7% $9.10 59.6% $5.20 -42.9%

May $14.80 n/a $4.10 $5.70 39.0% $8.20 43.9% $5.40 -34.1%

June $13.80 $7.60 n/a n/a n/a $9.30 n/a $5.50 -40.9%

July $11.80 $7.90 $5.80 $5.60 -3.4% $10.00 78.6% $4.70 -53.0%

Aug $11.40 $8.10 n/a $5.80 n/a $10.70 84.5% $5.30 -50.5%

Sept $13.20 $7.40 $5.70 $6.90 n/a $10.60 53.6% $5.40 -49.1%

Oct $15.30 $7.60 $6.10 $8.20 34.4% $10.70 30.5% $5.50 -48.6%

Nov $14.40 $7.40 $7.00 $9.00 28.6% $10.80 20.0%

Dec $11.60 $7.40 $8.00 $10.20 27.5% $9.20 -9.8%

Terawatt-hours 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018 2007-17

China 3495.8 3714.7 4207.2 4713.0 4987.6 5431.6 5649.6 5814.6 6133.2 6604.5 7111.8 7.7% 7.2%

Growth rate per annum

China’s modest

+4.4% YoY growth

in electricity

Japan spot LNG

prices down 49%

YoY

South Korea LNG

imports down

15.2% YoY

https://www.meti.go.jp/english/statistics/sho/slng/result/pdf/201910_e.pdf



8

Energy Tidbits

Figure 6: China Electricity Generation From Natural Gas

Source: BP

Oil – US oil rigs down 10 to 674 oil rigs

Baker Hughes reported its weekly rig data on Friday which was positive for WTI. US oil rigs were down again this week, with a decrease of 10 to 674 oil rigs as of Nov 15. The only increase was in Mississippian +1. Decreases were in the Permian -4, Others -3, Ardmore Woodford -1, Cana Woodford -1, DJ-Niobrara -1, and Williston -1. US oil rigs are now 203 lower YTD, with the Permian accounting for 79 of this decrease. We should probably expect to see US rigs keep drifting especially since US Thanksgiving is Thurs Nov 28. US rigs don’t normally drop at Xmas as in Canada, but should keep drifting down. The general consensus from major service companies Q3 calls is for drilling activity to move lower and reach a bottom in Q4, and then modestly increase in Q1 with the renewed budgets. Below is our graph of total US oil rigs.

Figure 7: Baker Hughes Total US Oil Rigs

Source: Baker Hughes

Oil – Total Cdn rigs -6 to 134 total rigs

Baker Hughes reported total Cdn rigs were -6 to 134 total rigs as of Nov 15. Cdn oil rigs were down 9 to 90 Cdn oil rigs. Cdn gas rigs were up 3 to 46 gas rigs. The only decrease came from Alberta -6. To put in perspective, a year ago, Cdn oil rigs were 118 and Cdn gas rigs were 79 for a total Cdn rigs of 197. It seems like we could be in one of those rare years when cdn rigs don’t rise to a Xmas peak in the two weeks before Xmas. And then the normal Xmas drop in rigs. But it is looking more like Cdn rigs will just drift until Xmas. And then the real test will be how much of an increase will there be post Xmas. Every year (even in those rare years when pre Xmas peak is in like 2015/2016), Cdn rigs always are higher in Jan with the need to drill winter access locations and new capex budgets.

Terawatt-hours 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018 2007-17

China 34.6 56.6 77.7 108.8 110.3 116.4 133.3 166.9 188.3 202.8 223.6 10.3% 19.6%

Growth rate per annum

US oil rigs

were -10

this week

Total Cdn rigs -6

this week


9

Energy Tidbits

Figure 8: Baker Hughes Total Canadian Oil Rigs

Source: Baker Hughes

Oil – US oil production up 200,000 b/d to new record 12.8 mmb/d

The increasing expectation for US oil growth to be less than expected in 2020, still growing but at a lesser rate. However, this week EIA reported US oil production was up 200,000 b/d, setting a new all time record of 12.8 mmb/d for the Nov 8 week. Lower 48 production was also up 200,000 b/d to the all time high of 12.3 mmb/d. US oil production has averaged 12.63 mmb/d so far in Q4 and should continue ramping up to the EIA’s new forecast of 13.01 mmb/d with the new Permian egress that has come onstream in H2/19. Below we pasted an excerpt from the EIA weekly oil production data. [LINK]

Figure 9: Weekly US Oil Production

Source: EIA

US hits new

record 12.8

mmb/d

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W


10

Energy Tidbits

Figure 10: US Weekly Oil Production

Source: EIA, SAF

Figure 11: YoY Change in US Weekly Oil Production

Source: EIA, SAF

Oil – EIA STEO increases 2020 US oil production growth forecast

Despite the wave of analysts, agencies, and services companies lowering US oil growth forecasts, the EIA new STEO for November [LINK] increased its US oil growth forecast. (i) EIA raised its US oil growth for 2019 to +1.30 mmb/d to 12.29 mmb/d vs growth of +1.27 mmb/d last month. This is a small increase, but this is a full year average and we’re already in Nov. They also raised the Q4/19 US oil forecast by +140,000 b/d. (ii) For 2020, EIA increased its YoY growth to +1.0 mmb/d for an average of 13.29 mmb/d in 2020, which is up vs the +0.91 mmb/d forecast from last month. (iii) There was no explanation, whereas last month they highlighted “continuing declines in well-level productivity”. The one disclosure the EIA didn’t make, was whether the increase is due to “liquids” and not “oil”. Regardless, with the increasing concern by almost everyone that US oil growth will be lower, we were surprised by the increase and have to believe we could see a revision in the coming months. Below is our ongoing table showing the EIA’s forecast by forecast month, and the EIA table of price assumptions in the Oct STEO.

EIA increases

2020 oil

production

growth forecast

https://www.eia.gov/outlooks/steo/


11

Energy Tidbits

Figure 12: Estimated US Crude Oil Production By Forecast Month

Source: EIA, SAF

Oil – Increasing associated natural gas and NGLs ratio in Bakken oil wells

On Friday, we tweeted [LINK] on the North Dakota Pipeline Authority presentation “Natural Gas Overview: Gas Capture Strategies Hearing” [LINK]. The presentation had a number of good slides on the increasing natural gas and NGLs production in North Dakota. Our tweet highlighted the increasing ratio of associated natural gas and NGLs in Bakken oil wells and that means that there will be increasing natural gas and NGLs that have to find processing and transportation. We noted that the Bakken still has significantly less associated natural gas and NGLs than other “oil” plays like the STACK and Permian, and really isn’t at the level that has any significant impact on economics. Below are two of the key slides.

Figure 13: North Dakota Statewide Gas-Oil Ratio

Source: NDPA

(million b/d) 2017 2018 Q1/19 Q2/19 Q3/19 Q4/19 2019 Q1/20 Q2/20 Q3/20 Q4/20 2020

Nov 2019 - 10.99 11.81 12.10 12.24 13.01 12.29 13.23 13.32 13.27 13.35 13.29

Oct 2019 - 10.99 11.81 12.11 12.24 12.87 12.26 13.05 13.15 13.19 13.31 13.17

Sept 2019 - 10.99 11.81 12.11 12.24 12.78 12.24 13.01 13.19 13.30 13.44 13.23

Aug 2019 - 10.99 11.81 12.09 12.29 12.87 12.27 13.00 13.17 13.33 13.53 13.26

July 2019 10.96 11.82 12.19 12.55 12.86 12.36 12.97 13.17 13.34 13.56 13.26

June 2019 10.96 11.81 12.20 12.44 12.83 12.32 13.05 13.24 13.32 13.44 13.26

May 2019 - 10.96 11.86 12.35 12.58 13.00 12.45 13.27 13.39 13.42 13.45 13.38

Apr 2019 - 10.96 11.91 12.36 12.51 12.76 12.39 12.93 13.08 13.07 13.30 13.10

Mar 2019 - 10.95 11.98 12.30 11.32 12.58 12.30 12.79 12.99 13.03 13.29 13.03

Feb 2019 - 10.96 12.15 12.41 12.42 12.65 12.41 12.97 13.18 13.20 13.45 13.20

Jan 2019 - 10.93 11.93 12.07 12.04 12.24 12.07 12.55 12.78 12.89 13.23 12.86

Increasing

associated

natural gas/NGLs

in Bakken


https://ndpipelines.files.wordpress.com/2019/11/kringstad-dmr-11-15-19.pdf


12

Energy Tidbits

Figure 14: North Dakota Captured NGLs

Source: NDPA

Oil – High associated natural gas/NGLs leading to STACK oil play slowdown

Notwithstanding Continental’s positive Oklahoma STACK oil play comments, it looks like the STACK activity will be significantly lower in 2020. STACK is an “oil” play, but one that, in parts can have high associated natural gas and NGLs that has a significant impact on the economics. (i) Continental looks like the exception to the rule in the STACK. In its Q3 call on Oct 31 highlighted their strong STACK saying “Now, I just want to have side a differentiated and peer-leading position of our SCOOP and STACK assets” and how they are running 12 rigs in the STACK. (ii) Whereas Devon in its Q3 call on Nov 6 said they went down to zero rigs in the STACK due to weak gas and NGLs prices. Devon said “We still have a deep drilling inventory in the over-pressured oil window of the play given recent weakness in gas and NGL prices, we continue to reduce activity in the STACK. In fact, we recently dropped to zero rigs in the play as higher returns currently exists within other oilier projects in our portfolio”. In Q3, Devon’s STACK weighted average (oil, NGLs, natural gas) realized price per boe (before royalties, costs, etc) in Q3 was $22.07 vs WTI >$53. Below is Devon’s Q3/19 realized price table per play. (iii) EnLnk, a major Oklahoma midstream player is cutting capex on their view of producer activity in the STACK. EnLnk held its Q3 call on Nov 8. Mgmt said “Overall, we continue to see producers moderate activity in Oklahoma in response to commodity prices. And as Barry mentioned, we've done a tremendous job flexing our growth capital spending across our diversified asset platform as drilling programs ebb and flow. We now expect to spend approximately 35% of our 2019 CapEx budget in Oklahoma, and we can see that percentage cut in half for 2020 spending.” There were several questions on Oklahoma, EnLink noted that they didn’t have formal producer plans but this was what they were planning. They also noted the issue of high natural gas/NGL ratio as a reason for the competitiveness of the STACK vs Permian.

High associated

natural gas/NGLs

with STACK


13

Energy Tidbits

Figure 15: Devon Asset Level Modelling Stats

Source: Devon

Oil – More pointing to lower US oil growth in 2020

Our last three Energy Tidbits memos have started to group the increasing number of analyst forecasts and industry comments calling for, or point to, a lowering of US oil growth in 2020. This is in line with our expectations this summer, although we had expected analysts to lower the US oil growth forecasts after Labor Day and not necessarily wait until the Q3 reporting period. Soon we will not be able to say this is a lowering of US oil growth expectations because it seems like almost everyone is lowering US oil growth forecasts. This was one of our major themes in our recent Oct 7, 2019 SAF Energy Outlook, we highlighted our view that the math says it is inevitable for agencies and analysts to lower their Permian growth forecasts and therefore their US oil growth forecasts for 2020. To be clear, we still see Permian growth, just at a lot lower rate. Anyone with a detailed model for estimating Permian oil growth has to include at least these basic inputs into their equation - Annual decline rates on the existing production base ie. how much production needs to be added to stay flat. how much capital is available, to fund drilling and completion of new wells, and for completion of the inventory of DUCs. to add production based on the well productivity rates. We think the math problem comes about because every input into this Permian oil growth equation is worse now. A big one is how capital available for producers is less. Its not just the lower well productivity rates, its all of these inputs into any model are worse so we think it is inevitable that Permian (and therefore total US) oil growth forecasts have to be lowered. And we believe a lowering of US oil growth forecast will be the key driver to a change in market sentiment to oil. Here are some of this week’s views/forecasts calling for lower US oil growth in 2020.

Goldman – Lowered 2020 US oil growth for second time in 3 weeks Our Oct 27 Energy Tidbits memo [LINK] noted Goldman Sachs’ lowering of its US oil growth forecast by 300,000 b/d to 700,000 b/d (was 1.0 mmb/d), and this week Goldman, post the Q3 calls, reduced its 2020 forecast down another 100,000 b/d to +600,000 b/d for 2020. Goldman is now close to the RBC & RJ forecasts of +500,000 b/d in 2020.

IHS Markit – US production growth “heading for a major slowdown”

Last week, the new IHS Markit outlook [LINK] for oil forecasts US oil production growth of 440,000 b/d in 2020 “before essentially flattening out in 2021”. IHS attributes the main challenge for growth is the investor focus on producers living within cash flow, and they write ““The combination of closed capital markets and weak prices are pulling cash out of the system … Investors are imposing capital discipline on E&P’s by pushing down equity prices and pushing up the cost of capital

More calling for lower 2020 US oil growth

http://www.safgroup.ca/wp-content/uploads/2019/10/Energy-Tidbits-Oct-27-2019.pdf

https://news.ihsmarkit.com/press-release/energy/us-oil-production-growth-heading-major-slowdown-capital-discipline-and-weak-pri


14

Energy Tidbits

on debt markets”. HIS primarily attributed the lower US oil growth to capital pullback, but also made a small mention of limited visibility to future productivity gains. They wrote “Operators were able to outperform the price collapse in 2015-2016 because they were able to vastly outspend cash flow thanks to accommodative debt and equity markets, while at the same time achieving huge leaps in well productivity and capital efficiency … This time around, capital markets are skeptical and wary, and the scope for further productivity gains is limited.” Our Supplemental Documents package includes the IHS release.

So far, only seen one (Citibank) not join the rush to lower US oil growth We don’t see all sell side analyst US oil forecasts. If anyone sees other forecasts, we will certainly include in our running table regardless if the are lower or higher. Below is a table showing some current US oil production growth forecasts from major banks and agencies.

Figure 16: US Oil Production Growth Forecasts

Source: Sellside Research, HIS

Oil – Gartman includes good commentary why API vs EIA weekly oil estimates

Dennis Gartman may not call himself an oil expert, but he always finds a way to include some excellent oil comments and views in “The Gartman Letter”. On Friday, he had an excellent piece explaining some of the key reasons why there is a different in the weekly EIA vs API oil inventory data and also in explaining some of the estimates used in the EIA weekly oil inventory data. Gartman highlighted comments from Phil Flynn based on Flynn’s discussion with Robert Merriam from the EIA. According to Merriam, the EIA collects and validates data for refinery runs, imports, and inventories, but for exports they rely on raw Customs data which is then used to estimate weekly exports. Meeriam said “Unlike most of the data we publish each week that is collected and validated by EIA directly, including refinery runs, imports, and inventory data, for exports EIA relies on raw Customs data reported that is shared with us to estimate weekly exports. But the key point here is that both exports and imports are reported in the reporting week that they clear U.S. Customs”. The issue is that for oil import data, clearing US Customs is not based on the physical location of the vessel, and imports can clear US Customs while their ship is several days from its US destination point in order to avoid demurrage fees if they have to sit at the port. This brings up timing differences between the EIA and tracking firms, if the tracking firms define an “import” based on when the ship arrives at port. Merriam said “Third, the ship tracking firms are only tracking what they can observe but cannot access accurately what’s moving via pipeline and/or rail in real-time”. Another important point is the EIA is now dealing with very large volumes of exports and imports, meaning vessel timing around the EIA’s weekly reporting deadline of Friday at 7:00am EST can result in large variances on a week to week basis. And the piece also notes some of the estimates use in coming up with the EIA’s weekly oil inventory data. It’s a good commentary on why there will be week to week variances and why the EIA encourages using 4 week averages to determine trends in the oil data elements, as these

Firm Date 2019 2020 2021

Goldman 11-Nov 1.1 0.6 n.a.

IHS Markit 06-Nov n.a. 0.44

"essentially

flattening out"

Citbank 23-Oct 1.2 1.1 n.a.

Goldman 22-Oct 1.1 0.7 n.a.

RBC 21-Oct 1.13 0.5 0.45

RJ 14-Oct 1.3 0.5 0.8

EIA vs API

weekly oil

differences


15

Energy Tidbits

timing discrepancies generally even out over a longer time horizon. Our Supplemental Documents package has excerpts from the Gartman Letter.

Oil – Carbo reminds producers are squeezing services on costs

We thought the Carbo Ceramics Q3 call on Mon earlier today was good as its comments on their revised game plan are relevant to more than their specific frack sand problem ie. its relevant to the US tight/shale sector. It reinforces what we have said, but the producers have not said – the US producers being forced to live within cash flow are trying to stretch cash flow capex budgets and are squeezing the service sector for lower costs! And we just don’t believe it is only for the frackers and frack sand providers. Carbo shares were down $0.74 (down 47.4%) driven by the going concern note with the notification that its major customer intends to discontinue frack sand purchases under the existing contract. They are having discussions with the client to see about some sort of alternate arrangements. Mgmt said “We were also notified after the quarter ended that our largest frac sand client intends to discontinue purchases of frac sand under our current contract. We are in discussions with this client to determine if there's an agreeable alternative to this matter.” Relevant to US tight/shale sector. When we read their comments a few thoughts came to mind. Carbo has shifted from US tight/shale to “better reservoir” rock outside the US. they didn’t say it was because US tight/shale wasn’t working. Rather, when you link their comments, we think the implied message is that as long as the producers are being forced to live within cash flow, they will be trying to stretch cash flow to get more done with less and that means there will be continued squeezes on the service sector. And if so, then an already hit service sector is going to get squeezed further. We don’t know any other takeaway from their comment that the major customer said they aren’t taking any frack sand under the existing contract, but they are trying to find alternative arrangements. And when you think about the comments from the frackers, it links to this squeeze. We have been noting the Q3 producer calls on how they will be doing more with less in 2020. Part of that is increased efficiency, but we have been commenting that we have to believe the service sector will be squeezed. Throw on top of that Carbo’s shift from US tight/shale to “better reservoirs” outside the US, is a reminder that the full cycle costs (including operating costs like water disposal) is why the US shale/tight will have to keep squeezing on costs as long as they are restricted to cash flows. Carbo’s comments today reinforce that squeeze. One of Carbo’s comments was “On the challenges side, I think it's really clear. The U.S. onshore oilfield market is very tough. A low-quality reservoir rock combined with low oil and gas commodity prices has resulted in little or no returns for the industry. And that means activity pricing and the use of technology products is likely lower”. Our Supplemental Documents package includes excerpts from the Carbo Q3 call transcript.

Oil – Keystone oil pipeline restarted on Tues

Keystone pipeline restarted on. Last week’s (Nov 10, 2019) Energy Tidbits highlighted the late Friday Bloomberg late Friday night story “PHMSA Receives Keystone Pipeline Restart Plan, Has No Objection” “Regulatory agency has received return to service plan for Keystone pipeline submitted by TC Energy and has no objection to the plan, according to person familiar with situation.” And we had unconfirmed reports that a restart was any day. The story was correct and Keystone restarted early this week at 20% less pressure. Keystone’s capacity is 590,000 b/d.

Carbo gets squeezed by its major customer

Keystone oil

pipeline was

restarted


16

Energy Tidbits

Figure 17: Keystone Pipeline And Edinburg Oil Spill

Source: CBC, TC Energy

Oil – Oil input into refineries up 154,000 b/d to 15.916 mmb/d

For the Nov 8 week, EIA estimates crude oil inputs to refineries were up 154,000 b/d to 15.916 mmb/d. Overall crude inputs are now 516,000 b/d lower YoY, which is largely driven by PADD 3 refinery maintenance (PADD 3 inputs are -480,000 b/d YoY), along with the closure of the PES Philadelphia refinery complex (335,000 b/d) following the Q2 fire. We would expect to crude inputs to rise higher as we move into year end. Refinery utilization was up 1.8% this week to 87.8%. Below is our graph of the EIA weekly crude oil input to refineries.

Figure 18: US Refinery Crude Oil Inputs (thousand b/d)

Source: EIA, SAF

Oil – US “NET” oil imports down 589,000 b/d to 3.117 mmb/d

US “NET” imports were down 589,000 b/d to 3.117 mmb/d this week. US imports were down 327,000 b/d to 5.750 mmb/d and US exports were up 262,000 b/d to 2.633 mmb/d. Some items to note on the by country data. (i) Canada was down 507,000 b/d to 3.009 mmb/d for

Oil input into

refineries up

154,000 b/d

US NET oil

imports down

589,000 b/d


17

Energy Tidbits

the Nov 8 week, which was expected with the Keystone shutdown. Although Keystone has restarted, we expect the outage to keep Canada lower next week, given it takes a few weeks for Hardisty barrels to reach the US border. (ii) Saudi Arabia was up 169,000 b/d to 346,000 b/d for the Nov 8 week, which puts the country closer to, but still below its 2019 average of 520,000 b/d. (iii) Ecuador was up 86,000 b/d to 214,000 b/d. (iv) Iraq was -24,000 b/d to 259,000 b/d. (v) Venezuela remained at 0 due to US sanctions. (vi) Mexico was -101,000 b/d to 438,000. (vii) Nigeria was up 182,000 b/d to 320,000 b/d. Below is our table of US imports by country.

Figure 19: US Weekly Preliminary Oil Imports By Major Countries

Source: EIA, SA

Oil – OPEC MOMR: Assumes US oil growth +1.50 mmb/d YoY in 2020

OPEC released its Monthly Oil Market Report on Thurs. (i) We see the overall message is a relatively unchanged view including the big near term oil issue of the normal seasonal oil demand drop in Q1/20 vs Q4/19. There is also the full 2020 issue of non-OPEC oil supply growth is higher than oil demand growth, and the big wildcard being US oil supply growth in 2020, with OPEC still assuming US oil growth of 1.50 mmb/d YoY in 2020. (i) Overall Oct production was up 943,000 b/d to 29.650 mmb/d per “secondary sources” vs 28.707 mmb/d in Sept. Saudi Arabia was +1.094 mmb/d to 9.890 mmb/d, but still 421,000 b/d below quota. This is the recovery from the Abqaiq attack on Sept 14, and there is no commentary on the Saudi oil production levels, ie. nothing on the point from the Aramco prospectus that Abqaiq crude processing is not yet back to pre attack levels. (ii) Iran is basically unchanged at 2.146 mmb/d in Oct vs 2.164 mmb/d in Sept. Iran’s production continues to hang in there and the ongoing question is where is the oil going. (iii) Iraq down 42,000 b/d to 4.690 mmb/d in Oct. But it is still the biggest cheater at 178,000 b/d above quota. (iv) Nigeria down 37,000 b/d to 1.811 mmb/d, still the second biggest cheater at +126,000 b/d over quota. (v) Libya holding steady at 1.167 mmb/d in Oct, basically unchanged vs Sept. (vi) Venezuela was +43,000 b/d to 687,000 b/d. Venezuela dipped below 700,000 b/d in Sept and this is moving back towards that level. (vii) Ecuador was down 100,000 b/d due to the protests, but should be back up in Nov. Reminder that Ecuador is leaving OPEC at the end of 2019. (vii) Oil demand growth forecasts are unchanged in 2019 and 2020. We would have expected a lowering of oil demand growth for 2020, but that wasn’t the case and, in the write up, OPEC didn’t warn of a risk to the downside for demand. 2019 oil demand growth is +0.98 mmb/d to 99.80 mmb/d, and 2020 is +1.08 mmb/d to 100.88 mmb/d. For 2020 demand, OPEC writes “Other Asia and China are assumed to be the largest contributors to oil demand growth with a combined addition of 0.68 mb/d. The OECD is projected to increase by 0.07 mb/d. Non-OECD is assumed to be the largest contributor to oil demand growth, rising by 1.01 mb/d”. The key near term issue remains that we are closing in on the seasonally lower quarter for oil demand, which will get more attention as we move towards year end. We always highlight this seasonal trend – oil demand drops in Q1 vs Q4. OPEC forecasts Q1/20 oil demand of

Sept 13/19 Sept 20/19 Sept 27/19 Oct 4/19 Oct 11/19 Oct 18/19 Oct 25/19 Nov 1/19 Nov 8/19 WoW

Canada 3,483 3,438 3,306 3,405 3,276 3,469 3,758 3,516 3,009 -507

Saudi Arabia 451 631 470 350 390 452 605 177 346 169

Venezuela 0 0 0 0 0 0 0 0 0 0

Mexico 429 826 331 524 522 264 762 539 438 -101

Colombia 643 71 213 72 538 74 66 200 337 137

Iraq 358 190 286 519 181 281 123 283 259 -24

Ecuador 306 122 243 221 98 137 418 128 214 86

Nigeria 223 0 180 411 152 82 0 138 320 182

Kuwait 0 0 0 0 0 0 0 0 0 0

Angola 0 0 0 0 70 48 0 114 0 -114

Top 10 5,893 5,278 5,029 5,502 5,227 4,807 5,732 5,095 4,923 -172

Others 1,157 1,100 1,262 722 1,068 1,050 965 982 827 -155

Total US 7,050 6,378 6,291 6,224 6,295 5,857 6,697 6,077 5,750 -327

OPEC sees US

oil growth +1.50

mmb/d in 2020


18

Energy Tidbits

99.78, which is down 1.17 mmb/d QoQ from Q4/19, and at the same time non-OPEC oil supply increases +0.43 mmb/d QoQ and reinforces the issue of surplus. (viii) The challenge for 2020 oil markets remains the same, non OPEC oil supply growth far exceeds demand growth. OPEC forecasts non-OPEC oil supply growth in 2020 of +2.17 mmb/d YoY vs oil demand growth of +1.08 mmb/d YoY. OPEC has been complying, but oil inventories are still high, as OPEC estimates Sept 30 OECD commercial oil stocks were 2,945 mmb, which is 23.5 mmb lower MoM, but still +87.7 mmb YoY and +28.2 mmb vs the 5 vs average. (ix) No change to call on OPEC. OPEC writes “Demand for OPEC crude in 2019 was unchanged from the previous report to stand at 30.7 mb/d, which is 0.9 mb/d lower than the 2018 level. Demand for OPEC crude in 2020 also remained unchanged from the previous report to stand at 29.6 mb/d, which is around 1.1 mb/d lower than the 2019 level”. Our Supplemental Documents package includes excerpts from the OPEC MOMR.

Figure 20: OPEC MOMR Secondary Sources 2019

Source: OPEC

Oil – IEA OMR Nov: Same Challenges, Q1/20 Oil Surplus, and 2020 Oil Surplus

The IEA published its monthly Oil Market Report on Fri morning. They only release very limited public info, but, fortunately, the Bloomberg terminal provides the key data tables and

several insights in its IEA OMR wrap. On Fri, we tweeted [LINK] “Thx Bloomberg IEA OMR

report wrap. Challenges with oil surplus (a) 1.9 mmb/d in Q1/20 vs Q4/19, demand -1.3 mmb/d, non-OPEC supply +0.6 mmb/d (b) in 2020, non-OPEC supply +2.17 mmb/d vs #Oil demand +1.08 mmb/d YoY. #OOTT”. We think the overall message is a relatively unchanged view including the near term oil issue being the normal seasonal oil demand drop in Q1/20 vs Q4/19 coupled with non-OPEC supply growth. (i) No change to oil demand growth forecasts of +1.0 mmb/d in 2019 and +1.2 mmb/d in 2020. However, it seems like the forecast is contingent on a US/China trade deal at the start of 2020, and they note the current forecasts are too high if the trade dispute continues. The EIA writes “For 2020, our estimate for oil demand growth is unchanged at 1.2 mb/d, based partly on the International Monetary Fund’s expectation of 3.4% GDP growth. However, the health of the global economy remains uncertain in spite of recent positive news about the US-China trade dispute. This year, we are seeing a big difference in demand growth in the two biggest oil markets. In the US, there has been almost no growth in the first three quarters of 2019, while China has grown by 0.6 mb/d on average. Moving into 2020, US growth is expected to pick up to 190 kb/d while China slows to 375 kb/d”. And Bloomberg wrap noted “If current trade tariffs are maintained, global oil demand next year will be ~400k b/d lower than without tariffs, the International

IEA OMR same

challenges for

Q1/20 2020



19

Energy Tidbits

Energy Agency said in its Oil Market report released Friday”. (ii) The IEA forecast presents the same two key challenges, Q1 surplus and overall 2020 surplus. Q1/20 oil demand is down 1.3 mmb/d QoQ vs Q4/19, and Q1/20 non-OPEC supply is +0.6 mmb/d QoQ vs Q4/19. This means there is 1.9 mmb/d more oil surplus in Q1/20 vs Q4/19. For 2020 OPEC forecasts non-OPEC oil supply growth of +2.3 mmb/d YoY vs oil demand growth of +1.20 mmb/d YoY. The net surplus is why OPEC+ needs to keep cuts thru 2020 and likely at deeper levels. The wildcard remains how much will the US oil supply grow in 2020. The limited IEA info does not split out the US from its forecast for the Americas to be +1.40 mmb/d YoY in 2020. (iii) Positive to oil storage. OECD oil stocks at Sept 30 now +21.5 mmb above 5 yr ave (was +43.1 mmb at Aug 31) and floating storage fell in Oct overall, but Iran floating storage VLCCs increased. The EIA wrote “Floating storage of crude oil fell 6 mb in October to 64.1 mb. The number of Iranian VLCCs used for storage increased by 1 to 27”. (iv) The EIA reversed last month’s lowering in its forecast for global refinery runs. One of the themes in last month’s Oct OMR was how the IEA revised down its estimates for global refinery runs in 2019 and 2020. But this month, Bloomberg wrote “Global refining throughput in 2020 will rise by 1.3m b/d y/y to 83.6m b/d, IEA says in monthly Oil Market Report. * That’s a revision of 125k b/d from last month’s report as the IEA boosted its forecast for China which reported record runs for September”. Our Supplemental Documents package includes the IEA release and Bloomberg Report Wrap stories and tables.

Figure 21: IEA OMR OPEC Oct 2019 Production Vs Quota Cut Levels

Source: IEA, SAF

Oil – Iraq Grand Ayatollah warns Iraq will never be the same after the protests end

Yesterday we tweeted [LINK] on Iraq’s Grand Ayatollah Ali Sistani’s sermon on Friday. We need to keep an increasing watch on Iraq. Its far from clear where the Iraq protests will lead, will the spreading of the protests impact Iraq’s oil operations and exports, and what will Iraq look like post the end of the protests. To date, there has been no reports of impact on Iraq oil exports. But the one thing that became clear on Friday night is that the protests are likely to keep growing. On Friday, Al Jazeera and others reported on the Grand Ayatollah Ali Sistani’s Friday sermon that showed his support for the protests and a warning that Iraq will never be the same post the protests. Sistani said “"If those in power think they can evade dealing with real reform by procrastination, they are mistaken," "What comes after the

Iraq Grand

Ayatollah

supports protests



20

Energy Tidbits

protests is not the same as before, so be careful." Our Supplemental Documents package includes the Al Jazeera story. [LINK]

Oil – Iran Ayatollah Khamenei warns “our dear people” about joining the protests

As of our news cut off of 9am MT (730pm Tehran time) the latest reports on the protests is as of last night and consistent reporting that protests were increasing. The protests are from the government raising of gasoline prices. It will be interesting to see if protests reverse that trend post Khamenei’s comments today. Earlier this morning, we tweeted [LINK] on Iran’s Supreme Leader Ayatollah Khamenei’s comments today on Iran’s protests. Our tweet noted that Khamenei’s comments on Iran’s protests is the direct opposite of Iraq’s Sistani’s comments on Friday. Iran’s PressTV story “Iran's Leader supports government's gas price hike” included warnings to Iranians about the protests, whereas Sistani clearly supported the protests and warned that Iraq will not be the same after the protests. Today, Khamenei clearly said he supports the gasoline price hike that has been the start of the protests. And referenced the protestors, Iran’s PressTV reported “Ayatollah Khamenei warned that violence orchestrated by certain parties could infiltrate peaceful protests and foment sedition. "In such incidents, hooligans, spiteful and evil people often enter the field and sometimes some youths, driven by emotion, accompany them and commit seditious acts. Such deeds do not fix anything other than adding insecurity to the problems." And in a direct opposite to Sistani, Khamenei warned citizens about the protests. PressTV wrote “"No one should help these thugs," Ayatollah Khamenei said. "No wise and decent man who is interested in his own country and his own comfortable life should help them. They are hoodlums and these acts are not what ordinary people will do." "Our dear people, who have fortunately shown their insight in various cases before, should know who are behind these bitter events and how they are. They should know who are orchestrating [such acts as] torching, destruction, feud and insecurity. They should beware of them and distance themselves from them," the Leader added.” Our Supplemental Documents package includes the PressTV story. [LINK]

Oil – Aramco IPO price range reflects $1.6 to $1.7T valuation

Earlier this morning, we tweeted [LINK] “Aramco IPO pricing range set $1.6 to $1.7T. Banks “win” being <$2T MBS target, MBS “consolation” win to at least force $1.7T top end. One IPO change, no availability under Rule 144A or Reg S due to reported lack of international demand ie. no need.” Today, Saudi Aramco released the IPO pricing range that reflects a valuation of $1.6 to $1.7 trillion. We expect that the final price will be the high end ie. $1.7 trillion. We did not do a formal valuation, but this would be in line with our valuation expectations that we noted in our Nov 3, 2019 Energy Tidbits. We then wrote “On the big stumbling block of getting to the MBS $2 trillion valuation, we have to believe the Saudis have given in on their $2 trillion valuation. So when we look at all the reports Sat that the bankers were thinking more towards $1.5 trillion, it made us remember our banking 101 lessons and that this is the trying to change the narrative from a failure to get to $2 trillion to set the bar lower such that a deal that ultimately prices Aramco at $1.7 or $1.8 trillion ends up being a surprise to the upside and not a disappointment. They are going out marketing and will have the price discussion later. It would be interesting to hear what the bankers are saying in their one on one meetings”. It looks like tour old banking 101 lessons were applicable. One IPO change was due to the reported lack of international interest. Reuters wrote “In its original prospectus, published on Nov. 9, Aramco said the domestic IPO would be made to institutional investors outside the United States according to Regulation S of the United States Securities Act of 1933, and inside the United States under the Rule 144A of the U.S. Securities Act. But on Sunday in an addendum to the IPO prospectus Aramco said that it had removed any reference to such regulations, which three people familiar with the matter

Aramco IPO

valuation $1.6 to

$1.7T

Khamenei warns

Iranians about

joining the

protests

https://www.aljazeera.com/news/2019/11/protests-iraq-top-shia-leader-calls-election-law-191115100830021.html


https://www.presstv.com/Detail/2019/11/17/611382/Iran-Ledaer



21

Energy Tidbits

said suggested there would not be any international roadshows to market the shares”. Our Supplemental Documents package includes the Reuters story. [LINK]

Oil – No surprise, biggest Venezuela rally post Bolivia Morales resignation

We should get some return to watching Venezuela to see if Guaido can regain some momentum for a regime change and, most of all, any chance for the army to switch teams from Maduro to Guaido. Last Sunday (post our news cut off for the Nov 10, 2019 Energy Tidbits), Bolivia’s Evo Morales resigned as President following weeks of protests. The suddenness may have surprised but not after seeing the army stopped supporting Morales. It immediately brought hope to those wondering if the army would ever desert Venezuela President Morales. And no one was surprised to see that it was the largest Venezuela protest/rally in some time poar Morales resignation and also the Trump White House Nov 11 statement [LINK]. The White House statement said “The resignation yesterday of Bolivian President Evo Morales is a significant moment for democracy in the Western Hemisphere. After nearly 14 years and his recent attempt to override the Bolivian constitution and the will of the people, Morales’s departure preserves democracy and paves the way for the Bolivian people to have their voices heard. The United States applauds the Bolivian people for demanding freedom and the Bolivian military for abiding by its oath to protect not just a single person, but Bolivia’s constitution. These events send a strong signal to the illegitimate regimes in Venezuela and Nicaragua that democracy and the will of the people will always prevail. We are now one step closer to a completely democratic, prosperous, and free Western Hemisphere.” It all comes down to the army. We don’t think anyone doesn’t believe Maduro is well aware of the critical need to keep the army on his team. But we have to believe the army turning on Morales will at least be a wake up call to Maduro to keep the army on his team. And it was obviously a wake up for Guaido to try to rebuild momentum for changes.

Oil – BHP’s bullish view on oil only assumes global decline rate of 3%

Last Sunday night, we tweeted [LINK] on BHP’s (Monday local times) “Petroleum Briefing”. BHP had posted the slides, but the transcript wasn’t available until Tues afternoon. BHP had a positive view on oil and described it as “Compelling long run supply-demand fundamentals”. We noted that their basic thesis was in in line with our summer blogs that base global declines will lead to a supply gap under all scenarios including peak oil demand. “supply-demand gap exists across all demand cases, even after an eventual peak” “perpetual natural field decline leads supply to decline faster than demand” “Compelling long run supply-demand fundamentals”. What we didn’t know last Sunday night was what decline rate BHP assumed in their analysis. On Tues, we saw the transcript and we were surprised by the low decline rate assumed in BHP’s bullish outlook for oil. BHP said “Let me move to the oil and supply story. We model global natural field decline conservatively at 3% per year. That decline rates, half of the today supply will need to be replaced by 2035.” Our Supplemental Documents package includes excerpts from the BHP transcript and slide deck.

BHP bullish oil

view only

assumes 3%

decline rate

Guaido tries to

rebuild

momentum post

Morales

resignation

https://uk.reuters.com/article/uk-saudi-aramco-ipo-idUKKBN1XR07I?taid=5dd130a6f2edda0001e9f659&utm_campaign=trueAnthem%3A+Trending+Content&utm_medium=trueAnthem&utm_source=twitter

https://www.whitehouse.gov/briefings-statements/statement-president-donald-j-trump-regarding-resignation-bolivian-president-evo-morales/



22

Energy Tidbits

Figure 22: Long Term Global Liquids Supply Outlook mmb/d

Source: BHP

Imagine if BHP used Wood Mackenzies 4.5% or Exxon’s 7% decline rate We were surprised to see that BHP’s “compelling” oil supply/fundamentals only assumes a 3% natural decline rate. We wonder what adjective they would use if they had assumed a global decline rate equal to Wood Mackenzie’s 4.5% decline rate or Exxon’s 7% decline rate. Our Oct 6, 2019 Energy Tidbits highlighted a slide from Cenovus investor day slide deck that included the Wood Mackenzie estimated global oil decline rate of 4.5%. We highlighted Exxon’s ~7% estimated decline rate in our June 20, 2019 blog “Exxon’s Math Calls For Overall Global Oil Decline Rate of ~7%, A Very Bullish Argument For Post 2020 Oil Prices”. There is a huge difference to the global oil challenge to grow oil supply between BHP at 3%, Wood Mackenzie at 4.5% and Exxon at 7%. And this a decline rate every year. At Exxon’s 7% decline, the world needs to add ~7 mmb/d of new oil production every year to stay flat. And then throw another 1 mmb/d on top of that to meet oil demand growth. Lastly, the Exxon vs Wood Mackenzie is an interesting comparison because, arguably, we should have likely the most informed consultant view and the most informed oil company view. We have to believe Exxon’s presence in most major basins/countries gives it a particular insight that no other oil company has. In particular insights from its significant presences in the Permian, pre Salt Brazil, Russia, Saudi Arabia, deepwater Africa, oil sands, etc. It makes sense that Exxon should have good perspective on global declines”. Wood Mackenzie should be in every basin, but from a consultancy role. When we see an Exxon come out with 7%, they are essentially telling investors there is a big challenge for Exxon and the sector, and also we think they want to have the best estimate possible for them to decide how and where to allocate capital and where they think they can actually get to in a plan. We believe that we will start to see estimates coalesce around a higher decline rate and that will typically happen in the spring when we start to see the annual supermajor outlooks. Below is the Cenovus slide with the footnote referencing the Wood Mackenzie 4.5% decline rate. Our Supplemental Documents package includes our Exxon blog.


23

Energy Tidbits

Figure 23: Wood Mackenzie Global Supply Decline Rate 4.5% Per Annum

Source: Cenovus

Oil and Natural Gas – Another tough year as CAODC forecast almost zero change

No question, the Cdn E&P space is struggling due to egress issues, lack of access to capital, and ESG issues just to name a few. As expected, this translates to lower drilling activity as companies cut spending and attempt to live within cash flow. This week, CAODC released its 2020 drilling forecast [LINK] which forecasts almost zero change in 2020 vs 2019. The CAODC forecasts 2020 wells drilled of 4,905, up just +9 from 2019 of 4,896 and the rig fleet is forecast to fall 47 rigs to 497. The CAODC also measures the impact on employment, assuming 20 direct jobs per rig and 155 indirect jobs per rig. Therefore, total jobs are basically flat in 2020 vs 2019, but are down 13,731 from 2018. We should also note the forecast is based on 2020 WTI of $65 USD and AECO of $2.19 CAD, meaning 2020 wells drilled may actually fall below 2019 if commodity prices fall below the forecast. In the release, the CAODC comments on the weakened sentiment towards Cdn oil and gas, and the relocation of rigs to the US. They write, “Since 2017 the industry has lost an estimated $30 billion in foreign capital, and companies continue layoffs and relocation efforts. CAODC members have moved 29 high-spec drilling rigs, several service rigs, and associated personnel to the United States in order to find work and generate cash flow”. Below is a table of operating days and wells completed from the CAODC. Our Supplemental Documents package includes the CAODC forecast.

CAODC forecasts

almost no change

in 2020 wells

drilled

https://caodc.ca/content.asp?admin=Y&contentid=321


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Energy Tidbits

Figure 24: Operating Days And Wells Drilled

Source: CAODC

Oil and Natural Gas – Reminder why US states dominate provinces for oil policy

The Fraser Institute published its “Canada-US Energy Sector Competitiveness Survey 2019” [LINK] which ranks Canadian and US jurisdictions based on barriers to investment in exploration and production. The survey reinforces why the US attracts oil capital, as investor uncertainty regarding environmental regulations, taxation, and regulatory inconsistencies are a larger concern in Canada vs US. No surprise, US states, particularly Texas and Oklahoma rank at the top, and none of the top 10 most attractive jurisdictions are in Canada. Saskatchewan was the highest ranking Cdn province with a score of 50.83 (out of 100), while Alberta’s score was just 36.49 and ranks 16/20 for North American jurisdictions. Two interesting tidbits are the lowest ranking jurisdictions, second last being BC and the worst is Colorado. The Colorado ranking reinforces our concern this year from the Senate Bill 181 which overhauled the state’s regulatory body for the o&g industry. Another interesting point was regional differences in uncertainty over environmental regulations. Only 9% of respondents in Texas and 12% in Oklahoma said environmental regulations was a deterrent to investment, while 94% of respondents in BC and 80% in Alberta cited this as a deterrent. Below are the rankings from the survey. Our Supplemental Documents package includes excerpts from the Fraser report.

Figure 25: Fraser Canada-US Policy Perception Index Ranking

Source: Fraser Institute

US states

dominate

provinces for oil

policy

https://www.fraserinstitute.org/sites/default/files/2019-canada-us-competitiveness-survey.pdf


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Energy Tidbits

Electricity – Uniper “foreseeable shortage of reliable electricity” in Germany

Uniper, a Germany energy/power company, held its Q3 call on Thurs morning local time. (i) We looked at Uniper to see if they had any comments on Pieridae or a long term view on LNG and there was nothing in the Q3 or call. (ii) Uniper’s call was before the Germany cabinet was making its reputation on the coal power phase outs. It just so happened that shortly after th call, there were reports such as Reuters [LINK] on the draft law that was expected to be approved by the German cabinet this week. Reuters reported “The German government will not force hard coal power plants to close over the next seven years, a draft law expected to be approved by the cabinet next week showed on Tuesday. The plan not to force hard coal plant closures before 2026 risks making Germany’s coal exit more expensive as the government would have to give operators generous financial incentives to shut down facilities voluntarily. (iii) The interesting part of the call was Uniper saying “Foreseeable shortage of reliable electricity”. Uniper doesn’t put blame on the shift to renewable, but what else could it be? We still believe that, at least for the next few years, the shift to high percentages of renewables won’t provide available, reliable and affordable electricity. There really can’t be any other reason for Uniper to say this other than the shift to renewables and Germany’s move out of coal and nuclear – two of the most reliable and affordable base electricity power. Uniper said “So, what's the big picture? The underlying upward trend in electricity and EU allowance prices remains intact in our view. The foreseeable shortage of reliable electricity capacities should be leading to a rising risk premium. This has been showing up in the clean dark and clean spark spreads, which have recovered from their lows”. (iv) Nord Stream 2. Uniper did not have any special insight of when, in 2020, Nord Stream 2 would be in service. (v) Natural gas storage is full. Uniper noted that its gas storage was full as was Europe going into the winter. Our Supplemental Documents package includes excerpts from the Uniper Q3 call transcript and Q3 slide deck.

Capital Markets – Increasing impact of ESG on European capital providers to oil & gas

There should be no doubt that ESG (environment, safety, governance) is becoming an increasing factor in less capital being provided to the oil and gas sector. This seems to be advancing at fast speeds for European capital providers but it is also increasing in North America. This week, we saw two good examples in Europe. (i) On Thurs, the FT reported [LINK] “EIB to phase out lending to fossil fuel projects by 2021. First major multilateral lender to curb natural gas funding over climate concerns. The new policy came at a marathon board meeting on Thursday after months of wrangling between the EU lender’s national shareholders.The European Investment Bank has agreed to phase out lending for all fossil fuel projects, including mainstream gas-fired power plants, the first time any major multilateral lender has curbed lending to natural gas projects because of climate change concerns.” The interesting (and different) aspect of this week’s decision is to include natural gas funding. (ii) On Wed, Sweden’s central bank, Riksbank, speech included their comment that they have sold Alberta bonds due to Alberta’s large climate footprint. Riksbank said “On the other hand, the Riksbank can make an overall assessment of how the states work to achieve a sustainable climate and can reject issuers with a large climate impact. “We have therefore recently sold holdings of bonds issued by the Canadian province of Alberta and the Australian states of Queensland and Western Australia”. Below is the Riksbank slide. Our Supplemental Documents package includes the FT EIB story, Riksbank release and slides from the Riksbank Nov 13 speech.

“foreseeable

shortage of

reliable

electricity” in

Germany

Increasing ESG

impact on oil and

gas

https://www.reuters.com/article/climate-change-germany-coal/no-forced-hard-coal-power-plant-closures-before-2026-german-draft-law-idUSS8N27H01B

https://www.ft.com/content/cc78d838-0720-11ea-a984-fbbacad9e7dd


26

Energy Tidbits

Figure 26: Riksbank Climate Footprint For Canada and Australia

Source: Riksbank

ESG is an increasing factor in capital provided to North Amerian oil and gas Our March 3, 2019 Energy Tidbits highlighted the S&P team’s Midstream Refining and Oil & Gas Breakfast Forum on March 1. The presentation included great S&P credit insights on Cdn oil and gas/midstream including ESG factors on credit ratings. Note that of ESG, Environmental reasons are the key factor as noted in the below chart from the March 1 presentation. Our recap included an item on ESG, when we wrote “(iii) Environmental, safety and governance (ESG) has been below the radar for many. S&P notes that ESG is becoming an increasing factor in the actual credit rating. They said ESG was referenced in 1,325 ratings, and ESG was a ratings driver in 225 ratings split 106 for environmental, 77 for governance and 42 for social reasons. ESG is only gong to increase in impacting ratings. Interestingly, S&P said it has not yet been a factor in any Cdn oil and gas ratings. We think its coming though. It was also interesting to hear the description of an ESG evaluation. It’s a cross sector relative analysis of an entity’s capacity to operate successfully in the future and is grounded in how ESG factors could impact affect stakeholders and potentially lead to a material direct or indirect financial impact on the entity. It focuses on data specific to ESG concerns as opposed to credit concerns, financial materiality as opposed to risks to lenders. long term view as opposed to a 3 to 5 yr forecast, incorporates unlikely events (ie black swan events), incorporates a company’s preparedness for emerging risks. This was very interesting.”


27

Energy Tidbits

Figure 27: ESG in Credit Ratings

Source: S&P

Capital Markets – Peak oil demand already impacting long term capital allocators

One of the other big oil debate items is when peak oil demand will hit. The reality is that it isn’t when the absolute peak or start of plateau oil demand hits, but when the rate of oil demand growth is small ie. less than something like 200,000 to 300,000 b/d per year. We think it is post 2030. But clearly others believe it happens sooner and it is impacting some long term capital allocators to oil and gas because they don’t want to be looking for liquidity in when that low oil demand growth hits. We say capital allocators as that also includes oil and gas companies and we believe it is a key reason why the supermajors are moving to short cycle development. But it also impacts investor capital allocation today. This week, we heard from multiple financial contacts that one example is capital allocators to traditional private equity energy funds that look to invest and realize liquidity in their investments in a 5 to 7 year horizon. The concern being that in the 2025 to 2027 period, there will be visibility that peak oil demand or very low oil demand growth rates is near and some long term investors are concerned that sets the stage for a weaker backdrop for liquidity of private equity energy investments.

Capital Markets – Cdn tax loss selling season starting

We are now moving into Cdn tax loss selling season. It is getting more air time on BNN Bloomberg PM guests who, of course, have noted oil and gas stocks as key candidates, but also are highlighting cannabis stocks as a first choice. Its been interesting to chat to some advisors in Calgary this week, who are saying at least they have a chance to get some, not as much as the old days, but at least some volume in stocks

Climate Change – Lancet Countdown 2019 climate change report released

The 2019 version of the “Lancet Countdown” [LINK] on climate change was released on Wed. This is a collaboration of 30 institutions including the World Bank and the World Health Organization. The data is as of the end of 2016, but it is an interesting (but not easy) read for those interested in climate change factors. The FT headline was “Air pollution to kill millions more people as climate crisis worsens”. The FT headline was on the report “These effects accumulate over time, and into adulthood, with global deaths attributable to ambient fine

Lancet 2019 climate

change report

Cdn tax loss

selling season

Peak oil demand

impacting long

term capital

allocators

https://www.thelancet.com/action/showPdf?pii=S0140-6736%2819%2932596-6


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Energy Tidbits

particulate matter (PM2·5) remaining at 2·9 million in 2016 (indicator 3.3.2) and total global air pollution deaths reaching 7 million”. There are many good insights throughout the 43 page recap. One example is that “The population-weighted temperatures continue to grow at a substantially faster pace than the global average, increasing the human health risk. The global average population-weighted temperature has risen by 0·8°C from the 1986–2005 baseline to 2018, compared with a global average temperature rise of 0·2°C over the course of the same time period.” It was also interesting how “For 2019, a new metric tracking exposure to wildfires has been added (indicator 1.2.1” Again, its an interesting picture as it’s a map that shows wildfire exposure as we didn’t realize how countries like India have huge wildfire exposure.

Figure 28: Average Annual # of Days People Were Exposed to Wildfires in 2018

Source: Lancet Countdown

Energy Tidbits – Now on Twitter

For new followers to our Twitter, we are trying to tweet on breaking news or early views on energy items, most of which are followed up in detail in the Energy Tidbits memo or in separate blogs. Our Twitter handle is @Energy_Tidbits and can be followed at [LINK]. We wanted to use Energy Tidbits in our name since I have been writing Energy Tidbits memos for over 19 consecutive years. Please take a look thru our tweets and you can see we aren’t just retweeting other tweets. Rather we are trying to use Twitter for early views on energy items. Our Supplemental Documents package includes our tweets this week.

Energy Tidbits – Sign up on our email distribution for tidbits and blogs

For those interested in receiving out Energy Tidbits memos and blogs, please go to our blog sign up. We will be using the blog notification list for Energy Tidbits. The blog sign up is available at [LINK].

LinkedIn – Look for quick energy items from me on LinkedIn

I can also be reached on Linkedin and plan to use it as another forum to pass on energy items in addition to our weekly Energy Tidbits memo and our blogs that are posted on the SAF Energy website [LINK].

Misc Facts and Figures.

During our weekly review of items for Energy Tidbits, we come across a number of miscellaneous facts and figures that are more general in nature

Look for energy

items on LinkedIn

Sign up to receive

future Energy

Tidbits memos

Energy Tidbits now

on Twitter

https://twitter.com/Energy_Tidbits

http://www.safgroup.ca/research/trends-in-the-market/

http://www.safgroup.ca/


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Energy Tidbits

“Flygskam” not having any significant impact on jet fuel demand Bloomberg’s great recap/stories on the IEA Oil Market Report had a point “* Jet fuel demand still rising despite ‘flight shame’ trend”. We haven’t paid attention to the flight shame trend. Apparently “flygskam” (or “air shame” as per GoogleTranslate) started in Sweden for the social feeling about guilt on flying and impact on emissions. Rather the social motivation is to use trains as the primary longer distance mode of transportation. It may not be the driving force globally as distances are longer and train infrastructure not as developed/convenient, but it has to have some incremental impact. Having lived in Europe (albeit 40 yrs ago), we have to believe Europeans look at train travel as the preferred choice vs air for the vast majority of travel.

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