March 13, 2020

Saudi Arabia boosts effort to squeeze 's 'WONDERFUL PRICES' share of oil market -sources Oil wars between Russia and Saudi Arabia are not new: Saudi Arabia has stepped up efforts to squeeze both were at a standoff before the OPEC+ deal three Russia's grade out of its main markets by years ago. But now Riyadh is ready to go to as far as offering its own cheap barrels instead after their long- Belarus. standing deal to support global oil prices fell apart, Russia and its ex-soviet neighbour failed to reach a new oil seven oil sources said. supply deal in January, meaning that Minsk started to look Cooperation between Moscow and Riyadh for Urals replacement. dramatically collapsed last week after Russia refused "We've been working with Saudi Arabia since last year, to support deeper oil output cuts desired by Saudi there was a meeting in London last week... The prices are Arabia to fight falling oil demand as a result of the just wonderful," a source at a Belarus oil trader told spread of the coronavirus outbreak. . Market sources told Reuters that state-controlled Belarus said it would keep importing alternative crude oil is trying to replace Urals in refiners' even if supplies from Moscow are fully restored. feedstock around the world, from Europe to India. Saudi Arabia is also seeking to replace Urals crude in "They (the Saudis) knock on all doors offering a lot more unusual markets for the Russian grade such as India and cheaply..." a source with a Western oil major told and the United States, traders said. Reuters. "There were phone calls over the weekend from Aramco to Saudi’s national shipping firm, Bahri, provisionally CEOs of majors and big independents about taking an chartered up to 19 supertankers this week, with six of increase in Saudi oil. My understanding is that this would them set to take about 12 million barrels of Saudi be oil loading in April - reaching U.S. in May and June", a crude to the United States, according to data and U.S. market source said. sources. Saudi Aramco is in talks with European Indian refiners that had been increasing Russian oil refiners, including big buyers of Urals oil like Finland's purchases in recent months have also ordered extra Saudi Neste Oil, Sweden's Preem, France's Total, BP Plc, oil. 's SOCAR, Italy's , the sources said. Azeri state firm SOCAR ordered 3 million barrels from The tactic has already started to pay off, with refiners Saudi Arabia for loading in April for its STAR refinery in ordering extra volumes of its crude for loading in April , which so far was processing mainly Urals, two at "very attractive prices", the sources added. sources said. Saudi Aramco, Neste Oil, Total, BP, Preem, Eni and And France's Total, one of the top Urals buyers, is in talks SOCAR did not immediately respond to requests for with Saudi Aramco to boost intake of Arabian barrels by comment. some 600,000-700,000 bpd next month, another source Saudi Arabia will open the taps beginning on April 1, familiar with the company's plan said. releasing 12 million barrels of oil per day (bpd) into Neste Oil, Eni and Preem may also receive extra barrels the markets. Russia's maximum production capacity is from Riyadh, ranging from a one to three-four cargoes, 11.80 million bpd, with Asia and Europe being key traders said. export markets. Russia's Urals differentials to dated Brent sank after the Russian Energy Minister Alexander Novak said on Saudi move, but are still not at historical lows. Wednesday that Saudi plans to raise output was "not the best option". Novak is meeting Russian oil companies on Thursday in Moscow. U.S. blacklists second unit of Russia's over "Riyadh is really mad at Moscow for their move in Venezuela oil (the) OPEC meeting, so they target (the) Urals The United States on Thursday imposed sanctions on markets first", a source at a European trading firm another subsidiary of Rosneft, ramping up pressure on the involved in Urals trading said. Russian state oil giant that the Trump administration has Market sources said that Saudi Aramco is trying to said provides a financial lifeline to Venezuelan President replace Urals in refiners' feedstock in an attempt to Nicolas Maduro. punish Moscow and get the Russians back to the The U.S. Treasury Department blacklisted TNK Trading negotiation table. International, a Swiss-based unit of Rosneft. Washington Saudi Aramco may send an extra 1.5 million bpd to last month slapped sanctions on Rosneft Trading SA, Europe in April alone, said the third source, who does another subsidiary of Rosneft, over accusations it had calculations for a global trading house, said. actively evaded U.S. sanctions and propped up the On Saturday, the day after the landmark deal between Venezuelan oil sector. the group known as OPEC+ fell apart, Riyadh slashed "TNK Trading International S.A. is another Rosneft prices for its crude to customers worldwide. Brent subsidiary brokering the sale and transport of Venezuelan crude, the international , closed just above crude oil," Treasury Secretary Steven Mnuchin said in a $33 a barrel on Thursday. statement. "The Trump administration remains committed March 13, 2020 (continued) to targeting those who support the corrupt regime’s More U.S. oil producers slash budgets amid price exploitation of Venezuela’s oil assets." rout Rosneft called last month's sanctions on Rosneft Trading , Apache Corp and Murphy Oil Corp on an "outrage" and said U.S. authorities, in conversations Thursday became the latest North American oil producers with the company, had repeatedly recognized that it was to slash capital spending and drilling plans as crude not breaching any restrictions. prices tumble and pressure on businesses intensifies. "The persecution of oil export vessels by the United Oil producers have been scaling back spending since the States is brutal. They pursue the vessels, they threaten last crash in 2014, but the coronavirus outbreak and the the countries that buy from us," Maduro said in a press launch this week of a price war between Saudi Arabia conference that coincided with the Treasury and Russia threatens to push U.S. crude to $30 a barrel announcement. Venezuela’s information ministry did not and cripple U.S. players. immediately respond to a request for comment. Apache on Thursday slashed its dividend by about 90%, The United States in January 2019 recognized cut its 2020 capital investment plan by more than 37% Venezuelan opposition leader Juan Guaido as the OPEC and reduced drilling activity in Egypt and the UK North nation's legitimate interim president and has ratcheted up Sea. sanctions and diplomatic pressure in the aftermath of In a telling move, the company also plans to stop drilling Maduro's 2018 re-election, which was widely described in the Permian, America's largest shale field that also has as fraudulent. one of the lowest production costs. The Latin American country's oil exports have dropped Devon cut its spending by about 30% from its earlier by one-third since then, but more than a year on, Maduro forecast, while Murphy Oil slashed its budget by 35% at remains in power, backed by Venezuela's military as well the midpoint and said it would delay some U.S. Gulf of as Russia, China and Cuba. Mexico projects and development wells. Frustrated by the socialist leader's grip on power, despite fell about 6% to $33.67 on Thursday recognition of Guaido by dozens of countries, the Trump following the imposition of surprise travel curbs by U.S. administration has increased pressure on Venezuela's oil President Donald Trump to halt the spread of the virus. industry in recent weeks. The United Arab Emirates also followed Saudi Arabia in promising to raise oil output to a record high in April. U.S. crude fell to as low as $30.99 a barrel, far below the ROSNEFT LIFELINE low $40s that shale players need to cover their costs. Moscow has acted as a lender of last resort for Venezuela, with the government and Rosneft providing at least $17 billion in loans and credit lines since 2006, and GLOBAL CUTS has also provided diplomatic support. Analysts at Evercore said this week that they expect Rosneft, among the world's largest oil and gas global exploration and production budgets to fall nearly producers, has emerged over the past year as the key 16% this year, compared to an earlier forecast for a 2% recipient of Venezuelan oil, which it receives as growth. They expect spending to fall about 30% in North repayment of billions of dollars lent to the Venezuelan America, with rig counts declining more than 25%. government and PDVSA. Producers may face more pain this time than in the 2014 Through units including Rosneft Trading and TNK downturn when the industry benefited from an expanding Trading it took more than a third of Venezuela's oil global economy. The retrenchment then cut more than exports last year, according to PDVSA's documents and 50% from North America exploration and production Refinitiv Eikon vessel tracking data, for reselling to final budgets and 25% abroad. customers, mainly in Asia. That way it became the Thursday's moves follow reductions by Occidental largest intermediary of Venezuelan oil amid U.S. Corp, and oil major Chevron Corp saying it sanctions. was exploring ways to cut spending. So far in March, Rosneft’s units have not taken any cargo U.S. independent producer Corp and of Venezuelan oil at PDVSA’s ports, according to Canadian oil-sands company Inc have PDVSA’s documents and Refinitiv Eikon vessel tracking also promised to cut spending by about 30%. data. The last cargo chartered by Rosneft set sail from Encana, now Ovintiv Inc, cut second-quarter spending by Venezuela in late February. Two other large vessels $300 mln and said it was prepared to further reduce scheduled to take Venezuelan oil for Rosneft remain capital investments throughout the year. anchored off Venezuelan waters, according to the data. "U.S. E&Ps are being tested existentially, fundamentally, PDVSA did not immediately reply to a request for pandemically, financially, politically," analysts from comment. brokerage Cowen said in a note, adding they expected The Treasury Department also said it had issued a U.S. oil output to be down by an average of 530,000 general license giving companies until May 20 to wind barrels per day by the fourth quarter. down transactions with Rosneft Trading and TNK Shale firms Diamondback Energy Inc, Parsley Energy Trading. Inc, Matador Resources Co, driller Talos Energy

2 March 13, 2020 (continued) and Canada's Meg Energy this week unveiled plans to tentatively chartered up to 19 supertankers to ship crude rein in spending. oil to customers worldwide. Six of the vessels are set to EOG Resources Inc is evaluating its drilling activity and take about 12 million barrels of Saudi crude to the United said it was in the process of finalizing specific goals. States, according to data and sources. With debt payments looming for many producers, David The bookings by Bahri are in addition to its own fleet of Smith, senior vice president at financial advisory firm 42 VLCCs, the sources said. Mercer Capital, said the current price environment may In February, freight rates nearly halved as the spreading lead to the next round of oilfield service bankruptcies. coronavirus hit demand for crude oil in China, the world's top importer, and after the U.S. partially lifted sanctions on one unit of Chinese shipping firm COSCO. Booking frenzy sends tanker rates soaring as OPEC opens oil taps The cost to transport oil on supertankers soared on EXCLUSIVE-U.S. shale urges service firms offer 'at Thursday as major producers scrambled to secure least' 25% price cuts - executives, letter vessels to ship more crude in a bid to regain market U.S. shale producers are seeking sharp service costs share and buyers took advantage of plunging oil prices. cuts to deal with plummeting prices and shrinking Freight charges to ship oil in very large crude carriers demand, according to executives and a letter sent to top (VLCCs) from the Middle East, which is home to the providers, driving home the oil industry's desperate efforts largest OPEC producers, to China, the world's top crude to cope with a market dive. oil importer, nearly doubled overnight. Oil companies that recently delivered 2020 spending VLCC tanker rates along the busy Middle East Gulf to plans based on $55 to $65 a barrel oil were confronted on China route jumped to about $160,000-$180,000 per day Monday with sub-$35 prices after OPEC launched a price on Thursday, up from about $70,000-$100,000 per day war amid slack demand from the ravages of coronavirus on Wednesday, according to several ship broking on the global economy. sources. Prices have plummeted so rapidly and to such an extent Only a month ago, the same rate was about $20,000- that shale producers that have not pre-sold their output at $30,000 per day, the sources said. higher prices will soon be profitable, said analysts. "The sheer scale of the activity has taken many by In a letter sent on Wednesday to oilfield equipment and surprise," said one ship broker, who declined to be service providers, Parlsey Energy operating chief David named due to company policy. Dell-Osso asked them "to reconsider your pricing" and The frenzy comes after a deal on supply cuts between help the company achieve an "at least 25%" reduction in the Organization of the Petroleum Exporting Countries its costs. and its allies, including Russia, collapsed. Saudi Arabia This week's oil market crash, brought on by weakening and the United Arab Emirates both said they would ramp demand from coronavirus and a price war triggered by up supplies, hammering oil prices already weakened by Saudi Arabia and other big producers pumping full bore, the coronavirus outbreak. are behind the urgent plea, Dell-Osso said. At least 13 VLCC tankers were provisionally booked to Parlsey on Monday was among the first oil companies to load crude oil from the Middle East to Asia on disclose a big reduction in spending plans, saying it will Wednesday, after 19 ships were provisionally booked on halt a fifth of its 15 drilling rigs by April. Tuesday, the sources said. Oilfield services executives expressed displeasure with This compared with about 4 to 5 bookings a day made in the requests, saying many companies are barely the same period last month. profitable at current service rates. Such is the demand that Saudi Aramco on Thursday "Anyone dumb enough to ask for discount today is a rejected at least three Asian refiners' requests for (expletive)," said a drilling executive who did not want to additional April-loading crude oil despite its pledge to be identified. ramp up supplies. But several oil producers have been asking for 25% price Crude prices have fallen more than 50% from January cuts and have won concessions, said James West, a highs, raising expectations that some oil could go into senior managing director at investment bank Evercore storage on tankers. ISI. But soaring rates and tumbling demand for due to West, who has urged consolidation to wring out costs, coronavirus mean that it makes less economic sense to said oilfield firms would be better off rejecting contracts store the growing supply of oil on supertankers, shipping that are not profitable. Pricing is low, and a 25% cut may sources said. not deliver much relief, he added. "In this weak demand environment, we are very close to "We had already given price concessions to protect levels where the current freight rates become market share, so we're running close to break even in unsustainable, if they aren't already," the ship broker North America before the oil price crash," Ian Bryant, said. chief executive of services provider Packers Plus Energy Saudi Arabia's National Shipping firm, Bahri, this week Services Inc, said earlier this week.

3 March 13, 2020 (continued)

Some oilfield firms have moved to lower their own costs. appeared to be limited, two of the sources said. At Liberty Oilfield Services, which provides well Some Saudi crude term contract holders believed the completion services, executives agreed to take a 20% producer was playing a strategic game during its pay cut. allocation of extra April crude barrels to beat competitors Oilfield service firms "have been subsidizing E&Ps for the in targeted markets while taking care of its core clientele, past few years, and were just getting by," said Robert some sources said. Callaway, CEO of Range Valuation Services. "There are "Saudis are trying to fight against Russia and shale going to be a lot of companies that have a hard time producers in U.S," said a trader with a North Asia surviving." refinery. "India is a pretty big Russian barrel buyer for Urals. For the Koreans and Japanese they don't buy much Russian Saudi refuses to give extra April crude to at least (crude) except ESPO, and they will buy U.S. (crude) three Asian refiners- sources anyway." State-owned oil behemoth Saudi Aramco has rejected at Some Asian buyers that had their requests rejected were least three Asian refiners' requests for additional bargain- not happy, while a few were still trying to negotiate extra priced crude for April, despite a recent pledge by the barrels. kingdom to boost supplies to a new record, four sources "(Saudi) did not give any explanation. So annoying," said told Reuters. one of the sources, who was disappointed about its own The refiners - one Korean, one Taiwanese and one nomination result. Chinese, had requested extra barrels of Saudi oil in a so- Due to the Saudi price cuts, many Asian buyers had called nomination process for April - on top of their long- asked to load more in April, while a contango market term supply deals - following the steep price cuts structure supports oil storage, boosting competition for announced by Aramco at the weekend, but were turned the extra barrels. down by the producer. Some buyers in Asia had asked for three times the usual However, Saudi Arabia did approve incremental supplies amount of Saudi crude, said Lachlan Shaw, head of for its top Indian and Chinese customers, including commodities research at National Australia Bank in Corp (BPLC), Ltd, Melbourne, noting that the discounts in official selling at least one Chinese state refiner, and privately held prices set last week were bigger for other areas outside Zhejiang Rongsheng Holding Group, to fend off market Asia. share threats in top Asian oil markets India and China, But at least three Asian refiners - one Chinese and two other sources told Reuters. Japanese - did not seek more than their usual volume "We have got all we asked for," one of the sources said due to lingering concerns about limited storage space, of the nomination results. weak demand and the downward price trend, three Reliance, operator of the world's biggest refining sources at the refineries said. complex, and BPCL have each bought 2 million barrels of extra Saudi oil for loading in April, Reuters reported earlier on Thursday. U.S. energy guru Yergin sees no easy way out of oil BPCL is taking a mix of Arab light and Arab medium price collapse grades. U.S. energy historian Daniel Yergin said it could be a long Aramco did not immediately respond to a request for time before pressure is eased on sinking oil markets as comment. the coronavirus causes public events and schools to Major refiners in Europe which ordered extra volumes of close while global oil producers flood markets with crude. April oil from Saudi Arabia are also waiting to receive "It’s a problem of an oil price war in the middle of a nominations for the volumes, three sources in oil constricting market when the walls are closing in," Yergin, companies told Reuters on Thursday. who is also vice chairman of IHS Markit, told reporters at European refiners including France's Total, Azerbaijan's the U.S. Department of Energy's headquarters. SOCAR and Finland's Neste Oil, all big buyers of With global oil demand already sinking due to the spread Russia's Urals, ordered extra volumes of Saudi crude, of coronavirus, Saudi Arabia and Russia launched a war but haven't seen nominations confirmed by Saudi for market share, flooding global markets with crude. Oil Aramco yet, sources at the refiners told Reuters. traded in New York was trading at $30.76 a barrel in "Many refiners in Europe are waiting to be nominated. aftermarket hours on Thursday, down more than 2%. We are as well," a trader with a refiner told Reuters. Trump administration officials have been mulling several Saudi Arabia said on Tuesday it would increase supplies ways to support energy producers including buying oil at to a record 12.3 million barrels per day (bpd) in April, or current low prices to stash in the Strategic Petroleum 300,000 bpd above its maximum production capacity, Reserve, which is held in caverns along the Texas and indicating it may draw from storage. Louisiana coasts. Saudi's increased supply was mainly for the lighter But Yergin, who occasionally advises U.S. officials on grades, while the increase in medium and heavy grades energy matters, was skeptical.

4 March 13, 2020 (continued)

"I don't see how you can use the SPR," he said. "With Margins have slightly recovered, last reaching 2 cents a the amount of oil coming into market this is really going gallon on Thursday. Oil futures have dropped sharply, to lead to swollen inventories, it's going to take a long losing nearly 50% so far this year, and gasoline prices time to bring down." have dropped as well. He also discounted efforts to lay out a case that Saudi "I have concern about ethanol margins," RFA chief Arabia and Russia were dumping oil on global markets. economist Scott Richman said. "What we don't know right Harold Hamm, the executive chairman of Continental now is what's going to happen to gasoline demand." Resources Inc, has said that those countries are Some 200 U.S. ethanol plants produced 1.04 million undertaking a "direct attack" on U.S. drillers by barrels per day of the fuel last week, U.S. Energy increasing the oil supply, according to local media. Information Administration data showed. Stockpiles Hamm, a supporter of President Donald Trump, is the totaled 24.3 million barrels. chairman of the Domestic Energy Producers Alliance, U.S. gasoline futures fell on Thursday to 85.36 cents per which is petitioning the Department of Commerce to gallon, their lowest seasonally since at least 2005, pursue the anti-dumping case. Refinitiv Eikon data showed. Oil futures plunged by a Yergin said it would be hard to prove that anyone was third on Monday after the end of a supply cut pact putting out oil below market value, and in any case it between the Organization of the Petroleum Exporting would not be an overnight fix. Countries and other allies including Russia. Yergin, speaking minutes after the states of Ohio and Last year, more than 10 ethanol plants cut rates or Maryland announced public schools would shut, saw no shuttered outright. Those idlings affected around 400 quick relief. direct jobs, data from the Renewable Association "Normally demand would solve the problem in a way, showed. because you would have lower prices that act like a tax "In our industry I would expect to see announcements cut and it would be a stimulus," he said. "But not in this similar to what we saw in July and August when margins case because of the freezing up of economic activity," he were at similar levels," said Nick Bowdish, chief executive said. of Elite Octane near Atlantic, Iowa, and Siouxland "Low gasoline prices ... don’t do much when schools are Ethanol near Jackson, Nebraska. closed, people are cancelling all their trips, and people are working from home," he said. He expected energy company consolidation to Activist investor Icahn raises stake in Occidental to accelerate. "Consolidation will be one way people will nearly 10% have to get their costs down." Billionaire investor Carl Icahn has raised his stake in Occidental Corp to nearly 10% from 2.53% at the end of last year and once again pushed for an overhaul of the oil U.S. ethanol industry 'bleeding' on oil collapse, and gas producer's board, an SEC filing on Thursday coronavirus showed. U.S. ethanol producers are feeling the pain as margins Icahn bought about 88.6 million shares for $2.21 billion as on the corn-based fuel slumped this week to an eight- Occidental's shares plummeted to two-decade lows due year low for this time of year, weighed by concerns over to a slump in oil prices. lower fuel demand from the coronavirus and the recent This is in contrast to his move in February when he collapse in oil prices. disclosed that he cut his stake to 22.6 million shares, or The coronavirus outbreak, which has infected more than 2.53%, as of Dec. 31. 126,000 people worldwide, is sapping demand for fuel as The activist investor has been waging a bitter battle with countries restrict travel and local governments try to Occidental's board over its $38 billion acquisition of prevent the spread of the outbreak. Anadarko Petroleum, calling it a misplaced bet based on Because the United States requires ethanol to be expectations of higher oil prices. blended into the nation's fuel pool, gasoline consumption "It is one of the worst disasters in financial history and we plays a role in demand for the corn-based fuel. With believe the CEO and Board must be held accountable, falling gasoline prices and lower expected gasoline and the Board must be replaced," Icahn said in the filing. demand, some market participants said it's only a matter Occidental's market value had fallen to $12 billion on of time before ethanol plants decide to cut rates or shut. Monday, less than a third of what it paid for Anadarko and "At least half of the industry is bleeding red ink right its debt ballooned to about $40 billion. now," said Mitch Miller, chief executive of Carbon Green Icahn expects strong bids to emerge for Occidental once BioEnergy in Lake Odessa, Michigan. the U.S. crude price recover in Corn Belt ethanol refining margins fell on Wednesday to - the near-to-medium term, according to the filing. 6 cents a gallon, lowest for mid-March since 2012, Following the slump in oil prices, the company had according to Refinitiv Eikon data. slashed its dividend and unveiled fresh spending cuts.

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ANALYSIS-Crossing state lines? Oil firms flare Texas generates greenhouse gas carbon dioxide, as a measure gas as investors vent on climate of environmental performance. Across the Permian Basin's high desert landscape, "It is the number one ESG (environmental, social and is going up in smoke even as oil majors governance) thing they need to be focused on," said Rob including Exxon Mobil and BP pledge cuts in greenhouse Thummel, portfolio manager at energy investors Tortoise gas emissions. Capital. "They can choose or not to flare ultimately." Flaring, the deliberate burning of unwanted polluting gas, Exxon, along with BP, Shell and Chevron, said in is rife during oil production in the biggest U.S. shale field, September it would minimize flaring, which exacerbates and an acute problem in Texas, home to most of the climate change by releasing carbon dioxide into the Permian reservoir, which sprawls 86,000 square miles atmosphere. (220,000 km2) across two states. BP, which bought BHP Billiton's assets in 2018 and said Loose regulation in Texas means that companies it has been trying to reduce flaring, burned 13.5% of its including Exxon, Matador Resources and privately-held natural gas in the Permian last year. BTA Oil Producers last year burned off gas at more than The alternative, known as "venting", is even more twice the rate as in neighboring New Mexico, a Reuters damaging as it releases unburned, odorless methane, analysis of data compiled by Rystad Energy from more which is the main component of natural gas and many than 50 of the largest producers shows. times more potent as a greenhouse gas. Some drillers burned natural gas at up to six times the Flaring is more common than venting - New Mexico rate in Texas as they did over the state line, the data producers report burning 2.6 times as much gas as they shows. vent, according to state data - but producers in Texas do Exxon flared more gas in Texas last year than any other not have to specify how they dispose of gas. producer, data released in February by a state regulator Regulation is the big difference between New Mexico and shows. Texas, which has approved every permit for flaring or This is despite Exxon and other large oil producers, which venting since 2013, sometimes even when pipelines were have spent billions drilling and building pipelines in the available. region, promising emissions cuts to curb global warming. In New Mexico, applications require a plan to capture gas Although companies have to apply for permits to burn and must be refiled as often as every 30 days, the New unwanted gas, Texas allows producers to burn unwanted Mexico Oil and Gas Association says, whereas in Texas, gas for six months and routinely issues waivers after the renewals are good for six months. six months expires. New Mexico allows new wells to flare That has led to wildly different rates of flaring by the for 60 days and is moving toward 30-day extensions same companies. BTA Oil Producers burns 12% of its thereafter. Producers must present a plan to pipe or store gas output in Texas, but only 1.8% in New Mexico. gas with their permit request. BTA and Matador Resources did not reply to requests for Even though flaring is legal, it is a growing problem for comment. companies. While it is cheaper for them to burn gas, "The regulatory regime in a lot of ways drives the investors are badgering them to improve their green infrastructure," said Colin Leyden, a policy advocate for credentials. the Environmental Defense Fund, which tracks and Exxon is "making significant investments in gathering, monitors flaring. "In Texas you essentially have a blank processing and natural gas pipelines" and was able to check right now." lower its Permian flaring rate to just above 2% by the end Investors are so focused on this that they spend as much of the year, spokeswoman Julie King said. The Rystad as 15 minutes of an hour-long one-on-one meeting on "in data shows it averaged 6.6% across the Permian during the weeds" questions about flaring, venting and other the first 11 months of last year. environmental issues, said Matt Gallagher, chief Some companies are going beyond what regulations executive of Parsley Energy, which does not bring wells require. EOG Resources, ConocoPhillips, Chevron Corp online until pipeline connections are available. and have low flaring rates in both "There's too much product in the air," Gallagher said. states. And Shell, which only works in the Texas Permian, burned off just 1.5% of its gas. Gas flaring has been on the rise since 2011 and so much MORE GAS has been produced alongside oil that it become worthless The split in the Permian could worsen over time. Texas for much of February in West Texas, with producers wells are making more gas, with the oil-to-gas ratio per having to pay a buyer to take it. Gas price turned positive well falling about 10% in the last five years. this month as oil companies cut drilling, a move expected Texas could double its flaring rate by the end of this year to reduce unwanted gas later this year. due to the "gassier nature of the new acreage being drilled," said Amrita Sen, chief oil analyst at Energy Aspects. FLARING RULES The prospect is even concerning the shale industry's top Some investors have seized upon flaring, which financiers. "It just feels like it's been too easy," said

6 March 13, 2020 (continued) energy banker Bobby Tudor, chairman of Tudor, of Wednesday. The company, which has put part of its Pickering, Holt & Co. Kenyan and Ugandan assets on the market, aims to raise And the two states are moving at different speeds. at least $1 billion in asset sales. While a Texas energy regulator has promised meetings "Target valuations may be harder to achieve given the on the issue, New Mexico Governor Michelle Lujan recent oil price fall, which at least in the near term means Grisham last year signed an order directing state offices questions remain on funding," JP Morgan analysts said in to develop regulations that would lower methane a note. emissions in the industry. "Hence while asset quality is evident, it is over-ridden by New Mexico's oil and gas regulator told Reuters it expects high leverage in a low oil price environment, and we to have new flaring rules in place by the end of the year. A therefore prefer to wait for Tullow to deliver some of its Texas regulator recently said he plans to seek public key targets that will address the potential funding gap." recommendations on how to reduce wasted gas in the Tullow last month said it planned to cut a third of its staff state. after it was hit by weak output in Ghana, delays in East Africa and lower-than-hoped-for oil quality in Guyana. Oil prices have slumped because of the expected impact future in doubt if oil drop thwarts planned of the coronavirus on global growth, and the collapse of asset sales an agreement to cut oil output by major producers. Tullow Oil said on Thursday the oil price fall may Tullow has hedged around 45,000 barrels a day of its jeopardise a planned $1 billion in asset sales needed to 2020 production at a floor price of $57.28 a barrel, and refill its coffers, raising the risk the group's lenders may around 22,000 bpd of its 2021 output at a floor of $52.78 become reluctant to approve loans essential to shoring up a barrel. its future. The Africa-focused company said it expects its free cash flow to slide to $50 million-$75 million this year at an oil EXCLUSIVE-Sinclair Oil weighs offers for company price of $50 a barrel, but hopes to raise cash from the sale - sources asset sales. Sinclair Oil Corp, which operates two Wyoming refineries Free cash flow at the group had already fallen last year to and has licensed more than 1,000 branded gasoline $355 million from $411 million in 2018. Highly-indebted stations, is reviewing offers to buy the company, Tullow expects to break even at prices of $45 a barrel. according to three people familiar with the matter. Brent crude was trading just below $34 a barrel early on A Sinclair sale could fetch between $2 billion and $3 Thursday, down from January highs above $70. billion, according to the sources, speaking on condition of Tullow shares were down around 21.6% at 14.2 pence at anonymity as the talks are private. 1309 GMT, while an index of European oil and gas However, many U.S. refineries are already on the block companies was around 7.5% lower. and have struggled to find buyers. The sharp drop in The company said the oil price slide might thwart the equity and energy prices also makes striking mergers asset sales and could in turn have the effect of stopping and acquisitions deals in the current climate very difficult. its lenders from approving semi-annual reserve-based The company, headquartered in Salt Lake City, Utah, will loans or amendments to its debt covenants if required. review initial incoming offers and will determine whether "Therefore, we have concluded that there is a material serious talks are merited, two of the sources said. A uncertainty that may cast significant doubt that the group determination on the viability of the offers is expected will be able to operate as a going concern," it said in a within the month. It has retained boutique firm Tudor, statement. Pickering, Holt & Co as an advisor; neither it or Sinclair Tullow said it expected its debt facility to be confirmed this would comment for this story. month at $1.9 billion, of which it can still tap $700 million. Sinclair operates an 85,000 barrel-per-day refinery in It said it would cut its investment budget by about a third Sinclair, Wyoming and a 25,000 bpd refinery in Casper, to $350 million this year and reduce its exploration Wyoming. The two refineries process crude from the spending, historically the group's focus, by almost half to Rocky Mountain region, while the Sinclair operation also $75 million. That will be weighted towards its fields in runs Canadian crude. Ghana. The company has 1,500 branded gasoline stations The company also said it has drawn up a final shortlist of across 29 states, according to its website. It is best chief executive candidates to replace Paul McDade, who known for its trademark green dinosaur mascot, Dino, resigned in December. seen on gas station signs and depicted in a balloon that Tullow, whose shares have shed around 90% of their has flown in the Macy's Thanksgiving Day Parade in New value in the past six months, said it aims to cut its general York several times. and administrative budget by around $200 million over the The company also has a network of crude oil and finished next three years. -product pipelines and terminals in the Rocky Mountain Its debt stood around $2.8 billion at the end of last year, and midcontinent regions. compared with a market capitalisation of $305 million as Refiners operating in the Rocky Mountain region, such as

7 March 13, 2020

Par Pacific, CVR Energy Inc, Delek Energy and strategic options like a reverse Morris Trust, which would HollyFrontier Corp, would be among the most logical take the company public but allow the family to maintain buyers for Sinclair. None of those refiners immediately a stake, according to one source. responded to requests for comment. Some assets, including the company's hotels and The company was founded in 1916 by Harry Sinclair. ranches, would not be included in a transaction, one of Former Chief Executive Earl Holding consolidated the the people said. refineries and gasoline stations. Holding's son-in-law In 2012, Sinclair began licensing gas stations throughout Ross Matthews now serves as CEO, and the family still the United States, allowing them to use Sinclair branding controls the company. in markets not supplied by Sinclair fuel. In addition to an outright sale, Sinclair would consider

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(Inside Oil - Asia Edition is compiled by Kishan Nair in Bengaluru) Refinitiv 3 Times Square, New York, NY 10036 For questions or comments about this report, contact: [email protected] Please visit: Refinitiv for more information. To subscribe to Asia Oil newsletter, click here. Privacy statement

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