Oil Price Crash Hits Latin American Drillers Hard
By Nick Cunningham - May 03, 2020
Rigs are vanishing at a rapid clip in the United States, but oil and gas drilling activity is also falling worldwide.
The international rig count fell by 144 in April from a month earlier, bringing the total down to 915, according to Baker Hughes.
Latin America was hit the hardest, with a loss of 80 rigs. Colombia and Argentina made up the bulk of those losses – the rig count in Colombia fell by 21, and in Argentina by 38.
The Colombian government said that oil production would fall. “If prices were to fall drastically to an average of around $30 this year, well then we would be talking about average production close to 790,000 to 800,000 barrels a day,” Armando Zamora, the president of Colombia’s National Hydrocarbons Agency said on Thursday. That would be down from a prior forecast of 900,000 bpd.
Argentina is in even worse shape. Its rig count fell to zero in April from 38 in March. Argentina’s highly-hyped Vaca Muerta shale has faced challenging economics, macroeconomic instability and political uncertainty for a long time. Oil majors have dabbled in the Vaca Muerta for a decade, more or less, but have held off on fully committing to large-scale investments.
But the global downturn has forced the Vaca Muerta on to life support. The Vaca Muerta is somewhat like a less competitive version of the Permian basin, and drillers are running into similar problems as their American competitors – high breakevens, a localized glut, lack of storage, and vanishing access to international markets. Shut ins are now front and center. State-owned YPF had to cut production at its flagship Loma Campana oil field a few weeks ago. But it isn’t the only one.
“We stopped drilling and completion activities and scaled-down our capital expenditure projects for the remainder of the year,” Vista Oil & Gas CEO Miguel Galuccio said on a first-quarter earnings call on April 29. Vista, a private-equity backed driller in Vaca Muerta, shut in wells in March because of collapsing demand and the lack of available storage. “Our current view for the second half of the year is to reopen shale oil wells as demand recovers,” Galluccio said. He tried to reassure analysts on the arnings call that productivity of shut in wells would not be negatively affected.
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The Argentine government is considering fixing oil prices at $45 per barrel, which would provide artificially high prices for drillers. “We must see how we can avoid a collapse in local production, which today is in excess in Argentina. The refineries are full, and it is necessary to avoid that the oil operating companies decide to suspend rigs because it will not easy to recover them later,” Minister of Productive Development Matias Kulfas said recently. That came before the collapse of the rig count to zero.
Still, he also expressed some skepticism on the utility of costly measures to bail out the industry. “The entire agro-industrial complex exports $30 billion [per year],” Kulfas recently said. Meanwhile, “the energy sector exports $3 billion, which is 10 times smaller.”
“Vaca Muerta has huge potential, but is an issue that will have to wait because of the international situation,” Kulfas concluded.
While the government would like to prop up fracking, it has much larger immediate concerns. Argentina could be just weeks away from a major debt default.
Meanwhile, Venezuela’s well-documented collapse continues. Production has been declining for years, made much worse by U.S. sanctions. The Trump administration recently told Chevron to wind down its operations in the country. State-owned PDVSA is getting a leadership overhaul, and may even end its decade-long policy of holding a majority stake in all projects. But there is very little reason to think that a turnaround is underway. The global market meltdown only deepens the misery.
In Mexico, state-owned Pemex continues to deteriorate. Moody’s just cut the company’s credit rating to junk. On Thursday, Pemex reported a massive $23.6 billion first quarter loss. President Andres Manuel Lopez Obrador is stubbornly spending money on a hairbrained refinery project in Tabasco, and the decline of Pemex is now dragging down the sovereign.
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Brazil is in better shape. Petrobras originally announced that it would cut production by 200,000 bpd, but reversed course. The company said that a rebound underway in China could provide an outlet for its oil. At the same time, the coronavirus is spreading rapidly in the country. The Presidents of both Brazil and Mexico have downplayed and ignored the threat of the coronavirus, which doesn’t bode well for containing the spread. As a result, the near-term outlook for both countries is highly uncertain.
Meanwhile, Latin America faces another problem. Many of its refineries are aging and were operating below capacity even prior to the global pandemic and oil market meltdown. The region has a total refining capacity of 7.5 million barrels per day (mb/d), but are now operating at about one-third of that capacity, according to Argus.
The worldwide glut for refined products has led to a rapid fill up of available storage, including using tankers for refined product storage. That has forced a sharp curtailment in refining processing. It appears that both upstream and downstream sectors in Latin America are bearing the brunt of the global downturn.
By Nick Cunningham of Oilprice.com
https://oilprice.com/Energy/Energy-General/Oi...-Hard.html
By Nick Cunningham - May 03, 2020
Rigs are vanishing at a rapid clip in the United States, but oil and gas drilling activity is also falling worldwide.
The international rig count fell by 144 in April from a month earlier, bringing the total down to 915, according to Baker Hughes.
Latin America was hit the hardest, with a loss of 80 rigs. Colombia and Argentina made up the bulk of those losses – the rig count in Colombia fell by 21, and in Argentina by 38.
The Colombian government said that oil production would fall. “If prices were to fall drastically to an average of around $30 this year, well then we would be talking about average production close to 790,000 to 800,000 barrels a day,” Armando Zamora, the president of Colombia’s National Hydrocarbons Agency said on Thursday. That would be down from a prior forecast of 900,000 bpd.
Argentina is in even worse shape. Its rig count fell to zero in April from 38 in March. Argentina’s highly-hyped Vaca Muerta shale has faced challenging economics, macroeconomic instability and political uncertainty for a long time. Oil majors have dabbled in the Vaca Muerta for a decade, more or less, but have held off on fully committing to large-scale investments.
But the global downturn has forced the Vaca Muerta on to life support. The Vaca Muerta is somewhat like a less competitive version of the Permian basin, and drillers are running into similar problems as their American competitors – high breakevens, a localized glut, lack of storage, and vanishing access to international markets. Shut ins are now front and center. State-owned YPF had to cut production at its flagship Loma Campana oil field a few weeks ago. But it isn’t the only one.
“We stopped drilling and completion activities and scaled-down our capital expenditure projects for the remainder of the year,” Vista Oil & Gas CEO Miguel Galuccio said on a first-quarter earnings call on April 29. Vista, a private-equity backed driller in Vaca Muerta, shut in wells in March because of collapsing demand and the lack of available storage. “Our current view for the second half of the year is to reopen shale oil wells as demand recovers,” Galluccio said. He tried to reassure analysts on the arnings call that productivity of shut in wells would not be negatively affected.
Premium: 2 Stocks To Consider As Oil Nears $15
The Argentine government is considering fixing oil prices at $45 per barrel, which would provide artificially high prices for drillers. “We must see how we can avoid a collapse in local production, which today is in excess in Argentina. The refineries are full, and it is necessary to avoid that the oil operating companies decide to suspend rigs because it will not easy to recover them later,” Minister of Productive Development Matias Kulfas said recently. That came before the collapse of the rig count to zero.
Still, he also expressed some skepticism on the utility of costly measures to bail out the industry. “The entire agro-industrial complex exports $30 billion [per year],” Kulfas recently said. Meanwhile, “the energy sector exports $3 billion, which is 10 times smaller.”
“Vaca Muerta has huge potential, but is an issue that will have to wait because of the international situation,” Kulfas concluded.
While the government would like to prop up fracking, it has much larger immediate concerns. Argentina could be just weeks away from a major debt default.
Meanwhile, Venezuela’s well-documented collapse continues. Production has been declining for years, made much worse by U.S. sanctions. The Trump administration recently told Chevron to wind down its operations in the country. State-owned PDVSA is getting a leadership overhaul, and may even end its decade-long policy of holding a majority stake in all projects. But there is very little reason to think that a turnaround is underway. The global market meltdown only deepens the misery.
In Mexico, state-owned Pemex continues to deteriorate. Moody’s just cut the company’s credit rating to junk. On Thursday, Pemex reported a massive $23.6 billion first quarter loss. President Andres Manuel Lopez Obrador is stubbornly spending money on a hairbrained refinery project in Tabasco, and the decline of Pemex is now dragging down the sovereign.
Premium: The Oil Sector That Will Suffer The Most
Brazil is in better shape. Petrobras originally announced that it would cut production by 200,000 bpd, but reversed course. The company said that a rebound underway in China could provide an outlet for its oil. At the same time, the coronavirus is spreading rapidly in the country. The Presidents of both Brazil and Mexico have downplayed and ignored the threat of the coronavirus, which doesn’t bode well for containing the spread. As a result, the near-term outlook for both countries is highly uncertain.
Meanwhile, Latin America faces another problem. Many of its refineries are aging and were operating below capacity even prior to the global pandemic and oil market meltdown. The region has a total refining capacity of 7.5 million barrels per day (mb/d), but are now operating at about one-third of that capacity, according to Argus.
The worldwide glut for refined products has led to a rapid fill up of available storage, including using tankers for refined product storage. That has forced a sharp curtailment in refining processing. It appears that both upstream and downstream sectors in Latin America are bearing the brunt of the global downturn.
By Nick Cunningham of Oilprice.com
https://oilprice.com/Energy/Energy-General/Oi...-Hard.html
