Shell Optimistic Over Global LNG Outlook

Royal Dutch Shell plc remains optimistic that the Chevron Corp.-operated Gorgon liquefied natural gas (LNG) project will move forward according its planned timeline, despite the construction cost impacting LNG projects across Australia that prompted Woodside Petroleum Ltd. to scrap its Browse LNG development plans.

"We feel Gorgon remains attractive even with cost increases," said Andy Brown, director of Shell's Upstream International division, in a conference call Friday.

Brown discussed the company's global natural gas strategy and the growing role internationally of LNG ahead of the LNG17 conference in Houston next week. Shell holds a 25-percent interest in Gorgon.

However, Shell anticipates a moderation in the LNG project activity rate due to cost overruns. The company is looking at options for derisking drilling costs and collaboration opportunities going forward with its proposed Arrow LNG plant, whose supply would come from coalbed methane resources in Queensland. Shell CEO Peter Voser said in November 2012 that the company might delay until 2014 a decision on its Arrow LNG venture, Bloomberg reported.

Brown noted that floating LNG was an attractive alternative that could lower LNG project development costs. Construction of the hull and topsides is currently underway at South Korea's Samsung Shipyard on the floating LNG vessel for Shell's Prelude field development project offshore Australia. Prelude LNG will deliver 3.6 million tonnes of LNG and 1.7 million tonnes of condensate and liquefied petroleum gas.

The vessel will weigh 600,000 tonnes, the heaviest object that man has ever built, which Brown called a "real achievement". Shell acts as operator for the Prelude project and also holds a 6.4 percent interest in the Chevron-operated Wheatstone LNG project.

Globally, Shell sees significant LNG potential. Shell has a number of LNG projects under study worldwide, including Badi in Indonesia, Elba Island in the United States and expansion opportunities at the Gorgon LNG and the Sakhalin LNG project in Russia. Shell's recent acquisition of Peru and Trinidad midstream LNG assets from Repsol Corp. will add another 4 million tonnes of equity LNG coming to Shell. The $4.4 billion acquisition will generate substantial cash flow moving forward, Brown said.

Shell anticipates natural gas will become the largest energy supply source as global energy demand doubles between 2000 and 2050 due to global population growth.

"While we see renewables growing, we see energy needs being met predominantly by hydrocarbons," Brown commented. "It is our belief that natural gas will rival both coal and oil as the number one energy supplier."

Shell produces as much as gas as we do oil, and of the majors, has the largest portion of gas, Brown commented, citing the energy industry's commitment to promoting the use of environmentally-friendly natural gas.

Brown estimates that 250 million tonnes of gas supply per annum to meet the mismatch in gas demand and supply. By 2025, that demand will grow to 500 million tonnes per annum as LNG demand continues to grow significantly over the next 12 to 30 years.

Gas demand is expected to double in Asia and the Middle East moving forward. Gas demand in China could grow fivefold. Brown expects to see quite a pickup in North America energy demand as the nation finds ways to tap its indigenous gas supply, including its shale gas resources. However, gas demand in Europe will grow at a more gradual pace.  

Shell's LNG strategy for Europe involves the use of LNG in marine transportation. Interestingly, Shell has seen European gas demand decline in Europe, Brown said. The abundance of U.S. natural gas thanks to the development of shale and tight gas has resulted in Henry Hub gas prices undercutting U.S. coal prices. As a result, U.S. coal is now being imported to Europe, where coal-fired power consumption has actually increased in the past two years, Brown commented.

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Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

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Batista's OGX Drops on Financing Outlook

SAO PAULO - Shares in OGX Petroleo e Gas Participacoes SA extended losses Friday after the oil company controlled by Brazilian billionaire Eike Batista had its credit rating cut by Standard & Poor's.

A Thursday report in O Estado de S Paulo newspaper that Brazilian President Dilma Rousseff had refused to aid Mr. Batista's companies added to the poor sentiment.

"The market is seeing ever-increasing risk [at OGX] and they had hoped that talks with Dilma and BTG [Pactual, a Brazilian bank] would bring about an eventual improvement," said Guilherme Sand, a fund manager at Zenith Asset Management. "The stock is highly liquid, so obviously that opens it up to a lot of speculative trading."

OGX shares had dropped as much as 17% to 1.64 reais (81 U.S. cents) Friday before closing 13.6% lower at BRL1.71. Shares dropped more than 10% Thursday after S&P cut its credit rating on the company late Wednesday.

According to Estado columnist Dora Kramer, representatives of national development bank BNDES, together with private lenders Itau Unibanco Holding SA, Banco Bradesco SA and Banco BTG Pactual SA--all of which have lent money to Mr. Batista--met with Ms. Rousseff this week to request help for Mr. Batista's companies, but were rebuffed.

But according to a person familiar with the government's thinking, Brazil's government considers it important for Brazil to have a large port, such as the multibillion-dollar Acu Port currently under construction in the state of Rio de Janeiro by LLX Logistica SA, also controlled by Mr. Batista.

Brazil failed for decades to invest in infrastructure, and is now bumping up against the limits to growth that entails, with transportation bottlenecks eroding the country's competitiveness. To resolve that problem, the government has announced several infrastructure investment programs in recent years, which could see $250 billion of investment in roads, railways, ports and airports.

LLX is currently in talks with government oil company Petroleo Brasileiro SA (Petrobras) and would like to sign up the company for a berth at Acu, people close to talks have said. Petrobras could decide to go ahead if some concessions are made by Mr. Batista's companies, which include OGX and shipbuilding company OSX Brazil SA, one person added. According to Petrobras, Acu is one of the alternatives under analysis for a new base for offshore operations.

OGX's bonds were also falling Friday, as warning lights came on in the market following the reports coming out regarding the company, according to Marco Aurelio de Sa, head of the Latin American trading desk at Credit Agricole Securities in Miami.

OGX's bonds due in 2018 were trading around 77 cents on the dollar Friday, from around 80 cents on the dollar Thursday.

"The level that OGX equity and bonds are at now, it's difficult for the company to raise more money. That's going to make it difficult for them to roll over debt, much less carry out investments," said Paulo Nepomuceno, fixed-income strategist at the Coinvalores brokerage.

A banker close to Mr. Batista noted Friday that his intention is to keep selling stakes in some of the group's more-mature companies to strengthen the group's finances and not to seek refinancing of the group's debt with the private banks.

"He is far from that," the person added.

Mr. Batista has seen his companies' stock suffer since the middle of last year, when disappointing output data at OGX led investors to start questioning whether he could get his startup companies off the ground and generating the promised revenue before heavy investment needs ate through all the capital Mr. Batista had raised in the last five years.

Since the start of this year, Mr. Batista has been selling stakes in his companies and seeking new partners to shore up his business. He recently announced the sale of a stake in electric utility MPX Energia SA (MPXEY, MPXE3.BR) to Germany's E.ON SE (EONGY, EOAN.XE), and that he would partner with Brazilian banker Andre Esteves and his BTG Pactual for financing and management assistance.

Mr. Batista is currently discussing the sale of stakes in some of OGX's exploration blocks and oil fields, according to people familiar with the situation.

OGX declined to comment for this story.

"There seems to be a speculative attack on OGX to force Eike to hand over assets at the cheapest price possible," Mr. Nepomuceno said. "Equity holders are in a better position because they can buy at BRL3 and see the stock fall to BRL2, but bond holders are in a tough place because they're seeing that it's increasingly likely they may not get their money back."

Zenith fund manager Mr. Sand noted that about 260 million shares of the company, representing about 20% of OGX's free-floating stock, is being borrowed by the market, with a majority of that likely borrowed by short sellers, who benefit from the stock's decline in price.

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Crude Oil Slips as Demand Outlook Weakens

U.S. crude-oil futures fell Thursday as slumping gasoline prices and forecasts for weaker global demand weighed on the oil market.

Light, sweet crude for May delivery settled $1.13, or 1.2%, lower at $93.51 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange fell $1.60 to $104.19 a barrel.

Oil declined in tandem with gasoline futures, which settled at the lowest level since January as traders continue to flee from rising domestic supplies. Reformulated gasoline blendstock, or RBOB, has fallen 8.8% in April, and settled 3.41 cents lower Thursday at $2.8310 a gallon.

On Wednesday, the U.S. Energy Information Administration said U.S. gasoline stockpiles rose 1.7 million barrels last week. Imports to the U.S. East Coast rose 64% from the week earlier period to the highest levels since August, and stockpiles in this high-demand region are now 5.4% above the five-year average level for this time of year.

"You've got flat U.S. demand and growing production," said Andy Lebow, an oil broker at Jefferies Bache in New York. "The market's reached this moment, it's a moment of clarity" about high supplies, he said.

Oil futures have fallen for most of 2013, and after peaking in March U.S. gasoline prices have also tumbled. Refineries that shut down earlier this year for scheduled maintenance periods have started to ramp up operations, churning out more fuel despite tepid demand from drivers.

Weak gasoline demand is helping to lower prices at the pump. National average retail regular gasoline prices fell to $3.564 a gallon Thursday, according to the daily AAA Fuel Gauge Report. Prices are down from $3.703 a gallon a month ago.

Still, dimmer prospects for fuel use aren't confined to the U.S. The International Energy Agency, which represents a group of the world's largest oil-consuming countries, cut its forecast for 2013 oil-demand growth by 25,000 barrels a day to 90.6 million barrels a day due to falling fuel use in industrialized countries, particularly in Europe.

The IEA's revised outlook follows similar reports this week from the Organization of the Petroleum Exporting Countries and the Energy Information Administration. Both groups cut their forecasts for world oil-demand growth this year.

A weaker outlook on fuel usage this year, coupled with surging U.S. production and an improving supply outlook in other regions, is keeping a lid on global oil prices.

May heating oil settled 4.88 cents lower Thursday at $2.8991 a gallon.

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WorleyParsons Posts 1H Profit Rise, Remains Optimistic on O&G Outlook

WorleyParsons said Wednesday that it is confident about the outlook for its hydrocarbons segment, amid increased capital expenditure announcements from major oil companies.

In its earnings statement, the company said that it expects "a high number of greenfield and brownfield opportunities and favorable economics to continue to drive increased gas utilization and oil production projects."

In the six months to Dec. 31, 2012, WorleyParsons posted Wednesday a net profit of $160.6 million (AUD 155.1 million), up 2.1 percent from the previous corresponding period of $157.1 million (AUD 151.9 million).

In the same period, WorleyParsons recognized a 33.7 percent lift in revenue at $4.6 billion (AUD 4.4 billion). The company's hydrocarbon segment helped boost its profit, accounting for $2.9 billion (AUD 2.8 billion), up 14 from one year ago.

"Demand for our hydrocarbons services remains strong. We continue to see a high level of development activity in unconventional oil and gas around the world. The low cost of natural gas in the U.S. continues to drive downstream developments, including pipelines, petrochemicals, liquefied natural gas and gas-to-liquids projects," WorleyParsons said in its earnings report.

"We believe that our global experience in coal seam methane, tight gas and shale gas positions us very well in this market by enabling us to provide a differentiated and proven market offering," the company added.

WorleyParsons is also expecting to employ more workers in line with its ambitions to grow its hydrocarbons segment.

"Our people numbers have declined marginally from Jun. 30, 2012. However, we expect people numbers to increase over the second half [of this year]," the company said. At present, WorleyParsons employs 40,400 workers.

Quintella has reported on the upstream and downstream oil and petrochemicals markets from 2004. Email Quintella at quintella.koh@rigzone.com.

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WorleyParsons Posts 1H Profit Rise, Remains Optimistic on O&G Outlook

WorleyParsons said Wednesday that it is confident about the outlook for its hydrocarbons segment, amid increased capital expenditure announcements from major oil companies.

In its earnings statement, the company said that it expects "a high number of greenfield and brownfield opportunities and favorable economics to continue to drive increased gas utilization and oil production projects."

In the six months to Dec. 31, 2012, WorleyParsons posted Wednesday a net profit of $160.6 million (AUD 155.1 million), up 2.1 percent from the previous corresponding period of $157.1 million (AUD 151.9 million).

In the same period, WorleyParsons recognized a 33.7 percent lift in revenue at $4.6 billion (AUD 4.4 billion). The company's hydrocarbon segment helped boost its profit, accounting for $2.9 billion (AUD 2.8 billion), up 14 from one year ago.

"Demand for our hydrocarbons services remains strong. We continue to see a high level of development activity in unconventional oil and gas around the world. The low cost of natural gas in the U.S. continues to drive downstream developments, including pipelines, petrochemicals, liquefied natural gas and gas-to-liquids projects," WorleyParsons said in its earnings report.

"We believe that our global experience in coal seam methane, tight gas and shale gas positions us very well in this market by enabling us to provide a differentiated and proven market offering," the company added.

WorleyParsons is also expecting to employ more workers in line with its ambitions to grow its hydrocarbons segment.

"Our people numbers have declined marginally from Jun. 30, 2012. However, we expect people numbers to increase over the second half [of this year]," the company said. At present, WorleyParsons employs 40,400 workers.

Quintella has reported on the upstream and downstream oil and petrochemicals markets from 2004. Email Quintella at quintella.koh@rigzone.com.

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Oil Futures Rise as Economic Outlook Improves

NEW YORK--Improving economic data from the world's two largest oil consumers and a drop in oil supplies at a key storage hub sent U.S. crude-oil futures higher Thursday.

Traders rallied behind oil after a drop in U.S. jobless claims, coupled with improving Chinese manufacturing activity, suggested that demand for oil and fuel products could be headed higher. New applications for unemployment benefits in the U.S. fell to 330,000 last week, the lowest since January 2008.

"The unemployment claims number really helped," said Peter Donovan, a broker at Vantage Trading in New York. And after a sharp price decline Wednesday, he said, "we were probably due for a little bit of a bounce back."

Light, sweet crude for March delivery settled 72 cents, or 0.8%, higher at $95.95 a barrel on the New York Mercantile Exchange.

The gains helped reverse a $1.01 drop Wednesday due to a cut in the capacity of the Seaway pipeline, which runs to Houston from a supply hub in Oklahoma. The reduced capacity raised concerns that oil supplies will build up in the middle of the U.S., far from refineries along the Gulf Coast. On Thursday, pipeline operators said the capacity cut was due to a major refinery that lowered demand due to maintenance and wasn't the result of problems with the pipeline.

"The market reaction was that the Seaway problem is going to be short lived," said Andy Lipow, president of Lipow Oil Associates.

Brent crude on the ICE futures exchange rose 48 cents to $113.28 a barrel.

The gains Thursday kept oil futures above $95 a barrel for the fifth-straight session. U.S. oil prices have gained 12% since mid-December on an improving economic outlook as well as hopes that expanded pipelines will relieve the U.S. supply bottleneck.

Oil futures were also boosted Thursday by a report from the U.S. Energy Information Administration that showed crude stockpiles at the Cushing, Okla., pipeline hub fell by 500,000 barrels last week after seven-straight weeks of gains.

Total stockpiles at the supply depot rose above 50 million barrels for the first time ever earlier this year.

Surging production from new shale-oil fields in North Dakota, Texas and other states has overwhelmed existing transportation infrastructure, keeping U.S. oil prices depressed compared to prices overseas as pipeline operators try to link up supplies with refineries along the coasts. Storage declines in Cushing, if they continue, would signal that the glut is easing.

Front-month February reformulated gasoline blendstock, or RBOB, settled 2.91 cents higher at $2.8629 a gallon. February heating oil settled 0.83 cent higher at $3.0864 a gallon.

Copyright (c) 2012 Dow Jones & Company, Inc.

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