Barclays: Oil and gas companies to spend 6% more in 2014

Updated 28 December 2013

Barclays: Oil and gas companies to spend 6% more in 2014

Oil and gas companies will spend about $723 billion on exploration and production (E&P) in 2014, an increase of 6.1 percent from 2013, Barclays Bank said in a report.
Major oil companies are slowing spending growth as they put more emphasis on increasing returns to investors amid a wave of shareholders activism in the industry, Barclays said.
Activist investors have pushed for shake-ups at a number of mid-sized energy companies this year including Chesapeake Energy Corp, Hess Corp. and Transocean Ltd.
The Big Oil companies — Exxon Mobil Corp, Chevron Corp, Royal Dutch Shell and Total SA and BP — though not targeted by activist investors are also under pressure to boost returns.
BP has raised its dividend, cut back capital spending plans, and ramped up its asset sales target to $10 billion over the next two years from between $4 billion and $6 billion.
Barclays forecast an increase of more than 7 percent in E&P spending in North America in 2014, compared with a 2 percent increase in 2013, based on a survey of more than 300 oil and gas companies conducted last month.
Spending is set to increase in North America after two years of tepid growth, when weak prices in the US made drilling for natural gas uneconomical in many onshore fields.
E&P spending outside North America is likely to increase 6 percent to a record $524 billion in 2014, a smaller increase than the 10 percent rise this year, the bank said.
Limited growth by the oil majors and corruption probes directed at Chinese companies are weighing on growth expectations for international spending, but this will be partly offset by growth in the Middle East, Latin America and Russia, Barclays said.
The bank said while its initial expectation for 2014 suggested a modest slowdown in global spending growth, the mix of spending was moving away from large infrastructure projects to drilling, evaluation and completion activity.
The shift implied a revenue opportunity for diversified oil service companies such as Schlumberger Ltd, Halliburton Co. and Baker Hughes Inc, the report said.
E&P companies are basing their spending budgets for the year on oil prices of $98 per barrel for Brent and $89 per barrel for West Texas Intermediate, and a benchmark US natural gas price of $3.66 per British thermal unit, the bank said in its Global 2013 E&P Spending Update.


Tankers defer retrofits to cash in on freight rates

Updated 19 October 2019

Tankers defer retrofits to cash in on freight rates

  • The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week

SINGAPORE: Tankers that had been scheduled to install emissions-cutting equipment ahead of stricter pollution standards starting in 2020 have deferred their visits to the dry docks to capitalize on an unexpected surge in freight rates, three trade sources said.

US sanctions on subsidiaries of vast Chinese shipping fleet Cosco in September sparked a surge in global oil shipping rates as traders scrambled to find non-blacklisted vessels to get their oil to market.

The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week.

By comparison, prior to the sanctions, shipping crude from the US Gulf to China cost around $6 million-$8 million.

The extraordinary spike in freight rates proved too good to miss for some shipowners who were due to send vessels to the dry docks for lengthy retrofitting and maintenance work.

“We can confirm several owners have postponed dry docking earlier scheduled for the months of October and November to take advantage of the skyrocketing freight rates,” said Rahul Kapoor, head of maritime and trade research at IHS Markit in Singapore.

The shortage of ships to move crude oil was so acute that some shipowners also switched from carrying so-called “clean” or refined fuels like gasoline to “dirty” cargoes that include crude oil, despite the costs of having to clean them later.

“Current rate levels are a no-brainer for pushing back scrubber retrofitting,” said Kapoor.

Starting Jan. 1, 2020, the International Maritime Organization (IMO) requires the use of marine fuel with a sulfur limit of 0.5 percent, down from 3.5 percent currently, significantly inflating shippers’ fuel bills.

Only ships fitted with expensive exhaust cleaning systems, known as scrubbers, which can remove sulfur from emissions, will be allowed to continue burning cheaper high-sulfur fuels.

Ships must be sidelined for up to 60 days for fitting these, according to IHS Markit and DNV GL.

While freight rates have abruptly come off their recent highs, shipowners can still profit from the higher charges.

“One cargo loading at current elevated rate levels can not only finance the scrubber capex, but also account for extra costs incurred to install the scrubber at a later date,” said Kapoor, referring to the capital expenditure of fitting the scrubber.

Freight rates are expected to hold firm for the rest of the year.

“With seasonal demand support and tanker supply deficit still pronounced, we expect (fourth-quarter) tanker freight rates to stay elevated and end the year on a high note,” Kapoor said.