The oil industry’s recovery lacks one important ingredient www.rt.com

The growing global oil and gas glut, partly caused by the coronavirus global lockdown but also due to mismanagement of the US shale sector and the OPEC+ price war fall-out, is causing mayhem in all energy sectors.
Most of the media’s attention goes to upstream oil and gas operators and financial institutions. As US shale companies drown in debt, bankruptcies are expected to pile up within the next months. US shale, offshore oil and gas operators and most non-OPEC producers are going to be struggling to keep some air in the balloon that was filled the last years.

In the next couple of months, due to OPEC+ production cuts and bankruptcies, a vast part of the overproduction will be removed, shrinking the glut to a much more acceptable level. Some analysts are even expecting growth before the end of 2020, based on misconceptions that oil prices could be even hovering around $40 per barrel at that time. Optimism based on simple Excel equations or mathematics are most probably going to be proven wrong.

As long as the impact of the extended Covid-19 crisis on energy and on the global economy is not fully visible, and storage volumes are still building up, oil prices will probably stay low. At the same time, even if all goes back to a ‘pre-corona normal’, the normal will be different if nothing will have been learned from history.

A demand collapse such as we are witnessing at present has never been seen before. Demand destruction to the tune of 20-25 million bpd is a giant shock to the total energy system. Market watchers, however, are focusing too much on E&Ps. The current financial situation of most NOCs, IOCs and large independent producers is not yet dire, while smaller drillers are already on life-support. The industry will, in the end, find the right balance again as much production from smaller producers will be shut in or disappear for good.

The main objective for many producers is to be able to produce significant volumes at the end of the crisis. This is partly misunderstood in the media, as most operators are not the ones directly responsible for the production of hydrocarbons. The main players here are the oilfield services, the companies with the technical know-how and tools to produce a barrel of oil.

Oilfield service companies offer technologies and equipment to oil and natural gas drillers and are crucial in the exploration and completion process, but are also responsible for the manufacturing and mending of equipment. Overall, the fate of all oil service firms is positively correlated to crude prices and also to the capital investment decisions of E&P operators.

The current correlation however is very negative, as low oil prices hit oilfield services exponentially harder. It’s strange to see that non-oil and gas analysts are understanding the threat better for other sectors, than oil and gas does. The threat to the survival and revamp of the automotive sector worldwide is not the cash-flow and debt levels of VW, Mercedes, Toyota or GM, but the survivability of the automotive part suppliers. Without automotive suppliers, no car or vehicle will leave the factory in Stuttgart or Detroit.

The situation is no different for the oil, gas and energy sector. Without oilfield services, production will stall and decline within months. The situation is dire for mainstream independent oilfield services companies, not only in US shale, where giants like Schlumberger, Halliburton or National Oilwell Varco are cutting their investments and workforce, but also in other non-OPEC and OPEC regions.

One Oil & Gas UK (OGUK) report already stated that the financial contagion triggered by historically low oil prices will threaten North Sea jobs, shrink its economic contribution and undermine energy security.

According to Energy and Restructuring law firm Hayes and Boone’s, last year already a grand total of 50 energy companies filed for bankruptcy, including 33 oil and gas producers, 15 oilfield services companies and two midstream companies. The law firm warns that as the crisis in 2020 continues, they fear that the ax could now fall on debt-ridden oilfield services companies. Just in North America, oilfield services companies debt is said to reach $32 billion which is coming due between 2020 and 2024.

The poor financial state of the industry is well represented by the sector’s favorite benchmark, the VanEck Vectors Oil Services ETF (NYSEARCA:OIH), which is down more than 70% YTD, considerably lower than the 30% plunge by the S&P 500. Rystad’s report last month that 20 percent of global oilfield services workers could be laid off this year has been undervalued as a real threat for the future. The firing of 1 million or more experts, drillers, engineers and workers means a possible productivity loss at the end of the year that will constrain a possible upsurge in demand and supply.

Former oil and gas crises in the 1980s or 2010s have shown that knowledge destruction because of layoffs can significantly slow down a recovery in the sector. Taking into account that the average oil and gas worker is above 45 years of age, a large part of those becoming unemployed will never come back again. Additionally, the possible bankruptcy of small specialized oilfield services also will destroy specific knowledge not easy to be regained if demand is growing again. Former oil price collapses have led to a strategy change at IOCs, removing part of their inside capabilities in engineering and operations, cutting costs meant handing over project implementation to independent oilfield services. IOCs and NOCs are now doing the same again, putting most of the current crisis fall-out on oilfield services companies that will have no other option than to cut their workforce. Oilfield servicing margins, even in good times, have been under pressure.

Oil & gas’ future faces several threats and lack of human capital is a very underestimated one that threatens profitability of the sector going forward. Without human capital, which in most cases is being provided by oilfield services, less oil and gas will be able to be produced, refined, stored or processed.

This article was originally published on Oilprice.com

Asia shares off to cautious start, U.S. crude slides www.reuters.com

SYDNEY (Reuters) - Caution gripped Asian share markets on Monday on expectations a busy week of corporate earnings reports and economic data will drive home the damage done by the global virus lockdown, while U.S. crude prices took an early spill.

Japan reported its exports fell almost 12% in March from a year earlier, with shipments to the U.S. down over 16%. Early readings on April manufacturing globally are due on Thursday and are expected to show recession-like readings.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.2% in slow early trade, with a pause needed after five straight weeks of gains. Japan's Nikkei .N225 fell 1.3% and South Korea .KS11 0.1%.

E-Mini futures for the S&P 500 ESc1 slipped 0.7%, having jumped last week on hopes some U.S. states would soon start to re-open their economies.

U.S. President Donald Trump said Sunday that Republicans were “close” to getting a deal with Democrats on a support package for small business.

But the U.S. Centers for Disease Control and Prevention reported an increase of 29,916 in new infections and said the number of deaths had risen by 1,759 to 37,202.

The S&P 500 .SPX has still rallied 30% from its March low, thanks in part to the extreme easing steps taken by the Federal Reserve. The Fed has bought nearly $1.3 trillion of Treasuries alone, and many billions of non-sovereign debt it would historically have never gone near.

“The Fed will be a major buyer of risky assets in the coming months, and has displayed its willingness to backstop virtually any part of the domestic financial system in trouble,” said Oliver Jones, a senior markets economist at Capital Economics.

Yet the particular composition of the S&P 500 was also a major factor, he added, as three sectors relatively resilient to a virus-induced lockdown — IT, communications services and healthcare — make up around 50% of the index.

Indeed, Microsoft, Apple, Amazon, Alphabet and Facebook account for more than a fifth of the index.

“What’s more, the S&P 500 is skewed towards a few ultra-large firms, some of which are also in those sectors. Their sheer size might make them better able to weather a few months of dramatically-low revenues than most.”

The rebound in the S&P 500 therefore likely overstated optimism on the economy, Jones argued, noting European benchmark equities indices and U.S. small cap indices were still in bear market territory.

Bond markets suggested investors expected tough economic times ahead with yields on U.S. 10-year Treasuries US10YT=RR steady at 0.65%, from 1.91% at the start of the year.

That decline has shrunk the U.S. dollar’s yield advantage over its peers and left it rangebound in recent weeks. So far in April, the dollar index =USD has wandered between 98.813 and 100.940 and was last at 99.791.

The dollar was a fraction firmer on the yen on Monday at 107.63 JPY= but again well within recent ranges, while the euro idled at $1.0868 EUR=.

Gold had recoiled to $1,676 per ounce XAU=, having touched a 7-1/2 peak of $1,746.50 last week.

Oil prices remained under pressure as the global lockdown saw fuel demand evaporate, leaving so much extra supply countries were finding it hard to find space to store it.

So great was the near-term glut that the May futures contract for U.S. crude was trading down 7% at $16.96 a barrel CLc1, while June was standing at $24.28 CLc2.

Brent crude LCOc1 futures have already rolled over into June and that contract was off 32 cents at $27.75 a barrel.

Exequatur granted to Honorary Consul of the Islamic Republic of Pakistan www.mfa.gov.mn

Ulaanbaatar/MONTSAME/. D.Davaasuren, State Secretary of the Ministry of Foreign Affairs, presented an exequatur to I.Ser-Od, an Honorary Consul of the Islamic Republic of Pakistan to Mongolia, yesterday.

Ulaanbaatar takes back illegally acquired land for public use www.montsame.mn

Ulaanbaatar /MONTSAME/. Upon a 2019 ordinance issued by Ulaanbaatar city Mayor S.Amarsaikhan, several lands obtained by Ulaanbaatar Construction and Ulaanbaatar Capital, subsidiaries of Ulaanbaatar City Bank, through illegal transfer were taken to public property and are being developed to convert them into public use.

Japan requested to support establishment of disposal-and-recycling facility www.montsame.mn

Ulaanbaatar /MONTSAME/ Minister of Road and Transport Development B.Enkh-Amgalan met with Ambassador Extraordinary and Plenipotentiary of Japan to Mongolia Kobayashi Hiroyuki.

Coal export declines 62.4 percent yoy www.zgm.mn

Mongolia exported 3.45 million tons of coal from the beginning of the year to April 14. This is a decrease of 62.4 percent compared to the same period of the previous year. According to the Customs General Administration (CGA), coal export revenue fell to USD 274.5 million. By borders, 1.58 million tons of coal has been exported through Gashuunsukhait port, dropped by 66.4 percent from a year ago. The average of 20-30 freight trucks crossing the borders daily since export reopens; however, the number of trucks increased to 107 as of Monday. In addition, 600-800 trucks transborder regularly. At Shiveekhuren border, coal export turned to 868,200 tons, decreasing by 76.4 percent year over year. Mining companies that mine coal from Nariinsukhait deposit are exporting through the border.On average, 70 trucks cross the border per day but from Monday, the number of freight trucks has risen to 160. It is fourfold less compared to regular transportation. Therefore, the State Emergency Commission (SEC) has obligated to resume the borders export of Bayankhoshuu, Bichigt, Bulgan and reopen the Burgastai border.

BoM: Proceeding mortgage program is feasible www.zgm.mn

Bank of Mongolia (BoM) assumed that it is possible to provide a total of MNT 300 billion this year including approved financing for the mortgage loan budget in 2020. As of April 13, the total outstanding loan reached MNT 4.6 trillion and an overall 97,000 borrowers have applied to the mortgage loans. According to the mortgage debt outstanding, 72,000 borrowers received a total of MNT 3.4 trillion under the sub-program “Construction Sector Support and Housing Price Stabilization”. In line with the declining household income due to the COVID-19 pandemic, BoM decided to allow the above-mentioned borrowers to defer their mortgage payments for six months, which is expected to be approved by the Cabinet. This is one of the measurements to support household income capacity and prevent the quality of bank loans from deteriorating.

IMF: Mongolia’s economy is projected to shrink by 1% www.zgm.mn

The International Monetary Fund (IMF) forecasted that the global economy will shrink by 3 percent in 2020, which is worse than the 2009 crisis. According to the projection, Mongolia's economy is likely to decline by 1 percent this year. “Under the assumption that the pandemic and required containment peaks in the second quarter for most countries in the world, and recedes in the second half of this year, in the April World Economic Outlook we project global growth in 2020 to fall to -3 percent,” IMF said in a report. “Flattening the spread of COVID-19 using lockdowns allows health systems to cope with the disease, which then permits a resumption of economic activity. In this sense, there is no trade-off between saving lives and saving livelihoods. Countries should continue to spend generously on their health systems, perform widespread testing, and refrain from trade restrictions on medical supplies. ”Assuming the pandemic fades in the second half of 2020 and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains, IMF project global growth in 2021 to rebound to 5.8 percent. Multilateral cooperation is vital to the health of the global recovery. To support needed spending in developing countries, bilateral creditors and international financial institutions should provide concessional financing, grants, and debt relief, the IMF addressed.

ACI solutions: creating Mongolia’s first payments gateway service www.news.mn

ACI Worldwide, a leading global provider of real-time electronic payment and banking solutions, today announced that High Payment Solutions LLC (Hi-Pay) has successfully launched its new payments hub using multiple ACI solutions to create Mongolia’s first payments gateway service. ACI’s technology gives Hi-Pay a foundational platform upon which it can build a range of new products and services.

Turquoise Hill gold production drops 78% www.mining.com

Turquoise Hill Resources (NYSE: TRQ) reported on Thursday that Oyu Tolgoi mine Q1 gold production plunged 78% year-over-year to 26,154 ounces and that copper output slid 23%, to 35,203 metric tonnes.