Category Archives: Exxon

Flood of Oil Is Coming, Complicating Efforts to Fight Global Warming

A surge of oil production is coming, whether the world needs it or not.

A Norwegian oil platform in the North Sea. Norway’s production has declined for two decades, but its development of the Johan Sverdrup deepwater field should reverse the trend.
A Norwegian oil platform in the North Sea. Norway’s production has declined for two decades, but its development of the Johan Sverdrup deepwater field should reverse the trend. Credit…Nerijus Adomaitis/Reuters
The New York Times, by Clifford Krauss, Nov. 3, 2019

HOUSTON — The flood of crude will arrive even as concerns about climate change are growing and worldwide oil demand is slowing. And it is not coming from the usual producers, but from Brazil, Canada, Norway and Guyana — countries that are either not known for oil or whose production has been lackluster in recent years.

This looming new supply may be a key reason Saudi Arabia’s giant oil producer, Aramco, pushed ahead on Sunday with plans for what could be the world’s largest initial stock offering ever.

Together, the four countries stand to add nearly a million barrels a day to the market in 2020 and nearly a million more in 2021, on top of the current world crude output of 80 million barrels a day. That boost in production, along with global efforts to lower emissions, will almost certainly push oil prices down.

Lower prices could prove damaging for Aramco and many other oil companies, reducing profits and limiting new exploration and drilling, while also reshaping the politics of the nations that rely on oil income.

The new rise in production is likely to bring economic relief to consumers at the gas pump and to importing nations like China, India and Japan. But cheaper oil may complicate efforts to combat global warming and wean consumers and industries off their dependence on fossil fuels, because lower gasoline prices could, for example, slow the adoption of electric vehicles.

Canada, Norway, Brazil and Guyana are all relatively stable at a time of turbulence for traditional producers like Venezuela and Libya and tensions between Saudi Arabia and Iran. Their oil riches should undercut efforts by the Organization of the Petroleum Exporting Countries and Russia to support prices with cuts in production and give American and other Western policymakers an added cushion in case there are renewed attacks on oil tankers or processing facilities in the Persian Gulf.

Driving New Production

Daniel Yergin, the energy historian who wrote “The Prize: The Epic Quest for Oil, Power and Money,” compared the impact of the new production to the advent of the shale oil boom in Texas and North Dakota a decade ago.

“Since all four of these countries are largely insulated from traditional geopolitical turmoil, they will add to global energy security,” Mr. Yergin said. But he also predicted that as with shale, the incremental supply gain, combined with a sluggish world economy, could drive prices lower.

There is already a glut on the world market, even with exports from Venezuela and Iran sharply curtailed by American sanctions. Should their production come back, that glut would only expand.

Years of moderate gasoline prices have already increased the popularity of bigger cars and sports utility vehicles in the United States, and the probability of more oil on the market is bound to weigh on prices at the pump over the next few years.

The oil-supply outlook is a sharp departure from the early 2000s, when prices soared as producers strained to keep up with ballooning demand in China and some analysts warned that the world was running out of oil.

Then came the rise of hydraulic fracturing and drilling through tight shale fields, which converted the United States from a needy importer into a powerful exporter. The increase in American production, along with a choppy global economy, shaved oil prices from well over $100 a barrel before the 2007-9 recession to about $56 on Friday for the American benchmark crude.

Those low prices have forced OPEC and Russia to lower production in recent years, and this year many financially struggling American oil companies have slashed their exploration and production investments to pay down their debts and protect their dividends.

An Era of Cheaper Oil

The new oil will accelerate those trends, energy experts say, even if only for a few years as production declines in older fields in other places.

“This could spell disaster for every producer and producing country,” said Raoul LeBlanc, a vice president at IHS Markit, an energy consultancy, especially if the United States and Iran come to some sort of nuclear deal.

Like the shale boom, the coming supply surge is a sudden change in dynamics. Guyana currently produces no oil at all. Norwegian and Brazilian production has long been in decline. And in Canada, concerns about climate change, resistance to new pipelines and high production costs have curtailed investments in oil-sands fields for five consecutive years.

Production of more oil comes at a time when there is growing acknowledgment by governments and energy investors that not all the hydrocarbons in the ground can be tapped if climate change is to be controlled. But exploration decisions, made years ago, have a momentum that can be hard to stop.

A drilling ship operated by Noble Energy for Exxon Mobil off Guyana. The South American country’s entry into the ranks of oil producers follows a string of major discoveries. Credit…Christopher Gregory for The New York Times

“Legacy decisions keep going,” said John Browne, BP’s former chief executive. “Things happen in different directions because decisions are made at different times.”

The added production in Norway comes despite the country’s embrace of the 2016 Paris climate agreement, which committed nations to cut greenhouse-gas emissions. Its sovereign wealth fund has cut investments in some oil companies, and its national oil company, Equinor, has pledged to increase its investments in wind power.

Equinor, which recently changed its name from Statoil to emphasize its partial pivot to renewable energy, nevertheless defends the new field on its company website, asserting, “The Paris Agreement is quite clear that there will still be a need for oil.”

Norway’s rebound from 19 years of decline began a few weeks ago as Equinor began production in its Johan Sverdrup deepwater field. The field will eventually produce 440,000 barrels a day, increasing the country’s output from 1.3 million barrels a day to 1.6 million next year and 1.8 million in 2021.

In Brazil, after years of scandal and delays, new offshore production platforms are coming online. Production has climbed over the last year by 300,000 barrels a day, and the country is expected to add as much as 460,000 more barrels a day by the end of 2021. In the coming days, Brazil is scheduled to hold a major auction in which some of the largest oil companies will bid for drilling rights in offshore areas with as much as 15 billion barrels of reserves.

In Canada, the 1,000-mile Line 3 pipeline that will take oil from the Alberta fields to Wisconsin, is near completion and awaiting final permitting. Energy experts say that could increase Canadian production by a half million barrels a day, or about 10 percent.

And the most striking change will be in Guyana, a tiny South American country where Exxon Mobil has made a string of major discoveries over the last four years. Production will reach 120,000 barrels a day early next year, rising to at least 750,000 barrels by 2025, and more is expected after that.

Guyana potentially has the most complicated future of the four countries. Its ethnically divided politics are sometimes turbulent, and Venezuela claims a large portion of its territory. But with the oil fields miles offshore, drilling is largely protected. In addition, Venezuela is mired in a political and economic crisis and unlikely to challenge a Chinese state company which has an oil investment in Guyana, along with Exxon Mobil and Hess.

Energy experts say the new production from the four nations will more than satisfy all the growth in global demand expected over the next two years, which is well below the growth rates of recent years before economic expansion in China, Europe and Latin America slowed.

At the same time, new pipelines in Texas are expected to increase United States exports to 3.3 million barrels a day next year, from the current 2.8 million.

That adds up to a vast surplus unless there is a resurgence of global economic growth to stimulate demand, or a prolonged conflict in the Middle East or other disruption to supply.

“To support prices, OPEC is going to have to extend and probably deepen their production cuts for a while,” said David L. Goldwyn, a top State Department energy diplomat during the Obama administration. “Getting the prices up to the point where Aramco can launch its I.P.O. is a big Saudi priority.”

The new barrels on the world market will also put pressure on companies producing in the United States, where profit margins for shale production are slim at current price levels and stock prices are falling.

“If I was in the business I would be scared to death,” said Philip K. Verleger, an energy economist who has served in both Democratic and Republican administrations. “The industry is going to face capital starvation.”

American oil executives express concern that drilling will fade in North Dakota, Oklahoma, Louisiana and Colorado as oil prices drop to as low as $50 a barrel in the next few years. Small companies are expected to merge, while others go bankrupt.

Scott D. Sheffield, chief executive of the Texas-based producer Pioneer Natural Resources, said he expected the growth of United States oil production to ease from 1.2 million barrels a day this year to 500,000 barrels next year and perhaps 400,000 barrels in 2021. Those increases are modest compared with the average increase of a million barrels a day every year from 2010 to 2018.

But Mr. Sheffield said he was optimistic, in part because new supplies coming to market could be offset by production declines in older fields in Mexico and elsewhere after 2021.

“There are no more big, giant new projects except Guyana,” he said. “We just have to be patient for a couple of more years.”


A version of this article appears in print on , Section A, Page 1 of the New York edition with the headline: Needed or Not, Oil Production Is Set to Surge.

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    NYT: In Rebuke of Trump, Tillerson Says Lies Are a Threat to Democracy

    Repost from the New York Times
    [Editorial comment by Marilyn Bardet: “How ironic! For years, Exxon promulgated lies, denying or casting doubt on any scientific research that pointed to humans’ contribution…to climate change, despite the fact that Exxon funded its own independent research on climate that confirmed the very thing the company denied!  Go figure.  So, Tillerson’s statements now are rather astounding— almost bespeaking a conversion or ‘mea culpa’. He’s certainly not wrong that the lies now being told by Trump and Co. thwart the existence of any semblance of democracy.”  — Marilyn Bardet]

    In Rebuke of Trump, Tillerson Says Lies Are a Threat to Democracy

    Rex W. Tillerson, the former secretary of state, in March. Credit Jacquelyn Martin/Associated Press
    By Gardiner Harris, May 16, 2018

    WASHINGTON — In what appeared to be a rebuke of President Trump, former Secretary of State Rex W. Tillerson warned on Wednesday that American democracy is threatened by a “growing crisis in ethics and integrity.”

    “If our leaders seek to conceal the truth, or we as people become accepting of alternative realities that are no longer grounded in facts, then we as American citizens are on a pathway to relinquishing our freedom,” he said in a commencement address at the Virginia Military Institute in Lexington, Va.

    Even small falsehoods and exaggerations are problematic, Mr. Tillerson said. (Mr. Trump is prone to both.)

    “When we as people, a free people, go wobbly on the truth even on what may seem the most trivial matters, we go wobbly on America,” Mr. Tillerson said.

    “If we do not as Americans confront the crisis of ethics and integrity in our society and among our leaders in both the public and private sector — and regrettably at times even the nonprofit sector — then American democracy as we know it is entering its twilight years,” Mr. Tillerson warned.

    The former Eagle Scout — who often cited a commitment to respect, integrity and accountability as the guideposts of his life and leadership — has been in near-seclusion at his Texas ranch since he was fired by tweet in March, just hours after returning from a trip through Africa. He had agreed to deliver the V.M.I. commencement address before he was fired.

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      GOP Tax Law Bails Out Fracking Companies Buried in Debt

      Repost from DeSmogBlog
      [Editor: See also the Pacific Standard report, Inside The Tax Bill’s $25 Billion Oil Company Bonanza.  – RS]

      GOP Tax Law Bails Out Fracking Companies Buried in Debt

      By Justin Mikulka • Thursday, April 26, 2018 – 08:44

      A Scrabble board spells out 'Bankruptcy' overlaid on an unconventional oil and gas rigEOG Resources is one of the top companies in the fracking industry, and thanks to the new tax bill passed by Republicans and President Donald Trump at the end of last year, EOG had an exceptionally strong year compared to 2016.

      In 2017, the company reported a net income of $2.6 billion. The previous year? A loss of $1.1 billion. That financial turnaround seems very impressive until you realize that $2.2 billion, or about 85 percent, of its 2017 income was the result of the new tax law. Without that gift from the GOP and Trump, EOG would have lost approximately $700 million between those two years. Instead they are $1.5 billion ahead of the game.

      With numbers like these, it is easy to see how the Tax Cuts and Jobs Act of 2017 was a much-needed lifeline for the money-losing fracking industryEOG is routinely touted as one of the best shale oil and gas companies. Yet the company still lost $700 million in the past two years. Or at least it would have if not for the tax bill.

      This is the same company that an analyst at the investment advice website Seeking Alpha says is “generally considered one of the best unconventional upstream oil and gas players in the business, and its financials back it up.” If those are the best financials in your industry, your industry has a big problem.

      An interesting side note is that EOG stands for Enron Oil and Gas, which was spun off as its own company from Enron — the company notorious for one of the great energy Ponzi schemes of the 20th century. Today, an Enron spinoff company is being held up as the most fiscally sound in the shale oil industry.

      And Seeking Alpha is now pushing EOG as a good investment and wondering when “the equities market will wake up and smell this opportunity” despite EOG still being over $6 billion in debt. Without the tax overhaul it would be much harder to make this argument.

      There is one prominent person in the shale industry warning against rosy forecasts for shale oil, and that is Mark Papa, head of independent oil company Centennial Resource Development. Papa’s last job? CEO of EOG Resources.

      Continental Resources is another of the shale companies being heralded as a good investment in 2018. Continental is run by Harold Hamm who was an advisor to the Trump campaign and has taken the title of “Shale King” that once belonged to Aubrey McClendon. Hamm’s net worth is estimated at over $13 billion.

      Thanks to the new tax law, Continental took home an extra $700 million because its effective tax rate for 2017 was negative 406 percent.


      Continental Resources 2017 Annual 10-K Filing

      And Continental needed that money (although Hamm certainly doesn’t). In 2007 Continental had $165 million in debt and paid $13 million a year in interest on that debt. In 2016 its debt had ballooned to $6.5 billion and the annual interest payments rose to $321 million. The GOP tax law essentially pays off two years of Continental’s interest payments, allowing this failing business model to continue because Continental has not been generating enough income to pay even the annual interest on its debt.

      While the company he leads is drowning in $6.5 billion of debt, Harold Hamm is personally worth twice that amount. He’ll be fine. He was easily able to afford one of the most expensive divorce settlements ever.

      These are just two examples of shale companies receiving an immediate financial lifeline from the GOP tax bill. These companies also will benefit from lowered tax rates in future years. However, this one-time handout simply masks the reality that the shale revolution looks a lot like a Ponzi scheme enriching CEOs and Wall Street financiers by producing oil and gas with borrowed money that is unlikely to be paid back in the future.

      And Hamm and the Wall Street financiers have no incentive to do anything differently. Sure bankrupt energy companies destroy worker pensions, wipe out investors equity, layoff thousands of workers — but if we use the coal industry as an example — CEOs will still get bonuses after driving their companies into bankruptcy.

      Tax Bill Especially Beneficial to Oil Companies

      The benefits of the new tax bill are certainly not unique to oil and gas companies. Utility companies did even better and the big Wall Street banks who are financing the cash-burning shale industry also are awash in new profits thanks to the GOPtax overhaul.

      However, due to the nature of how oil and gas companies book profits and losses — and the epic money-losing streak the shale industry created over the past few years — these companies benefited more than most.

      To be clear — this bill which was signed at the end of 2017 was applied to the deferred tax liabilities that were already on the books — thus erasing a large chunk of the liabilities for these companies that had built up while the industry kept borrowing to drill more and ultimately lose more money. Simply a bailout of reckless financial behavior by any other name.

      And it wasn’t just the companies primarily working in shale that benefited. ExxonMobil raked in a $6 billion benefit from the new tax law, which even CNN Money referred to as a “gift.”

      Industry Will Use Bailout to Borrow and Drill More 

      In discussing the trade deficit President Trump recently tweeted the following:

      Coming from a man whose career includes multiple bankruptcies, this shouldn’t be surprising. The shale oil industry definitely has a kindred spirit in the White House.

      What happens when you give free money to gamblers on an epic losing streak? In the shale industry, they double down.

      ExxonMobil has promised to use the billions it gained from the tax bill to … drill and frack more shale oil. Which is likely to result in further discounts of Permian Shale oil, which will lower the price of oil and put more pressure on the heavily leveraged shale companies.

      While the mainstream media is pushing the industry message that shale companies now are focused on profits instead of just production volume, record U.S. oil production and predictions for even greater increases would appear to reveal the lie in that promise. Just as most sharks must swim to stay alive, shale companies must drill to preserve CEO bonuses, which are often tied to oil production, not profits. So, they drill. Even when that means losing money on nearly every barrel of oil they pump.

      A graphic from the Wall Street Journal reveals just how much money the shale industry has been losing compared to traditional oil — all while CEOs such as Harold Hamm were amassing billions in personal wealth. The shale oil industry generated free cash flow pumping oil for one brief period in the last seven years. Hamm has done a bit better personally during that time frame.

      Shortly after President Trump signed the new tax bill, he took another vacation to Mar-a-Lago where he reportedly told those in attendance: “You all just got a lot richer.”

      A rare moment of honesty from the President. And while he wasn’t speaking specifically to shale oil CEOs — it’s safe to say they got the message loud and clear.


      Follow the DeSmog investigative series: Finances of Fracking: Shale Industry Drills More Debt Than Profit

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        Exxon, other refineries affected as Louisiana waters rise

        Repost from Bloomberg News
        [Editor: You can count on the oil industry to prevaricate. The Baton Rouge Advocate reports that ExxonMobil released a statement disputing this Bloomberg report. “‘Contrary to some reports, the ExxonMobil Baton Rouge Complex is operating. It is our practice not to comment on specific unit operations at our facilities,’ the company said.”  – RS]

        Exxon Said to Slow Louisiana Refinery as People Escape Flood

        By Barbara J Powell & Brian K Sullivan, August 17, 2016 6:13 AM PDT, Updated 4:14 PM PDT

        • Fourth-largest U.S. refinery affected as waters rise
        • Louisiana is home to about 18% of U.S. refining capacity

        Exxon Mobil Corp. curbed operations at the fourth-largest U.S. refinery as record flooding in Louisiana shut roadways, sent tens of thousands fleeing from their homes and threatened the state’s oil infrastructure.

        The Baton Rouge refinery along the Mississippi shut four production units and idled others when the flooding threatened an offsite liquefied petroleum gas storage facility and pumping station, a person familiar with operations said early Wednesday. The refinery can process 502,500 barrels of crude a day into gasoline, diesel and other fuels.

        At least 11 people have died, 30,000 people rescued and 40,000 homes have been damaged as almost 2 feet (61 centimeters) of rain fell in parts of southern Louisiana, the Associated Press reported Wednesday. Flood warnings extended across much of the southern portions of the state with many bayous and rivers still at dangerous levels. Louisiana is home to about 18 percent of U.S. refining capacity, according to Energy Information Administration data.

        Pipelines, Terminals

        Most in danger from direct disruption from flooding is the support infrastructure consisting of pipelines, terminals, salt caverns and above-ground pumping stations, said Andy Lipow, president of Lipow Oil Associates in Houston.

        “Those that supply support services to refineries could be in danger of shutting down, and that could impact refineries’ operations,” Lipow said.

        Todd Spitler, an Exxon spokesman, said the refinery is operating. The company doesn’t comment on specific unit operations and has continued to meet contractual commitments, he said

        Through Tuesday, Baton Rouge had received 22.11 inches of rain since the start of August, more than 19 inches above normal, according to the National Weather Service. New Orleans got 7.46 inches, or 4.35 above normal; Lake Charles had 11.22 inches, or 8.69 above normal; and Lafayette logged 23.19, or 20.81 higher than the 30-year average.

        Governor John Bel Edwards declared an emergency on Friday. Residents in 20 parishes are eligible for federal assistance and in two days 39,000 people have registered, the Governor’s Office of Homeland Security and Emergency Preparedness said.

        Motiva Convent

        Motiva Enterprises LLC said in an online message to employees Wednesday afternoon that it will staff its Convent refinery, about 38 miles southeast of Baton Rouge, with only essential personnel through at least Sunday. The company had previously said the restriction would last until Wednesday.

        Angela Goodwin, a Motiva spokeswoman, didn’t immediately respond to a request for comment. She said Tuesday that operations at Motiva’s Convent and its Norco refinery, about 38 miles to the south, are stable.

        Gulf Coast fuel prices climbed early Wednesday on the prospect of refinery outages. Ultra-low sulfur diesel strengthened 1 cent to 2.75 cents below New York Mercantile Exchange futures, the narrowest discount since November 2014, according to data compiled by Bloomberg. Conventional gasoline gained 1.88 cents to trade near parity with futures for the first time in four days.

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