The Renaissance of Coventional Oil

The Baker Hughes rig count was published last Thursday as the USA were heading towards the 4th of July week end. It is down 3 for oil rigs, up 1 for gas rigs but the Permian rig count was down another 5 rigs, a signal that even the most prolific field is in danger. Marcellus, mostly gas was up 1. Horizontal rigs used for shale oil were down 4. The Gulf of MEXICO ( Deep Offshore) added 1 which we believe is with TRANSOCEAN at a record 490,000 # a day, a rate comparable to the pre Covid times for the Shenandoah field. The next marginal barrel will come from conventional oil, in particular from deep offshore which is cheaper and has the lowest carbon imprint. Offshore Drilling is at the bottom and should bounce by the second half of 2021 as shale production should fall a goof 40% by year end. Oil demand will be at 95% of normal in December but supply shall be below 88% Internationally, Libya Messla field may be re starting production. AGOCO (Arabian Gulf Oil Co) will raise production to 30,000 barrels day from 10,000. Not a big deal. Libya has to lift «Force Majeure» to come back to the 1.1 million barrels they produced last year. Today, they are at a meagre 90,000 barrels per day. The Chairman of NOC said that time and a few hundreds of millions of dollars will be needed to come back to a normal level. We do not see Libya as a short term threat to OPEC + cuts. The situation between the two factions need to be solved which may happen given the weak support of France to Gen Haftar. Angola is under pressure by OPEC to comply with quota when, generally, OPEC compliance is respected. Whilst demand from South East Asia is strong as China seems to jugulate the re emergence of Covid infections. Saudi Arabia has even hiked the August OSP s which bodes well for the continuation of Brent strength. The main topic internationally and tomorrow in the USA if Biden is elected is energy transition. LNG is reviving with Russia developing ARTIC II faster. GTT, the French technology company has signed a licensing agreement with shipyard Zvezda and got a first order for 5 Ice breakers LNG super tankers. The momentum in energy transition is getting stronger as IBERDROLA is doubling its yearly investment in renewables to Euro 10 Billion. The big contracts this year is a $ 2.8 Bil offshore windfarm in the USA. They want to benefit from the 750 bil Euro post Covid European Fund.

Oil services companies are developing a renewable offer from FUGRO on foundations for offshore windfarms to decarbonisation with AKER SOLUTIONS. This will help boost their valuation as they become growth stocks The emphasis is also put on Hydrogen, mainly green and blue coupled with solar farms.

In heavy transportation, AIR LIQUIDE just signed an agreement with the Netherlands to power 1000 trucks whilst BLOOM ENERGY is developing one with SAMSUNG. We believe that both fossil and renewable sources of energy will be needed up to 2040.