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Wednesday, 13 April 2016

Today's ENERGY News - April 13, 2016



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Banks Face Massive New Headache on Oil Loans



J.P. Morgan Chase Chairman and CEO James Dimon in February called the unfunded loans are… The $147 billion question for banks: Will energy companies max out their credit lines? When big banks announce earnings starting on Wednesday, the spotlight will be on massive energy loans that most investors didn’t know much about until recently. These unfunded loans have been promised to energy companies that haven’t yet tapped the money. Many banks historically haven’t disclosed these loans but have begun to recently following the extended slide in oil and gas prices. In the first quarter, a handful of energy borrowers announced more than $3 billion of drawdowns against these types of loans. Those commitments are expected to trickle down to bank earnings and saddle firms with more energy exposure at a time they are trying to pare it back. “Let’s not sugarcoat it, this is not necessarily a loan a […]

Natural Gas Production Is About To Plummet

Summary As one of the seven largest natural gas producing regions in the U.S., the Eagle Ford is a significant area to understand for natural gas-oriented investors. In this article, I dig into the government’s data regarding production and forecast what output should look like by year-end. What I discovered is that, if something doesn’t change fast, we should see production fall materially in the region this year, which is bullish news for investors. In the past, I’ve written articles regarding the Eagle Ford and the oil production trend that we’ve seen coming out of the region. However, I have yet to analyze the amount of natural gas to come from the area and to see what the production trend of that commodity should look like moving forward. Now, after having the opportunity to dig into the data from the EIA’s (Energy Information Administration’s) Drilling Productivity Report and after […]

Wells Fargo Misjudged the Risks of Energy Financing

At its annual investor conference in San Francisco in May 2014, with oil trading at $102 a barrel, Wells Fargo & Co. boasted that in just two years it had almost doubled its energy exposure and seized the title of Wall Street’s top oil and gas banker. The timing couldn’t have been worse. Crude prices peaked a month later and have since plummeted to $40. Wells Fargo has downgraded 38 percent of its energy loans and set aside $1.2 billion to cover potential losses, according to company filings. The loans are coming under increasing scrutiny from regulators and investors, even though they make up only 2 percent of the bank’s portfolio. Wells Fargo’s foray into oil shows how Wall Street misjudged the risks hidden in an esoteric type of energy financing long thought to be bulletproof. To fuel the growth of its energy desk, the bank targeted some of […]

The Halliburton-Baker Hughes Merger is Falling Apart. What Happens Next?

The long wait is finally over; the U.S. Justice Department has announced it will sue to block the merger of Halliburton and Baker Hughes. This makes the merger much less likely to be consummated – so much so that I think it’s fair to operate using a base assumption that the deal is dead, even if that position is not yet official. A key tenant in industrial organization theory is that it takes three strong competitors to make an efficient market. Without three competitors, industries and companies fall prey to problems of tacit collusion, resulting in slowly higher prices and less overall economic efficiency. The HAL/BHI merger was done in by the lack of a third strong competitor. While Halliburton showed a willingness to do whatever it took to get the deal done by agreeing to divest billions of dollars of assets, in the end it was not enough. […]

Exxon faces calls for climate change ‘stress test’



Dozens of investors are backing the call for ExxonMobil, the US oil group, to “stress test” the potential impact on its business of policies to address the threat of climate change.Shareholders have submitted proposals for the annual meetings of Exxon and eight other US energy companies, recommending that they analyse the financial risks they face if governments attempt to limit the increase in global temperatures to 2C, which was the objective agreed at the Paris climate talks at the end of last year. Calpers, the California state retirement fund that had $301bn under management as of last June, has registered with the Securities and Exchange Commission, the US regulator, to be able to lobby other investors in support of the proposal at Exxon. The moves reflect growing interest among investors in the financial implications of climate change. They also show how environmental campaigners have become increasingly adept at working with shareholders in fossil fuel companies to raise awareness of the issue. The New York state retirement fund and the Church of England submitted the proposal at Exxon, asking the company to publish an annual assessment of the financial impact on its proved reserves and potential resources of restrictions on carbon intended to hit the 2C target.


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