US news brief July 14: Growing Chinese crude oil demand hurts Asian storage sector

Also in this brief: Earthquake strikes near Cushing oil storage hub, Halcón pivots to Permian with $1.4 billion Bakken deal

On Friday, Reuters reported that some Southeast Asia energy traders are cutting their use of storage tanks as short-term demand for oil products increases.

Three traders said they have reduced the amount of oil stored in tanks or have opted to not renew storage contracts.

“Storage in this backwardated market makes no sense as we won’t be able to recoup the costs to store the oil,” a Singapore-based trader in middle distillates told Reuters.

Backwardation refers to a market where prices for prompt-loading cargos are higher than prices months further out.  Asian gasoil and fuel oil markets have been backwardated for most of 2016.

Traders who are keeping some oil products in storage have been putting pressure on tank operators to cut their costs, according to Reuters’ sources.

The shift comes at a time when Chinese imports of crude are rising.  The International Energy Agency reported on Thursday that Chinese crude imports rose 13.6 per cent in the first six months of the year over the same time in 2016.

Earthquake strikes near Cushing oil storage hub

The Oklahoma Geological Survey (OGS) reports a magnitude 4.2 earthquake struck Stroud, Oklahoma on Friday.  The city of 2,700 people is located about 20 miles south of the Cushing oil storage hub.

Matt Skinner of the Oklahoma Commission told Reuters there were no initial damages reported following the quake, but he added it was still too early to determine the impact of the earthquake.

The US Geological Survey says it has recorded a series of aftershocks within an hour of the temblor in the surrounding area, including two earthquakes measuring magnitudes of 3.7 and 3.8.

Oil companies operating tanks and pipelines around the Cushing oil storage hub have not reported any damage.

Phillips 66 says is it monitoring the situation, but so far, no evidence of damage is apparent.  Enterprise Products Partners says it has assessed its facilities and has found no impairments.

In recent years, Oklahoma has experienced a number of earthquakes which have been tied to saltwater injection into disposal wells in oil and gas production operations in the Sooner State.

The Cushing oil storage hub is the delivery point for US crude futures and stores about 57.6 million barrels of oil.

Last November, a magnitude 5.0 earthquake hit about 2 miles west of Cushing.

Halcón pivots to Permian with $1.4 billion Bakken deal

Shale oil producer Halcón Resources Corp said on Tuesday it would sell most of its North Dakota operations for $1.4 billion cash, part of a plan to shift its focus to Texas’ Permian Basin, the largest U.S. oilfield.

The deal with privately held Bruin E&P Partners LLC focuses Halcón on the most-active area in the U.S. oil industry and marks a stunning turnaround for Chief Executive Floyd Wilson, who formed the company in 2011 before having to usher it through bankruptcy in 2016 after oil prices plunged.

The news sent Halcón shares up more than 35 percent in morning trading.

The deal also highlights the ability of U.S. shale producers to survive and reinvent themselves, despite sliding crude prices in the past two years.

“The sale of our Williston Basin operated assets transforms Halcón into a single-basin company focused on the Delaware Basin where we have more than 41,000 net acres,” Wilson said in a statement.

Houston-based Halcón will sell its operated North Dakota assets, which produce about 29,000 barrels per day (bpd). Halcón will keep its non-operated interest in wells across the state and said it may sell them in the future.

After the sale, Halcón will produce about 7,500 bpd and run two drilling rigs in the Permian. By the end of the year, Halcón expects to pump about 13,000 bpd.

The deal is expected to close by August. If it collapses, Halcón would pay Bruin $42 million.

Bruin E&P Partners, which is backed by private equity firm Arclight Capital Partners LLC, did not immediately respond to a request for comment.

Halcón entered the Permian in January in several deals worth more than $1.2 billion, acquiring acreage in the western part of the region known as the Delaware Basin.

Focusing on the Permian could help Wilson achieve his long-held dream of selling Halcón to the highest bidder.

Investors and analysts have been eager to see if Wilson can replicate the feat he pulled off in 2011 when he sold Petrohawk Energy to BHP Billiton Plc for $12.1 billion, a 65 percent premium over the share price before the sale was announced.

Wilson had predicted in 2012 that a sale of Halcón would take place by 2015. But in 2013, with Halcón’s debt load mounting, he changed that time frame, saying any potential sale could come within “a few years.”