Paradigm Reset:
the Oil Industry amidst
the COVID-19 pandemic

On May 12th, we discussed the Oil Industry amidst
the COVID-19 pandemic.

Our customers, benefited from the expertise of Scotiabankers Rolf Schmitz, Stephen Bagnarol and Damian Jones as they shared global and local perspectives on navigating the current unchartered business environment. Insights were shared on how the COVID-19 pandemic has resulted in a fall in oil prices, subdued demand, and a price war between Russia and Saudi Arabia. The discussion focused not only on the recent volatility in the oil market, but also on the outlook for oil prices moving forward, the potential influence on the local energy industry and how this impacts the way business is conducted.


About the speakers

SB

Stephen joined Scotiabank in 1998 as part of the International Associate Development Program, working both in Commercial Banking and Global Risk Management. Upon graduation from the program, he accepted his first international assignment in Mexico, where he held progressively senior roles in Corporate Banking, including Head of Real Estate Banking. In 2005, Stephen relocated to New York, USA as Managing Director, Derivatives, Capital Markets. He was appointed Vice-President in 2008 when he accepted the role as VP & Country Head in Panama. In 2011, Stephen was appointed to the role, SVP, Wholesale Banking in Peru. Stephen holds a Master’s of Business Administration in Finance from Schulich School of Business in Toronto and is a CFA Charter holder. 

Damian has 11 years of experience in corporate and commercial banking He is a top performer who has a wealth of experience in areas such as credit adjudication, portfolio management, business development, prospecting, deal structuring and negotiation. Damian is responsible for the overall success of the commercial business line for Caribbean South (Trinidad and Guyana) and will bring a strong focus on deepening client relationships by working across business lines, including Retail and Capital Markets. Damian holds a BSc. in Management Studies with a minor in finance from the University of the West Indies and as Masters of Business Administration (M.B.A.) from Andrews University.

Rolf has over 20 years of experience in structuring corporate and project finance debt across Latin America & the Caribbean. During this period Mr. Schmitz has arranged over USD $20 billion in project- and corporate credit facilities in the region.

Prior to joining Scotiabank in 2010 and assuming the responsibility for Energy Corporate Finance in Latin America, he held various senior positions with West LB in Brazil and the U.S, including deputy of the Houston Energy Branch and Co-Head of the Mining Team for the Americas. Mr. Schmitz holds a master degree in economics from Vienna University of Economics and Business.

Experience

  • Scotiabank is #1 in M&A Upstream transaction volumes between 2010 to date
  • Coverage of the full value energy chain; i.e. Upstream, Midstream, Downstream and Oil Field Services
  • Global commitments of over US$40BN of which US$6BN (15%) is within Latin America and Caribbean
  • Scotia’s Corporate and Investment Banking Team does not only provide lending solutions but also covers commodity risk solutions in crude oil, distillate products, natural gas, power, emissions and resins

Market Update

  • Current oil prices are a function of 2 market events:
    - Demand destruction as a result of effect Covid #19 with oil consumption down 12% in Q2. This remains a “pandemic” in the commodity market.
    - Supply disruption due to disagreement between Russia and Saudi Arabia (short lived)
  • Upstream producers have announced a 24% (~US$400BN) cut in their Capital Expenditure budget for 2020. However, countries such as Brazil and Guyana remain key markets for the majors
  • Locally, BHP announced plans to continue its development of the Ruby field while Shell and BP have not announced intention to reduce current work programs through 2020-2021
  • As expected, decline in industrial gas consumption has resulted in reduced gas prices
  • The effect of Covid #19 has also been felt in the commodity markets with methanol at record lows

Considerations

  • Liquidity is the key for clients in all industries including energy to be well positioned to weather uncertainty
  • Players with low cost structure and access to financing are well positioned to take advantage of potential opportunities (consolidation and acquisitions);
  • Scotia’s Team is here to support with appropriate solutions including working capital support and leveraging our best in class digital solutions
 

Questions & Insights

Volatility in oil and gas and key downstream commodities (LNG, Methanol and Ammonia) over the past 5 years has seen the Government receiving lower tax revenue from Upstream and Downstream producers. Also revenue growth from the non-oil sector, such as manufacturing and financial services have seen positive growth trends and therefore higher overall revenue contribution

EIA reports suggest there is a current surplus of circa 5 million barrels per day. They forecast that the market should move toward rebalancing over next 3-6 months.

T&T has signed onto the Paris Agreement, which outlines a commitment for the implementation of circa 150MW of renewable energy generation. The Government has set a target of 2021 for the implementation of this initiative.

While Trinidad remains one of the lower cost producers globally given our current infrastructure as utility and labour costs are attractive, the current tax and royalty regime has diminished our attractiveness. T&T’s attractiveness is further eroded when coupled with new oil and gas finds in Colombia, Brazil and Guyana and the prospect these field present.