“We will encourage them [South Korea & Japan] to join us in opposing Taiwan independence & promoting China's reunification” - China's Premier Li Keqiang [yesterday]

***Editor’s note: Following a speech by China’s Premier, the Hang Seng (Hong Kong Stock Index) fell 4.6%. We’ll keep it brief ***

CHINA.

China proposed new legislation for Hong Kong, mandating stringent national security regulations; some see this as a move that violates the "one country-two systems" principle.

“This is the end of Hong Kong” - opposition lawmaker Dennis Kwok

At the same time, China has again proposed unification with Taiwan.

Under normal circumstances, either would be a headline-dominating, geopolitical ordeal.

But hey, it’s 2020…

For oil - particularly IOCs - this increases the risks of having Chinese counter-parties.

Trading, credit, upstream JVs…

… have - in the past - been targets of sanctions (see Iran).

We view that scenario as highly unlikely.

However, unlikely scenarios are still tail risks, & those tails are fatter following today’s announcements.

It’s worth noting that the current partnerships between US & Chinese oil firms are not trivial:

• CNOOC owns 25% of the now prolific Stabroek block in Guyana [Exxon & Hess own the rest]

Should the US-China relationship sour, the oil-unwind - would itself - be a geopolitical fiasco -

Link

DEMAND.

The pace of the oil price rebound has been *tremendous*.

All jokes aside, it’s a relief.

That said, last week’s draw at Cushing caught us off-guard.

On the topic of that surprise, this conversation had a couple interesting observations -

On the products side of things - gasoline oversupply was the concern 4x weeks ago…

… now it’s diesel.

Distillate stocks rose & diesel prices remain depressed.

The trucking industry is a big part of the problem:

• April’s YoY decline was 14%

• And the March-April decline was the largest in >2x decades

As people get back to work, we expect trucking (& diesel) demand to recover, albeit with a couple weeks lag -

WHAT WELLS WORK AT $30: CONCHO

This week, we’re looking at Concho.

The rules of the game:

• Sunk costs are sunk (& excluded)

• Used 2019 vintage wells

• WTI, flat @$30/bbl

Result - like everyone else, nothing really works at $30.

Well, 1x pad - with 3x wells - actually did have a positive NPV…

..just barely:

Of note - the pads w/ more wells had lower IPs & - generally - worse economics.

That fits the downspacing story, highlighted by the now infamous Dominator Project issues -

OTHER NEWS.

ShaleProfile released their newest Permian Update (we used their analytics service for the Ring RBL Case Study); we recommend the read. Also, don’t hesitate to contact Enno if you have any shale data / analytics questions / needs -

• BLM royalty rate cuts

• Unit skips interest payment

• Schlumberger overhaul

• Kayne Anderson shake-up

• Shell cuts

That’s it for this week - we’ll be back Tuesday - Tiger v. Phil on Sunday - 3PM EST, don’t miss it -