Open post

ConocoPhillips’ Permian Asset Sale Is Part Of A Well-Received Strategic Plan

We have become so accustomed in recent years to seeing headlines about companies making major acquisitions to either move into the booming Permian Basin or expand their existing operations there that when we read a headline that says “ConocoPhillips Sells Permian Assets and Expands Elsewhere” (Houston Chronicle, April 3, 2018) it really grabs your attention.  In the face of a big independent like Pioneer Natural Resources announcing in February that it is staking its entire business on the Permian, or Concho Resources making the largest-ever acquisition of Permian assets, any news of a big Permian player selling acreage there seems counter-intuitive.

Of course, when you drill down into the Chronicle’sstory, you find that the news about ConocoPhillips (COP) isn’t so earth-shattering.  In fact, the disposition of acreage in the Permian was made up of several small packages of non-core properties that have thus far remained largely undeveloped.  Prior to these sales, COP owned 144,000 net acres of leasehold in the greater Permian region, and the vast majority of that acreage still remains in the company’s portfolio.  Far from leaving the Permian, the company is actually high-grading its asset base there , and using the proceeds from the sales to acquire acreage in other producing areas.

One of those areas is the liquids-rich natural gas play in Alberta and British Columbia called the Montney Field, where COP announced a 35,000 acre acquisition that brings its overall leasehold in that area to 140,000 acres.  Despite being a leaseholder in the Montney since 2009, COP had drilled just 29 appraisal wells there through the end of 2017, and plans to continue its resource appraisal activities throughout 2018.  This new acquisition is a clear indication that the company is seeing positive results there.

Read the Full Piece

Open post

Debating The Permanence Of The Permian Shale Boom

One thing you learn very quickly when studying the nature and history of the oil and natural gas industry is that nothing related to it is permanent. Reservoirs deplete, technologies inexorably advance, means of financing projects come and go, and hot play areas go cold when the next one heats up.

While many in recent years have tried to characterize the production of oil and gas from shale formations, with its repeating processes and low frequency of dry holes, as essentially a “manufacturing” process, it really is not at all similar to the making of textiles, steel and plastics.

All of which is sort of a long way around to getting to a headline that ran in Monday’s Arab News:  “The Big Question for U.S. Shale:  Is it Permanent or Just Permania?”  Given that nothing in oil and gas is ever permanent, the obvious answer to the question is that the current situation related to U.S. oil and gas development is a great, big case of “Permania.”

The real question, as borne out by the discussions atlast week’s CERAWeek conference in Houston, is just how justified the current case of rampant “Permania” happens to be, and more importantly, how long it will last.  If you ask Tim Dove, CEO at the largest Permian Basin producer, Pioneer Natural Resources, it is very justified indeed.  So justified, in fact, that Dove announced just a few weeks ago that his company would be divesting 100 percent of its non-Permian Basin assets soon, and betting its entire future on maximizing the potential from its more than 700,000 acres of leasehold in the massive Permian region.

“What we’re staring at beneath our feet cannot be replicated anywhere else in the United States. That’s a given,” Dove told the IHS Markit-sponsored conference last week, “We have a golden goose right before us.”

Read The Rest Here

Open post

Trump Giveth, and Trump Taketh Away

It is hard to imagine a more effective means of slowing the nascent oil and gas drilling boom in the United States than to artificially increase the price for steel via import tariffs.  Everywhere you look in the oil patches around the country, you see massive amounts of steel being employed.

Oil storage tanks? Made from steel. Dehydrator units and compressor stations and heater-treaters and amine units? Made from steel. Drilling rigs? Made from steel.  All those pumpjacks moving up and down across the landscapes of the Permian Basin, the Eagle Ford Shale region and the Bakken Shale?  Made from steel.

The Dakota Access, Keystone XL, Colonial, Transco and every other oil or natural gas pipeline constructed anywhere on the face of the earth? Made from steel. Those massive deepwater platforms being fabricated at Ingleside, Texas?  Made almost entirely from steel. Those gigantic ships exporting crude oil out of Houston and Corpus Christi and LNG from Sabine Pass? Made from steel. Those oil refineries arrayed along refinery rows in New Orleans and Pittsburgh and Houston and Corpus? Made almost entirely of steel.

Just as natural gas and petroleum liquids are the fundamental feedstocks for an array of manufacturing processes in the U.S. and across the globe, steel is the fundamental, indispensable foundation of the oil and gas industry .  No steel, no oil, no gas.  It really is that simple.

So it should come as no surprise that, after President Donald Trump announced last Thursday that he would be imposing new tariffs on imports of steel and aluminum, industry representatives immediately began to voice concerns. I started to say “unexpectedly announced” in that previous sentence, but it also should not have surprised anyone that the President made that announcement. After all, he had promised on many occasions during his 2016 campaign that he would take this exact action, which he believes will create stronger steel and aluminum industries in the U.S.

As the oil and gas industry is well aware, this is a President who is very focused on keeping the promises he made throughout his campaign. Indeed, Trump spent a great deal of time and energy throughout 2017 following through on a broad array of actions he had promised to take that are quite positive for the industry: the rescission of a group of Obama-era regulations and executive orders the industry opposed; pulling the U.S. out of the Paris Climate Accords; issuing executive orders restarting the stalled Dakota Access and Keystone XL pipeline projects, along with one rescinding the Obama Clean Power Plan; speeding up energy-related permitting processes at EPA, The Department of Interior and the Commerce Department;  Implementing a new 5-Year Plan that opens up vast new areas of federal waters to oil and gas leasing; and passing a tax bill that is hugely beneficial to the oil and gas industry.

The result of this rapid sea-change in energy policy has been to help stimulate investment in an industry that had spent 2015 and 2016 pulling in its sails to try to weather a perfect storm of low commodity prices and a flood of new regulations coming down from Washington, DC. It isn’t hard to understand that some in the industry thought this honeymoon might go on forever.

 

Read The Rest Here

Open post

Clearing Up Some Confusing Headlines About The U.S. Oil And Gas Industry

In the oil and gas industry, sometimes it is hard to figure out what is real and what isn’t – what is really happening, and what really isn’t happening.  I spent 38 years in the industry, and still have a hard time figuring it all out.  Here are some good recent examples of stories whose headlines made bold claims that, upon reading the entire stories, turned out to be quite nuanced:

  • Are investors really abandoning the shale industry?
  • Did the World Bank really cut off funding of oil and gas projects?
  • Has the business case for building the Keystone XL pipeline really passed?

All are good questions, all of which have been the subject of multiple media reports in the past weeks, and all have more complex answers than the simplistic media headlines that are all most people actually read.  So, let’s clarify some things.

Are Investors Abandoning The U.S. Shale Industry?

We’ve seen many reports alleging that investor funds are drying up for the shale industry during the second half of this year, yet shale producers somehow keep managing to get their business done.  Indeed, in recent weeks we’ve seen a series of announcements of major new investments in domestic shale by private equity and institutional investors, and the Fall debt redetermination season passed without noticeable major hiccups.

So, what gives?  A look at recent presentations by the CEOs at corporate shale producers, like this one from Encana’s Doug Suttles, shows a focus on responding to demands by investors that these companies dedicate more of their resources towards actions that will increase returns on investment capital, a pressure I wrote about in early November.  One result of this investor pressure has been the announcement of a wave of stock buy-back programs since August.  Investors are also pressuring companies to change executive compensation programs that have been, in their view, too focused on increasing production at the cost of profits.

Read The Full Piece Here

Open post

Goldman Is Right: The Oil Market Is Overly Jittery

Bloomberg carried a report late last week titled “Goldman Says Oil Market’s Too Jittery When There’s No Need to Be.” The report summarized a memo from Goldman Sachs analysts positing that the just-completed extension of the deal between OPEC and Russia to limit oil exports “indicates a reduced risk of both unexpected increases in supply as well as excess draws in stockpiles.”

The report didn’t address the reality that one of the main reasons why the crude markets remain jittery is very likely due to all the conflicting reporting in the energy-related news media leading up to that extension. While there was never any real, firm reason to doubt the extension would get done, pretty much every day in November was filled with speculative stories with click-bait headlines expressing doubts the parties could reach agreement.

While this is just the nature of the U.S. news media in general these days, the reality is that there has been precious little volatility in crude prices throughout the second half of 2017. In fact, on June 19, I wrote the following:

The mid-year review processes [for corporate upstream companies] I mention there are now coming to conclusions, and as a result of those reviews, we can expect the domestic rig count to level off and even perhaps decline slightly over the second half of 2017.

That’s exactly what has happened as these large independent producers scaled back their drilling budgets for the second half of this year, and it’s the main reason the frequent ups and downs in crude prices that had characterized the previous two-plus years have been replaced by what has been a steady rise in prices over the last five months. The key understanding to grasp in this equation is that, once OPEC and Russia agreed to artificially limit their exports, U.S. shale producers then become the de facto swing producer on the global stage.

 

Read The Full Piece

Open post

Why U.S. Oil Producers Might Not Mess Up A Good Thing In 2018

A good friend of mine who runs the government affairs shop at a large independent producer has a favorite saying: You can always count on the oil and gas industry to mess up a good thing. The last time he said that to me was about this time a year ago, when it was apparent that, after a terrible year during which the oil price for West Texas Intermediate (WTI) had sunk as low as $26/bbl, the price would top $50 by the end of the year in the wake of the agreement between OPEC, Russia and several other non-OPEC nations to curtail exports.

We were discussing the probability that, in response to that higher commodity price, the upstream segment of the industry would respond by activating a large number of idled drilling rigs early in 2017 and drill its way right back down to a lower price. Which, of course, is exactly what happened: The industry brought more than 200 additional rigs online during January and February, and another 100 or so during the next couple of months, and the market responded by trading for WTI at $43/bbl by the end of April, even as OPEC and Russia reported high levels of compliance with their lower production quotas.

Now here we are, coming toward the end of another year, and once again we have a situation in which crude prices are ramping up to an even higher level, thanks to steadily rising demand, anticipation that OPEC and Russia will renew their export agreement through 2018, and other favorable market signals. One of those other favorable signals is the fact that the rig count in the U.S. has fallen off by about 70 rigs in the last seven weeks, as shale producers have executed on more conservative drilling budgets during the second half of the year. As a result, the rate of increase in overall domestic oil production has basically leveled off at levels the market can absorb.

So will the U.S. industry mess up a good thing again in 2018? It might surprise my good friend that this time I don’t think it will, at least not to the extent that it did over the first half of 2017. This view could change by the end of December, but right now there are several factors that indicate that, while drilling will definitely pick up again after January 1, it will be a more muted response than we saw this year.

Read The Rest Here

Open post

GOP Proposes Tax Plan That U.S. Shale Will Love And Tesla Will Hate

The popular joke about Tesla founder and CEO Elon Musk is that every time his company reports another quarterly operational loss, he makes another high-profile speech about creating a human colony on Mars. After last week, Musk may need to consider making a series of such speeches.

Not only did Tesla report another quarterly loss last week, it reported its biggest single-quarter loss since starting business in 2009. Its Q3 2017 loss of $619 million almost doubled its previous record quarterly loss, which came in Q2 2017. That second-quarter loss barely exceeded the company’s Q1 loss of $330 million.  2017 has not been kind to Tesla.

As if to heap insult onto injury, just a couple of days after Musk had to acknowledge his company’s worst financial quarter, the Republican-dominated House of Representatives unveiled its proposed tax overhaul for both individual and corporate taxpayers. While the GOP plan would lower the corporate tax rate on corporate profits to 20%, from its current 35%, that is hardly relevant to Tesla, which has never reported an annual profit in its history and in fact has only twice reported a quarterly profit.

Making matters even worse, not just for Tesla but for all other manufacturers of electric vehicles in the U.S., the GOP tax plan would repeal the existing $7,500 tax credit available to purchasers of these cars. This credit, along with similar credit and rebate programs available in the various states, has enabled EVs to be at least somewhat price competitive with gasoline and diesel cars. Were the credit to go away, it is very likely that sales of EVs would plummet, a reality that no amount of speeches or press releases about Mars could hope to offset.

Read The Rest Here

Open post

Luminant Announcement Proves Trump Repeal Of CPP Won’t Save Coal

During his campaign for the presidency, Donald Trump repeatedly promised he would save the nation’s struggling coal industry by rolling back regulations enacted during the Obama years, and he has made strong efforts to keep his word.  But the extent to what the President would be able to do to keep this pledge was always severely limited, by the constitutional limits on presidential powers, the vagaries of the regulatory process, the ability by opponents of his priorities to tie anything he tries to do up in the court system for years, and by the realities of the marketplace.

So it was somewhat ironic and telling that the following two announcements came within a few days of one another:

  • On October 6, Luminant announced it would be permanently closing its huge, 1800 mwh coal-fired Monticello power plant in Titus County, Texas by January 2018; and
  • On October 9, EPA Administrator Scott Pruitt announced his agency would formally propose a new rule to replace the Obama era Clean Power Plan (CPP), following up on the executive order issued by President Trump on March 27.

Mr. Pruitt admitted his agency has no firm proposed substitute at this point, but rather will seek public comment and participation in developing a plan for reducing power plant emissions that would ultimately replace the CPP.  Regardless of how that process of public input is conducted, the EPA’s action will be met by strong resistance, as evidenced by the typically inflammatory statement issued by Micheal Brune, Executive Director of the Sierra Club, as cited by the Washington Post:

With this news, Donald Trump and Scott Pruitt will go down in infamy for launching one of the most egregious attacks ever on public health, our climate, and the safety of every community in the United States.  He’s proposing to throw out a plan that would prevent thousands of premature deaths and tens of thousands of childhood asthma attacks every year.”

Mr. Pruitt can rest assured that his proposal to repeal and replace the CPP will be challenged in the federal courts at every conceivable opportunity not only by anti-development groups like Sierra Club, but also by the many Democratic state attorneys general who have already coordinated suits against several other Trump Administration energy and environment-related proposals.

Read The Rest Here

Open post

Capital Flow To The Permian Basin Hasn’t Dried Up; It Has Moved Downstream

headline in Tuesday’s online edition of The Houston Chronicle, “Drillers Choke Off Dollars To Permian Basin Operations,” may have unintentionally caused confusion regarding the current state of play in the country’s most active drilling and oil-producing basin.

The story to which this headline was attached references a report by the firm Wood MacKenzie that discusses how upstream merger-and-acquisition activity in the Permian has trailed off somewhat dramatically in recent months. This is entirely true. As The Chronicle points out, Wood MacKenzie’s data indicates: “Drillers spent $35 billion in West Texas over a nine-month period that ended in early spring. By comparison, the collective value of land deals of the last six months is less than $5 billion.”

Someone at The Chronicle apparently realized that the initial headline was somewhat confusing ― the Wood McKenzie report does not talk about any slowdown in drilling ― because the headline was later changed to read “Rising Costs, Land Prices Have ‘Taken The Edge Off’ Permian Basin.” It was inevitable that the upstream M&A fever that developed in the Permian last summer was bound to eventually slow down. As geographically huge as the Basin is, there is a limit to the amount of acreage within it that could rationally be evaluated to meet acquisition costs that in some deals exceeded $40,000 per acre. So it is not surprising at all that the pace of land and reserves transactions has slowed dramatically.

Read The Rest Here

Posts navigation

1 2 3 4 5 6
Scroll to top
%d bloggers like this: