Advertisements
Open post

How The U.S. Oil Boom Could Quickly Become A Bust

Today’s Energy Update
(Because Energy Fuels Our Lives)

I have written about this topic before, but it deserves a review at this crucial point in time where the oil markets are concerned. Just half a year after they agreed to implement significant new cutbacks in their crude oil exports, ministers from the so-called OPEC+ countries (OPEC plus non-OPEC nations like Russia, Mexico and Kazakhstan) will likely be asked to cut back even more when – or if – they meet next in July.

I say “if” because, as of this writing, the OPEC+ nations can’t even agree to a specific date on which to hold their proposed July meeting in Vienna . Saudi Energy Minister Khalid al-Falih said over the weekend that he is “hoping” that the OPEC nations will meet at some point during “the first week in July,” but could not say whether or not the non-OPEC nations would agree to join the meeting.

Minister al-Falih’s remarks only serve to add more uncertainty to a market that has already been plagued by that dynamic in recent weeks, as crude prices have dropped by about 17% over the past month. A series of unanticipated crude inventory builds have led to speculation that the market is currently over-supplied. That speculation was exacerbated late last week, as the International Energy Agency (IEA) cut is crude demand growth forecast for the second half of 2019 by 100,000 barrels of oil per day (bopd).

The IEA forecast cut comes amid speculation that the ongoing tariff battle between the U.S. and China has resulted in a slowing of Chinese economic growth. Combine that with the ongoing collapse of production from Venezuela, disruptions of supply from OPEC members like Nigeria and Libya, and the series of attacks on crude tankers in the Persian Gulf and Gulf of Oman, and you have the most unstable market situation we’ve experienced in recent years.

Read the Rest Here

 

 

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

Advertisements
Open post

Chronicling the Battle Between Oxy and Chevron for Anadarko

Over the past two weeks I’ve published four pieces at Forbes.com detailing the heavyweight battle between Occidental Petroleum and Chevron for the prized assets of Anadarko Petroleum, one of the oil and gas industry’s biggest and most successful independent producers. I’ve reproduced them all in a single narrative here, but if you’d rather read them in smaller chunks in their original format, here are the links to each story:

The Competition For Permian Dominance Heats Up With Chevron’s Buyout Of Anadarko

7 More Things To Know About The Chevron Buyout Of Anadarko

Occidental’s Bombshell Ups The Ante For Anadarko

7 More Things You Need To Know About Oxy’s New Bid For Anadarko

 

Here’s the full, long story:

April 12, 2019 – Chevron and Anadarko announce the initial deal:

Had the deal taken place in 2014, when shares of Anadarko PetroleumAPC +0% traded as high as $109, it would have amounted to the largest buyout of an independent producer by a major integrated company in the 21st century, surpassing both ConocoPhillips’ COP +0% 2005 purchase of Burlington Resources and ExxonMobil’s XOM +0% 2009 buyout of XTO. As it is, Anadarko’s Thursday closing price of $46.80 means that Chevron  is able to obtain one of the largest U.S. independents in a cash and stock deal for the seemingly bargain price of $33 billion, slightly behind the $35.6 billion price tag of the Burlington Resources acquisition and well below the $41 billion that ExxonMobil paid for XTO.

Regardless, this is a very, very big deal, one that enables Chevron CVX +0%, already the nation’s second-largest energy company, to expand its operations in a number of key domestic areas, including the Permian Basin, the Rocky Mountain West and the Gulf of Mexico. Internationally, Anadarko will enhance Chevron’s operational base with key assets in places like Algeria, Ghana and Mozambique.

“This transaction builds strength on strength for Chevron,” said Chevron’s Chairman and CEO Michael Wirth. “The combination of Anadarko’s premier, high-quality assets with our advantaged portfolio strengthens our leading position in the Permian, builds on our deepwater Gulf of Mexico capabilities and will grow our LNG business. It creates attractive growth opportunities in areas that play to Chevron’s operational strengths and underscores our commitment to short-cycle, higher-return investments.”

“The strategic combination of Chevron and Anadarko will form a stronger and better company with world-class assets, people and opportunities,” said Anadarko Chairman and CEO Al Walker. “I have tremendous respect for Mike and his leadership team and believe Chevron’s strategy, scale and operational capabilities will further accelerate the value of Anadarko’s assets.”

In its press release, Chevron said that the acquisition will consist of 75% stock and 25% cash , valued at an Anadarko share price of $65, which represents a 37% premium over its Thursday closing price. Chevron will also assume $15 billion of Anadarko’s debt as a part of the transaction. Chevron said it plans to divest “$15 to $20 billion of assets between 2020 and 2022. The proceeds will be used to further reduce debt and return additional cash to shareholders.”

As a practical matter, this deal accelerates the efforts by the major, integrated oil companies to form dominant positions in the prolific and booming Permian Basin of West Texas and Southeastern New Mexico. As I noted in a piece last month, Chevron has been engaged in a competition with ExxonMobil, and to a lesser extent, BP and Shell to effectively convert its Permian operations into a true manufacturing operation by leveraging its company assets along every step of the oil and gas value chain.

A big part of a company’s ability to do that is to acquire a large base of contiguous leasehold broadly across the sweet spots of the basin. As CNBC notes this morning, “The companies say the deal creates a 75 mile corridor across the Delaware basin portion of the Permian. Stringing together continuous acreage allows companies to more efficiently carry out the advanced drilling methods needed to produce shale oil and gas.”

That sort of synergy also exists between the two companies’ assets in the Gulf of Mexico, where Chevron says it sees “opportunities for tie-backs to Anadarko assets in the Gulf, which involves connecting offshore fields to existing infrastructure.”

Finally, the deal also allows  Chevron to acquire another major LNG export asset in Mozambique, adding to the company’s already-large portfolio in that booming sector of the energy business.

Anadarko had long been rumored to be a potential takeover target for Chevron or ExxonMobil, and the emerging details of this transaction clearly demonstrate why Chevron became the ultimate suitor. One likely result of today’s deal will be to put even more pressure on ExxonMobil and the other majors to execute further acquisitions of their own as the competition to be the dominant player in the Permian Basin continues to heat up.

The big question is, which independent producer will become the next target?

 

April 13, 2019 – More details come to light

Chevron CVX +0% sent shock waves across the oil and gas media on Friday, with the announcement of its $33.6 billion buyout of Anadarko PetroleumAPC +0%, a deal worth almost $50 billion including the assumption of Anadarko debt. Friday’s reporting from a variety of sources was filled with the basics of the deal, and over the weekend, several industry analysts have worked to put more meat on the bone.

Here are seven more things you need to know about this very big deal:

  • The largest oil and gas merger since 2015. – Analysts at DrillingInfo note that the deal constitutes the largest oil and gas-related transaction since Shell’s $82 billion buyout of LNG company BG in 2015. In an email released late Friday, DrillingInfo notes that “The deal is the sixth largest deal in oil and gas history and the largest deal since Shell bought BG for $82 billion in 2015 to become a global LNG powerhouse.”
  • The largest major/independent buyout in the 21st century. – DrillingInfo’s analysis also points out the fact that, when Chevron’s assumption of more than $15 billion in Anadarko’s debt is included, this transaction surpasses both the ConocoPhillips COP +0%/Burlington Resources 2005 deal and the ExxonMobil XOM +0%/XTO acquisition of 2009.
  • Occidental Petroleum OXY +0% actually offered a higher share price for Anadarko. – CNBC is reporting that Occidental bid more than $70 per share in the takeover battle, an offer that actually included more cash content than Chevron’s. Quoting unidentified sources, CNBC reports that “structural issues with the Occidental bid” led Anadarko’s leadership to go with Chevron’s offer instead.
  • A return to super major status for Chevron. – Wood Mackenzie notes that after the deal closes, Chevron will become firmly ensconced among the ranks of what it calls “super majors” once again.  Chevron stands to move up from the 4th-largest corporate major integrated company to 2nd-largest, behind only ExxonMobil, once the deal is finalized.
  • Does the Chevron/Anadarko deal presage a return to the buyout fever of 2016/2017? – DrillingInfo (DI) notes that this $50 billion transaction comes on the heels of a first quarter of 2019 that saw almost no activity in the M&A space . DI recorded just $1.6 billion in M&A activity in the oil and gas sector during the first three months of the year. As I noted on Friday, there is no question that Chevron’s increasing its overall position in the Permian Basin to 1.4 million net acres (behind only the 1.8 million owned by ExxonMobil) will put pressure on the other major players, like ShellBP and Occidental, to pursue deals of their own.
  • The public policy upheaval in Colorado did not scare Chevron off. – While most of the focus on this transaction has been on Anadarko’s Permian, Gulf of Mexico and international assets, it’s important to note that Anadarko also ranks as the largest producer in Colorado’s DJ Basin. Thus, the recent passage of Senate Bill 19-181, which is clearly designed to hamstring the industry in that state, did not cause Chevron to walk away. That’s a very positive endorsement of the richness of the resource in the Basin’s Niobrara Shale formation.
  • This is a big midstream deal, too. – Anadarko Petroleum will always be remembered as an upstream company with a long and proud history of success in that realm. In its Friday email, DI notes that the company also owns and operates very significant midstream assets: “ Chevron also acquires world class midstream assets that includes 12,509 miles of pipeline that tie to key US supply basins”including the Permian and DJ Basins.

All in all, it’s a deal that is well worth talking about, and that’s what pretty much everyone in the U.S. oil and gas business has been doing since Friday.

 

April 24, 2019: Oxy makes its bombshell new offer in a very public manner

In a surprising move, Occidential Petroleum (OXY) announced Wednesday morning that it was tendering an offer to the board of directors at Anadarko Petroleum APC +0% that OXY describes as being “superior” to the already-accepted offer by Chevron , which was announced two weeks agoNews reports at that time indicated that OXY had in fact offered a higher price for Anadarko – $70 per share – but Anadarko had decided to accept the Chevron offer due to “structural issues with the Occidental bid.”

Unwilling to accept that fate, OXY has now come back with an offer of $76 per share, in which shareholders of Anadarko stock “would receive $38.00 in cash and 0.6094 shares of Occidental common stock for each share of Anadarko common stock.” OXY pegs the total value of this new offer at $57 billion.

This compares to the already-accepted $50 billion Chevron offer that values Anadarko stock at $65 per share, from which shareholders would receive $16.25 in cash and .3869 shares of Chevron for every share of Anadarko stock they own. When markets opened Wednesday morning, OXY was trading at $60.31 and Chevron at $120.45.

Any way you look at it, shareholders would derive a higher initial return from the OXY offer than they would from the Chevron deal. When the original deal was announced two weeks ago, Anadarko’s board was not specific about nature of the “structural issues” with OXY’s original offer that had caused them to reject it. Assuming OXY has dealt with those issues in the scope of this new, even higher offer, it seems to place the Anadarko board in a real quandary.

“We have been focused on Anadarko for several years because we have long believed that we are ideally positioned to generate compelling value from a combination with them. We look forward to engaging immediately with Anadarko’s Board and stakeholders to deliver this superior transaction,” OXY CEO Vicki Hollub said in the company’s April 24 press statement.

OXY has long been a leading oil producer in the Permian Basin, and says the acquisition of Anadarko would increase its production in that basin to 533,000 barrels of oil equivalent (BOE) per day. The company’s press statement goes on to note that an acquisition of Anadarko would raise OXY’s total enterprise value to over $100 billion and result in a company with total global production of 1.4 million BOE per day.

Shares of Anadarko rose about 11% in pre-market trading, as investors anticipate OXY’s new offer will re-open the bidding for the company. Chevron’s management had not responded as of this writing, but there can be little doubt that OXY’s gambit will result in responses from both Chevron and Anadarko before the day is out.

As is always the case, the only certain aspect of the oil and gas industry is that, in the end, nothing is really certain.

Stay tuned.

 

April 25, 2019: More details of Oxy’s higher offer come to light

A friend asked me Wednesday afternoon if I had ever seen anything similar to the public battle between Occidental Petroleum and Chevron to acquireAnadarko Petroleum APC +0%. I’ve been in and around the oil and gas industry for 40 years now, and so was there throughout the rapid consolidation days of the late 1990s.

There were certainly battles then among the big companies to acquire takeover targets like Amoco, Texaco and Mobil Oil, which ultimately were merged with BP , Chevron and Exxon, respectively. But the difference between those competitive days and what we are seeing this week is the very public nature of Oxy’s move, with a letter to the Anadarko Board of Directors accompanied by a press release.

The same is true of the big takeovers that have happened during this century. I was at Burlington Resources (BR) when it was acquired by ConocoPhillipsin 2006. While rumors had flown for years that BR was a takeover target being eyed by one big company or another, nothing was ever made public until ConocoPhillips’ then-CEO Jim Mulva and BR CEO Bobby Shackouls announced the deal in early December, 2005. A similar quiet, behind-the-scenes process led to ExxonMobil’s acquisition of XTO a few years later.

But here we have Oxy, apparently frustrated that its first offer, which it considered to be more attractive than the bid by Chevron that was ultimately accepted, was not given proper consideration by the Anadarko Board, coming back almost two weeks later with an even higher offer, and doing it in a way that will place great pressure on those directors to reconsider. That’s a very, very different thing than the industry has seen in big takeover battles over the past 20 years or so.

So, that’s the first thing you need to know about this new bid for Anadarko. Based on events and analysis of the last 24 hours, here are six more things to know about this emerging competition:

Oxy considers this as the continuation of a “friendly engagement.” – In an interview on CNBC’s “Squawkbox” Wednesday, Oxy CEO Vicki Hollub was careful not to call this a “fight” , telling host David Faber that “We’ve been working on this Anadarko deal and studying it for two years. It was in July of 2017 that we made our first approach to talk to the CEO of Anadarko. We have been in a friendly engagement since then, and even today, this is still a friendly engagement.”

Most of the value in the deal is in Anadarko’s onshore shale assets. – When asked by Faber about investor concerns that Anadarko’s Gulf of Mexico operations and LNG export assets in Mozambique are better fits for Chevron than for Oxy, Hollub noted that “75% of the value in this deal is in the shale.” Much of that shale, of course, is in the Delaware Basin of West Texas, where Oxy has long been one of the major players. But it’s fair to note that Anadarko is also currently the largest producer in Colorado’s DJ Basin, a region where Oxy has not been an active player.

Oxy remains focused on Anadarko to the exclusion of other potential takeover targets in the Permian. – Hollub told Faber that her company maintains a laser focus on Anadarko for good reasons. “[The opportunity for Oxy is] tremendous, because there’s more than 10,000 wells that can be drilled. In the Delaware Basin, our wells perform about 74% better than Anadarko’s, and we have lower cost of development on both the drilling and completions execution. So when you take that and apply it to 10,000 wells, that’s a huge upside.”

Industry analyst company DrillingInfo agrees that the Permian/Delaware Basin is the big driver here. – In an analysis released Wednesday afternoon, M&A Analyst Andrew Dittmar points out that “The Permian is clearly the primary driver of this competition between Chevron and Occidental for Anadarko.” He also notes that this public competition is going to raise the cost of future acquisitions in the region: “For the increased Oxy bid of $57 billion, we are raising the value allocated to Permian acreage up to nearly $20 billion or ~$80,000 per acre,” Dittmar added.

Synergies between Oxy and Anadarko are also strong in the Middle East. – Dittmar notes that, beyond the Permian/Delaware, the synergy battle here is not all in Chevron’s favor: “Beyond the Permian, Oxy gets just under 40% of its output from the Middle East fitting Anadarko’s operations there, while Anadarko’s Gulf of Mexico and LNG assets are perhaps less of an obvious fit than in the Chevron portfolio.”

The 4th largest deal in the industry’s history. – DrillingInfo previously pegged the Chevron/Anadarko $50 billion bid as being the 5th largest deal in the oil and gas industry’s history, if completed. Oxy’s higher bid of $57 billion, including assumed debt, would make it even larger than BP’s $56 billion takeover of Amoco in 1998 .

The bottom line here is that Chevron and Oxy are competing for Anadarko because of the extremely attractive portfolio of assets that company has accumulated over the years. Hollub doesn’t want to characterize it as a “fight,” but you can’t help but believe that’s exactly what she has on her hands now.

=========================================

That is all, for now. But you can bet this story is far from over.

Follow me on Twitter at @GDBlackmon

 

 

Open post

The Facts on Chevron’s Blockbuster Deal to Acquire Anadarko

Today’s Energy Update
(Because Energy Fuels Our Lives)

Over the past few days I have posted up two separate pieces at Forbes.com analyzing the Chevron acquisition of Anadarko Petroleum. This largest takeover of an independent producer by one of the majors in this 21st century ended a half-year drought in the M&A space in America’s oil and gas industry, and moves Chevron up the ranks of the super majors, now ranking behind only ExxonMobil as the second-biggest privately-held major oil company.  Links to both pieces are below.  I hope you enjoy them.

The Competition For Permian Dominance Heats Up With Chevron’s Buyout Of Anadarko

7 More Things You Need To Know About Chevron’s Takeover Anadarko

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

Open post

The Evolution of American Natural Gas in the 21st Century

Today’s Energy Update
(Because Energy Fuels Our Lives)

The Evolution of American Natural Gas in the 21st Century

[This is the cover story for the new issue of Shale Magazine, where I serve as editor, a story that I really enjoyed researching and writing, since I’ve lived through all of it.  If you want to know how and why our amazing natural gas resource has developed during this century, and the potential for its further development in the coming decades, please give it a read. Thanks!]

Read the Full Piece

In the summer of 2002, the National Petroleum Council (NPC) gathered together some of the smartest minds from the oil and gas industry, academia and in the environmental community to study the potential for natural gas in North America. The study lasted for the better part of a year, after which a report titled “Balancing Natural Gas Policy – Fueling the Demands of a Growing Economy” was released.

As we sit here 16 years later, reviewing the findings of this study in light of the current situation where natural gas in North America and globally is concerned is a fascinating exercise — one that demonstrates the challenges presented to even the most informed and intelligent people when it comes to making accurate projections about how the oil and gas industry will evolve in years to come.

oil and gas processing industry. rectification column and storage of finished productI personally chaired one of several subcommittees that were established to conduct various aspects of this study, led by ExxonMobil and Burlington Resources, which was my employer at the time. When the study was issued, those of us who had worked on it were quite proud of it and were firm in our belief that it would stand the test of time, providing an accurate roadmap for the public and policymakers to use as a guidepost for years to come.

Providing such guidance is, after all, the role of the NPC, a federal advisory committee that reports directly to the U.S. Secretary of Energy. The NPC’s own website describes its role, in part, as follows:

The National Petroleum Council (NPC), a federally chartered and privately funded advisory committee, was established by the Secretary of the Interior in 1946 at the request of President Harry S Truman. In 1977, the U.S. Department of Energy was established and the NPC’s functions were transferred to the new Department. The purpose of the NPC is solely to advise, inform, and make recommendations to the Secretary of Energy with respect to any matter relating to oil and natural gas or to the oil and gas industries submitted to it or approved by the Secretary. The NPC does not concern itself with trade practices, nor does it engage in any of the usual trade association activities.

Even though the NPC had conducted a natural gas-related study in 1999, incoming Bush Administration Energy Secretary Spencer Abraham felt that the situation had shifted significantly enough by 2002 to warrant another look. It is important to keep in mind that, when the request came down from Secretary Abraham, natural gas was a commodity in short supply and subject to huge price swings. Because a large percentage of our country’s production came out of the Gulf of Mexico, it was also subject to being significantly interrupted by major hurricane events.

Large liquefied natural gas (LNG) carrier with 4 LNG tanks sails along the sea

In 2002, the Barnett Shale was the only major natural gas-bearing shale formation that had been discovered. The Barnett was in the early stages of its development, and the industry had little understanding of its ultimate potential. Nor did any of the experts assembled by the NPC for its new study have any inkling of the magnitude of domestic natural gas resource that would be discovered in massive reserves trapped inside formations with names like Marcellus, Haynesville, Bakken, Eagle Ford, Spraberry, Woodford and Wolfcamp.

One of the most popular bits of conventional wisdom said about any economic study is “garbage in, garbage out.” Our base of information for the 2002 NPC study wasn’t “garbage” — the information we had was high-quality, but it was also very limited. The study by its very nature had to be based on available data, and the data available at the time indicated that North American natural gas production through the year 2025 would be characterized by limited domestic output, rising imports of liquefied natural gas (LNG) coming into the country on huge tanker ships, and high commodity prices as a result.

It should come as no surprise that the study’s findings, some of which we will review here as examples, reflected this general outlook.

Every study based on economic analyses will include multiple cases that produce differing outcomes. Typically, these are described as a “base case” which assumes a status quo of outside-influencing factors going forward, an aggressive case that assumes some set of positive changes, and possibly even a non-aggressive case that assumes a set of negative changes.

One of the big decisions the NPC study committee had to make revolved around how many cases to include and how to structure them. In the end, the decision was made to include:

• “Balanced Future” case in which U.S. energy policy would evolve in ways that would encourage the development of new natural gas resources and the building-out of adequate midstream infrastructure and LNG import facilities; and

• “Reactive Path” case in which energy policy evolves, but mainly in reaction to various negative events such as shortages of supply or crises caused by lack of adequate infrastructure.

Given that background and knowledge about how the study was structured, the fact that most of the findings produced in our report have turned out be quite inaccurate should come as no surprise. Here are a few of them taken from the study’s Executive Summary:

• From page 32-33: “Given the relatively low production rates from non-conventional wells, the analysis further suggests that even in a robust future price environment, industry will be challenged to maintain overall production at its current level. This conclusion is reached even though new discoveries in mature North American basins represent the largest contribution to future supplies of any component of this supply outlook.”

• From page 33: “The NPC estimates that production from the lower 48 states and non-Arctic Canada can meet 75 percent of U.S. demand through 2025. However, these indigenous supplies will be unable to meet the projected natural gas demand.”

• From page 52: Price Projections: The NPC “Balanced Future” case projected a 2019 average price of between $3.20 and $5.00 per mmbtu. Its “Reactive Path” case projected a price range of $5.00 to about $6.90.

• From page 63: “To meet future demand, the NPC is projecting LNG imports will grow to become 14-17 percent of the U.S. natural gas supply by 2025. This will require the construction of seven to nine new regasification terminals and expansions of three of the four existing terminals.”

Of course, with the benefit of 16 years of hindsight, we now know that none of these key projections have come to fruition. For example, where prices are concerned, today’s natural gas producers can only long for a price per mmbtu of even $3.20, much less long-forgotten levels of $5.00 or $6.90.

LNG TANKER - Ship at dawn moored to the gas terminal

Far from being challenged to maintain overall current production levels, today’s natural gas industry struggles with finding adequate areas of demand to which to move their product, even as the number of active drilling rigs exploring for natural gas resources has fallen from 1,600 as recently as 2012 to around 130 at the first of 2019. In a way, producers are victims of their own expertise, having become so adept at maximizing volumes from each new well, that they threaten to oversupply the market―even with a dramatically-reduced rig count.

The nature of the shale plays discovered since 2003 has also played a large role in creating this new reality for gas producers. It’s not just the massive resource contained in natural gas plays like the Haynesville and Marcellus keeping the gas rig count low — it’s also the amazing volumes of methane flowing out of what are classified as oil wells being drilled in the Bakken, Eagle Ford and the Permian Basin. A little-recognized fact of life in today’s U.S. oil patch is that the oil-heavy Permian Basin is now the second-largest producer of natural gas in North America, behind only the Marcellus/Utica Basin.

Simply put: Today’s biggest problem for natural gas producers is not a lack of supply, but lack of demand.

It’s important to recognize that this sea-change in the supply/demand equation for domestic natural gas has taken place during a period of time when demand for natural gas has increased significantly. In 2003, Americans and American businesses consumed about 22.7 trillion cubic feet (tcf) of natural gas, according to the U.S. Energy Information Administration (EIA). By 2017, overall U.S. consumption had grown to 27.1 tcf, an increase of 20 percent.

More to the point, demand for natural gas over that period of time rose in all of its key demand sectors: It was up in power generation, up in home heating use, up in chemicals and plastics and all other key manufacturing uses. Indeed, the phenomenal new abundance of natural gas supply and the chronic low prices that abundance has produced has played a significant role in the ongoing renaissance of manufacturing in the U.S., making the country globally competitive in that space for the first time in several decades.

This newly-found abundance may be a curse to natural gas producers and their bottom lines, but it has been a true blessing to the country.

Read the Full Piece Here

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

Open post

The Oil and Gas Situation: Reviewing 6 Predictions

Today’s Energy Update
(Because Energy Fuels Our Lives)

As Q1 2019 comes to a close, it is time to review the status of some predictions I made here the day after Christmas for what we would see during the first half of 2019. Accurately gauging where the industry will be several months into the future is always a crap shoot, and as usual, I find myself feeling glad I didn’t go out and bet the farm on any of these.

First, let’s look at what I had to say about the domestic rig count as calculated by the folks at DrillingInfo:

…my first prediction is that we will see a gradual fall in the domestic U.S. rig count throughout the first half of 2019. Indeed, the DrillingInfo Daily Rig Count already fell by about 3% during December, from 1160 to 1120 on December 25. I’m betting that, by June 30, that measure will be below 1050…

This particular count finished the quarter at 1049, after falling slowly but steadily throughout the first three months of the year. This represents a 9% drop since Christmas day, and there is no real reason to expect this trend to change during the second quarter, with so many upstream companies prioritizing stock buybacks and other programs designed to return capital to investors and lenders over the mad rush to increase production we saw throughout 2017 and the first 8 months of 2018.

A reasonable updated guess would be that we will see the DrillingInfo count fall to right around 1000 by the time June 30 rolls around.

What about crude prices? Here’s what I predicted they would do in Q1:

…my second prediction is that the price for WTI will rise again, but will not exceed $60 during the first half of 2019.

As things turned out, I had the general direction of crude prices right, but underestimated how rapidly they would rise, as WTI closed at $60.14 in Friday’s trading. The basic market dynamics that advocated in December for what has been a 20% recovery in the WTI benchmark remain in place today. Global demand continues to rise more rapidly than all the experts thought it would at the first of the year, and the OPEC-plus nations still maintain pretty strong compliance with their export quotas.

 

Read the Rest Here

 

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

Open post

Technology Is A Huge Driver Of The U.S. Oil And Gas Boom

Today’s Energy Update
(Because Energy Fuels Our Lives)

In the world of oil and natural gas, engineers, geologists, and drilling and production departments tend to get the lion’s share of the credit when good things happen, and most of the blame when they don’t. That’s fair, given the crucial roles these groups of employees play within the thousands of companies that make up the U.S. oil and gas industry.

But in recent years, as overall domestic production has risen at a pace no one could have foreseen even five years ago, the credit has begun to shift. These human resources remain indispensable to the success of any company, but the deployment of a raft of advancing technologies has played an ever-advancing role over time in enabling companies to maximize recoveries and profits.

Advanced-intelligence (AI), machine-learning applications constitute one area of technology that is obtaining widespread use throughout the industry. Unplanned equipment outages and the resulting loss of production cost companies billions of dollars every year. Any technology that can help avoid such outages can have a major, positive impact on a company’s bottom line.

Last December, I wrote about one machine-learning tool – PRT, a recent acquisition of DrillingInfo – that enables companies to significantly reduce their electricity costs by accurately predicting weather and wind patterns up to two weeks in advance. Given that electricity is the single largest element of lease operating expenses industry-wide, that’s a big deal.

Read the Rest Here

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

Open post

The Permian Strategic Partnership Is Now Fully Operational

Today’s Energy Update
(Because Energy Fuels Our Lives)

Tracee Bentley has a big job on her hands. Fortunately, as she pointed out in my interview with her on Wednesday, she’s going to have a lot of help.

This past Monday, March 18, was Bentley’s first day on the job as CEO of the Permian Strategic Partnership, the non-profit organization formed last fall by 20 of the largest producers in the oil and natural gas-rich Permian Basin of West Texas and Southeast New Mexico. As I noted back in November, the formation of this new organization is both timely and much-needed:

The Permian Basin is just the latest example of how this industry’s operations can strain a region’s infrastructure and vital service systems. A heavy influx of new, mostly child-bearing age workers, thousands of heavy trucks rolling down county roads and over city streets, dust, noise and traffic jams, all taking place in a region of West Texas and Southeast New Mexico typified by smaller communities will inevitably lead to changes in the quality of life that are upsetting to many residents and community leaders.

These are exactly the kinds of regional issues the Permian Strategic Partnership (PSP) was created to help the area’s communities address. The organization’s website lists its key priority areas of focus this way: “By partnering with local leaders, we will work hard to make roads safer, improve schools, upgrade healthcare, increase affordable housing, and train the next generation of workers.” The member companies are dedicating a lot of scratch to this effort, with an initial commitment of more than $100 million to be directed towards specific projects in the region.

When asked about how the PSP will go about directing these funds and its efforts, Bentley is quick to emphasize the word “partnership”: “We don’t want people to think that we’re just going to come in and take over. That’s not good for anybody, and the oil and gas business is not in the construction business, so to speak, when it comes to things like schools and roads.  But what we are really good at is partnering with communities. We do it every day across the basin on so many different things.”

Read the Rest Here

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

Open post

The Next Permian Bottleneck: Crude Oil Exports

Today’s Energy Update
(Because Energy Fuels Our Lives)

There are many ways to tell the story of any oil boom, one of which is to view them through the spectrum of the various bottlenecks they create. By any measure, the ongoing boom in the Permian Basin has created more than its share of such traffic jams already, and at least one more is likely on the way.

The reasons for this are many: The unprecedented magnitude of this particular oil boom in modern times has much to do with it. The fact that the play area is in a sparsely-populated, mainly-rural part of the world also plays a role. The nature of the oil being produced – the light, sweet variety – and the play area’s immense geographic sprawl also have also been major factors in the creation of a variety of bottlenecks.

Some of the bottlenecks the Permian has experienced come about in any significant oil or gas boom: The ongoing challenges of training and hiring qualified workers is a classic. The shortage of natural-gas-gathering infrastructure that resulted in a high volume of flaring is another that was also a feature of booms in places like the Eagle Ford and Bakken and Marcellus shale plays. Roads and other limitations in preexisting regional infrastructure inevitably resulted in bottlenecks in traffic as the counties and states struggle with  funding major new improvement projects.

Over the last two years, the big bottleneck talk related to the Permian has centered on the need for a major expansion of pipeline takeaway capacity to move oil, natural gas and natural gas liquids (NGLs) out of the basin to major market and refining centers along the Texas and Louisiana Gulf Coast. But that particular bottleneck is about to start resolving itself during course of this year. Midstream projects will add up to 6 million barrels of oil equivalent of new takeaway capacity out of the Permian by the end of 2021 , and that just from the projects currently underway.

This new capacity is desperately needed, as the U.S. Energy Information Agency projects that Permian crude production will double over the next four years, from the current 4 million bopd to as much as 8 million bopd. Given that virtually all Permian Basin natural gas is associated production from wells classified as oil wells, we can expect similar increases in natural gas and NGL production during that time frame.

Read the Rest Here

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

Open post

ExxonMobil, Chevron: Turning The Permian Into A Manufacturing Operation

Today’s Energy Update
(Because Energy Fuels Our Lives)

The exploration for oil and natural gas has always been among the most risky propositions in the business world. The major risk today, in the new age of shale, revolves around raising capital and satisfying investors, but throughout the 19th and 20th centuries, the bigger risk centered on finding the pockets of oil and gas contained within conventional sand and limestone formations.

This was often a very tricky proposition, and the drilling of dry holes outnumbered the successful wells in many major play areas. The tales are legion of the independent producers who went flat dead broke before ever managing to drill a producing well. “Dad” Joiner, the promoter and ultimate driller of the Daisy Bradford No. 3 – the first successful well completed in the mammoth East Texas Field on October 3, 1930 – famously went broke half a dozen times and required an influx of capital from H.L. Hunt before finally bringing in his gushing discovery well.

That dynamic all began to change in the late 1980s with the discovery and development of unconventional formations like the Fruitland Coal in the San Juan Basin of New Mexico. Operators like Burlington Resources, Amoco and Devon Energy (DVN) soon realized that, once the geographic extents of the formation had been fully delineated, the risk of drilling dry holes soon diminished to near-zero. Once that determination had been made, you drilled a vertical well, conducted a smallish hydraulic frac job and de-watered the surrounding rock to cause the methane gas to be released from the coal.

At that point, the main considerations became how to re-use, dispose of or sell the largely-potable water that came up out of the wells, and building out the necessary transportation and processing infrastructure needed to get it to market. Once those concerns had been addressed, these companies and many others found themselves in what was essentially a true manufacturing environment

A true manufacturing environment is one that is highly-predictable, consistently repeatable, requires known raw materials (i.e., sand, pumps and frac water), deploys specific infrastructure, and involves the disposition of waste materials. The Fruitland Coal fit every aspect of that definition: Many other unconventional plays soon followed.

Shale plays, once fully delineated, all end up incorporating the same features of true manufacturing operations. Thus, when both ExxonMobil (XOM) and Chevron (CHV) issued this week’s announcements that their companies would deploy a high percentage of their respective capital budgets in the coming years in efforts to dramatically increase their production from their Permian Basin operations, it did not represent a new concept for the U.S. oil industry. It’s just that these two major, fully-integrated companies have the ability to conduct such operations on a far grander scale.

For those who may have missed those announcements, Chevron said it plans to produce 600,000 barrels of oil equivalent (boe) from its Permian operations by 2020, ramping that up to 900,000 boe by 2023. ExxonMobil anticipates being able to increase production from its 1.6 Permian position from roughly 200,000 boe today to 1 million boe by 2024. Both numbers are truly astonishing.

Read the Rest Here

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

Posts navigation

1 2 3 4 7 8 9
Scroll to top
%d bloggers like this: