It was a big, and historic, week in this country as the 46th President of the United States, Joseph Robinette Biden Jr., was ushered into the White House. It was also a week that rocked the oil and gas industry. On his first day in office, Biden signed a series of executive orders that underscored his Clean Energy Revolution — rejoining the Paris Climate Accord; revoking approval of the Keystone XL oil pipeline from Canada; blocking drilling in the Alaskan National Wildlife Refuge; and telling agencies to immediately review dozens of Trump-era rules on science, the environment, and public health. In addition, on his second day in office, the Biden administration announced a 60-day suspension of new oil and gas leasing and drilling permits for U.S. lands and waters. Ironically, Biden’s cancellation of the Keystone XL project comes just days after the owners of the pipeline, TC Energy, announced their commitment to become the first pipeline to be fully powered by renewable energy; delivering affordable, reliable energy resources we all rely upon.
The recent and dramatic decline in the price of oil illustrates the risk every oil and gas producer faces with energy commodity price volatility. Although depressed prices forced operators to shut-in production to save their bottom lines, companies with hedges were left in a much better position than those who had forgone the option to reduce the impact of unanticipated revenue declines. Without the protection of an effective hedging program, an upstream company’s cash flows are wholly subject to the volatility of the market. Luckily, with upward price projections for the coming year, institutions distributing hedges to major oil companies for a portion of anticipated production may see greater returns than recent years, most certainly greater than 2020. As the story of 2021 continues to show upward crude price projections, it will be important to keep a close eye on which companies choose to hedge early for guaranteed revenue protection and those that hold out or hold off in hopes of a better tomorrow.
Progress towards global decarbonization is quickly becoming one of the hottest topics in 2021 following the momentum experienced in 2020. Dozens of countries, multitudes of cities, and countless companies have announced their goals to achieve net-zero emissions on their path towards decarbonization by mid-century. The problem is, most of these announcements lack any specific path forward. As a part of this movement, the International Energy Agency announced that it will produce the world’s first comprehensive roadmap for the energy sector to reach net-zero emissions by 2050 as it further strengthens its leadership role in global clean energy transitions. But is the world prepared for such a transition as the clean energy infrastructure is clearly not yet capable of supplying reliable energy on a global scale as seen in the recent blackouts in China and California?
E&P companies have driven away investors in the energy sector by not delivering returns amongst a global pursuit for decarbonization. While investor disenchantment within the United States oil industry isn’t new, it appears to have worsened with the COVID-19 market environment. From 2015 to 2016 at the start of the “lower-for-longer” downturn, the market seemed optimistic about the industry. By 2020, the double impact of the global pandemic and the Russia/Saudi price war seems to have led many investors to avoid oil stocks and as they start seeking new opportunities. Moving forward into 2021 and 2022, capital will be difficult to source until investors feel comfortable that the industry can develop resources without squandering their money again.
The Bakken Shale| December 2020 Field Overview Named after Henry Bakken, the farmer who owned the land where oil was originally discovered, the Bakken Shale is located in North Dakota,
California | December 2020 Field Overview California, with both onshore and offshore oil production, has been supplying the U.S. with petroleum products since the 19th century. Operations are primarily focused
Eagle Ford Basin | December 2020 Field Overview A heavy shale play, the Eagle Ford basin is located east of the Permian, stretching from Dallas to San Antonio. Primarily a
The SCOOP/STACK Basin | December 2020 Field Overview Ranking 6th in oil production and 3rd in natural gas production, the SCOOP/STACK play is one of the largest fields within the
The Marcellus Shale| December 2020 Field Overview The Marcellus Shale is the largest gas play onshore in the US. Located in the Northeast, it supplies the high demand markets along
The DJ/Niobrara Basin| December 2020 Field Overview Located mainly in the Northeast of Colorado, the Denver-Julesburg Basin consists of five main oil-producing formations: Niobrara sections A-C, Codell, and Greenhorn. These
The Permian Basin | December 2020 Field Overview Located in West Texas, the Permian Basin has been producing oil for over 100 years. It leads the US in oil production
The Powder River Basin| December 2020 Field Overview The Powder River Basin, known for its coal deposits, is located in Southeast Montana and Northeast Wyoming. The basin is named so
After failing to come to a consensus Monday, Tuesday’s extension of the OPEC+ meeting ended at long last with a solution. The meeting saw members of the OPEC+ group agree to lift oil production by 75,000 barrels per day over January levels. But there was also a surprise twist that sent oil prices soaring. Saudi Arabia announced they would voluntarily cut an additional 1 million barrels per day in February and March above its current cuts while its OPEC+ allies get to ramp up production. “We are the guardian of this industry,” Saudi Energy Minister Prince Abdulaziz bin Salman said as he gleefully announced the cut on Tuesday. He emphasized that the decision was made unilaterally by Crown Prince Mohammad bin Salman himself. Such actions caused crude prices to jump to a 10-month high and adds stability to an ever imbalanced market.
At the end of October, natural gas prices soared to a 19-month high and after such impressive upward price movements, the RARE PETRO team predicted prices would sustain prices near the $3 per MMBtu range for the final months of 2020 and into 2021. With a cold winter ahead, a historic Hurricane season in full swing, depressed oil production, and soaring LNG exports; the gas futures market appeared to have plenty of price support to maintain its upward momentum into the foreseeable future. Unfortunately, the final months of 2020 were fairly lackluster for the surging gas market but luckily, the new year brings new hope for the struggling sector.
Data shows world crude oil demand in the first quarter of 2020 declined by the largest volume in history – even exceeding declines during the 2009 financial crisis. As economic recovery resumes, the demand for hydrocarbons will begin to rise and will quickly surpass pre-pandemic levels. While the timeline has been delayed as a result of a second wave of lockdowns and sustained travel restrictions, people around the world will still need plastics for their daily activities, roads and vehicles to travel from place to place, goods and services created and shipped with hydrocarbons, and other consumables derived from crude oil. While initial recovery estimates by RARE PETRO, the IEA, and EIA have changed, hydrocarbon demand will still eventually recover to pre-pandemic levels for several reasons.
The year 2020 has certainly been a wild one in all aspects of both society and the global economy, but has also left the global petroleum industry in disarray. When global oil demand eventually returns to pre-pandemic levels and ultimately continues to grow, will the world have enough crude to meet demand for the upward trajectory of energy consumption? According to Rystad Energy, the answer is no. They predict the world is on track to run out of sufficient oil supplies to meet its needs through 2050, despite lower future demand due to the COVID-19 pandemic and the accelerating energy transition. There may not be enough supply in the next 30 years unless exploration speeds up significantly and exploratory capital expenditures of at least $3 trillion is put to the task.
An iconic brand known for cold weather gear is finding itself in the hot seat after refusing to serve West Texas based Innovex Downhole Solutions. Innovex wanted to get its employees The North Face jackets with the company logo on them for Christmas. When the company reached out to The North Face, however, their request was denied based on their industry. Now, the clothing brand is in the hot seat after Innovex CEO Adam Anderson wisely pointed out to a North Face representative how essential the products of the oil and gas industry are for their business.
With global economies opening back up with the release of a vaccine for the global pandemic, global oil demand is returning and with it, higher oil prices. Unfortunately for consumers, higher oil prices mean higher prices at the pump in addition to increased costs of many manufactured goods. Since hydrocarbons are wound deep into nearly every facet of our society, price changes are inevitably felt in many sectors of the economy. As oil prices rise, associated production costs will be passed through to consumers rather than kept at the bottom line of operators or refineries. When oil prices rise in the near term, it will be better for investors and the remaining companies in the industry at the expense of people consuming the final products produced.
The Powder River Basin| November 2020 Field Overview The Powder River Basin, known for its coal deposits, is located in Southeast Montana and Northeast Wyoming. The basin is named so
The Permian Basin | November 2020 Field Overview Located in West Texas, the Permian Basin has been producing oil for over 100 years. It leads the US in oil production