Monday Madness: May 10 ’21

In this episode of Monday Madness your host Tavis talks about the biggest oil and gas statistics, recent cyber attacks on American Infrastructure, and the start of merger season!

Audio Transcript

Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another thrilling episode of Monday Madness on May 10th, 2021. Our student audience has to be absolutely stoked as many of them are finishing up their last finals this week, if they aren’t finishing them up in the next day or two. Special shoutouts to Gunnar Merrick and Niels Snow here at RARE PETRO for getting through what I imagine was one of the most frustrating academic years in recent history. But, you didn’t come here to listen to me brag about RARE PETRO’s incredibly talented and well educated team, you came here for the hottest news and statistics that the industry has to offer in the past week, so here we go!

We will kick things off with WTI pricing. As I write this script, the price is about $64.44. Sunday through Monday morning teased us with a price of 65 and a half dollars, but quickly plummeted after 6:00 AM this morning. Although nobody likes to see a big dollar dip, I’m still confident we can break through that $65 ceiling we seem to be bouncing off of. I don’t know if you caught it, but last Monday’s WTI price closed at $66.23 before spending the rest of the week at a rather stable $65 pricing point. Isn’t it strange how all headlines reflect the world’s efforts to incorporate more green technology and practices into their daily lives, yet the price somehow continues to climb? Really, I don’t say this to gloat, I just want to highlight the growing negative sentiments surrounding the market. Even in the final quarter of 2020, we had people predicting $50-$55 barrels in 2021. That’s not just Joe Schmoe’s prediction, that was Russian energy minister Alexander Novak. Ultimately, it is good to see the price testing new ceilings and I am excited to see where we are next week, because I think any day now we will hit a $66 pricing point for more than 48 hours, and that could be the start of something extraordinary.

Next up: rig count. The US added 8 rigs to its total throughout last week bringing it to 448 rigs, or up 74 rigs on the year. The Permian exhibited some strange behavior over the past 2 weeks as it would lose a rig here and there or exhibit no change at all. This week, it is back on track as it has added 5 rigs to bring the total to 229. The next best growth we saw was in the Haynesville shale who was able to add 4 rigs to their total bringing them up to 49. Between the Permian and Haynesville, Texas has seen plenty of growth, but what of the third member of the Texas Trifecta? That’s right, I’m talking about that little field found in the south: The Eagle Ford. That field has had a great past couple of weeks as it would add a rig here and there or maintain its total. Unfortunately, the streak of good luck ends for the Eagle Ford as it loses a rig. Sad, I know, but still a great week for the state of Texas. Outside of the Texas, New Mexico, and Louisiana area, not much else happened. We did see another rig go up in the Marcellus, but otherwise we saw lots of zeros across the board. Still, +8 is a great week for the rig count, and I feel badly for doubting the Permian’s abilities in last week’s episode. Clearly, Texas is doing something right, and I’m excited to see increasing activity. As for what types of rigs went up, we saw an increase of 10 horizontal, but a decrease of 2 vertical.

Lastly our domestic inventories. We’ve been seeing big builds and measly draws for 2 months now. The biggest build we saw was more than 21 million barrels back in the beginning of March, and the biggest draw we saw was shy of 6 million barrels. Fortunately, we have good news this week from both the API and EIA. The API’s most recent report shows a draw of about 7.7 million barrels when they predicted 2.2, and the EIA reported very similar numbers with an 8 million barrel draw when they predicted 2.3. I am excited to see numbers like this, but we aren’t in the clear yet. Since those builds in March, we accumulated some 40 million barrels. So far, the total draws since then only total to about 17 million. Hopefully we see another draw next week so that we can say we’ve worked away half of that build, and there are some stories coming up that I think could support another positive week, but first we will want to talk about some of our refined products. Both gasoline and propane saw almost insignificant builds leaving them in the bottom third region of the range of the past 5 years of pricing. No big swinging changes there, but distillates stocks continued to take a bit of a nosedive, which is historically predictable for this time of year. Even though it dropped another few million barrels, it is sitting right smack dab in the middle of its 5 year historical price range. Nothing out of the ordinary here, but really nice to see another significant draw on crude.

But our first story involves a pipeline shutdown… well, more realistically, a network of pipelines shutdown. Colonial Pipeline, or the country’s largest fuel pipeline company that services tens of millions in the south and east, was attacked on Friday with ransomware. If you aren’t familiar with ransomware, I’m happy for you, but it is basically a virus that holds your computer hostage. Sometimes people download something sketchy, and on launch, the computer will get locked up, and a message will tell you that you can remove the program if you wire someone a certain amount of money. Otherwise, your computer has been rendered useless. As you can see, when it happens to an entire company that services millions of people, the effects can be disastrous. So far, nothing has been resolved but a third party cybersecurity firm, law enforcement, and the FBI are now on the case. They have confirmed the hacking group “DarkSide” is involved which is an organization that runs a “ransomware as a service” business model meaning that if it wasn’t DarkSide that carried out the attack initially, it is a customer of theirs for sure. Plenty of statements from both the company and the whitehouse have mentioned that they want to minimize supply disruption, but I haven’t found any word on how that will be done so far. The pipeline transports some 2.5 million barrels of gasoline, diesel, heating oil, and jet fuel everyday, so the longer this remains unresolved, the more expensive those will get in the Southern and Eastern markets. This morning, gasoline futures jumped to some of the highest prices they had seen since May of 2018 before being reigned back in. Really, this is huge, and I’m surprised I haven’t seen more buzz around it. This pipeline network runs from Texas all the way to New Jersey and services around 17 states. If anything, it highlights the need to “modernize the oil field,” which as some of you know, is RARE PETRO’s creed and core mission. While the magnitude in this situation is huge, this isn’t the first time something like this has happened. These things can even be snuck into excel macros and emailed to the whole company. If one person opens the documents and enables macros, the whole organization could be jeopardized. The oil and gas industry is historically notorious for being behind the curve of cutting edge tech, but they don’t have to be. If you would like to learn more about security measures revolving around certain tech, I highly recommend you check out an episode of the “Modern Mobile Oilfield” series that I conduct with Geoffrey Cann. We always talk about the security issues associated with the use of a certain tech, and at this point, you cannot afford to be illiterate on the subject. If you are, 50% of the East Coast’s fuel demand can be easily threatened as we see today. Experts predict that this situation will get exponentially worse if this situation is not resolved by Wednesday, so you will want to keep your eyes on this story for sure.

Next we have big news for those of you in Colorado: Bonanza Creek and Extraction Oil & Gas have decided to merge as Civitas Resources, an organization that will be valued at $2.6 billion. The combined company will operate across 425,000 acres with a  production base of 117 thousand barrels of oil equivalent per day. Too many mergers and acquisitions went down last year because people had to do it. I don’t like that, the sort of last ditch effort to turn some cash, but I understand it has to be done sometimes. In this case however, it is clearly a merger of equals with a common goal, and the metrics of the resulting Civitas Resources are astounding. Fun Fact: civitas is apparently the greek body of citizens and the social contract that binds them all together as each is a civis, and ultimately establishes citizenship. Pretty cool name if that is what they intended. Once the deal is finally completed sometime around Q3, the resulting company plans to be Colorado’s first net-zero producer. This leaves Civitas the largest and most responsible pure-play energy producer in the DJ basin. Not only this, but the synergies afforded by the merger should generate $25 million in savings thanks to reduced capital costs and greater administrative savings. They also have very little debt, $127 million in the bank, and another $651 million in credit to draw on, should they choose. I could go on and on about this merger, but just know that these companies have great leadership, good balance sheets, and positive intentions, so I am excited to see where they go from here. Who knows, perhaps a few more career fairs will be seeing a Civitas Resources booth as they continue to grow as a company in Colorado. I think I am running out of time for today’s episode, but I would like to mention a few other mergers and acquisitions as well. Over the weekend, we saw Laredo petroleum of the Permian basin announce over $1 billion worth of transactions mainly revolving around acquiring the portfolio of an EnCap subsidiary. While we are down in that area of Texas, it is worth mentioning that Diamondback divested some of the recently acquired QEP assets to generate an additional $745 million. Like I said, last year we saw lots of mergers because people had no other choice. Mounting debts, decreasing reserves, and low oil prices are some pretty stressful topics. This year however, we see companies with great balance sheets trading companies and assets because they are making strategic big money moves. It’s merger season baby, bit this year it’s going to be a little bit more fun than the last.


But that is all I’ve got for you today! Some big hard hitting headlines this week, and I tell you: I had a whole lot of fun. If you are looking to have more fun, you can find more than a years worth of Monday Madness episodes on our website www.rarepetro.com along with many other podcasts that we continue to release week after week. If you want to stay on the cutting edge of research and news, be sure to subscribe to this podcast as we continue to deliver the information you need to know quickly. If you want to do some of your own research and cross check our numbers be sure to check out the “useful links” section on our homepage. In short, we’ve got lots of good content and research for you to enjoy, so stick around! This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!

Music: https://www.bensound.com/royalty-free-music

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