Join your host Tavis as he talks about Chevron’s refusal to conform, and the new height requirements to ride into the UN’s annual climate conference.
Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian on behalf of RARE PETRO bringing you an episode of Monday Madness on September 20th, 2021. We’ve got lots to talk about today in the world of policymaking and looking towards the future. Who will be policing it? What role do the oil companies play? Can they refuse to take part in the energy transition? All this and more later on in the podcast, and I for one am excited as geopolitical factors are some of my favorites to analyze. I’ve been gabbing long enough though so let’s move into our statistics.
WTI prices skyrocketed last Wednesday up to $73 before making a quick retreat back into $72 territory. The price held steady at $72 before taking another dip to $70 early Monday. At the time of writing this script, the price was $70.76. To me, this is phenomenal news. In previous weeks we would rarely spend this much time over $70, and the price bounced off when it tried to drop below. While nothing is certain I am confident that this week has a greater opportunity at staying above $70 and perhaps pushing into higher prices. But when one ceiling is smashed, we see another established, this time in the case of natural gas. It peaked last Wednesday at $5.46 and is currently at $5.125. Any huge runup in price is guaranteed to encounter resistance, and I think the 5 and a half dollar point is a big barrier to break through. Still, if you listened to last week’s episode you know of the many reasons why RARE PETRO believes natural gas prices will continue to climb through 2021. If you didn’t hear last week’s episode, scroll back in the feed of whatever app you are listening through and you should find it. You can find us pretty much anywhere at this point. The biggest event that could really shock prices this week is the Federal Reserve’s meeting. After some discussion, they should be announcing whether or not the central bank will begin tapering its monthly asset purchase and reevaluate the stimulus policy. This decision will indirectly affect oil prices as it should have some immediate impact on the value of the dollar. Hold tight, and keep an eye out for that.
Enough about commodity prices, we have rig counts to analyze! According to the BSEE’s latest report, 0 rigs in the Gulf of Mexico remain evacuated, and only 7% of platforms. I predict that everyone will be back out and working by the end of this week, but we still see 23% of oil production in the Gulf shut-in along with 34% of gas shut-in. If we move in onshore and look at the data from Baker Hughes we see a 9 rig increase in the US. Our friends in Canada did well too with an 11 rig increase. The Permian is back to its regularly scheduled program of putting big numbers on the board as it adds 5 more rigs to its massive total of 259. Comparatively massive when we look at numbers from 2020, that is. The next best was the Eagle Ford who added 2 to its total. The Marcellus and Cana-Woodford were responsible for 1 new rig each while the Haynesville lost itself 1. Stat by state, Texas emerged as the winner with a net change of 4 more rigs than last week. Oklahoma followed closely with 3 which is a very significant change percentage-wise as they only had 32 rigs before. Of the 9 rig net increase, 10 rigs will be focusing on oil commodities (strangely enough) and 1 fewer rig is targeting gas. Nothing incredibly strange here, minus the fact that there is less focus on drilling gas wells despite commodity prices. Perhaps companies are bullish on oil as they see it as undervalued? Only time will tell.
Lastly, the inventory report which you may have already read on our Thirsty Thursday weekly newsletter where we kick back with drinks and data. If you missed it, here’s a quick recap: Refineries are restarting but idling as they wait to receive crude deliveries. It seems that this played a significant part in affecting inventory levels as the EIA predicted a 3.5 million barrel drawdown which is a bit higher than previous week’s predictions. The actual result was a 6.4 million barrel drawdown. The API also predicted a higher than usual 3.9 drawdown. Their actual numbers revealed that they too undershot the actual 5.4 million barrel drawdown. It is possible that refineries will continue to not receive crude for quite some time further straining the crude supply. Either way, this continues 2021’s general trend of drawdowns. While high commodity prices in energy may benefit the folks who read these inventory reports, China is busy looking for economic opportunities. They will be auctioning off 7.38 million barrels of their own crude. While lots of people will point out that this is an attempt to suppress commodity prices, we are a little bit skeptical. Remember, China spent most of 2020 buying record amounts of hydrocarbons. Sure, they used lots of these materials to assist in the construction of many new coal facilities and other infrastructure, but it is doubtful that they have a shortage of oil. This is just a classic “buy low sell high” scenario. While the rest of the world celebrated the death of oil and gas in 2020 and pushed for renewable tech, China understood that the commodity was undervalued and bought as much as it could. Now they have plenty of the stuff and are looking to make some quick cash. This week we witnessed a 1.9 million barrel drawdown further threatening a continued shortage. All it takes is a drawdown of half a million barrels and the record low trend will hold, so keep an eye out for those reports later this week, or better yet, join us on Thursday for the next report from RARE PETRO.
I believe that sums up all of the statistics, so it is now time to get into the news stories that I promised at the beginning.
You may have heard already, but Chevron is making the rounds in the news due to comments from the CEO. In an interview with CNBC, Chevron’s Mike Wirth said that solar and wind projects generate low financial returns for company shareholders. He’d rather stick to oil and gas projects and let investors take the dividends that they earn and spend it how they please. This doesn’t mean that the company has no ESG initiatives as they ended up tripling investments in renewable fuels, hydrogen, and carbon capture. According to Jeff Gustavson, the president of Chevron New Energies, they targeted these projects as it supports airlines, transport communities, and industrial producers who are not going to be easily electrified. These comments have rocked the boat and I’m not quite sure why. To me, it seems like Chevron is putting its shareholders before activists. If the shareholders truly believe their money is better serviced elsewhere they can take their dividends (or even all of their shares) and put it towards renewable energy companies or projects themselves. Regardless of how righteous it may or may not be, look at the economics. Wind and solar initiatives require a massive amount of capital and just don’t see the ROI that they already witness with hydrocarbons. After all, it is not Chevron’s responsibility to invest in renewables, that’s what the free market is for! To me, it seems like it would be a far better idea to let the rest of the world (specifically Shell and BP) dump all of their money into wind and solar projects and pioneer the new technologies. Once these renewable practices become affordable and profitable, Chevron could simply purchase those companies and work them into their portfolio. Saves them the trial, error, and headache of pioneering new fronts while simultaneously maximizing cash flow.
This whole situation is of particular interest to me because it comes off as a chess move disguised as a simple comment. If people truly believe that oil and gas will be phased out in our lifetimes, either by declining reserves or lack of investment, then they should have no problem with Chevron’s stance. In those scenarios, oil will become less and less valuable or obsolete and Chevron will have no choice but to close its doors. That’s what the people want, right? If they are wrong, then Chevron is positioned to continue to produce oil and gas and make cash returns for their investors. Sticking to what you know and doing what you do best is such a simple and effective way to go about this situation, so hats off to Chevron.
That one got a little long-winded, so I’ll try to get this next story wrapped up a little faster. The UN is having its annual climate change conference in Glasgow starting November 1st. COP26 allows world leaders to come together and discuss policies and practices that are imperative for limiting greenhouse gas emissions. This is the 26 of the COP conferences and will require the consortium to redefine their efforts for climate change to reach all of their goals by 2050. You would think that oil companies would be welcome to the event, especially the aforementioned Shell and BP who are doing their best to incorporate renewable technologies, but there’s a catch. You know how roller coasters have a “you must be this tall to ride sign?” At this conference, it is really a “you must have science-based plans for how you will reduce carbon emissions to ride.” Shell and BP somehow don’t reach this benchmark despite being leading supermajors in the green tech space. A UN-backed third-party judges whether your emissions reduction plan is credible, and these two companies did not make the cut. Executives will still plan to attend the conference individually, but it seems the company entities will not be allowed to make their presence at the event known as, according to an event spokesman, “The COP26 Presidency is working most closely with organizations that are committed to taking real, positive action and have strong climate credentials.”
This all seems a little backwards to me. You have two entities who are arguably leading the charge towards becoming integrated energy companies, yet they are not allowed to attend one of the most prestigious climate panels. That is definitely them sending a message. It’s almost disheartening really. These companies broke their backs to redefine their goals to conform with something they felt was important, yet the rest of the community turned their noses up and claimed their efforts weren’t good enough. Again, think of Chevron. They are staying in their own lane, providing energy to people who consume it, and trying to keep their nose out of anyone else’s business. It’s almost as if they knew they were damned if they did, and damned if they didn’t while letting BP and Shell blindly attempt to please the biased entities that want to see their downfall.
Whoa… that got a little heavy and speculative, but it sure makes you think. That is the goal of this podcast after all! We try to provide the news and enough perspectives that allow you to draw your own conclusions. If you disagree with any of the statements made on this podcast we encourage you to reach out by emailing podcast@rarepetro.com. Who knows, your argument just might be featured in a future episode! Otherwise, you can go to www.RAREPETRO.com to find plenty of other content sure to keep you entertained and educated. Thank you once again for joining us, and until we see you next time, take care, everybody!