Periodicals

The Rare Petro Periodical series is an ongoing deep dive into the macro-level events that have, currently are, and will continue to shape our industry, in a condensed research paper format.

Historic Droughts and Electricity Security

Historic Droughts and Electricity Security

Record-toppling, early-season heat waves well into the triple digits have spread across the western portion of the United States straining electricity grids as a severe drought constricts hydroelectric power generation. As the summer months continue, electricity security is beginning to bear its ugly face yet again as states like California and Texas brace for a difficult season.

Oil and Gas M&A Summary – May 2021

Oil and Gas M&A Summary – May 2021

After continued demand destruction as a result of the global pandemic following historic price declines as a result of the Russia-Saudi price war, the oil and gas industry has been forced to re-calibrate in response to shifting market conditions with capital discipline taking center stage. Although 2020 saw the fewest deals across the sector in more than a decade, consolidation through this price cycle seems to be the driving force of 2021 as companies push to boost margins, cut emissions, and prepare for the energy transition.

Energy Market Report Card – Oasis Petroleum (OAS)

Energy Market Report Card – Oasis Petroleum (OAS)

Chevron Corporation is a publicly traded upstream and downstream integrated energy company with NYSE ticker CVX. Following the FY2020 earnings release and company 10-K, a financial ratio analysis was performed to evaluate the firm. Several performance metrics were benchmarked to competitors in the industry as well as Chevron’s prior years. Although CVX showed declines year-over-year in several of these areas, a major driver appeared to be lost revenue due to commodity prices and the results also outperformed competitors in several areas.

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Frozen Texas Power Grid

Frozen Texas Power Grid

A major winter weather system characterized by extreme cold spread across much of the central United States, disrupting energy systems and causing serious health and safety issues, particularly in Texas. As the storm blew in, the cold weather increased energy demand as consumers and businesses turned up the heat and stayed inside to avoid the weather. It also affected energy supply, causing intense and widespread energy market disruptions. Since this is not the first time an arctic blast has plunged Texas into darkness, it has left many people wondering: why did this happen and could energy producers and regulators have done more to prepare for this cold spell?

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Revenue or Political View: How New Mexico is Navigating the Federal Moratorium

Revenue or Political View: How New Mexico is Navigating the Federal Moratorium

President Joe Biden’s executive order halting all leasing of Federal land for oil and gas activities indefinitely will be felt nationwide but nowhere else more so than New Mexico. Since energy production is the backbone of New Mexico’s economy, much of which sits on Federal land, no bigger impact of halting Federal oil and gas leasing would be felt than in New Mexico. The state has worked to reduce greenhouse gas emissions in the sector long before Biden took office and now only time will tell the full impact of Joe Biden’s Federal lease ban and temporary drilling moratorium.

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Oklahoma’s Battle For Federal Lands

Oklahoma’s Battle For Federal Lands

Shortly after being sworn into office, President Joe Biden signed an executive order to indefinitely ban lease sales for oil and gas development on all federal lands and offshore waters. Since energy production, namely oil and gas, is the backbone of Oklahoma’s economy, Oklahoma Governor Kevin Stitt went to bat with an executive order of his own in an attempt to overrule the order. While there is no certainty Oklahoma will be able to ignore or become exempt from Biden’s executive order, they can certainly let policy makers in Washington, D.C. know the problems that the new restrictions will cause.

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Dr. Copper – An Oil Price Indicator

Dr. Copper – An Oil Price Indicator

In the modern age, copper is so essential across multiple industries that its price is widely seen as a proxy for modern development and economic vitality. Similarly, oil has long been the lifeblood of current economies by generating energy to make development possible. Since copper can be considered a barometer of global economic health, it is no surprise a correlation to oil and gas demand exists as a healthy, growing economy requires more and more energy. Unfortunately, an unexpected divergence has occurred since the beginning of the global pandemic. Luckily, there appears to be market energy building for a large commodity price upcycle in which crude closes the gap and corrects upward to its industrial cousin, copper.

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Biden’s Energy Policy – Part Three: The Clean Energy Revolution And What It Means For The Global Energy Industry

Biden’s Energy Policy – Part Three: The Clean Energy Revolution And What It Means For The Global Energy Industry

President Joe Biden is using his presidential powers to make climate change a central issue of the new administration and is taking immediate action to prove his commitment to the environment. After Biden took executive action to tackle the climate crisis at home and abroad, create jobs, and restore scientific integrity across the federal government; he finished the structure of his clean energy policy by surrounding himself with like-minded, climate-forward individuals to lead the country towards carbon neutrality. He is not only focusing on climate change at the national level, but also on a global scale. His actions have put the climate crisis at the center of United States foreign policy and national security and utilize a whole-of-government approach to accomplish his climate goals. Only time will tell how much of Biden’s energy policy will be implemented during his tenure in the White House, but the process to create a unified global front for attacking the climate crisis is well underway.

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Biden’s Energy Policy – Part Two: Laying the Groundwork for Climate Initiatives

Biden’s Energy Policy – Part Two: Laying the Groundwork for Climate Initiatives

Incoming United States President Joe Biden wasted no time putting the climate crisis back on the U.S. government agenda, proving to the world he meant business to become the “climate president”. With new executive orders detailing far-ranging plans to shift the U.S. away from fossil fuels in order to create millions of jobs in renewable energy while conserving vast swaths of public lands and water, it appears there is a new sheriff in town. But, Biden has taken office at an inflection point in U.S. energy policy, where fossil fuels still dominate transportation and electricity generation, even as they are starting to lose ground to both market forces and shifting public opinion. Now, even though the United States and the world face a profound climate crisis, Joe Biden needs to take his foot off the gas to implement small steps in order to tackle the climate crisis on a united front instead of waging war against fossil fuels.

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Biden’s Energy Policy – Part One

Biden’s Energy Policy – Part One

In his first 48 hours in office, the 46th President of the United States, Joseph Biden Jr. cranked out about 30 executive actions, 14 of which target a broad range of former President Trump’s executive mandates, focusing on themes such as climate change, clean energy, and decarbonization. The chasm between Biden’s agenda and Trump’s legacy is one of the widest in recent decades and nowhere is that contrast more pronounced than on climate change and the environment. Biden comes to power with a sense of urgency about climate change that is unmatched by any previous occupant of the White House, and he is installing people who share his views throughout the government. Biden’s plan for the future of energy in America sets the country down a new path – one aimed at transition and lasting change during his “Clean Energy Revolution – that will have reaching implications both domestically and abroad.

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2021 Hedging Forecast

2021 Hedging Forecast

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.

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Driving Away Investors

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.

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Natural Gas Update – The Delayed Bull 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.

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Post-COVID Global Oil Demand Update – EOY 2020 & the Impact of Second-Wave Shutdowns

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.

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Falling Short of Demand

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.

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Does The World Really Want High Oil Prices?

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.

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Carbon Capture and The Race Against Climate Change

As the world continues down the path of the energy transition, there arises an opportunity to deliver new, clean energy and industry jobs with the potential to sustain economies well into the future. As fossil fuels continue to sustain the global energy mix, carbon capture and storage has emerged as a frontrunner in the race against climate change. This technology can be a key, cost effective option for reducing carbon dioxide emissions from industrial applications where deep emission reductions can only be achieved through CCS. The road ahead is challenging, but if policies are set to meet standards mitigating climate change, CCS is an additional tool to make significant and necessary contributions towards achieving net-zero emissions around mid-century.

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Recent Air Quality and Flaring Changes

Impacts from oil and gas development on air quality is a growing issue across the United States as the sector contributes additional amounts of greenhouse gases to those naturally occurring in the atmosphere, increasing the greenhouse effect and global warming. Since climate change has a huge effect on personal livelihood, health, and future plans, it is not surprising that air quality regulations have become some of the most prevalent legislative changes in recent years. With the federal government taking a bit of a step back on these issues, several states have made significant changes to create stricter regulations on emissions, air quality, and flaring rules recently. These new requirements may impact E&P operators in several ways, while providing opportunities for other areas of the oil and gas sector.

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Opinion Piece: How Will OPEC+ Respond?

There is no denying global oil demand is on the rebound, and unfortunately it may be slowed by a new round of lockdowns gripping the United States and Europe from a second wave of the global pandemic. Even though many countries in the OPEC+ group rely on oil revenues to support their national economies, RARE PETRO anticipates they will most likely continue overall production cuts instead of boosting output in January. Regardless of whether or not the current production cuts of 7.7 MMBPD are extended, any move by OPEC+ to keep cuts above 5.8 MMBPD beyond January should be received favorably by the market and may give oil prices additional upward momentum.

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The Energy Transition

As the world continues to consume more and more energy, a sustainable energy source is needed to meet growing demand. As climate change continues to be a hot topic, the world has begun “the energy transition.” This refers to the energy sector’s shift from a fossil-fuel based system of energy production and consumption, namely crude oil, natural gas, and coal, to renewable energy sources like wind, solar, and lithium-ion batteries. As the world continues down this path, it becomes clear that the energy transition should gradually shift allocation for the leading source of power in a cumulative energy mix, and to pursue a single source of energy for the globe is not only foolish but irresponsible.

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Global Refining Capacity

The global refining landscape has been changing over the past decade, but the rapid demand destruction associated with the global pandemic has flipped the sector on its head. Many refineries in the U.S. and around the world have been changing their refined products or closing entirely. Luckily the wave of closures in the United States and Europe does not signal an end to global refining, but more of a shift in output priority and refining location. Companies and countries are moving away from refineries only designed to make gasoline and diesel, favoring those with the additional capability to refine crude into petrochemicals and plastics.

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Bullish Natural Gas Markets

A highly contested election, global pandemic, and historically low oil prices have grabbed headlines in recent months but there has been little focus on the surging natural gas market. In recent weeks, natural gas rose to prices not experienced in over a year and a half when the Henry Hub gas benchmark climbed to a 19-month high in late October. With a cold winter ahead, a historic Hurricane season in full swing, depressed oil production, and soaring LNG exports; the gas futures market remains strong and will maintain its upward momentum into the foreseeable future.

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Opinion Piece: Fearing The Second Wave

A second wave of the coronavirus pandemic is tearing its way through Europe and there is no question whether or not the rest of the world will eventually follow. The surge in coronavirus cases in many major developed oil-consuming economies has rekindled fears that oil demand recovery is again off track, and market balancing is still further away. Luckily, those fears are misplaced as a second wave of shutdowns may not take as large of a dent out of global demand as individuals have begun to resume their day to day lives. Therefore, global oil demand recovery will not be derailed as fear of the virus is likely not going to keep people locked up anymore.

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