This week, two major U.S. shale acquisitions were officially announced when ConocoPhillips announced their acquisition of Concho Resources and Pioneer Natural Resources announced their agreement to acquire Parsley Energy. The Pioneer all-stock transaction valued at $4.5 Billion (inclusive of Parsley’s debt increases the value to $7.6 Billion) is significantly less than the all-stock transaction of the ConocoPhillips deal valued at $9.7 Billion (inclusive of Concho’s debt increases the value to $13.3 Billion) but is significant nonetheless. Major moves in the U.S. oil and gas sector indicate that consolidation is the future.
Heating Up
A wild week in oil news saw some of the world’s top analytics firms’ predictions on the future of the oil and gas industry in the United States be overshadowed by the possibility of a massive merger between two shale powerhouses and approval of an expansion for the Dakota Access Pipeline. As temperatures begin to cool off into the winter season, election season is causing the oil industry to heat up.
Battle Of The Bigs
Chevron Corporation overtook Exxon Mobil Corporation as the largest oil company in America by market value, the first time the Texas-based giant has been dethroned since it began as Standard Oil more than a century ago. But neither are any match for a Hurricane as both majors have evacuated production platforms in the Gulf of Mexico ahead of Hurricane Delta. The Bureau of Safety and Environmental Enforcement estimated about 80% of the Gulf’s oil production and 49% of natural gas production has been shut-in, including over 180 production platforms. Hurricane season has chronically caused trouble in the gulf region and a historic 2020 is no different.
You Can’t Change The Past
On Thursday, news headlines read “Oil Prices Slide As OPEC Opens The Valves” which referenced the overall increase in OPEC production for the month of September. Yet only 3 of the past 14 weeks has the EIA reported domestic crude oil inventory builds. In the month of September alone, there was a total of 10.989 million barrels of crude oil drained from domestic inventories and yet when news breaks that OPEC increased production during September, when global inventories fell at historic rates, current prices dropped. Seriously?!? Market participants are reacting to something that happened in the past without paying attention to the actual supply/demand picture.
Gavin’s Gamble
This week, California Governor Gavin Newsom announced California will phase out the sale of all gasoline-powered vehicles by 2035 in a bid to lead the U.S. in reducing greenhouse gas emissions by encouraging the state’s drivers to switch to electric cars. As California pushes to phase out hydrocarbons and make the switch to renewable energy sources, they have experienced electricity shortages that have left hundreds of thousands of customers without power. So, how does the state expect to power all the homes AND vehicles in the state within the next 15 years without reliable power?
Predicting The Impossible
On September 5th, Saudi Arabia cut its official crude selling price to Asia and U.S. buyers in an attempt to “boost global demand” all while U.S. crude oil inventories are seeing drawdowns at historic rates. In addition, the Russian Oil Minister announced on September 18th that global oil inventories are in decline and yet the world’s main oil forecasting agencies, analysts, and companies are pessimistic about oversupply creating a grim oil demand outlook. Clearly forecasting oil demand in 2020 is becoming a seemingly impossible task and has the world’s best scratching their heads.
Never Forget
Today we remember the heroes lost in the tragedy of September 11, 2001. Today we remember how we came together as a nation to rebuild, reunite, and move forward. Today we remember how those terrible events brought us together. But most importantly, today we recognize we must once again come together as a nation to overcome these current events to build a better tomorrow. #NeverForget
Liberty (and Justice) For All
The world’s largest oilfield services provider, Schlumberger, is selling its North American fracking business to Liberty Oilfield Services for a minority stake (37%) in the new combined company after the oil price crash crushed the U.S. shale patch’s fracking activity. The news comes just days after Schlumberger announced a partnership with Thermal Energy Partners to create STEP Energy, a geothermal project development company. Is Schlumberger getting out of oil?
Thanks Laura
Ahead of Hurricane Laura’s landfall, Gulf of Mexico Operators were forced to evacuate nearly 300 platforms and shut-in more than 84% of oil production and more than half of their natural gas production. In addition, after one of the strongest hurricanes in years made landfall near the heart of the U.S. refining industry, around 3 million barrels a day of U.S. refining capacity was closed or reduced. These facilities are built to withstand such events but a temporary shutdown is about how 2020 is going. So, thanks Laura.
EUREKA!
In a relatively quiet week in the industry, a family owned oil and gas company made a major discovery in West Texas. While the 74.2 Million Barrel discovery would not seem like a big deal to some of the major oil and gas companies in the area, the exploration venture more resembles that of a development project for a small company that can hopefully bring back their workers lost during the downturn. It is the kind of bright news the world needs in times where there seems to be nothing but negativity all around.
Easing the Glut
After months of pain and suffering, an end seems to be in sight. After three straight weeks of U.S. crude inventory draws, an end to the supply problem seems to be inevitable. The demand picture remains shrouded with uncertainty, even as the number of new coronavirus cases in the United States is now falling, as experts predict a full recovery will not occur until 2022. Regardless, optimism has taken over and crude prices have continued their climb and rise to five-month highs.
Shift In Big Oil
In the past couple weeks, the world’s top five oil firms (BP, Chevron, ExxonMobil, Royal Dutch Shell and Total) reported combined losses of $53 billion for the second quarter. This week, BP announced it would cut production by the equivalent of a million barrels of oil per day until 2030 as part of a plan to reach “net zero” greenhouse emissions by mid-century. As the global pandemic continues to batter industries worldwide, it appears the coronavirus has sped up big oil’s shift to green.
Second Quarter Misery
Oil majors around the world have begun to release their second quarter earnings and the results are dismal. Royal Dutch Shell reported a staggering $18 billion quarterly loss, Total reported an $8 billion loss, Chevron at $8 billion as well, and while much less severe than their peers, ConocoPhillips reported $1 billion in losses. More reports will be released in the coming days but the true effects of the global pandemic and price war are starting to show and it does not look great for the oil and gas industry.
Money Burning A Hole In Your Pocket
Chevron finally pulled the trigger with their unspent Anadarko money from last year, purchasing Noble Energy in an all stock deal for ~$13 billion. This acquisition ends a long drought of deals and puts Chevron back in the news almost two years after putting Anadarko in play and ultimately standing aside to let Occidental buy it. This also marks the largest transaction in the oil industry since the start of the global pandemic.
Oil Profitability Around the World
The cost to produce a barrel of oil varies throughout the world and impacts the determination of global benchmark prices. If only a portion of global supply is economic at current commodity prices, global demand will be what influences the price floor. Once inventories are drawn down, supply/demand economics will drive up the price of oil to ensure supply can meet demand. Be sure to check out the periodical below for an in depth analysis of the economic price to produce a barrel of oil around the world, and why global demand will be the driver for oil prices to set a $55-60/bbl floor for the foreseeable future.
Expect the Unexpected
During the OPEC+ meeting on Wednesday, members made the decision to uphold the agreed upon production cuts from their April meeting. With 107% compliance with output cuts in June and economies restarting worldwide causing oil demand to quickly pick up steam, most experts expected a reduction in the agreed upon 7.7 million barrel per day cut for August. Sometimes you just have to expect the unexpected.
Did the Federal Bailout Simply Delay The Inevitable for Oil and Gas Companies?
At the end of March during the peak of the pandemic, the Federal Reserve was authorized to buy tens of billions of dollars in corporate bonds from the energy industry. These actions, paired with those taken by the Federal Government to save the oil and gas industry, were met with harsh criticism because the industry was struggling long before the global pandemic and seemed to simply be delaying the inevitable.
Three Strikes and You’re Out
Three major blows were inflicted on U.S. pipelines in just a two day span. First, Dominion Energy and Duke Energy canceled the Atlantic Coast natural gas pipeline project on the same day the U.S. District Court for the District of Columbia ordered the Dakota Access pipeline to be shut and emptied. The following day, the U.S. Supreme Court ordered that construction of the long-delayed and once-resurrected Keystone XL project cannot begin. For it’s one, two, three strikes you’re out in this brutal, unforgiving game.
Post-COVID Global Oil Demand Series – Part 4: Global Oil Demand
Hydrocarbons are the largest global energy source, and demand for them has been growing rapidly in the past decade. Unfortunately, that progress was stunted with the recent global pandemic that shut down economies and societies worldwide. As the world recovers from the coronavirus, hydrocarbons will be in high demand in order to fuel the progress of the human race. The final piece of our four part series on post-COVID oil demand will investigate the overall change in global oil demand in a post-COVID world.
Summer Heat
The summer heat has brought plenty of excitement to the oil and gas industry. Feuding investment companies argue if oil demand will ever reach pre-pandemic levels, natural gas prices fall to 25 year lows, and one shale pioneer had to take a break from the heat and file for bankruptcy protection all while employment rates began to skyrocket.