In a spooky week in oil, Third Quarter results were released for some of the worlds largest and most powerful oil and gas companies and there were some surprising results. Low prices, reduced production, and slashed operating costs forced companies like ExxonMobil and Chevron to report massive losses while others like Shell and BP surprised investors and the world by turning a profit during a tumultuous third quarter.
Consolidation Is Key
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.
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.