Friday, March 6th, 2020
Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.
Before diving into this week’s content, we’d like to remind you to join our Energized LinkedIn Group. We will be releasing frequent news and snippets of Energized newsletters through the group. We hope to see you there. Also, if you haven’t already, visit our website to gain access to our free Oil 101 introductory course, our popular series of mobile-ready videos describing “How the industry works.” Ready for more? Check out our in-depth Oil 201 course which covers exploration, drilling, production, well completions, and refining. If your company or group is interested in Oil 101, let’s talk. We license our courses for use as internal training for sales, IT and operations teams. Think you know someone who would enjoy this newsletter? Pass it on! They can subscribe and access our Energized archives here.
Now, onto this week’s issue.
Curated weekly oil and gas newsletter
Oil Prices and Markets
Light, sweet crude (dollars per barrel): $41.59
Last week: $44.76
Natural Gas (dollars per million British thermal units): $1.72
Last week: $1.684
Rig count (United States): 793
Last week: 790
Oil and Gas Prices
Oil blasted through a 3-year low as it flirted with $40 per barrel on fears that the coronavirus is leading to decreased industrial uses of fossil fuels and air travel across the world. Natural gas prices remain low.
+ Annual U.S. oil production breaks another record – The Houston Chronicle
A quick review:
November 2019 monthly record average: 12.86 million bpd
2019 average: over 12 million bpd
2020 expected (EIA): 13.2 million bpd
2021 expected (EIA): 13.6 million bpd
Things to note:
Production growth rates year over year won’t be as high as they were a few years ago. The present EIA estimates may be too high due to the unexpected consequences of the coronavirus.
+ Several SCCOP/STACK producers look to scale back oil and gas operations in 2020 – S&P Global Platts
Rig counts have plummeted in the Oklahoma based SCOOP and STACK.
“After a plummet from more than 110 rigs in early 2019 to just over 40 by early 2020, rig count in Oklahoma’s SCOOP/STACK play have finally appeared to stabilize. However, the loss of 70% of its active rigs will affect the basin’s future production, according to S&P Global Platts Analytics.”
When oil is $40, it’s hard to justify spending in many of these plays where most breakeven points are higher than $40 per barrel.
+ Oil and gas may be a far bigger climate threat then we knew – The New York Times
Stance/Bias: The oil and gas industry is contributing more to climate change than previously estimated.
The New York Times follows up on the findings from a research article published in Nature. The findings suggest a discrepancy in the real amount of methane now present in the atmosphere versus the emissions as reported and monitored by the oil and gas industry.
“Atmospheric concentrations of methane have more than doubled from preindustrial times.”
The article then opens the debate on whether the oil and gas industry is solely at fault for these increased levels, noting several natural instances of methane emissions from oceans and land formations.
In the end, the study concluded that emissions from fossil fuel production made, and continue to makeup, a larger portion of rising methane levels than previously estimated. The New York Times interviews various scientists and research professors from leading institutions.
As of now, data varies from site to site, posing the suggestion that “top-down” reports by research institutions are more reliable than “bottom-up” reports assembled from small to large firms.
+ Innovators seek to transform flaring into money and power – Journal of Petroleum Technology
Stance/Bias: Informative. Neutral.
As discussed in this newsletter, the flaring or burning off of natural gas has cast a dark shadow on the public perception of oil and gas companies due to its toll on the environment. It also amounts to billions of dollars of wasted revenue from would-be sales of natural gas.
This article goes deep into some technological solutions that aim to mitigate the problem of flaring. The easy and commonly discussed solution is constructing pipelines that increase the takeaway capacity of gas out of a particular region. But those pipelines take time, planning, and money to construct. In the meantime, the only real solution to reduce flaring when takeaway capacity exceeds production is to reduce or delay well development. One of the reasons the current market is arguably oversupplied with oil and gas is that many firms have chosen instead to continue flooding the market with supply the market doesn’t really need. And in the process of this production, unnecessarily flare natural gas.
Pioneer Natural Resources and Occidental Petroleum, two leading shale players in the Permian Basin, have publicly announced their commitments to reduce flaring. Pioneer already claims it burns “less than 2% of its associated gas compared with a basin peer group average of 5%.”
In terms of putting natural gas to production use as opposed to flaring, “The list of ideas includes mini-facility solutions such as small-scale gas-to-liquids (GTL), compressed natural gas (CNG) in a box, and portable LNG units, all of which make small quantities of associated gas able to be transported by truck. Another idea is using associated gas as feedstock for mini-power plants.”
Questor Technology, a firm based out of Calgary, Alberta, Canada, has invented advanced incinerators that remove organic compounds like methane to deliver cleaner emissions. “The heat generated from the incineration can generate power to run a well site or even help evaporate produced water into a cheaper-to-dispose-of slurry.”
Another solution is to use would-be flared gas to power Bitcoin mining facilities.
Essentially, if you’re looking for a good read on some of the technologies being developed to reduce flaring as well as what goals firms have to reduce their flaring, this article is for you.
+ ExxonMobil shares blueprint for stricter regulations of methane emissions – Journal of Petroleum Technology
Stance/Bias: Case Study
“The largest oil and gas major in the US announced a new plan this week to reduce and regulate methane emissions across “all phases of production.””
“ExxonMobil is sharing its internally adopted plan in the hopes that industry regulators and other oil and gas companies will broadly implement tighter emission mitigation practices that it says are cost-effective. The call for stricter policies comes as the industry faces increased pressure from public stakeholders, investors, and governments to address climate change by reducing greenhouse gas emissions.”
As one of the largest oil and gas companies, ExxonMobil’s choices will undeniably produce ripple effects when it comes to how other companies choose to address emissions practices.
Exxon’s four pillars are as follows:
- Leak Detection and Repair
- Minimization of Wellhead Venting
- Operation Equipment Controls
- Record Keeping and Reporting
The article addresses Exxon’s specific practices regarding each of these pillars and how they set an example for the industry and regulators.
+ Doubling down on digital to optimize operations – Upstream Intelligence
Our good friends at Upstream Intelligence have put together a solid webinar featuring industry experts, including EKTi household name, Tony Edwards, CEO of Stepchange Global.
This 1-hour webinar takes a closer look at the digital solutions within operations, asking the questions:
-How do you digitally enable projects that are remotely controlled and minimally manned?
-How can you digitally enable the major project process?
-How can digital be used to assist project operations?
+ Tellurian tightens belt amid dim short-term outlook for LNG industry – The Houston Chronicle
Tellurian’s stock is getting hammered, as noted in Energized #46. “During the past week, the stock has lost 75 percent of its value, falling from a close of $6.51 on Feb. 21.” The company’s stock closed Friday at $1.21 per share.
“Houston liquefied natural gas company Tellurian is cutting costs and reorganizing some debt as LNG prices remain low amid a global supply glut caused by a warm winter in Asia and the coronavirus outbreak.”
The company will cut corporate expenses and try to ride out the storm. 2019 total losses were $151.8 million with annual revenue of $28.8 million compared with a $125.7 million loss on $10.3 million of revenue in 2018.
“The Driftwood LNG project, which received a $500 million investment last year from Total, still lacks a large anchor investor after Tellurian and India’s PetroNet failed to sign a $2.5 billion deal last week during President Donald Trump’s visit to the country. The March 31 deadline for the deal has been pushed back to May 31.”
+ Singapore firm seeks to buy LNG limited – The Houston Chronicle
“A private liquefied natural gas firm from Singapore is seeking to buy LNG Limited, an Australian company with principle offices in Houston that hopes to build the Magnolia LNG export terminal in Louisiana and a sister facility in Canada.”
At a valuation of just $75 million dollars for a company that has approved plans for an 8 million metric ton per year facility, you can see why Tellurian’s stock has sold off to a market capitalization of just $300 million for 27 million metric tons per year or so. It’s close to the same ratio.
A lot of these massive LNG projects require funding that the market simply isn’t willing to give them at the moment, leading to decreased asset values.
A preview to Exxon and Chevron’s sitdown with Wall Street to address each companies returns on capital. “Back in the early 2000s, the U.S. oil explorers were getting around 20%. Today, it’s less than half that, even with crude prices at a similar level.”
With the whole stock market taking a heavy 10-15% dive in the past few weeks, and the energy sector down over 20% in 2020, analysts will try and determine which strategy is working better, Exxon’s or Chevron’s. The key points that the article says to watch for are:
1. Exxon’s spending
Its $35 billion dollar annual investment program will be under scrutiny in today’s market.
2. Chevron’s commitment to shale
“The Permian Basin in West Texas and New Mexico now accounts for 20% of Chevron’s budgeted capital expenditure of $20 billion. Production there has surged over the last two years, with fourth-quarter output up 36%. Chevron could raise its Permian target, which currently envisages 900,000 barrels of oil per day by 2023.”
3. Climate change
Seeing if Exxon and Chevron will have similar reactions to BP’s 2050 carbon-neutral goal.
4. Exxon’s sales
Exxon can’t support its dividend with free cash flow at current oil and gas prices since spending remains high, so it’s using debt and selling assets to pay its dividend. Is that sustainable?
5. Chevron’s growth
Meanwhile, chevron is being criticized for spending too little, choosing instead to remain financially stable in the present climate. Chevron will likely get an opposite grilling from Wall Street, asking why the firm isn’t spending enough on growth.
The actual results are as follows:
+ Aker BP gets green light for North Sea Skogul start-up – Offshore Magazine
Aker BP just got permission to start production in the Skogul field in the North Sea. The field was discovered in 2010 with estimated recoverable reserves of 9.4 MMbbl, so on the smaller end of fields in the Norweigan shelf.
Aker BP plans to start-up in March 2020 with development costs of $107 million.
+ Chevron launching layoffs in April – Rigzone
Chevron is divesting from gas plays in Appalachia to focus on the Permian and other more profitable ventures. In the process of justifying its $20 billion CAPEX budget for 2020, that will mean layoffs in the region, most notably a WARN notice to 288 employees in Moon Township, PA.
Hopefully, layoffs and reassignments won’t continue, but it remains uncertain as oil and gas prices fall and companies aim to adjust to a lower-priced environment by focusing only on their most profitable ventures.
Have a great weekend!
EKT Interactive Managing Editor