Noted recent Reuters article that Permian pipelines were running at half capacity, and that pipeline operators were lowering access prices to compete for usage. This doesn’t seem to match warning that takeaway in Permian is constrained. Any insight on why these stories are so divergent?
I trust Platts and RBC over Reuters.
If we start having takeaway constraints again, I don’t see it being as severe as 2017-2019. There is some unused capacity on the line going into Mexico awaiting buildout on the Mexican side. Also, some companies are much better situated to sell their gas at good prices compared to others.
RBC article with updated list of hydrogen projects in the works. Predicting an active year for this. Hydrogen may end up being the main competitor to O&G rather than solar or wind.
Falcon Minerals and Desert Peak are doing an all stock $1.9 billion merger of two of the larger mineral buyers.
Inventive carbon capture project being built by Lucid in SE New Mexico. I strips out the CO2 produced in stripping out the sulfur from sour gas and injects both into the ground. Carbon capture needs to be targeted to the projects that make the most economic sense to build momentum until the day we can economically develop direct CO2 capture out of the air. This is an interim step but an important one.
Highlights of CEO panel of three CEOs from Pioneer (PXD), Devon (DVN), Diamondback (FANG), hosted by Goldman Sachs 1/5/22. Webcast is viewable at Devon Energy website.
Oil price prediction $75-$90/bbl, but could easily reach $100, prices above $120 cause adverse consequences (PXD). Underinvestment constrains supply, investment is now lowest since 1946.
Tectonic shift from spending on growth to returning capital to shareholders. Previously, investors wanted NAV (Net Asset Value), now desire cash flow. Variable dividends protect against cutting the base dividend, a worst-case option. They plan stock buybacks during volatile markets, historically oil companies bought back stock at market tops. PXD bought back $250 million in 4Q21. Expect improved valuations for Exploration & Production (E&P) company equities. No desire for additional big acquisitions, prefer small bolt-on trades, including sales of acreage.
These three E&Ps reduced breakeven to $30 to $35/bbl, can generate cash flow at $45 to $50/bbl.
When big CapEx increase? Must see decline of OPEC spare capacity plus change in shareholder anti-growth sentiment. Also, the forward curve is key, the now backwardated (downsloping) curve discourages investment, forward price is $10-$12 lower than spot price.
Federal acreage rhetoric subsided, New Mexico federal tracts are suitable for long laterals 3-4 miles long. PXD claims the biggest contiguous shale acres in North America, 1,000 sites suitable for long laterals 15,000’ or longer. DVN is prospering in five basins. PXD recovers only 6%-8% of oil from shale, hopes to improve advanced recovery techniques.
Private E&P companies’ aggressive drilling volume will not move the supply/demand needle much. Privates face constraints, access to pipelines, less acreage, privates are possibly burning through their best inventory. Privates produce 1/3 of oil (Permian?), thus a 10% increase is minor (globally).
ESG. Biggest black eye is methane flaring/venting, E&Ps must reduce methane emissions to 0.2%. Environmental Defense Fund satellite (MethaneSat) will spy on every tank battery by year end. Methane challenge is 2/3 of emissions are by G&P (Gathering and Processing companies), not the E&Ps themselves.
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article 1/17/22 operators face restrictions & costs vz salt water disposal, Delaware & Midland Basins. https://www.wsj.com/articles/texas-earthquakes-prompt-new-fracking-rules-11642424582?st=jp11ao4q0s82rrm&reflink=desktopwebshare_permalink
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US has become the largest LNG exporter and China has become the largest importer in a major shift of market share for both. The graph shows in plain terms why the US gas market has finally stabilized at a level where operators can make money.
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Platt’s article about potential gas takeaway constraints rearing their head again in the Permian. Basically says it is possible, but can be resolved more quickly than last time if new facilities get built. Has a handy chart showing how much at capacity your operators are.
Continental buying Chesapeake’s Powder River Basin assets for $450 million, and Chesapeake acquiring Chief Oil and Gas for $2.6 B.
Legacy trying to sell its Permian and Haynesville assets.
Corpus sets records, by a wide margin, on LNG and oil exports in 2021. If you want to know why the slack has been taken out of the gas market, look to Corpus for the biggest reason.
Amount of new oil and gas discovered last year hit its lowest level since 1946. Maybe the shoot first - figure out where we were aiming later - policymakers will eventually figure out that doing everything in there power to discourage new oil and gas development is going to have some serious consequences. Probably the most serious beside scarcity, big inflation, and distorted markets, is going to be little net carbon reduction.
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Legacy Reserves is the operator on our lease. Does this mean we may have a new operator if they sell their assets?
Usually. Sometimes the old lessee can remain as the operator, like if they are operating other wells in the area, but this looks like an area wide divestiture so likely a new operator if a sale goes through.
Earthstone acquiring 110.6000 net acres from Bighorn Permian in the Midland Basin.
Gloomy but thought-provoking article predicts Permian production to peak in 2025, opines the E&P companies cannot increase CapEx by double digits or they’ll exhaust the best inventory in a few years.
https://www.wsj.com/articles/fracking-oil-prices-shale-boom-11643824329?st=23ih4jyus8bdhy2&reflink=desktopwebshare_permalink
Yes, that was a good article. However, it does assume they are not able to increase inventory substantially by figuring out how to economically develop the other Wolfcamp formations they are currently not targeting. It does feed into the thesis that we may be headed for a ten year commodity supercycle.
Agree, IMO the WSJ article 2/3/22 is too pessimistic & omits many relevant facts. E&P companies may figure out how to extract more than 6% of Wolfcamp oil, they are drilling only a few of the stacked pay zones, and their marginal acreage becomes lucrative as o&g prices rise. Coterra recently said they now produce the same amount of oil with 8-well spacing as they produced with 12-well spacing only two years ago.
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America’s beneficial role in global energy according to eminent Daniel Yergin, who mentions his amusing anecdote about Vladimir Putin flipping out when he heard the word “shale” in a Q&A session of an international conference (Putin is fluent in English).