Manup Industry Roundup - W1423: NEWSL -01
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Oil and gas M&A is showing signs of recovery with more than $14 billion in deals at the beginning of last week.
Recently, Brookfield Renewable Partners has announced the acquisition of Australia's Origin Energy utility for over $12.4 billion. Meanwhile in the Permian basin, Energy Transfer Lp is acquiring Lotus Midstream pipeline operator in a $1.45-billion deal.
Below are the oil and gas stories and news that made headlines this week carefully curated by Manup.
Summary of the news
Workforce Watch
World Bank: Global Gas Flaring Falls to Lowest Level Since 2010
Progress in reducing gas flaring resumed in 2022, with gas flared worldwide falling by 5 billion cubic meters (Bcm) to 139 Bcm, its lowest level since 2010, according to new satellite data compiled by the World Bank's Global Gas Flaring Reduction Partnership (GGFR).
After a decade of stalled progress, global gas flaring volumes fell in 2022 by around 3%, which is a welcome drop, especially during a time of concern about energy security for many countries.
Three countries, Nigeria, Mexico, and the United States, accounted for most of the decline in global gas flaring in 2022. Two other countries—Kazakhstan and Colombia— stand out for consistently reducing flaring volumes in the last seven years.
In addition to the overall reduction in flare volume, global flaring intensity—the amount of flaring per barrel of oil produced— also fell to its lowest level since satellite data began, due to the 5% increase in oil production in 2022. This indicates a gradual and sustained decoupling of oil production from flaring.
Despite this progress, the top nine flaring countries continue to be responsible for the vast majority of flaring, with Russia, Iraq, Iran, Algeria, Venezuela, the United States, Mexico, Libya, and Nigeria accounting for nearly three-quarters of flare volumes and under half of global oil production.
The satellite data shows that decreased Russian gas exports to the European Union did not increase gas flaring in Russia. Throughout 2022, the European Union significantly increased its liquefied natural gas (LNG) imports from the United States, Angola, Norway, Qatar, and Egypt, and via pipeline from Azerbaijan and Norway.
Of these countries, only the United States, Angola, and Egypt have made substantial progress in converting associated gas that would otherwise be flared into LNG exports.
GGFR estimates that in 2022 gas flaring released 357 million tonnes of carbon dioxide equivalents, 315 million tonnes in the form of carbon dioxide and 42 million tonnes in the form of methane. The report also considers the ‘state of the science’ and the uncertainty surrounding how much methane is released from flaring.
It finds that methane emissions due to flaring could be significantly higher than previously estimated. For example, if the average flare is just five percentage points less efficient at combusting methane, then globally, the amount of methane released would be three times higher than currently estimated.
Gas flaring is the burning of natural gas associated with oil extraction. This wasted gas could displace dirtier energy sources, increase energy access in some of the world's poorest countries, and provide many countries worldwide with much-needed energy security.
EIA: U.S. Crude Oil Exports Reached Record High in 2022
In 2022, U.S. crude oil exports averaged 3.6 MMbpd, a record high according to export data that has been collected since 1920. U.S. crude oil exports in 2022 were 22% (640,000 bpd) higher than in 2021.
Increased U.S. crude oil production, releases from the U.S. Strategic Petroleum Reserve, and more global demand for crude oil from countries other than Russia all drove the growth in U.S. crude oil exports.
Since early 2022, trade patterns have shifted because of Russia’s full-scale invasion of Ukraine and the ensuing Western sanctions of Russia’s crude oil exports. Prior to 2022, OECD Europe had been the largest regional importer of Russia’s crude oil, receiving 2.3 MMbpd from Russia in 2021.
Less crude oil was exported to India and China from the United States in 2022 than in 2021 because the two countries imported more discounted crude oil from Russia.
India was the largest export destination of U.S. crude oil exports in 2021; China had been in 2020. Decreased demand for U.S. crude oil exports to India and China was more than offset by increased demand from other destinations, particularly in Europe.
Despite declines in exports to India and China, Asia and Oceania remained the regional destination receiving the most U.S. crude oil exports in 2022, 43% (1.55 MMbpd).
Europe ranked a close second, at 42% (1.51 MMbpd). Asia and Oceania are the regions that have received the greatest volume of U.S. crude oil since 2017, with Europe receiving the second-most since 2018.
South Korea and the Netherlands each received more than 10% of U.S. crude oil exports in 2022. The UK received 9.6%. Canada dropped to receiving the fourth-most U.S. crude oil exports for the first time since the end of the U.S. crude oil export ban in 2015.
EU sanctions implemented in December 2022 that prohibit all seaborne imports of Russia’s oil to Europe make it likely that demand for U.S. crude oil will continue in 2023.
Rising Costs are Hurting U.S. Oil and Gas Production Growth
Soaring costs have caused a slowdown in oil and gas production growth in the U.S., with the outlook also worsening, the latest edition of the Dallas Fed Energy Survey showed.
The survey found that business activity in the oil and gas industry remained almost unchanged in the first quarter of this year from the last quarter of 2022, even though oil and gas production both grew. However, that growth was more modest than in the fourth quarter of 2022.
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Respondents in the energy survey complained about higher costs for the ninth quarter in a row, suggesting inflation was still very much a problem for the oil patch. The breakeven price across the U.S. oil patch has risen from $34 per barrel last year to $37, with the price range necessary for producers to cover their operating expenses at between $29 and $45 per barrel.
Supply chain problems, however, seem to be diminishing, as suggested by the fact that delivery times for materials and equipment fell from the last quarter of 2022 to the first quarter of this year.
Unsurprisingly, with the outlook for the industry a bit gloomy, industry executives expect lower oil prices than they did in the previous quarter. The average price forecast is $79.64 for a barrel of WTI at the end of 2023, which is down from $83.63 per barrel, which was the average forecast in the prior quarter.
More than 40% of respondents expect WTI to average between $80 and $90 per barrel this year, while a little over 35% expect it to trade between $70 and $80 a barrel. Only a minority of about 5% expect the price of U.S. crude to reach $100 this year, and a little more expect it to fall even lower, to $60-70 per barrel.
$14 Billion In Oil And Gas Deal Signed Last Week
As oil sector deal-making starts to show signs of recovery, Brookfield Renewable Partners will acquire Australia’s Origin Energy utility for over $10 billion, while the Permian basin has scored another victory with a $1.45-billion asset sale.
Last Monday, a consortium led by Brookfield said it had agreed to acquire Origin in a $12.4-billion deal, including debt.
The deal will render Origin Australia’s biggest energy retailer and integrated power provider. Separately, one of the consortium partners, MidOcean Energy, will own Origin’s gas segment, which includes upstream interests and a hefty stake in Australia Pacific LNG.
Origin is eyeing a minimum of $20 billion in new investment over the next ten years for the construction of up to 14 GW of renewable power generation and storage facilities in Australia.
Also last Monday, in the Permian basin, Energy Transfer Lp said it would acquire Lotus Midstream pipeline operator in a $1.45-billion deal. Energy Transfer will pay $900 million in cash and remainder in shares.
The Permian deal saw shares of Energy Transfer gain 1% in premarket trading, but then pared those gains to a slight increase of 0.17% by 10:30 a.m. EST last Monday.
Energy sector deals have lagged since the COVID pandemic, but started to show signs of recovery over the past 12 months, with investment in S&P 500-listed oil and gas companies up more than 26% in the past year, according to Forbes outperforming the rest of the index, which lost 5% in the same time period.
The waning notion of peak oil demand has injected more life into dealmaking in the oil and gas sector, with the International Energy Agency (IEA) now projecting that consumption will not only hit a new high this year, but will continue on the upward trend beyond the next decade and a half.
Workforce Watch
Demand for Texas Upstream Talent Persists Despite Employment Drop
Despite a slight drop in monthly employment numbers in February, Texas Independent Producers and Royalty Owners Association (TIPRO), citing Current Employment Statistics (CES) data, noted that the demand for talent in the Texas upstream sector persists.
According to TIPRO’s analysis, direct Texas upstream employment for February 2023 totaled 197,900, a decrease of 700 jobs from January employment numbers.
TIPRO indicates that this drop in employment is likely a statistical anomaly given the positive job posting data for the month, workforce trends and that revised CES numbers will ultimately likely show an uptick in upstream employment in February.
Texas upstream employment in February 2023 represented the addition of 20,100 positions compared to February 2022, including an increase of 900 jobs in oil and natural gas extraction and 19,200 jobs in the services sector, TIPRO says.
TIPRO’s new employment data also indicated strong job postings for the Texas oil and natural gas industry for the month of February. According to the association, there were 11,981 active unique jobs postings for the Texas oil and natural gas industry in February, including 4,601 new job postings added in the month by companies.
The top three companies ranked by unique job postings in February were John Wood Group (640), Loves (632) and Baker Hughes (575), according to TIPRO.
Top posted industry occupations for February included maintenance and repair workers (374), heavy tractor-trailer truck drivers (356), and managers (320).
Additionally, TIPRO reports that oil and gas production is forecasted to continue to climb in the coming months.
Crude oil output in the Permian Basin is projected to hit a record 5.62 million barrels per day (bpd) in April, according to the U.S. Energy Information Administration (EIA), with production expected to rise in the basin by 26,000 bpd.
In the Eagle Ford Shale in South Texas, oil output next month will gain 9,000 bpd to total 1.13 million bpd. Overall, U.S. crude oil production is estimated to go up by 68,000 bpd to top 9.21 million bpd in April, projects the EIA.
Natural gas production also will grow in April – EIA projections show total natural gas output in the United States will increase by approximately 420 million cubic feet per day (Mmcf/D) to reach a record 96.62 billion cubic feet per day (bcf/d).
This will in part be driven by production gains from the Permian Basin, where output will go up by 93 Mmcf/D to hit a record high of 22.5 bcf/d. Natural gas production in the Eagle Ford Shale is also forecasted to reach 7.12 bcf/d in April, up 74 Mmcf/d from projected March levels, TIPRO’s statement reads.
Other stories we are following…