Manup Industry Roundup - W1623: NEWSL -02
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Energy research firm Rystad Energy believes the U.S. shale patch is set for a job boom, with wages for shale workers set to grow through the end of 2024.
The average wage growth is forecast to be between 2.5% and 7.2% in 2023 and 2024, which will contribute to higher costs for operators.
Below are the oil and gas stories and news that made headlines this week carefully curated by Manup.
Summary of the news
Workforce Watch
Oil Demand Predicted To Climb By 2 Million bpd In 2023
Oil demand will climb by 2 million barrels per day (bpd) in 2023, according to the International Energy Agency (IEA). The IEA expects demand to reach a record 101.9 million bpd within the year.
In its latest Oil Market Report published on Friday, the IEA found that China will account for a large proportion of market growth. Around 90% of next year’s growth will come from OECD nations, “buoyed” by China.
Across OECD nations, demand fell by 390,000 bpd year-on-year for 2023’s first quarter; the second consecutive quarter to see decline.
Recent production cuts announced by the OPEC+ group will push supply down by 400,000 bpd by the end of 2023, the report says. It predicts that production cuts from OPEC+ will drive prices higher, having negative effects on global attempts to reduce inflation.
Following the publication of the report, the price of Brent Crude oil rose from $85.62 to $86.10. Prices soared by as much as $7 a barrel earlier this month, following the announcement of production cuts from OPEC+.
The group’s decision to cut oil production by 1.16 million barrels per day, on top of pre-established production cuts, caused frustration among world leaders who criticised resulting market uncertainty. At the time, ICE Brent oil futures fell to a 15-month low of $71 per barrel.
Kerosene production, for jet fuel, is expected to account for 57% of 2023 gains in oil demand, according to the IEA. Additionally, global refining throughput is forecast to average 82 million bpd this year
EIA: US Crude Inventories Down 4.6 Million bbl
US crude oil inventories for the week ended Apr. 14, excluding the Strategic Petroleum Reserve, decreased by 4.6 million bbl from the previous week, according to data from the US Energy Information Administration.
At 466.0 million bbl, US crude oil inventories are about 2% above the 5-year average for this time of year, the EIA report indicated.
EIA said total motor gasoline inventories increased by 1.3 million bbl and are about 6% below the 5-year range for this time of year. Finished gasoline inventories and blending component inventories increased last week. Distillate fuel inventories decreased by 400,000 bbl and are about 11% below the 5-year average for this time of year.
Propane-propylene inventories decreased by 700,000 bbl and are about 27% above the 5-year average for this time of year, EIA said.
US refinery inputs averaged 15.8 million b/d for the week ended Apr. 14, about 260,000 b/d more than the previous week’s average. Refineries operated at 91.0% of capacity.
Gasoline production decreased, averaging 9.5 million b/d. Distillate fuel production increased, averaging 4.8 million b/d.
US crude oil imports averaged 6.3 million b/d, up 101,000 b/d from the previous week. Over the last 4 weeks, crude oil imports averaged 6.2 million b/d, 2.3% more than the same period last year. Total motor gasoline imports averaged 700,000 b/d. Distillate fuel imports averaged 113,000 b/d.
M&A Activity In The Permian To Pick Up In 2023
Reports of supermajor ExxonMobil holding informal discussions to buy the top pure-shale firm, Pioneer Natural Resources, reignited market talk about the start of the next phase of mergers and acquisitions in the U.S. oil industry.
Operators and acreage in the top oil-producing basin, the Permian, are expected to make the biggest waves in a new consolidation stage, analysts say.
This year, the M&A activity in the shale patch could pick up as most oil producers generated record cash flows in 2022 and are looking to grow by adding top-tier assets adjacent to their acreage.
In addition, small and mid-sized firms could seek mergers with peers as they are likely struggling to either find buyers or sellers, or access debt markets with the rise in interest rates, according to various analysts and investment banks.
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Several deals in the industry have already been announced this year, but the real merger talk on the market was triggered earlier this month with the rumors that ExxonMobil held early informal talks about potentially acquiring the largest pure-play shale producer, Pioneer Natural Resources.
Exxon is looking to boost its position in the U.S. shale patch, and it has said for years that the Permian basin would be its key priority area for investments and growing production in the coming years.
Exxon and the other supermajor, Chevron, could strike blockbuster deals in the Permian over the next two years. Moreover, according to Wood Mackenzie, the cash for deals is there as long as there is a willingness for M&A..
This year has already seen some major deals. VTX Energy Partners, the U.S. upstream company of oil trading giant Vitol, said in January it would acquire Delaware Basin Resources for an undisclosed sum.
Matador Resources also struck a deal last month to buy Advance Energy Partners Holdings, in a strategic bolt-on acquisition in the Delaware Basin in the Permian, for an initial cash payment of $1.6 billion.
EIA: Mexico’s Oil Production Is Stable After 20 Years Of Decline
After nearly two decades of steady decline, Mexico's petroleum and liquid fuels production has held steady since 2019. Mexico's production is to remain relatively flat through 2024, according to the US EIA's forecast.
Mexico’s production reached an all-time high in 2004 at 3.9 MMbpd and has decreased every year until 2019, stabilizing at 1.9 MMbpd. According to the EIA’s Short-Term Energy Outlook (STEO), the agency expects production to remain around this number through the end of 2024.
Much of this increase in oil production is thanks to private companies. The EIA reports that data from the Mexican government attributed over 5% of the production increase to private companies. This change is massive compared to the less than 1% contribution recorded in 2016.
Before 2013, Pemex, Mexico’s national oil company, was the only oil producer in the country. However, that changed once the government changed the constitution to allow private oil production in 2013.
Other factors that have increased Mexico’s oil production include tapping into higher-producing fields in the Sureste basin, like the Quesqui field, which produced 133,000 bpd in 2022.
The decline saw Mexico’s consumption exceeding production for the first time. The once net-exporter turned into an importer in 2020 due to a sharp decrease in supply. However, economic recovery after the pandemic saw production and consumption breaking even at 1.9 MMbpd.
According to the Oil and Gas Journal, Mexico’s proven oil reserves are at less than 6 Bbbl, falling from above 10 Bbbl reported by International Energy Statistics. Most of these reserves rest in the Sureste basin, over 80%. While major discoveries have been made in Mexico’s natural gas reserves, proven oil reserves have not been found despite extensive exploration campaigns.
However, Woodside Energy has committed to producing the country’s first deepwater oil field in the Gulf of Mexico. This area has massive potential for deepwater oil production if Mexico’s shallow-water production is any indicator. The government of Mexico will capitalize on any deepwater finds, with development plans and private investments on the horizon.
Workforce Watch
A U.S. Shale Job Boom Is Coming
Rising oil and gas production in the U.S. shale patch is expected to bring higher wages for workers in the sector as companies need to attract more labor in an already tight market, energy research firm Rystad Energy says.
Wages are set to grow through the end of 2024, due to the tight labor market, retirements in the industry, and competition from clean energy jobs, Rystad Energy said in a new report quoted by the Journal of Petroleum Technology.
Average wage growth is expected at 2.5% and 7.2% in 2023 and 2024. Wages have already grown in the key shale basins, including the Permian, the Eagle Ford, Haynesville, Williston, and Appalachia, according to Rystad Energy. Those areas saw on average over 9% growth in wages in 2022.
The growth in wages has increased the budgets of the operators in the shale patch and contributed to cost inflation
According to the Dallas Fed Energy Survey for the first quarter, executives at Permian operators saw oil and gas expansion stall amid surging costs and worsening outlooks.
The aggregate wages and benefits index edged higher, to 43.6 from 40.2, according to the survey.
Asked about what changes they expect in the workforce at their company from December 2022 to December 2023, more than half of the executives — 55% —expect their headcount to remain unchanged from December 2022 to December 2023.
However, 37% of executives expect the number of employees to increase, of which 4% expect a significant increase and 33% anticipate a slight increase. Only 8% anticipate the number of employees decreasing over the period, according to the survey.
Whereas the most-selected response among E&P firms was for employment to “remain the same” in 2023, the most-selected response of support service firms was for employment to “increase slightly” in 2023, the poll found.
Other stories we are following…