Manup Industry Roundup - W1823: NEWSL -01
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This year could be a turning point for U.S. upstream takeovers. Flush with cash, drillers are looking to add top tier drilling locations. McKinsey expects free cash flows in the industry to remain high in 2023.
Below are the oil and gas stories and news that made headlines this week carefully curated by Manup.
Summary of the news
The Permian Will Lead U.S. Oil Deal-Making
A new wave of mergers and acquisitions is coming to the U.S. oil patch, and the most prolific shale basin, the Permian, is set to lead the deal-making activity in the industry.
This year could be a turning point for U.S. upstream takeovers as analysts expect activity to pick up following a lackluster M&A scene in the shale patch last year despite the higher oil prices.?
Record cash flows in the industry and dwindling inventory of prime drilling locations for many smaller producers have set the stage for a new raft of consolidation in the U.S. oil industry, analysts say.
Deals in natural gas, on the other hand, are expected to remain subdued because of the low benchmark gas prices in North America.?
Sluggish M&A Activity In 2022
In 2022, the number of M&As in the U.S. upstream segment fell to the lowest level since 2005, with buyers increasingly picky and targeting top-tier locations in larger deals, Enverus Intelligence Research (EIR) said in a report early this year.
The value of the deals also dropped in 2022—13% year over year—to $58 billion, transacted across a total of 160 M&As.??
M&A Activity To Accelerate
This year, the M&A activity is expected to move into a higher gear as private equity looks for the exit while public companies look for additional top-tier acreage, analysts say.
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.
According to?Pete Bowden, global head of industrial, energy and infrastructure banking at Jefferies Financial Group “The world needs more US oil, and the Permian has several thousand locations remaining that are viewed as high quality”
High Cash Flows Set To Trigger More Deals
Less than two months before the Exxon-Pioneer rumors surfaced, McKinsey & Company said in an analysis, “Historically high cash generation across the North American upstream industry could create the perfect market conditions for accelerated M&A activity for market leaders.”
McKinsey expects free cash flows in the industry to remain high, with the 25 leading North American exploration and production companies generating FCF of between $70 billion and $90 billion in 2023 and between $50 billion and $70 billion for the following four years—even if oil prices drop to around $65-$70 per barrel in the medium term.
Even after payments for capital expenditures, debt reduction, shareholder returns, and investments to reduce emissions, the leading 25 companies are likely to remain cash-flow positive in 2023 and beyond, McKinsey says.
Permian M&A Bonanza
Ovintiv’s recent acquisition of untapped oil and gas assets in the Permian from EnCap Investments for $4.3 billion “was the biggest Permian deal since ConocoPhillips bought Shell’s assets in September 2021 and this kicked off 2Q23 M&A with a bang
Reports also talks about a Pioneer Natural Resources acquisition by ExxonMobil
Baker Hughes: Canadian Rig Count Falls Below 100
Canada’s drilling rig count fell 12 units, reaching 93 rigs working for the week ended Apr. 28, according to Baker Hughes data. The count is down 2 units from the 95 rigs working this time a year ago.
With 36 rigs drilling, oil-directed rigs are down 6 units this week. Gas-directed rigs in Canada were down 6 units to 57 rigs working.
The US rig count increased by 2 units this week for a total of 755 rigs running.
The number of rigs drilling on land increased by a single unit week-over-week to a total of 733. The number of rigs drilling in inland waters also increased by one rig to 2 units working this week. The number of rigs drilling offshore was unchanged at 20 as the Gulf of Mexico saw a 1-rig increase this week to 19.
US oil-directed rigs were unchanged from last week at 591 units. This time a year ago, 552 units were drilling for oil. Rigs targeting gas increased by 2 units to reach 161 rigs, which was 17 more than were drilling for gas at this time a year ago.
Among the major oil and gas-producing states, Oklahoma dropped the largest number of rigs. At 53 rigs running, the count is 3 fewer than the previous week.
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North Dakota and Alaska each dropped a rig this week with respective counts of 39 and 9 working units.
Louisiana gained 3 rigs this week to reach 60 rigs working. New Mexico increased its rig count by 2 to reach 107. Pennsylvania and Ohio each gained a single rig to reach respective counts of 26 and 11.
Norway To Nationalise Gas Pipelines By 2028
Norway plans to nationalise its gas pipelines by 2028, at the time when many existing concessions are due to expire.
Norway’s oil and gas ministry announced last week that it seeks to tighten control over key infrastructure. Following the imposition of Western sanctions after the Russian invasion of Ukraine, Norway has become Europe’s major natural gas supplier.
The gas pipeline network in the county is currently owned by Gassled, a network set up in 2003. The government already owns 46.7% of the company via state oil company Petoro; Equinor also owns an additional 5%.
Gassco, the technical operator of the network, will retain its position following the takeover. The Kaarstoe and Kollsnes processing plants and many of the pipelines connecting Norway to the EU and UK are also owned by Gassled.
Norwegian natural gas
Norway exported more than 120 billion cubic metres (bcm) of gas in 2022 via its pipelines. Around 116.6bcm of this went to the EU and the UK.
The Norwegian state has substantial holdings in oil and gas fields through the State’s Direct Financial Interest, which is manged by Petoro, while all cash flow is directed to the government’s Petroleum Fund.
In 2022, the Norwegian state earnt $50.2bn (NKr528bn) from direct oil and gas licences via Petoro, more than five-times the amount earnt in an average year. The company attributed increased demand to a reduction in the use of Russian gas in Europe.
ExxonMobil Sanctions Fifth Development Offshore Guyana
ExxonMobil has made a positive final investment decision (FID) to proceed with Uaru, the fifth development on the Stabroek block, offshore Guyana after receiving government and regulatory approvals.
Uaru will have a production capacity of about 250,000 gross b/d of oil with production targeted to startup in 2026, the company said in a release Apr. 27.
The $12.7-billion development will target an estimated resource base of more than 800 million bbl of oil and include up to 10 drill centers and 44 production and injection wells. MODEC is constructing the floating production, storage, and offloading (FPSO) vessel, which will be called Errea Wittu, under an engineering, procurement, and construction (EPC) contract.
Elsewhere in the block, Liza Phase 1 and Liza Phase 2 developments produced an average of 375,000 gross b/d of oil in this year’s first quarter.
The third sanctioned development on the block, Payara, is targeted for startup early in fourth-quarter 2023, with a gross production capacity of about 220,000 b/d of oil. The fourth sanctioned development, Yellowtail, is expected to come online in 2025 with a gross production capacity of about 250,000 b/d of oil.
A sixth development, Whiptail, is expected to be submitted for government and regulatory approval later this year.
In total, six FPSOs with a gross production capacity of more than 1.2 million b/d of oil are expected to be online on the block by end-2027, with the potential for up to 10 FPSOs to develop the estimated gross discovered recoverable resources of more than 11 billion boe.
ExxonMobil affiliate Esso Exploration and Production Guyana Ltd. is operator with 45% interest in the Stabroek block. Hess Guyana Exploration Ltd. holds 30%, and CNOOC Petroleum Guyana Ltd. holds 25%.
Other stories we are following…
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