??? US L48 Oil & Gas Activity Update???: As of May 31, 2024

What’s up energy fam! Some exciting news on the M&A front last week with ConocoPhillips acquiring Marathon Oil. The $17.1 billion all-stock deal, which expands to $22.5 billion when you toss in Marathon’s net debt, merges two of the most legendary names in the U.S. oil and gas industry.

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A little bit of history… Born from the historic 1911 breakup of John D. Rockefeller’s Standard Oil, both companies are big players stemming from a moment that reshaped antitrust laws. Standard Oil was a massive corporation and by the early 20th century, had about 90% of the US oil refining and transportation market. Its size and market control led to widespread accusations of unfair practices and monopolistic control. In response to the public and political pressure, the US government filed a case under the Sherman Antitrust Act, leading to a historical Supreme Court decision in 1911.

Let’s move on…!

COP, the $155 billion giant (and one of the largest US producers), will be merging with MRO to realize an impressive 490,000 net acres with a production capacity of nearly 400,000 boe/d in the heart of Eagle Ford. This merger not only increases drilling locations by 1,000 in Eagle Ford but also taps into major refrac potential in South Texas.

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With their combined assets, the companies will develop offsetting acreage in the southern Bakken and are planning to drill extended three-mile lateral wells. COP 2.0 claims to have a robust drilling future with over a decade’s worth of inventory in the Bakken while also deepening their presence in the almighty Permian.

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MRO’s strong position in the Delaware Basin, especially in New Mexico's Lea and Eddy counties and the Woodford interval in Texas, complements COPs existing holdings and boosts its footprint in the Oklahoma Anadarko Basin, rounding out an ambitious expansion strategy.

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Lastly, here are some other key highlights of the deal

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When it comes to deals like this and many others, the OFS side of me can’t help but think of the importance of performance and value offered by their incumbent service companies. If you work for MRO, now’s the time to start showcasing your value and begin building strategic relationships with folks at COP.

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This brings me to my next point… if you’re not actively working on building your network with decision makers and key stakeholders through companies like JP Warren 's Crüe Club and Exec Crüe , you’re truly missing out on massive opportunities to build meaningful relationships.

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O&G Prices:

WTI ended the week at $76.99/bbl for a another weekly loss, setting the stage for a crucial OPEC+ meeting this weekend. The group is anticipated to maintain its production cuts post-Q2, focusing solely on the duration of the 2.2M bbl/day cut, according to CIBC Private Wealth's Rebecca Babin.

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The market expects a three-month extension and would certainly frown upon anything shorter! Looking past immediate market dynamics, a representative from Rystad Energy predicts that OPEC+, despite a more optimistic growth outlook than the EIA and IEA, won’t ease cuts soon due to likely higher actual market supplies.

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Adding to the buzz, Reuters hinted at a potential OPEC+ deal to prolong certain cuts all the way to the end of 2025.

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Rig Count:

Rig count continues to bobble along at 600 with a few onesie twosies throughout the week. Oil price and demand outlook certainly don’t support a case for adding rigs throughout the year, however, $70-$80/bbl WTI certainly helps prop the floor on oil rig count which will likely remain flat throughout the year. Efficiencies and extended lateral lengths will continue to dominate the conversation, which bodes well for those whose OFS economics favor footage versus day rate cost structures.

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When we look at efficiencies, the increased efficiency rate seems to slowly decelerate. When looking at footage per rig per day, we appear to have peaked in 2021 at 1,219ft per day on average. The most recent data from Spears shows that we’ve been between 1,000 and 1,165ft per day since then and will remain around 1,110ft for the remainder of 2024.

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Another interesting data set is the amount of wells drilled. When we look at the number of wells drilled QoQ, it appears that it is slowing down as well and may have peaked in Q2-2021 at 8.7. However, we need to keep in mind the lateral lengths around that time are less than what they are now, which is why looking at total footage drilled is a better metric to look at when looking at activity and outlook. When we drill longer laterals, all else equal, we’ll drill more footage simply by reducing cycle times (more time on bottom drilling).

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The Numbers:

Total US rig count unchanged for a total of 600

YoY change of -96

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US L48 rig count Oil rig count: 496 (-1) Gas rig count: 100 (+1) Misc rig count: 4 (N/C) Basin Rig Count Permian: 310 (-2) Eagle Ford: 51 (+1)

Haynesville: 36 (N/C) Williston: 34 (N/C) Marcellus: 27 (+1) Cana Woodford: 17 (-4) DJ-Niobrara: 10 (N/C) Utica: 10 (N/C) Others: 93 (+1)

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DUC Count as of 5/13/2024 – Published Monthly:

?Since January 2023, the US drew down 801 DUCs, mainly coming from the Bakken, Eagle Ford, and Niobrara. With that in mind, US production could be challenged now that DUC draw downs are leveling off and activity levels remain soft.

Basin DUC Count:

Anadarko: 701 (+4)

Appalachia: 824 (+5)

Bakken: 328 (+6)

Eagle Ford: 345 (-2)

Haynesville: 791 (+7)

Niobrara: 628 (-16)

Permian: 893 (+2)

Frac Spread Count:

The L48 frac spread count dropped by four reaching 253, three below last year’s count. This marks the second weekly drop and I suspect that we’ll hover around the 250-260 mark for the foreseeable future. Although oil & gas demand outlook doesn’t appear to go on a rip anytime soon, we’ll need to keep completing wells to support current production levels.

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Regional Production as of 5/13/2024 – Published Monthly

I’ll preface by saying again I’m certainly not a production expert, nor have I done any extensive production engineering but ultimately all the activity is tied together. I’ll report the data and commentary around it based on my professional opinion and industry knowledge.

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As far as production goes, we can see here that gas production declines MoM in each of the basins besides the Bakken and Permian. Suppose anyone has been paying attention to gas. In that case, you know the Permian continues to experience the challenge of elevated levels of associated gas and what to do with it, especially as companies continue to increase oil production. When you look at Permian Gas/Oil Ratio (mcf/mbb), the trend indicates that over time, this ratio increases and now sits at ±4.1 mcf/mbb. With Waha gas prices basically $0.00/mmbtu, this likely increases the cost of supply because operators have to deal with the gas at their expense, instead of selling it on the open market. On the bright side, there’s projects in the works such as the Enterprise Products Partners' New Processing Plant. Enterprise Products Partners has completed a new natural gas processing plant in the Delaware sub-basin of the Permian. This plant has a capacity of 300 MMcf/d and is designed to enhance the processing and transportation of NGLs to meet growing demand.

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On the oil side, production shows fairly flat, with a little increase of 18 mbpd coming out of the Permian. This makes sense with current activity levels, and I anticipate production will remain flat, with a slight decrease as we move through the summer. Unless demand ramps up and oil prices begin to move to the upside, there really doesn’t seem to be a need for an increase in production. As many E&Ps have stated, slow, stead, and discipline is the name of game.

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Weekly Crude Oil Production:

L48 crude oil production unchanged at 12.7mmbpd (I said this for the last two weeks and I’ll say it again, this has to be changing one of these weeks!)

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Alaska crude oil production increased from 416 to 422mbpd

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Total US crude oil production STILL unchanged at 13.1mmbpd.

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Natural Gas Production:

Dry natural gas production grew by 0.9% (0.9 Bcf/d) to 100.1 Bcf/d, and average net imports from Canada decreased by 7.9% (0.4 Bcf/d) from last week.

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LNG Exports:

Average natural gas deliveries to U.S. LNG export terminals increased 0.2 Bcf/d from last week to 13.0 Bcf/d.

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Vessels departing U.S. ports: Twenty-six LNG vessels (eight from Sabine Pass; six from Freeport; four from Corpus Christi; three each from Calcasieu Pass and Cameron; and two from Cove Point) with a combined LNG-carrying capacity of 98 Bcf departed the United States between May 23 and May 29, according to shipping data provided by Bloomberg Finance, L.P.

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All data is public and published by Rig Count:?Baker Hughes WTI/DUC/Production:?U.S. Energy Information Administration Frac Spread Count:?Primary Vision Network - Frac Spread Count