Shale companies are swimming in cash
Dec 16, 2021
californianewstimes.com/shale-companies-are-swimming-in-cash/625380/Two things to start:
Au revoir, long-term gas contract in Europe.European Commission suggestion The ban on transactions between EU member states and off-block energy suppliers such as Russia will continue after 2049. It’s a long time ago, but it’s the last year before the EU economy achieved its net zero emissions target.
Do you remember peak oil consumption?US weekly oil demand surged last week, setting almost a new record 23.2m barrel a dayAccording to the Energy Information Agency, it is a 17% leap compared to a week ago. The four-week average is not yet at record highs.
Welcome to another energy source.
The number of demands in the United States is amazing. But Omicron now seems to be confident that energy consumption in the United States, or in fact the world, will continue to grow so rapidly. Opec remains optimistic about this variant, saying in its latest market report that the impact on demand is “expected to be mild and short-lived.” The International Energy Agency has lost confidence in its December oil market report, stating that Omicron “has a significant risk to the economic outlook.”
“The surge in new Covid cases is expected to slow the recovery of global oil demand, with air travel and jet fuel being the most affected,” the agency said.
Has anyone already changed their vacation travel plans in the light of the latest twists on Covid News? Please let us know at energy.source@ft.com.
Meanwhile, Joe Biden’s Buildback Better bill has been stalled in Congress due to its radical climate and energy supply, but some of its supporters are new. TV spot Promote it.
PR Blitz shows an interesting tack change by positioning BBB and its “affordable clean energy” funding as an answer to US concerns about high energy costs and inflation. This is in contrast to the White House’s approach to tackling oil and gas soaring in recent months by increasing the supply of fossil fuels.
Our first note is about the torrent of cash currently flowing into the shale company’s bank account. The industry, once notorious for destroying capital, is now swimming in it.
Data drills hit a new irony. Threats to oil and gas suppliers due to climate change. This is partly caused by the burning of these fossil fuels.
Finally, don’t miss the sister newsletter Moral Money. account About Enkraft, a small investment company trying to do something for RWE Engine No. 1 went to ExxonMobil.. (You can sign up for moral money here.. )
thank you for reading.
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US shale patch ends in 2021 with the most rude health
Living within their means has never been a strength for American shale producers.
But last year’s crash and the enormous pressure on Wall Street proved to be the nudge company needed to keep the house tidy. After years of burning investor cash to pursue ever-increasing growth, American shale patches are suddenly making money. a lot of money.
As the end of 2021, public shale companies made a total of $ 6 billion in capital expenditures in the previous quarter, according to consultancy Rystad Energy. This is less than a quarter of the level at boom height.
On the other hand, operating cash is about $ 13 billion, approaching record levels.
In short, free cash flow, a key shale investor indicator determined by the difference between cash and capital investment from operating activities, ran through sectors that once illustrated some of the worst excesses of value destruction and US companies. I’m going around.
As the graph below shows, the changes helped by the doubling of oil prices over the last 12 months are spectacular.
The column chart for the net cash flow ($ bn) is ... ultimately profitable
long time no see. Investors have left a lot of oil and gas in recent years, and the sector has shrunk from one of the S & P 500’s biggest hitters to less than 3% of the index, half of Apple alone.
Old guards of growth investors ran towards the hills and were replaced by new types of value investors.
“Our investors have evolved,” a senior Cher executive told me when he visited Midland last week. “They pushed growth at any cost, and now they have a new model and love it … it’s important to them.”
A line graph of reinvestment rate (%) shows that companies are no longer returning huge amounts of money to growth.
The new model involves injecting cashback into investors in the form of sound dividends, rather than injecting cashback into the drilling of new wells.
Scott Shefield, CEO of Pioneer Natural Resources, the largest shale player, described it in Houston last week as a new “contract” between industry investors. For Pioneer, that means growth of less than 5% per year, which means distributing large amounts of net cash flow to investors.
And this new model stays here, he told me: “There is no way for the industry to change overnight and start growing again.”
Vertical bar graph of changes in estimates since 2019 showing that spending plans have been revised ($ 1 billion)
Public operators are extremely cautious when private operators try to return the rig to the site and strengthen drilling.
Prior to the pandemic, spending in 2022 was estimated to reach $ 120 billion, according to Rystad. Today, that number is approaching $ 80 billion.
Midland executives told me, it’s an easier approach. This means that every time oil prices rise, businesses don’t have to scramble to rig, hire more workers, or increase drilling. Rather, they can stick to plans that keep prices constant no matter what they are doing.
“It’s already a pretty volatile industry,” he said. “That is, in the crazy pyramid (probably the highest oil price), if you can control capital and control production, investors can ask for oil prices, but our plan is okay.”
Will all of this regain the old investors who have fled the sector in recent years? The shale patch will probably have to go through an additional quarter or half of the strong oil prices to prove that the new fiscal discipline remains here. Judging by XOP, ETFs are often used as a proxy to determine market sentiment for the U.S. oil sector, which is rising 63% this year, and investors are enthusiastic about new shale cash machines. increase. (Miles McCormick)
Data drill
Climate change threatens the supply of fossil fuels. According to the company, more than 600 billion barrels of oil and gas, or about 40% of recoverable reserves, are at high risk of disruption due to climate change. New analysis By Verisk Maplecroft and Wood Mackenzie.
Analysis shows that Saudi Arabia, Iraq and Nigeria are one of the highest risk countries. Together, these countries make up almost one-fifth of the world’s recoverable oil and gas.
However, the risks are not limited to the Middle East and Africa. In North and South America, extreme weather events such as hurricanes put 36% of reserves at high risk of disruption.
When hurricane Ida struck the Gulf of Mexico last summer, 55 oil spills occurred and refineries stopped or reduced production. Various types of extreme weather events, such as droughts, floods, storms, and rising sea levels, pose a threat to oil and gas operations.
Will Nichols, Head of Environmental and Climate Change Studies at Verisk Maplecroft, said:
Increasing threats of oil and gas turmoil, according to research firms, mean that companies need to start taking climate change more seriously. One way to get started is to follow the Task Force recommendations on climate-related financial disclosure. This task force aims to provide investors with transparency regarding corporate climate risk.
“In order to retain investors, energy companies will need to show that the net zero goals they have revealed are actually supported by climate policies, investments and actions,” Nichols said. I did. (Amanda Chu)
A bar graph of the percentage of recoverable reserves in the climate risk category, showing that countries with high oil and gas reserves are at high risk of climate change.
power point
Green Defective: Executives Abandon their career To tackle the climate.
Mining project German black forest Producing lithium without emitting greenhouse gases has the potential to revolutionize the battery industry. (Bloomberg)
Of the world Largest record label Signed a contract to reduce emissions in the music industry. (Guardian)
New report slash Growth of the solar industry Expectations of 25% due to supply chain problems and inflation. (CNBC)
Energy Source is a twice-weekly energy newsletter from the Financial Times.It is written and edited by Derek Blower, Miles McCormick, Justin Jacobs When Emily Goldberg..
