Shale drillers double down on returns over output

  • Market: Crude oil, Natural gas
  • 08/08/22

US shale producers dug in their heels and ramped up shareholder returns further after posting bumper second-quarter profits on the back of soaring oil prices.

Any spending increases were mostly designed to offset inflationary pressures as companies held the line on production. Instead, record cash flows were funnelled into dividend increases and share repurchases, the latter made more appealing by the sector's recent pullback on Wall Street. "We feel like one of the best values right now is investment in our own stock," Occidental Petroleum chief executive Vicki Hollub says, adding that the company sees no need to grow output for the time being.

The industry's reluctance to step up drilling is likely to lead to fresh tensions with the White House, which has urged US producers to do more to help ease a global supply crunch, although falling pump prices may offer some breathing space.

Several firms echoed recent warnings from oil service firm Halliburton that the market for hydraulic fracturing equipment remains tight. Higher costs for steel and diesel, as well as sand, chemicals and labour, prompted Pioneer Natural Resources to increase its full-year spending plan by about 7pc to $3.6bn-3.8bn. And work is already under way on contract negotiations for 2023. "I don't have any concern about Pioneer getting the equipment or services that we need or materials, but it's definitely a tighter market, so we're starting earlier," company president Richard Dealy says.

Meanwhile, Occidental is shifting $200mn in capital to its Permian operations to tackle inflation and support activity there heading into 2023. And Diamondback Energy joined in the chorus of cautionary voices, saying well costs have surged by 15pc this year, while fracking expenses are up by about 10pc.

Higher costs and supply chain woes have been cited as obstacles to being able to ramp up output even if producers wanted to. ExxonMobil, the top US oil producer with plans for Permian output growth of 25pc for a second straight year, had been looking at ways to further expand activity. "But frankly, given the tightness in the market, the availability of rigs, there's not a whole lot of opportunity to move there," chief executive Darren Woods says.

Chevron, which expects to grow its Permian output by 15pc in 2022, says development costs in the basin have fallen by around a quarter since 2019. "We expect to keep them flat this year by offsetting inflation with productivity improvements," upstream chief Jay Johnson says.

Permian pinch

Despite some forecasts for US output growth to accelerate in the second half of the year, Devon Energy chief executive Rick Muncrief says he is "not as bullish" as others, and cites flagging growth in regions such as the Bakken in North Dakota and Texas' Eagle Ford. "The Permian will continue to be the only basin that grows substantially," he predicts. "But even with the Permian, I think you'll start seeing impacts of things like the supply chain pinch." And while growth has been driven by private operators in the past year, that too may moderate. "It may not be quite as much growth as some people have forecast," Muncrief says.

Still, if oil prices remain at elevated levels, that could spur some output growth, albeit at much lower levels than in the past when the sector's heavy spending produced little in the way of returns. "I'm still very optimistic that the oil price is going to continue to march forward with probably more upside than downside," Pioneer chief executive Scott Sheffield says, citing robust post-pandemic demand, as well as supply constraints. In such a scenario, the company will focus on its long-term output growth target of 5pc, he says.

Oil and gas firm supply chain inputs

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28/03/24

Mosaic plant sustains minor damage from fire

Mosaic plant sustains minor damage from fire

Houston, 28 March (Argus) — Florida-based phosphate and potash fertilizer producer Mosaic anticipates limited damage to a production plant near Tampa and minimal disruption to operations in the coming weeks following a brushfire on Monday. The brushfire ignited Monday evening during routine maintenance near Mosaic's Riverview phosphate production facility and was initially contained before rekindling Tuesday morning because of heavy winds. The fire was fully under control by Tuesday afternoon, according to local first responders. Mosaic told Argus on Tuesday the fire was not considered a threat to the facility initially, but now expects the plant sustained "limited damage to ancillary operations" and the impact could last between four to six weeks. The Riverview plant has a production capacity of 1.8mn metric tonnes (t) of processed phosphate products, and produces 30,000 t/week, according to Mosaic. The facility was producing phosphates primarily for exports to Brazil at the time of the fire, the company added. Smoke was observed Monday from the fire as a result of foam retardants used by local fire officials to cool the high-density polyethylene pipes. Polyethylene gas piping is often used for natural gas distribution. Natural gas flows delivered to the plant fell slightly Wednesday at 2.42mn cf/d, down from 2.45mn cf/d on Monday, once the fire was extinguished, according to data from Florida Gas Transmission. Flows at the plant on Thursday rebounded to 2.45mn cf/d, in line with expectations that affected phosphate output at the plant should only be temporary. By Taylor Zavala Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Long-term contracts needed to stabilise gas prices: MET


28/03/24
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28/03/24

Long-term contracts needed to stabilise gas prices: MET

London, 28 March (Argus) — Germany and Europe need more LNG and business-to-business long-term contracts to even out supply shocks and stabilise gas prices, even as demand is unlikely to reach historical heights again, chief executive of Swiss trading firm MET's German subsidiary Joerg Selbach-Roentgen told Argus . Long-term LNG contracts have a "stabilising effect" on prices when "all market participants know there is enough coming", Selbach-Roentgen said. He is not satisfied with the amount of long-term LNG supply contracted into Germany, arguing that stabilisation remains important even now that the market has "cooled down" after the price shocks of 2022. Long-term contracts are important for the standing of German industry, Selbach-Roentgen said — not to be reliant on spot cargoes is a matter of global competitiveness for the industrial gas market, he said. The chief executive called for more long-term contracts in other areas as well, such as for industrial offtakers, either fixed price or index-driven. Since long-term LNG contracts are concluded between wholesalers and producers, the latter need long-term planning security for their projects, which usually leads to terms of about 20 years. But long-term LNG contracts in general do not represent a major risk for MET nor for industrial offtakers in Europe, Selbach-Roentgen said. LNG is a more flexibly-structured "solution" to expected demand drops in regard to the energy transition as the tail end can be shipped to companies on other continents such as Asia if European demand wanes, he said. Gas demand is not likely to recover to "historical heights" again, mostly driven by industrials "jumping ship", Selbach-Roentgen said. When talking to large industrial companies, the discussion is often about the option that they might divert investments away from the German market as the price environment is "not attractive enough" for them any longer in terms of planning security, the chief executive said. This trend started out of necessity in reaction to the price spikes but may now be connected to longer-term "strategic" considerations, he said. In addition, industrial decarbonisation — as well as industrial offtakers' risk aversion because of the volatile gas market following Russian gas supply curtailments — leads companies to invest less into longer-term gas dependencies in Germany, Selbach-Roentgen said. In addition, MET advocates for a green gas blending obligation of 1-2pc green gas or hydrogen, in line with legislative drafts under discussion by the German government. This has already met with interest by offtakers, despite uncertainties around availability and prices, and would provide a regulatory framework that allows firms to prepare for the energy transition, Selbach-Roentgen said. By Till Stehr and Rhys Talbot Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Stalling climate finance an energy security risk : WRI


28/03/24
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28/03/24

Stalling climate finance an energy security risk : WRI

London, 28 March (Argus) — The "best bet" to achieving global energy security is through mitigation funding and multilateral cooperation, according to the World Resources Institute (WRI). WRI highlighted that governments are funding more domestic renewable energy projects but have increased oil and gas production in the name of "energy security" at home in the years following the Russia's invasion of Ukraine. The recent rebrand of energy transition funding to energy security funding has allowed some developed nations to justify domestic oil and gas licences and drag their feet on multilateral financial commitments. This is causing "real worry" among climate-vulnerable developing nations, WRI chief executive Ani Dasgupta said. He said that although the initial "shock" to the world's energy markets after the invasion of Ukraine "quickly went away", it has triggered "real worry among poorer countries that when push comes to shove, it won't be an even game, or have a fair outcome." Developing countries have long complained about the lack of access to climate funding. Richer nations have only recently met the $100bn/yr target in climate finance to developing countries agreed in 2009, while discussions on setting a new climate finance goal for 2025 at Cop 29 in Baku in November could prove difficult. President of the Republic of Congo (Brazzaville) Denis Sassou-Nguesso said last year that the $100bn/yr in climate financing to developing countries promised by rich countries "never reached us", adding that the annual UN Cop climate conferences have become little more than a talking shop. "Just after the invasion of Ukraine, every country started to think about energy security," Dasgupta said. "In theory, good things could have happened, countries could have concluded that their best bet to getting energy security is by going renewable". But it was not the case in key consumer countries or regions, Dasgupta pointed out. China bought the majority of Russian gas following the EU's withdrawal, he said, and has since upped production at coal-fired power stations despite an "extraordinary" acceleration towards renewables set for 2023-28, according to Paris-based energy watchdog IEA . In Europe, the UK and Norway continue to award new oil and gas licences . "In the US, the fossil fuel lobby argues that the best route to energy security is to invest more in fossil fuels". But the best route is to invest in more renewables, he said. "Even if the US produces a large amount of oil and gas, it is still a traded commodity, and so you have to pay a price for it that is set globally." The US special presidential co-ordinator for energy security Amos Hochstein has also suggested in September that a widening climate finance gap could ultimately threaten global security. "We have seen the percentage of dollars spent on the energy transition outside the OECD, in developing and middle income countries actually go down instead of up…" By Madeleine Jenkins Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Louisiana pipeline crossing bill nears vote: Update


27/03/24
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27/03/24

Louisiana pipeline crossing bill nears vote: Update

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Baltimore bridge collapse to raise retail fuel prices


27/03/24
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27/03/24

Baltimore bridge collapse to raise retail fuel prices

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