Occidental deal sends Permian valuations soaring

  • : Crude oil, Natural gas
  • 23/12/18

US oil company Occidental Petroleum's agreed $12bn takeover of producer CrownRock has sent valuations in the Permian basin surging to pre-pandemic levels, suggesting the top US shale formation is about to get even more expensive.

Valued at more than $50,000/acre after accounting for existing production, according to Enverus Intelligence Research, the hefty price tag for CrownRock reflects fierce competition to secure what is left of the Permian's highly sought-after inventory. It also bodes well for some of the other large Permian firms seen as takeover candidates, including Endeavor Energy Resources and Mewbourne Oil.

The underlying logic behind the recent mergers and acquisitions (M&A) wave — led by ExxonMobil's $59.5bn acquisition of Pioneer Natural Resources and Chevron's $53bn move on Hess — is a pressing need by some of the bigger producers to extend their stock of future drilling locations. Only about six years of the highest-quality inventory is left in the shale patch at current drilling rates, according to Enverus, and more than 70pc of that lies in the Permian. That signals the bidding frenzy is far from over. Scaling up now also provides a pathway for future discoveries as producers can test additional drilling zones within the Permian, while future productivity breakthroughs could also help them squeeze more out of the oil-soaked rock.

The $9.1bn of new debt Occidental is taking on to pay for CrownRock drew some unfortunate comparisons with the ill-timed $55bn acquisition of Anadarko Petroleum on the eve of the pandemic. It took a rebound in oil prices coming out of the downturn to restore the company's fortunes, as well as a vote of confidence by billionaire investor Warren Buffett, who has been steadily increasing his stake in Occidental. In any case, chief executive Vicki Hollub plans to cut the additional debt in half within a year on increased cash flow and $4.5bn-6bn in asset sales.

As well as an estimated 170,000 b/d of oil equivalent of additional output, Occidental also gets around 1,700 undeveloped locations in the Midland sub-basin of the Permian. Flush with cash from last year's run-up in oil prices, acquisitions are also a preferable way to grow in the minds of many investors who remain wary of any efforts to boost output given past excesses.

Lateral thinking

"With rates going up and their cost of capital going up, they're probably not looking as much at wanting to drill 50 new plots but rather, can we buy someone else and grow out," Hennessy Funds chief investment officer Ryan Kelley says. The current fad for drilling ever-deeper lateral wells also plays into this theme as producers can become more efficient by acquiring contiguous land.

One potential sticking point is the greater scrutiny being paid to M&A by the Federal Trade Commission under President Joe Biden's administration. The regulator has already requested extra information about the proposed transactions by ExxonMobil and Chevron, with Senate Democrats calling for them to be investigated on competition grounds. Chevron said the closing of the Hess deal could be delayed beyond the first quarter of 2024 as a result.

Still, next year is unlikely to see any let-up in terms of deal activity, with 67pc of respondents in a survey by investment management firm Evercore ISI expecting to see more industry consolidation compared with 2023. Even after this year's mega-deals, there are still far too many operators in the shale patch, financial services firm Pickering Energy Partners director Robert Mills says. Public companies are still not receiving much recognition from investors and getting bigger via deal-making is one way to do that. "The narrative has been ‘more please' and it will continue to be ‘more please'," Mills says of the outlook for deals.


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24/04/22

Oman’s PDO to hit 700,000 b/d crude before 2030 target

Oman’s PDO to hit 700,000 b/d crude before 2030 target

Muscat, 22 April (Argus) — Oman's state-controlled PDO has several new greenfield projects that it is looking to bring on stream that should see it reach, and blow past, its target for 700,000 b/d of crude before the end of the decade. Speaking at the Oman Petroleum and Energy show in Muscat today, PDO's managing director Steve Phimister said the company has a portfolio of new "sizeable" projects in the pipeline and expects to reach 700,000 b/d by the "middle of the decade". "But what we would not be going to see in the next couple of years are multibillion dollar projects like Yibal Khuff or Rabab Harweel," he added. PDO's Yibal Khuff — one of Oman's most technically complex upstream projects — came online in 2021 and production was 20,000 b/d in 2022, according to the latest available data for production. Rabab Harweel , Oman's largest enhanced oil recovery (EOR) project, came onstream in 2018 and is producing more than 70,000 b/d. PDO adds around 10,000-15,000 b/d to its production on an average every year, according to Phimister. "Our strategy is to go above 700,000 b/d," he said. "We could, in principle, go quite way above 700,000 b/d of black oil, depending on oil price, shareholder's desire on where they want to invest". But he said PDO wants to grow in "a sustainable way" while "balancing out emission targets." The company in 2021 pledged to reach net zero carbon emissions from its operations by 2050 . The company is likely to hold onto its previous capital expenditure plans, although this is subject to final approval, Phimister said. "We have invested roughly the same amount of capital in the last few years and continue to do so," he said, adding that PDO now has a dual challenge of growing old business while reducing carbon emissions. PDO's planned capital expenditure for last year was $5bn and operating expenditure was at $2bn, in line with 2022 levels. The Omani state owns 60pc of PDO, Shell holds 34pc and TotalEnergies has 4pc. By Rithika Krishna Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Balticconnector gas pipe recommissioned after rupture


24/04/22
24/04/22

Balticconnector gas pipe recommissioned after rupture

London, 22 April (Argus) — The Finland-Estonia Balticconnector gas pipeline has been re-commissioned, with commercial flows starting at the beginning of today's gas day. There were renominations for 12.5GWh of flows towards Finland and 78.2GWh in the opposite direction for today as of early afternoon, suggesting net flows towards Estonia of around 66GWh. Finnish demand remains relatively low, while stocks at Finland's Inkoo LNG terminal need to be mostly depleted before the upcoming arrival of a new cargo on 26 April. The Balticconnector was taken off line on 8 October following a rupture caused by a dragging anchor . The system operators of Finland and Estonia said at the time that the pipeline could return in April at the earliest, meaning the initial timeline set out for repairs has been met. The recommissioning of the Balticconnector could allow Finnish prices to realign with those in the Baltic markets now that the two areas are connected again. During the Balticconnector's absence, Finland was entirely reliant on LNG deliveries to Inkoo, meaning prices were highly volatile and frequently held significantly above prices further south. Price differentials reached a peak of nearly €58/MWh ($62/MWh) in mid-January as a cold snap caused Finnish power-sector gas demand to soar while stocks at Inkoo were relatively low. That said, the basis between the two markets has narrowed significantly since mid-March, and the Finnish price has on several days held lower than in the Baltics ( see graph ). By Brendan A'Hearn Finnish vs Estonian-Latvian prices Oct 2023-present €/MWh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

ExxonMobil turns up heat on climate activists


24/04/22
24/04/22

ExxonMobil turns up heat on climate activists

New York, 22 April (Argus) — In the run-up to the annual proxy voting season, ExxonMobil is tightening the screws on climate activists it accuses of wasting the company's resources by repeatedly submitting the same shareholder proposals that have been resoundingly defeated in the past. In its 2024 proxy statement released this month, the top US oil major lays out the case against what it describes as "serial proponents" of ballot measures that abuse the shareholder proposal process by pushing their own narrow agenda at the expense of long-term shareholders. The campaign builds on a lawsuit filed against two investors at the start of the year that were leading the clamour for ExxonMobil to accelerate its climate goals and target emissions from customers. Dutch activist group Follow This and sustainable investment firm Arjuna Capital withdrew their motion in light of the lawsuit, but the oil major has continued with its legal action, arguing that "important issues remain for the court to decide". ExxonMobil is also calling for a stricter interpretation of rules governing the proxy process on the part of the US Securities and Exchange Commission (SEC). The lawsuit follows a growing backlash against environmental, social and governance investing by Republican-led states that has taken aim at large asset managers including BlackRock. The pushback has seen the SEC water down new climate risk disclosure rules following an intense lobbying effort by big business. And US bank JP Morgan chief executive Jamie Dimon recently slammed the White House's LNG export pause as "not only wrong but also enormously naive". The high watermark of the shareholder climate push came in 2021 when a tiny hedge fund overthrew a quarter of ExxonMobil's board with help from institutional investors concerned with the company's lagging financial performance. The difference between then and now is that oil industry profits have bounced back in the intervening years as the debate has shifted in favour of energy security following the war in Ukraine, sending ExxonMobil's share price to new highs. As a result, support for climate motions at oil companies has declined. ExxonMobil has four shareholder measures on the ballot for this year, down from 13 a year ago. Over at Chevron, the second-biggest US oil major, investors will vote on four shareholder proposals, down from eight in 2023. ExxonMobil is encouraging shareholders to vote against the proposals calling on it to cut executive pay incentives for emissions reductions, as well as carry out reports into pay in relation to gender and racial bias, the impact on workers and communities of the energy transition, and plastics. Ballot measures at Chevron include calls to implement reports on tax transparency and human rights practices. Early warning system? Only 3.55pc of the 140 resolutions filed at ExxonMobil annual meetings between 2014 and 2023 passed, the company says. The cost of considering each proposal is as much as $150,000. But proposals that initially attract only a small amount of shareholder support can sometimes act as an early warning system that spurs changes in company strategy further out, climate activists argue. ExxonMobil's lawsuit is an "aggressive effort to chill consideration among its shareholders about how the company is adapting its business model in light of the need for a fair and fast transition away from fossil fuels", advocacy group the Union of Concerned Scientists campaign director Kathy Mulvey says. Shareholder advocate As You Sow, criticised in ExxonMobil's proxy statement, accuses the major of attacking shareholder democracy. The board "should consider proposals on their merits, rather than assaulting the long-standing rights of company owners or their representatives", the group's president, Danielle Fugere, says. By Stephen Cunningham Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Japan's Jera shuts Chiba gas-fired power unit


24/04/22
24/04/22

Japan's Jera shuts Chiba gas-fired power unit

Tokyo, 22 April (Argus) — Japan's largest electricity producer by capacity Jera has shut the 360MW No.1-4 combined cycle gas turbine (CCGT) units at its Chiba power complex because of a technical problem. Jera closed on 22 April the CCGT units at the 4.38GW Chiba complex in east Japan's Chiba prefecture, according to a notice by Japan Electric Power Exchange (Jepx). It is unclear when the units will be brought back on line. The unexpected shutdown is likely to have limited impact on Japan's power market as the country has experienced mild weather lately that has capped power consumption. Jera consumed 16.7mn t of LNG in April-December 2023, lower by 4.8pc compared with the same period a year earlier, according to the firm's latest financial results. Japan's total power demand averaged 83GW during 15-21 April, down by 3pc from the previous week, data show from nationwide transmission system operator the Organisation for Cross-regional Co-ordination of Transmission Operators. Japan plans to add 1.1GW of thermal capacity during the week to 28 April, with the addition of 11.5GW outstripping the closure of 10.4GW, according to Argus' survey based on a Jepx notice. The difference incorporates the net increase this week in gas-fired capacity of 2GW and the net drop in coal-fired capacity of 887MW. By Reina Maeda Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Australia's QPM to focus on gas, cut Tech battery spend


24/04/22
24/04/22

Australia's QPM to focus on gas, cut Tech battery spend

Sydney, 22 April (Argus) — Australian battery metals refiner Queensland Pacific Metals (QPM) will focus on energy markets via its Moranbah gas project (MGP) and limit further expenditure on its Townsville Energy Chemicals Hub (Tech) project. The firm will switch its prioritisation to its wholly-owned QPM Energy (QPME) business, with QPME's chief executive David Wrench to be appointed as QPM chief executive, the company said on 22 April. MGP's coal mine waste gas output from nearby the coal mining hub of Moranbah in Queensland's Bowen basin will be increased to 35 TJ/d (935,000 m³/d) by late 2024, up from October-December 2023's 28 TJ/d, with QPME to accelerate production and reserves to provide required peaking power for the national electricity market (NEM) via Thai-controlled energy firm Ratch Australia's 242MW Townsville Power Station. QPME aims to drill a further seven wells by the year's end, increase workovers and increase production from third-party supply of waste mine gas from regional coal mines. The company is also seeking to develop a portfolio of plants to supply up to 300MW of gas-fired power to the NEM, while compressed natural gas and micro-LNG facilities will also be developed in Townsville and Moranbah, QPME said. A surge in government support for renewable power generation in order to meet Australia's 2030 emissions target by retiring coal-fired power means more gas-peaking plants will likely be needed in the coming years to support variable generators. But Australia's domestic gas supply is forecast to experience shortfalls this decade, with predictions of a 76 PJ/yr gap in 2028. The Tech project which aims to produce 16,000 t/yr of nickel and 1,750 t/yr of cobalt sulphates from imported laterite ore saw its funding significantly reduced in February because of what QPM described as a "challenging investment environment" resulting from depressed nickel prices. By Tom Major Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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