Oil and Gas Industry Success Fuels Energy Transition
(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)
Although the frequently touted energy transition seeks to make renewable resources more prevalent, the financial success of non-renewable resource producers ironically provides a catalyst for it to advance. That is one takeaway in this week’s review of hits and misses in the oil and gas markets. Read on for more insights from panelists surveyed by Rigzone.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Tom McNulty, Houston-based Principal and Energy Practice leader with Valuescope, Inc.: The Energy Information Administration (EIA) released its data set for U.S. energy production in 2020 just yesterday. As many in the market here expected, energy production in the U.S. dropped by 5% from 2019 levels. More specifically, crude oil production declined by 8% and dry gas production dropped by 2%. It was more of a surprise that natural gas liquids, or NGLs, went up by 7% in 2020. It’s easy to assign COVID as the primary cause, and that’s fine. But what is most important is how fast it recovers, and how quickly the energy complex here retakes some market share it lost. On the crude side, demand in Asia continues to rapidly recover. Natural gas is a key element to the energy transition story, both here and abroad (as LNG). The NGL component speaks to robust demand for plastics, detergents, synthetic rubber, refrigerants, aerosols, and solvents.
Michael Osina, Partner-in-Charge, Energy – Tax, Grant Thornton LLP: While many producers were expected to post losses in Q1 seemingly tied to the Texas winter storm, forecasts for the remainder of the year seem very positive, given the bath taken by most in 2020 that caused significant impairments. It would seem this should have a trickle-down effect to the service companies and drillers.
However, the majors have continued to temper their drilling programs as the expectation for overall demand is still somewhat skeptical. While the U.S. seems to be heading in the right direction with respect to COVID, many other parts of the world, such as India, seem to still be stuck in the worst of it causing continued uncertainty.
Rigzone: What were some market surprises?
Mark Le Dain, vice president of strategy with the oil and gas data firm Validere: Non-OPEC compliance was low. This should actually bring the market some comfort if some of this surplus has been entering the market without impacting price.
Osina: Maybe not a surprise as much as an odd result will be that many producers will reflect tough Q1 earnings yet provide optimistic forecasts for the remainder of the year. It seems many will be chalking this up to the Q1 Texas freeze. Drilling budgets for many of these producers may surprise some investors.
McNulty: Some here in Houston were surprised by good news from two big oil companies. Chevron (NYSE: CVX) lifted its dividend, and ExxonMobil (NYSE: XOM) announced that it generated free cash flow of more than $9 billion in the quarter. The news is important for three reasons. One, it points to how fast some energy companies can recover from a bad 2020. Two, chatter about the demise of traditional energy businesses is far overstated. And three, some cash flow generated by companies such as these two can be invested into the energy transition. In other words, old energy feeds into new energy.
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