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U.S. Crude Breakevens at Less Than $50/Bbl - Pipelines Help03/04/2018
Oil and gas sector continues to restore its growth trajectory in 2018. Growing and more stable crude price outlook helps. However, this is not the only key to the industrial success.
OPEC remaining relevant a strong market player was influencing prices last year and will do so in 2018 as well. Its 30 million barrels share of the world market makes it a power to consider. They’re a big player and will continue to have a big influence on the market in years to come.
OPEC and Russia in their joint effort to cut production since end of 2017 succeeded and helped rebalance the market significantly. Production cuts by about 1.8 million barrels per day had an uptick effect on oil prices ever since. Oil prices—also aided by rising global demand—have steadily risen from the low $40s/bbl in 2016 to about $64/bbl in 2017.
U.S. shale breakevens now average less than $50/bbl, compared to about $68/bbl in early 2015, according to Deloitte.
This encouraging trend comes to view despite the inflationary trend which the industry has felt since the sector returned to growth in 2016. So, there must be some serious steps have taken to still be able to produce yet cheaper than before to overcome inflation.
Key reasons are TECHNOLOGY IMPROVEMENTS.
Essentially, DIGITAL SOLUTIONS is the success factor. usage of production data is, though still limited, becomes more systematic in nature. In upstream, producers have learned to differentiate the well-performing wells from the rest. Data on these field champions brings great insights about technology to apply to less successful areas. Thus, companies are using digital technologies to enhance their field development.
Additionally, SUPPLY CHAIN improvements help. Midstream companies having received significant investments prioir to the 2014-2016 price downturn times, still feel a significant debt burden. They are also slow to increase returns on investments made. All this has made midstream companies less attractive in the eyes of investors as oil prices began rebalancing.
This left transportation companies with no options left but improve their efficiency. Growing (even booming in Permian) Lower 48 production has put additional pressure on midstream operators. 2018 has become a year of significant disproportions between productiona dn takeway capacity in Permian.
In these difficult conditions midstream companies both increased their capacity and even faced the need to raise fees for the producers outside the contraced agreements. At the same time a number of companies expanded and boosted capacity of the existing pipelines to cope with the growing demand.
On average (not taking into account fluctuations due to capacity shortage), the Midland, TX to GoM oil price difference narrowed from formerly $30/bbl to just $3/bbl (!). All this is due to massive construction and expansion plans and new pipeline projects in Permian coming to operation in 2019 and especially in 2020-2022.
ASSET MAINTENANCE not just in upstream but also midstream, downstream and in the back office with robotic process automation is yet another success factor. use of IoT approach, focusing on maintenance data analysis allowed midstream companies to control their costs better.
According to Deloitte, the prize is sizeable for global oil and gas companies with the potential to save millions from their combined $2.4 trillion in operating costs.
U.S. is also expected to continue toward growth as an LNG exporter, already having strong refined product exports with gains in natural gas exports, particularly into Mexico.
Export Opportunities For Permian’s and Takeaway Problem
The execution of these additional agreements boosts further total committed volumes. Read details. See it on a map.
On June 16 Targa Resources Corp. decided to acquire Lucid Energy Group, located in the Permian Basin, which is a part of Riverstone Holdings LLC and Goldman Sachs Asset Management. Firstly, Targa enlarged due to the recent “blot-on” acquisition of Southcross Energy in the Eagle Ford for $200 million and it will become bigger thanks to the $3.55 billion cash transaction. Targa’s financial position allowed it to utilize convenient opportunities to extend its company so it bought #Lucid using available cash and debt with an estimated pro forma year-end 2022 leverage around 3.5 times. According to Targa’s estimates, the acquisition of Lucid will increase the number of natural gas pipelines by 1,050 miles and add about 1.4 Bcf/d of cryogenic natural gas processing capacity in service or under construction located mainly in Eddy and Lea counties of New Mexico. The investment-grade producers source approximately 70% of current system volumes. According to the press release, a full-year standalone adjusted EBITDA is expected to be between $2.675 billion and $2.775 billion and reported year-end leverage ratio of about 2.7 times. Targa’s updated financial expectations assume NGL composite prices average $1.05 per gallon, crude oil prices average $100/bbl, and Waha natural gas prices average $6 per MMBtu for the remainder of 2022.
Your team’s ESG performance can be greatly improved applying the asset co-location analysis within upstream or midstream use cases. This has been a topic for a discussion at Rextag’s ‘Is ESG Improvement Next Door?’ webinar. We reviewed some cases like curbing gas flaring or renewable energy sourcing to power the fossil fuel infrastructure. Many combinations are available with access to the data Rextag provides on wells, acreages, power lines, substations, and such renewable infrastructure as wind turbines, methane landfills, etc.
BPPlc agreed on June 13 to exit the Canadian oil sands in an asset swap with Cenovus Energy Inc. potentially worth up to CA$1.2 billion. 50% non-operated interest in the #SunriseOilSands project will be sold by BP in an agreement reached with Cenovus Energy, a company based in Alberta. Two companies agreed on the following conditions: total consideration for the transaction includes CA$600 million in cash, additionally, a contingent payment with a maximum aggregate value of CA$600 million expiring after two years, and concerning Cenovus, it will have a 35% position in the undeveloped Bay du Nord project offshore Newfoundland and Labrador. Current production from the Sunrise Oil Sands asset is about 50,000 bbl/d and the company anticipates achieving a nameplate capacity of 60,000 bbls/d through a multi-year development program.