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Look At The Future Of American And Appalachian Gas Production01/24/2022
At Hart Energy's recent DUG East/Marcellus-Utica Midstream Conference, Rystad's analysts raised the possibility that Appalachia's natural gas production can actually be maintained or even increased without the significant investment in wells of the past.
As per Rystad's projection, natural gas prices will stay around $3-$4 per MMBtu all the way to 2030, which is a good point for economic feasibility at the asset level. The U.S. will also be able to stay a key player in energy supplies in the long run because of this.
It is inevitable: gas will replace coal in the power generation fuel mix because of the energy transition to electrification and lower emissions goals. At the moment, the coal industry dominates the power generation mix in Asia, including Australia, where coal produces 45% of electricity. This creates opportunities for natural gas, which won't be covered fully by local resources, leaving a possibility for import.
Despite the energy struggles of 2021, the importance of gas in the energy system has been reinforced. There is a potential for more energy crises to arise in the future, depending on when and how quickly the energy transition happens. Thus, to meet power demand and avoid emissions of greenhouse gasses, regions such as Europe and Asia need greater amounts of LNG. There will be intense competition between U.S. and Russian producers in those markets, but the U.S. maintains a supply advantage, while Russia will see its share of the market decline notably from the mid-2030s to 2050.
By the early 2040s, LNG demand will likely peak at 718 metric tons. But in the short term, the LNG market is relatively tight and unable to fulfill such needs, because U.S. export terminals have not yet been built. LNG export terminal projects must be completed promptly if the supply target of 700+ metric tonnes is to be reached by 2040.
It becomes quite important to consider the production capabilities of Appalachian producers in that context. Historically, productivity has ranged between 1 and 2 Bcf/d from 2014-to 2016, plateaued at around 2 Bcf/d in 2019, and then increased to 2 to 2.4 Bcf/d in 2020 and then started rising again in 2021. And the curves appear to be sustainable.
And it isn't only because operators are drilling better acreage that productivity gains have been stable. During 2016-2017, Tier 1 and Tier 2 locations produced lower output, implying that this learning curve continues to be steep and that the operators are actually realizing these capital efficiency gains.
The takeaway and regulatory constraints of the Northeast region are not to be ignored, but even if those obstacles impede Appalachia's growth at the same rate as the Permian or Haynesville, it does not detract from the value of the Marcellus and Utica basins.
The Appalachians will still be the top producers at a very competitive pace as long as commercial inventory exists. After all, as long as there is commercial inventory, somebody will have to drill.
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Colgate Energy is planning to float its shale oil producer in the Permian's Delaware Basin on the stock market. If successful, this IPO would be the first major U.S. oil producer offering since Jagged Peak Energy's IPO in January 2017. Looks like investors’ confidence in the sector is returning as U.S. crude prices hit their highest in seven years late last year S&P energy index delivered roughly twice the return of the S&P 500 in 2021.
Despite the circulating rumors concerning Colgate’s attempt to launch an IPO, on May 19 the company decided to combine with Centennial Resource Development Inc. This merger of equals is estimated at $7 billion and will found the biggest pure-play E&P company in the Delaware Basin of the Permian. The transformative combination essentially enlarges companies’ potential and hastens the growth across all financial and operating metrics. According to Centennial CEO Sean Smith, the combined company is anticipated to furnish shareholders with quickened capital return program due to a fixed dividend coupled with a share repurchase plan. Due to a recent report, the merger would increase production 7%, to 145,000 boe/d by the fourth quarter would further ratchet up next year. By third-quarter 2023, the company predicted 160,000 boe/d based on a drilling program of 140 wells per year. Colgate Energy was reported to be getting an IPO last December that sources said would value the company at approximately $4 billion. The combined company will have over 15-years of drilling inventory, assuming its current drilling pace, the companies will produce over $1 billion of free cash flow in 2023 at current strip prices.
Shareholder’s payout target was increased by 50% after the largest U.S. independent oil producer surpassed Wall Street’s earnings estimates on growing energy prices, said Houston-based Conoco Phillips Co. on Aug. 4. Due to Western sanctions on major producer Russia throttling energy supply amid a rebound in demand from pandemic lows, oil and gas #prices have soared. Crude has been trading more than 25% higher since the start of the year and results also benefited from high natural gas prices. Meanwhile, shares were down a fraction, to $91.03, in early trading but are up about 26% year to date. Conoco Phillips stated, that the average price obtained for a barrel of oil and gas accelerated 77% from a year earlier to $88.57. The company acknowledges that it has not hedged any of its oil and gas sales to make the most of higher market prices. The capacity of 1.69 million boe/d was in line with Wall Street estimates, however, the company expected the current quarter’s output would be between 1.71 million and 1.76 million boe/d.
California oil joint venture, Aera Energy, of Exxon Mobil Corp. and ShellPlc is being sold to German asset manager IKAV, according to the agreement of Sept. 1. Shell noted that the sale of its 51.8% membership interest in Aera Energy is for a total consideration of about $2 billion in cash with additional contingent payments based on future oil prices, subject to regulatory approval. However, the total transaction value was not disclosed. Being one of California’s largest oil and gas producers, Aera Energy accounts for nearly 25% of the state’s production. The sale by Exxon Mobil and Shell ends a 25-year-long partnership in California, meanwhile, it persists a streak of divestments of mature oil and gas properties by the two supermajors. Aera Energy LLC operates about 13,000 wells in the San Joaquin Valley in California, producing oil and associated gas. In 2021, Aera took out about 95,000 boe/d. Exxon Mobil’s interests in the Aera oil-production operation in California contained a 48.2% share of Aera Energy LLC and a 50% share of Aera Energy Services Co. held by Mobil California Exploration & Producing Co. Moreover, Exxon Mobil affiliates have signed a separate agreement for the sale of an associated loading facility and pipeline system. The sale effectively ends Shell’s upstream position in California. The company reported that the divestiture is valued to result in a post-tax impairment of $300 million to $400 million, subject to adjustments.
The completion of the merger between Centennial Resource Development Inc. and Colgate Energy Partners II LLC happened on Sept. 1, sealing the debut of Permian Resources Corp., which is considered the largest pure-play E&P company in the Delaware Basin. Permian Resources’ idea was to combine two successful E&P companies, creating a better, stronger, and more strategically compelling company. Centennial and Colgate announced an agreement to merge in May, denying rumors that Colgate, a privately held independent Midland-based company, had been seeking an IPO. The merger estimated Colgate at about $3.9 billion and consists of 269.3 million shares of Centennial stock, $525 million of cash, and the assumption of approximately $1.4 billion of Colgate’s outstanding net debt. Permian Resources, being the combined company, has a deep inventory of “high-quality” drilling locations on around 180,000 net acres the companies anticipate will provide more than $1 billion of free cash flow in 2023 at current strip prices, in accordance with the company release on Sept. 1.