RBN Energy

Sunday, 10/17/2021

If the ongoing global energy crunch is teaching us anything, it’s that decarbonizing the world’s economy may be even more difficult than many had figured. While a strong case can be made for reducing — or even slashing — greenhouse gas (GHG) emissions by shifting to low-carbon and no-carbon energy sources, the sheer magnitude of the undertaking means there are likely to be major setbacks and compromises along the way. Setbacks like having to turn to coal-fired generation this winter to help keep parts of the Northern Hemisphere warm and productive, and compromises like acknowledging that sometimes the wind doesn’t blow, the sun doesn’t shine, and utilities need to burn a lot more natural gas to make up the difference — assuming there’s enough gas around to burn, that is. One more takeaway from current events is that energy security in the form of being able to count on your counterparties is a pretty big deal. (We’re looking at you, Vladimir Putin.) With all that in mind, in today’s RBN blog, we examine the long-term outlook for energy and GHG emissions as the United Nations’ climate change conference in Glasgow, Scotland, looms on the horizon.

Recently Published Reports

Report Title Published
NATGAS Billboard NATGAS Billboard - October 18, 2021 3 hours 30 min ago
NATGAS Permian NATGAS Permian - October 18, 2021 5 hours 43 min ago
Chart Toppers Chart Toppers - October 18, 2021 6 hours 3 min ago
NATGAS Billboard NATGAS Billboard - October 15, 2021 3 days 3 hours ago
Chart Toppers Chart Toppers - October 15, 2021 3 days 6 hours ago

Pages

Daily energy Posts

Tuesday, 09/21/2021

Everyone knows the old saw, “Make hay while the sun shines.” Oil and gas producers have historically honored this sentiment by boosting their capital spending when commodity prices were high and cutting back when realizations dipped. Their investment peaked in 2014, when oil prices were hovering over $100 per barrel, plunged with the price crash in 2015-16, recovered with $70 oil in 2018, and crashed again in the ugly early days of the COVID-19 pandemic. The sun is out again in 2021, but E&Ps seem to have tossed out their old mantra in favor of fiscal discipline, setting and maintaining investment at historic lows despite solid oil prices and surging gas futures. In today’s RBN blog, we review mid-year changes to E&P capital budgets and their impact on oil and gas production.

Wednesday, 09/15/2021

Memories of disasters linger, and it’s likely that no one in the North American energy sector is likely to ever forget the second quarter of 2020. As the COVID-19 pandemic destroyed demand and crude oil prices bottomed out, exploration and production companies (E&Ps) scrambled to shut in wells and slashed spending in the face of an unprecedented plunge in average realizations to less than $14 per barrel of oil equivalent (boe). Not everyone bought into apocalyptic visions of the industry’s future that were circulating widely, but few analysts expected the rapid return to the level of profitability reflected in the recently released second-quarter 2021 results of the 39 major E&Ps we monitor. Rising oil prices and continuing cost control propelled the earnings of the Oil-Weighted and Diversified peer group companies over the results from the last industry performance peak in the third quarter of 2018, when WTI was priced 10% higher. Although the results of Gas-Weighted producers lagged, soaring third-quarter natural gas prices suggest a catch-up in the second half of the year. In today’s blog, we analyze the second-quarter results of our universe of 39 producers and preview third-quarter results.

Sunday, 09/05/2021

The seven years since the heady days of $100/bbl oil in mid-2014 have been a tumultuous time for midstream companies tasked with funding a massive infrastructure build-out to support surging crude oil and natural gas production. Midstreamers have been buffeted by volatile commodity prices, waves of E&P bankruptcies, rapidly shifting investor sentiment, and, finally, a global pandemic. Perhaps no company has had a more challenging road than master limited partnership (MLP) Plains All American, which had to cut unitholder distributions three times over a turbulent five years as it built out a crude gathering and long-haul transportation portfolio focused on the Permian Basin. With its capital program winding down, commodity prices rising, and a new joint venture in the works, can Plains performance rebound and win back investor support? In today’s blog, we discuss highlights from our new Spotlight report on Plains, which lays out how the company arrived at this juncture and how well-positioned it is to benefit from the significant recovery in commodity prices and Permian E&P activity.

Tuesday, 08/31/2021

The seven years since the heady days of $100/bbl oil in mid-2014 have been a tumultuous time for midstream companies tasked with funding a massive infrastructure build-out to support surging crude oil and natural gas production. Midstreamers have been buffeted by volatile commodity prices, waves of E&P bankruptcies, rapidly shifting investor sentiment, and, finally, a global pandemic. Perhaps no company has had a more challenging road than master limited partnership (MLP) Plains All American, which had to cut unitholder distributions three times over a turbulent five years as it built out a crude gathering and long-haul transportation portfolio focused on the Permian Basin. With its capital program winding down, commodity prices rising, and a new joint venture in the works, can Plains performance rebound and win back investor support? In today’s blog, we discuss highlights from our new Spotlight report on Plains, which lays out how the company arrived at this juncture and how well-positioned it is to benefit from the significant recovery in commodity prices and Permian E&P activity.

Monday, 07/19/2021

The massive energy-industry dislocations caused by the COVID-19 pandemic forced every upstream, midstream, and downstream player to consider what it all meant for them and what they could and should do to weather the storm. A common theme emerged: management needed to delay or even jettison their plans for growth and instead focus on efficiency by cutting costs, working to maximize the revenue from every molecule, and seeking out opportunities to streamline and optimize their operations. A prime example of this push for efficiency came last week with the announcement by Plains All American and Oryx Midstream that each will contribute assets to a new, Plains-operated crude oil pipeline joint venture in the heart of the Permian’s Delaware Basin. Today, we review the plan and its rationale.

Tuesday, 07/13/2021

Credit is the lifeblood for most individuals and corporations, especially capital-intensive entities like oil and gas producers. The credit score that so strongly impacts our ability to finance a house or car, get approved for an apartment, or qualify for our dream job, is not simply based on how much we own, but several other factors, including metrics that compare our debt load with our net worth and the assets being financed, and consider the percentage of our income needed to service that debt. For E&Ps, similar metrics involving the value of their oil and gas reserves and the relationship between their income and interest payments determine the size of their revolving credit facilities, their ability to access debt capital markets, and the cost of capital they pay. Today, we analyze COVID’s impact on the credit metrics of oil and gas producers and discuss the pace and scope of the ongoing recovery.

Tuesday, 07/06/2021

Financial pain, increasing regulatory scrutiny, and rising environmental mandates have been keenly felt across the entire energy industry in the past few years. When times are tough and companies are struggling to regain their footing, corporate mergers often increase in frequency. One recently announced merger between two large Canadian midstream providers, Pembina Pipeline and Inter Pipeline, has grabbed headlines and is also turning into a corporate dogfight with a prominent third party trying to scuttle the merger and take control of Inter Pipeline. Today, we examine the two companies and what the combined entity might look like and what it might mean for the energy industry in Canada.

Sunday, 06/13/2021

The return of $70/bbl WTI raises an important question: With a lot more cash flowing in, will public E&Ps maintain the financial discipline they’ve tried to live by since the crude oil price crashes of 2014-15 and, more recently, the spring of 2020? We’ve said it before, but it bears repeating that many producers once prided themselves on the riverboat-gambling nature of their business but, after a major scare or two, came to adopt a far more conservative approach to investment based on their new 11th commandment: “Thou shalt live within cash flow.” Emerging from the pandemic, E&Ps’ 2021 capital investment announcements guided to maintenance-level outlays designed to maximize free cash flow for debt reduction and returning cash to shareholders through dividends and share repurchases. Still, old habits die hard, right? So, when oil prices strengthened and cash flow soared in the first few months of 2021, we wondered if producers would give in to temptation to reap short-term benefits from their accelerating output. Today, we analyze the actual first quarter cash-flow allocation of the 39 E&P companies we monitor and compare it with the deployment of cash flow in 2019 and 2020.

Wednesday, 06/02/2021

Nearly 300 million COVID vaccine doses have been administered in the U.S., and normal life is returning to public places across America. Actual fans are replacing cardboard facsimiles in ballpark seats, corner pubs and corner offices are filling up, and family gatherings now feature hugs instead of half-inch squares on a Zoom screen. And another powerful antidote, in the form of higher oil prices, has spurred a significant revival in the fortunes of the pandemic-battered upstream oil and gas industry. The spring-of-2020 crude oil price crash hit the E&P sector like a tsunami, shattering capital and operating budgets, upending drilling plans, eviscerating equity valuations, and raising concerns about whether some companies could generate sufficient cash flow to keep the lights on. Remarkable belt-tightening allowed most producers to survive, and the swift rise of oil prices beginning last fall dispelled the COVID clouds.  But the recovery in profitability and cash flow generation was slow. Today, we review the dramatic surge in E&P profits and cash flows in the first quarter of 2021.

Sunday, 04/18/2021

As the U.S. starts to emerge from under the dark cloud of the COVID-19 pandemic, one hopes that some valuable lessons have been learned as a result of the hardships and sacrifices so many have endured.  While the most profound impacts were on government, healthcare and other essential services, the sudden drop in hydrocarbon demand a year ago triggered severe financial hardships for the E&P sector and provoked unpleasant memories of previous energy industry crises in 2008 and 2014-16. Producers have historically put the brakes on capital spending when commodity prices fell, then stomped on the accelerator like a race car heading into a straightaway when prices rose. But recently unveiled 2021 budgets for many E&Ps suggest that, even with the rebound in prices, they are maintaining a conservative investment paradigm that highlights strengthening balance sheets and rewarding shareholders at the expense of rapid production growth. Today, we’ll analyze the 2021 capital spending plans of the 39 E&Ps we monitor and the likely impact on their crude oil and natural gas output.

Tuesday, 04/06/2021

Just one year ago, the onset of the COVID-19 pandemic plunged the energy industry’s exploration and production (E&P) sector — already reeling from a steep decline in oil prices in late 2019 — into a memorably brutal spring that threatened its survival. Demand cratered, price realizations fell to the lowest point in a decade, and cash flows dried up. Sure enough, E&P results for the first half of 2020 were a train wreck, with the three-dozen companies we track reporting a whopping $45 billion in losses, including impairments. But the dark clouds hovering over the industry began to clear in the second half of the year as the combination of production cutbacks and recovering demand triggered rising prices.  With the massive price-related impairments largely in the rear-view mirror, year-end 2020 results revealed that most E&Ps had clawed their way back to near-profitability. Today, we review their latest numbers and preview what we expect will be a sunny 2021 for the industry.

Monday, 02/01/2021

For many midstream companies, the experience of the past 12 months has been akin to falling down a flight of stairs. The fortunate sit at the bottom — stunned a bit, with arms and legs akimbo — and gradually determine that they’re generally alright, and that they’ll be more careful next time. The less lucky? They’re banged up and bloodied, and maybe headed to the ER and, after that, weeks of physical therapy. But were the “fortunate” really just lucky? Or were they in better shape, more athletic, more prepared for any eventuality? And what about companies when they’re hit hard with a sudden, negative shift in market conditions, out of the blue? Today, we discuss highlights from the second part of East Daley Capital’s 2021 edition of Dirty Little Secrets report, which examines the assets and outlooks of 26 leading midstream companies. We’ll focus on two representative midstreamers: Energy Transfer and EnLink Midstream.

Sunday, 01/10/2021

Much the way that COVID-19 accelerated the trends toward working from anywhere, shopping online, and exercising at home, the pandemic and its far-reaching energy-market effects fast-forwarded the challenges that many North American midstream companies had been expecting to face more gradually through the 2020s. The good news — if you can call it that — is that a lot of economic pain was front-loaded into the past 10 months. The bad news is that a sizable subset of midstreamers is saddled with too much capacity in shale basins where drilling activity and production are down sharply. For them, there’s still more pain ahead, even bankruptcy in a few cases. In today’s blog, we discuss highlights from the newly released 2021 edition of East Daley Capital’s Dirty Little Secrets report about what’s ahead for the midstream sector and 27 leading companies within it.

Thursday, 12/24/2020

To succeed over the long term in the music business, professional sports, or the midstream sector, you need to learn from your successes and failures, and — most important — continue adapting and evolving. For many North American midstreamers, a key to success has been a thoughtful combination of expansion and diversification, plus an affinity for financial discipline, especially when the broader energy industry is going through tough, uncertain times. A prime example of that strategy is Canadian midstreamer Pembina Pipeline Corp., which after C$14 billion in acquisitions over the last four years is instituting a more cautious approach to new investment that’s largely based on self-funding and a new, more rigorous return criteria for new projects. Today, we preview our new Spotlight report, which focuses on the risks and rewards of Pembina’s new strategy.

Sunday, 12/13/2020

Wafting through the late autumn air in November, along with the sharp scent of burning leaves and the cinnamon-tinged aroma of pumpkin pie, was a moderate whiff of optimism for the energy industry’s long-beleaguered exploration and production sector. Equity prices in general were buoyed by news on the efficacy of the COVID-19 vaccines and the prospects of imminent approval that could finally bring the pandemic under control and improve industry fundamentals. E&P stocks, which also benefited from a rebound in third-quarter earnings, recorded the largest monthly gain in history: a 32% rise in the S&P E&P Index. However, their share prices were still down 69% from the 2019 highs and 45% from end-of-last-year levels as oil and gas producers still face a long road to return to “normal.” Today, we analyze the third-quarter earnings of the 40 major E&P companies we track and review the major impacts on the sector since the onset of the pandemic.