Manup Industry Roundup - W0623: NEWSL -02
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The global oil and gas exploration sector had its strongest year in 2022 in more than a decade. In its work to improve portfolios by adding lower-carbon, lower-cost advantaged hydrocarbons, the sector created at least $US33 billion of value and achieved full-cycle returns of 22%.
Namibia, Brazil, and Algeria scored major discoveries in 2022 as the industry drilled fewer exploration wells but found better and larger prospects.
Below are the oil and gas stories and news that made headlines this week carefully curated by Manup.
Summary of the news
What To Expect From The MSGBC’s Gas Industry In 2023
The MSGBC region’s gas industry is primed for accelerated growth in 2023 as countries seek to maximize upstream activities, strengthen production and cash in from resource monetization.
On the back of first gas from the Greater Tortue Ahmeyim (GTA) development this year, a domino effect of industry benefits is on the cards as global players turn their attention to the strong slate of opportunities emerging across the MSGBC energy value chain. Here is what to expect from the MSGBC region’s gas industry in 2023:
First Gas Production
With project partners bp and Kosmos Energy targeting first gas production from the GTA liquefied natural gas (LNG) project in late 2023 – having completed the construction of the Floating Production Storage and Offloading unit which departed China for the project’s site offshore Senegal/Mauritania in late January 2023 – both Senegal and the MSGBC region are set to witness accelerated economic growth.
With the MSGBC region kickstarting its oil and gas market boom, GTA will lay the foundation for industry growth while ensuring a just and inclusive energy transition happens in the region on the back of gas development and exploitation.
Final Investment Decisions on the Horizon
Following the success GTA, regional actors are set to turn their focus towards other large-scale gas developments, with a suite of final investment decisions (FID) being targeted for both 2023 and 2024.
First on the agenda is the Yakaar-Teranga Development, whose FID is anticipated in 2023 with first production slated for 2024. Located offshore Senegal, the bp-Kosmos partnership’s Yakaar-Teranga’s massive reserves – amounting to over 20 trillion cubic feet (tcf) of natural gas recoverable through 2050 – will open up new investment opportunities across the upstream and power generation sectors as the country prioritizes gas-to-power to achieve universal access by 2025.
Meanwhile, Mauritania is also hoping to mirror the success of GTA with FID slated for 2023 for the Banda Gas Field. Targeting widespread electrification on the back of natural gas, the 1.2 trillion cubic feet Banda gas field is set to transform the regional power sector through its Fast LNG Liquefaction technology, with the project set to produce LNG for Mauritania’s power market. The project will see gas supplied to the existing 180MW Nouakchott Nord thermal power plant, alongside a 120MW gas-to-power facility. In December 2022, New Fortress Energy signed a development and partnership agreement with the Mauritanian Government for the project.
Licensing Rounds Open Up New Upstream Plays
As Senegal and Mauritania seek to strengthen their reserve portfolios with the launch of new exploration activities and The Gambia, Guinea-Bissau and Guinea-Conakry look towards making large-scale discoveries of their own, 2023 is expected to become a hive of activity with the launch of new licensing rounds and drilling campaigns.
During the year, Mauritania is expected to award its Offshore Licensing Round – launched in 2022 and comprising 28 new offshore blocks.
Following the launch of its second major offshore licensing round in 2022 Senegal is expected to award blocks in 2023
Guinea-Conakry’s launch of a 22-block licensing round is also expected to unlock the country’s energy sector growth
The Gambia is fast approaching its second major licensing round with seven new blocks on offer, while Guinea-Bissau opened five blocks for bidding under a special deepwater tender round in 2022.
A New Bottleneck Emerges For U.S. Oil & Gas
When the energy crisis hit a nadir two years ago, highly indebted E&P companies quickly changed their operational playbook, adopting stricter cost discipline, cutting back on expensive drilling programs and vowing to return more cash to shareholders in the form of dividends and buybacks.
But E&Ps are not the only ones pursuing this new strategy. Oilfield services (OFS) companies have also adopted greater cost discipline, prioritizing cash generation and distributions to shareholders.
For instance, in their latest earnings season, OFS giants Schlumberger, Baker Hughes and Halliburton announced significant dividend hikes and heightened share buybacks.
SLB reported full-year revenue of $28.1 billion, good for a 23% Y/Y increase while net income of $3.4 billion grew a robust 83%Y/Y. SLB raised its quarterly dividend by 43% and resumed share buybacks. The company says that it expects to distribute more than 50% of free cash flow to shareholders in dividends and buybacks in the current year. SLB has also been strengthening its balance sheet, managing to pay down $1.7B in debt during the year to bring it down to $9.3B.
BKR reported Q4 2022 revenue of $5.9 billion, up 10% sequentially and up 8% Y/Y. Non-GAAP net income clocked in at $692 million, up 38% sequentially and up 21% Y/Y while net income fell 38% Y/Y to $182 million. Despite the lower profit, BKR announced its first dividend hike for the first time since 2017.
Meanwhile, HAL reported full year revenue of $20.3 billion, up 33% Y/Y while full year operating income of $2.7 billion increased 50% Y/Y. The company announced a 33% divided hike and resumed its share buyback program.
Despite the mostly impressive top- and bottom-line growth, capital discipline and returning cash to shareholders have been consistent themes in these companies’ latest earnings calls while capex growth remains muted.
But global research and consultancy group Wood Mackenzie says that this is not necessarily a good thing from an E&P perspective.
Limiting Growth
Indeed, Wood Mac says that services capacity in key markets, including North America, is a key determinant of the pace of growth in oil and gas production, noting that running equipment harder is likely to result in more frequent breakdowns and disruptions.
The analysts have warned that execution risk has the potential to be an even more serious problem than cost inflation, one of the biggest concerns for these companies in recent years. The experts say that capacity utilization rates for frac spreads–the pressure pumps used for hydraulic fracturing–and super-spec high-quality rigs are already running high.
Wood Mac has reported that in 2022, the average cost of drilling and completing a well in the U.S. Lower 48 states rocketed 34% as prices for diesel, proppant, and steel pipe hit record highs. However, the analysts expect cost inflation to be moderate this year, with costs expected to only rise 10%.
OFS companies might also be negatively impacted by new exploration and drilling practices being adopted by oil and gas producers. According to Wood Mackenzie’s ‘Oil and gas exploration 2022 edition, exploration well numbers in 2022 were less than half the numbers during pre-pandemic years; luckily the total volume of 20 billion barrels of oil equivalent was comparable to the average in the 2013 – 2019 period, creating at least $S33 billion of value. In other words, E&P companies are unwilling to go back to their drill, baby, drill days and are instead focusing their energies on low-cost, lower-carbon but high-yield assets.
Green Volt On Track To Power UK Oil & Gas Platforms By Mid-2020s
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Flotation Energy and Vårgrønn have submitted a Marine License application for the Green Volt floating offshore wind farm.
This consent application could allow the project to start generating power in the mid-2020s, making it the most advanced oil and gas decarbonisation project in the UKd.
Flotation Energy and Vårgrønn are applying for a lease for Green Volt under the Crown Estate Scotland’s Innovation and Targeted Oil and Gas (INTOG) round.
Located 80km east, offshore from Peterhead, Scotland, the Green Volt project will use up to 35 floating wind turbines to deliver 500 MW of renewable energy.
This project has the potential to generate enough green power to electrify all major oil and gas platforms in the Outer Moray Firth area. The project will also deliver renewable electricity to consumers across the UK.
Offering electrification from 2026, the Green Volt floating offshore wind farm is expected to enable oil and gas operators to play a critical role in the energy transition. The project will dramatically reduce greenhouse gas emissions from oil and gas platforms, saving over a million tonnes of carbon each year..
2022 Oil and Gas Discoveries Create Highest Value in a Decade
Despite a global drop in exploration drilling in 2022, the oil and gas exploration sector saw its best year in over a decade with discoveries up along with greater quality prospects, creating $33 billion in value and full-cycle returns of 22% based on $60/bbl Brent prices, according to Wood Mackenzie.
In its report, Oil and Gas Exploration: 2022 in Review, the international consultancy noted that while the industry drilled fewer exploration wells than it had before the start of the pandemic, the 20 billion BOE discovered in 2022 matched average annual results over the years 2013 to 2019.
Calling 2022 “a standout year for exploration,” Julie Wilson, director of global exploration research at Wood Mackenzie, said in a news release that “explorers were able to drive very high value through strategic selection and focus on the best and largest prospects.”
Deepwater discoveries in Namibia and in the pre-salt exploration areas offshore Guyana and Brazil have contributed the highest value to last year’s new finds, along with onshore discoveries in the Algerian desert. “The average discovery last year was over 150 million BOE, more than double the average of the previous decade
The report noted that liquids made up 60% of new resources discovered, a phenomenon that has occurred only three times in the past 20 years.
By 2030, fast-tracked development of these new discoveries could deliver 1 million B/D in oil and 0.5 million BOE/D of gas production, generating $15 billion in free cash flowed.
TotalEnergies, QatarEnergy, and Petrobras lead in net-new discovered resources in 2022 with almost three-quarters of new resources discovered by either a national oil company (NOC) or a global major.
The study also pointed out that appraisal well drilling in 2022 was largely flat from 2021 in terms of numbers, and that inflation had driven drilling costs per well higher.
U.S. Crude Oil Inventories Increase By 2.4 million Barrels
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.4 million barrels from the previous week. At 455.1 million barrels, U.S. crude oil inventories are about 4% above the five-year average for this time of year, according to the EIA crude oil and petroleum weekly storage data, reporting inventories as of February 3, 2023.
Summary of weekly petroleum data for the week ending February 3, 2023
U.S. crude oil refinery inputs averaged 15.4 million barrels per day during the week ending February 3, 2023, which was 448 thousand barrels per day less than the previous week’s average. Refineries operated at 87.9% of their operable capacity last week.
Imports
U.S. crude oil imports averaged 7.1 million barrels per day last week, decreased by 225,000n barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 6.8 million barrels per day, 2.5% more than the same four-week period last year.
Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 989,000 barrels per day, and distillate fuel imports averaged 692,000 barrels per day.
Products inventories
Products supplied
Total products supplied over the last four-week period averaged 20.1 million barrels per day, down by 8.2% from the same period last year. Over the past four weeks:
Other stories we are following…
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