Today’s Key Takeaways: Oilfield service sectors big beneficiaries of market upheaval. Fundamentals strong for $90+ oil. Exxon stops gas flaring in Permian. AK ranks high for best mining jurisdictions for investment. Is EV car mania slowing?
NEWS OF THE DAY:
Oilfield services groups cheer ‘structural upcycle’ after highly profitable year
Financial Times, January 25, 2023
The “Big Three” international oilfield services groups last year registered their most profitable 12 months since the heyday of the US shale boom as high energy prices in the wake of Russia’s invasion of Ukraine spurred global drilling activity.
Halliburton, Baker Hughes and SLB reported aggregate net income of $4.4bn in 2022, the highest combined figure since 2014, as the war in Ukraine exacerbated fears over fuel shortages and triggered a rush to boost oil and gas production.
Olivier Le Peuch, chief executive of SLB — previously known as Schlumberger — described 2022 as a “pivotal” year for the energy industry, which he said had entered the “early phase of a structural upcycle”. “Durability is here to stay — and we are talking about years,” he said. Oilfield services groups — which provide personnel and equipment to do the grunt work of the oil and gas industry, drilling wells and pumping oil — have been among the biggest beneficiaries of the market upheaval that followed the outbreak of war in Ukraine.
The sector’s biggest players in recent days announced strong fourth-quarter results, with Halliburton reporting on Tuesday, capping off a banner 2022.
Surging energy prices over the past year have pushed up drilling and production activity and triggered a rush to secure the equipment and personnel provided by services groups.
Tight supply has allowed them to raise prices. Meanwhile, intensive cost-cutting regimes implemented during the Covid-19 pandemic have bolstered margins.
“Rising profitability paired with constrained capital expenditures is allowing these companies to generate strong free cash flows,” said Jim Rollyson, head of oilfield services equity research at Raymond James.
Fundamentals Strong Enough for $90+ Oil Period
Andreas Exarheas, Rigzone, January 25, 2023
Fundamentals are not yet strong enough to sustain prices above $100 per barrel, but they are strong enough to sustain a prolonged period of trading above $90 per barrel.
That’s what analysts at Standard Chartered believe, according to a new report sent to Rigzone by the company, which noted that a “sharp decline” in the first two trading days of the year has been followed by a “steady correction” upwards.
“This has seen the rally that started on 5 January extend beyond $10 per barrel on 23 January, taking Brent intra-day above its $88.63 per barrel Q4-2022 average for the first time this year,” the analysts stated in the report.
“The rally has been a steady grind upwards; in the past 12 trading days there have been 10 days of higher intra-day highs and 11 days of higher intra-day lows,” the analysts added.
In the report, the analysts noted that the rally has been supported by more positive speculative sentiment.
“Our crude oil money-manager positioning index increased by 23.2 week on week to -39.6 in the latest data, the largest week on week improvement since the price lows of April 2020,” the analysts said in the report.
“We think trader consensus during this month has become less concerned about OECD recession and more convinced of the prospect of significant demand growth, from China and India in particular. With the market currently fairly balanced and greatly improved sentiment, we think the rally can continue its grind higher,” the analysts added in the report.
Exxon Stops Flaring In The Permian, Urges Others To Follow Suit
Charles Kennedy, OilPrice.Com, January 25, 2023
One of the biggest oil producers taking part in the most prolific U.S. shale play has decided to stop routine gas flaring in the Permian and plans to push for all other shale well operators to do the same.
In an interview with Reuters, Exxon officials said they would insist on tougher flaring regulations in a bid to achieve a phase-out of the practice.
“It levels the playing field,” the chief environmental scientist of the supermajor, Matt Kolesar, told Reuters. “We need strong regulations so it doesn’t matter who owns the facility.”
Flaring has come into the spotlight of environmental concerns in the past few years as it is associated with the release of significant amounts of methane, which is a more potent but shorter-lived greenhouse compound than carbon dioxide.
What’s more, reducing flaring increases the amount of natural gas an operator produces, and in today’s gas market, this is not a benefit to be overlooked.
According to Exxon, an end to flaring is a worthy goal to pursue—worthier than making oil companies pay for the emissions generated through the use of their products—the so-called Scope 3 emissions. Reducing methane emissions is by far the most cost-effective means of reducing overall emissions in the industry, Kolesar told Reuters.
To do this, the supermajor plans to deploy satellites to track emissions in the Permian. It has also made a minor investment in directing associate gas from oil production operations in the Permian to a pipeline, which is the optimal way of dealing with methane emissions.
Exxon plans to spend some $17 billion on reducing its emissions by 2027. The money will be used for ending flaring and carbon capture and storage, among other things. Environmentalists are not happy with this sort of plan because they do not envisage a reduction in oil and gas production.
Visualizing the New Era of Gold Mining
Govind Bhutada, Visual Capitalist, January 25, 2023
EV Car Mania May be Over, or at Least Slowing
Institute for Energy Research, January 18,2023
Electric car manufacturers in Europe are slowing down production because battery cars have proven too expensive for the middle class and the supply of lithium for their batteries is too uncertain. Production in Europe this year is expected to be 12 million cars—a million less than previous estimates. Tesla, for example, is cutting prices to boost demand. Of more than 900 auto executives surveyed internationally, 76 percent believe that inflation and high-interest rates will slow sales and that EV adoption will take longer. In the United States, that figure was 84 percent. The median expectation for EV sales by 2030 dropped to 35 percent in the United States, from 65 percent a year earlier. Longer-term impediments cited by the executives include the availability of raw materials for batteries, as well as stricter rules around federal incentives for buying electric vehicles. Also, consumers see touted fuel savings not materializing. Britain’s Daily Mail reports: Electric vehicles can be more expensive to fill up on the open road than their petrol and diesel equivalents as the cost of utilities continue to spiral.
It is now expected that the UK will produce 280,000 fully electric cars and vans in 2025, down from a previous estimate of 360,000. That forecast means only a quarter of car output will be electric within the next two years, lower than prior forecasts of more than a third. Declining production threatens to wreck a key government plan to cut greenhouse gas emissions by banning sales of new petrol and diesel cars by 2030. A recovery in EV sales by 2030 is ‘uncertain’ due to ongoing supply chain issues, particularly of lithium needed for electric car batteries, as well as political tensions across the globe.
BMW announced in October that it would stop production of the electric Mini at its plant in Oxford, England and transfer that operation to China. Jaguar, owned by India’s Tata Motors, has not produced further details on plans to become fully electric by 2025.
UK consumers are also concerned about operating costs with the average cost of charging an electric car increasing by 58 percent since last May. Also, UK councils are planning double-digit increases in parking fees. Charges will increase by around 10 percent from April in various areas. An all-day ticket in Dudley will shoot up by 43 percent to £5 and fees will rise by 29 percent at the most popular sites in Cornwall, to £2.20 an hour. Local authorities have defended the increases because they are under financial pressure, but others worry that higher parking fees will hurt town businesses.