Eagle Ford Capital Allocation

Eagle Ford Capital Allocation

The price collapse earlier this year forced players across the upstream industry to slash initial spending estimates and concentrate resources on a smaller core asset base. With this year’s budgets averaging roughly 60% of 2019 levels, capital efficiency and consistency of returns were key considerations as companies refreshed their 2020 guidance.

Relative capital allocation provides an interesting reference to multi-basin operators’ internal valuation of their remaining acreage quality and the associated economics. Figure 1 shows how select producers deployed resources to the Eagle Ford over the past three years. Post-price crash, EOG Resources and Marathon Oil opted to further prioritize development in the play while Chesapeake Energy, Murphy Oil, Devon Energy and Noble Energy shifted activity elsewhere. Without disclosing a capital breakout, ConocoPhillips spoke about running four of its seven rigs in the Eagle Ford for the balance of 2020 during its second quarter earnings call.

In an age when investors are focused on generating free cash flow and returning capital to shareholders, low-risk, repeatable returns are paramount. Exposure to the core of the Eagle Ford continues to provide select operators with some of the strongest economics within their portfolios, but a largely non-core position or limited remaining high-quality inventory justifies a reallocation of resources to other assets, in our opinion.

FIGURE 1 | Eagle Ford Capital Allocation Between 2018 and 2020

Surviving the Oil Downturn By Outsourcing Business Processes

RS Energy Group Disclosure Statement:

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Enverus’ SPARK Conference Set to Ignite Innovation

Enverus’ SPARK Conference Set to Ignite Innovation

Austin, Texas (October 9, 2020) — Enverus, the leading oil and gas SaaS and data analytics company, is inviting members of the media to SPARK, its new, free virtual one-day conference on Oct. 14, 2020. SPARK attendees will gain insight from Enverus’ leadership in an 18-month outlook, learn about innovating through the downturn, and how business automation will play a dominant role in the future of oil and gas, as panels with oil and gas industry executives explore the roadmap for building future predictability and profitability.

“With the economic downturn related to the coronavirus pandemic and volatility in commodity pricing, travel and in-person conferences have come to a standstill,” says Chris Dinkler, general manager and senior vice president of Enverus Business Automation. “For years, a handshake upon a deal, networking and knowledge-sharing have been the cornerstone of the oil and gas industry — but we’re living in a new world now. While we cannot replace a personal interaction and connection, we are coming close to replicating some of those incredible elements virtually with SPARK. Plus, this conference is free for all attendees, which means no travel costs or unnecessary overhead with this conference, which we hope eases the financial hardship for small and large businesses still trying to identify their path to recovery.”

The incredible network of customers has always been the foundation of Enverus Business Automation and this conference will continue to foster collaboration with both customers and prospective customers alike. The virtual environment has allowed Enverus to expand the invitation to a broader group in the oil and gas industry spanning senior executives, particularly within E&P companies, accounts payable, joint venture accounting, supply chain and operations, as well as media.

More than a mere series of Zoom calls and chats, SPARK is an immersive virtual event platform that will feature an interactive “Innovation Hub,” networking sessions with peers and Enverus experts, and partner booths alongside the auditorium and breakout rooms for hosted sessions.

Who: Employees of the oil and gas industry and members of the media.

What: One-day virtual conference on new ways for the oil and gas industry to leverage digital technology to innovate through the downturn.

Where: Online, virtual conference.

When: Oct. 14, 2020 from 8 a.m.-5 p.m. CT

View the full agenda here.

REGISTER NOW

Surviving the Oil Downturn By Outsourcing Business Processes

Surviving the Oil Downturn By Outsourcing Business Processes

Surviving the Oil Downturn By Outsourcing Business Processes

Surviving the Oil Downturn By Outsourcing Business Processes

About Enverus
Enverus is the leading energy SaaS company delivering highly-technical insights and predictive/prescriptive analytics that empower customers to make decisions that increase profit. Enverus’ innovative technologies drive production and investment strategies, enable best practices for energy and commodity trading and risk management, and reduce costs through automated processes across critical business functions. Enverus is a strategic partner to more than 6,000 customers in 50 countries. Enverus is a portfolio company of Genstar Capital. Learn more at Enverus.com.

Woodside, Aker BP, CNRL and Suncor: Hungry for More in 2020

Woodside, Aker BP, CNRL and Suncor: Hungry for More in 2020

Sharks in the Water — Part Five

 

In our previous blog on “Sharks in the Water” — companies with solid balance sheets, long-term growth strategies and cash to spend on acquisitions from stressed rivals — we offered our best guess as to where the remains of beleaguered Tullow Oil will wind up in the feeding frenzy. Now it’s time to highlight the truly hungry independents: Woodside, Aker BP, CNRL and Suncor.

Take a dive into Independents’ Day pages 7 through 14 for more information.

Surviving the Oil Downturn By Outsourcing Business Processes

Would you like to get on a call and chat about this with us? With our extensive international database and team of 27 international scouts, we are always game to engage on this and other topics!

Stay tuned for the next installation of Sharks in the Water, where we’ll share our thoughts on a few more independent E&Ps: Hess, Hunt and Murphy.

Did you miss a previous installation of our “Sharks in the Water” series? You can find them using the links below:

Part One
Part Two
Part Three
Part Four

Why Now Is The Right Time For Operators To Adopt Virtual Cards

Why Now Is The Right Time For Operators To Adopt Virtual Cards

Surviving the Oil Downturn By Outsourcing Business Processes

The old saying ‘you have to spend money to make money’ is often correct. But what if the money you are already spending could be turned into revenue?

OpenInvoice has partnered with Corporate Spending Innovations (CSI) to provide a virtual card payment option for operators to streamline and optimize payments. This method of paying vendors has many benefits including:

  • Effortless reconciliation of invoice to payment expense
  • Greater compliance control over how much is spent and when the card can be used
  • Increased payment security through approved vendor and amount controls
  • Reduced payment costs through the elimination of manual processes
  • Ability to generate a new revenue stream through rebate programs

The benefits are enticing, especially in a changing market where cost controls and revenue generation are critical. However, we often encounter the perception that these types of technology changes are costly and time-consuming to implement.

Here are 3 reasons why now is a great time to make the switch to virtual card payments:

  • No upfront costs: There are no out-of-pocket costs! No capital, no IT resources—no costs. Not only that, when you look at your performance against budget, you’ll show revenue. CSI can have you up and running in just a few weeks and, by the end of your fiscal year, you will show measurable results.
  • Maintain current payment processes: We can work within your current vendor-specific payment process. You can choose to leverage the virtual card payment program only for vendors that currently accept credit cards or automate all payments including ACH and checks. With the shift to a remote work environment, getting to the office to run a batch of checks could be a challenge. By outsourcing to CSI, we can help you maintain business continuity without adding extra burden to your internal staff.
  • Turn your cost center into a revenue center: The virtual card program unlocks rebates to your organization. One way that CSI is unique compared to other providers, such as banks, is the ability to drive significant incremental volume over other solutions. CSI manages all vendor onboarding and, as a result, is able to capture a higher volume of spend penetration, amounting to higher value for customers.

Interested in learning how to implement a virtual card program with your suppliers? Read the white paper here. Learn more here.

Oil and Gas Industry Continues Tightrope Walk

Oil and Gas Industry Continues Tightrope Walk

Austin, Texas (October 7, 2020) — Enverus, the leading oil and gas SaaS and data analytics company, has released its latest FundamentalEdge report, A Hard Balance: The Persistent Oil Glut and the Coming US Gas Shortage, providing the company’s market outlook and view of where the oil, natural gas and NGL markets are headed over the next five years.

The report’s overview begins by highlighting how prompt WTI futures traded within a $36-$39/bbl range in early September but rebounded to just over $40/bbl as the October contract approached expiry. Underlying market concerns about weaker global demand that drove prices lower early in the month are being overruled, at least temporarily, by successive hurricane-related production disruptions in the U.S. offshore Gulf of Mexico. This rebound in market sentiment is likely to dissipate as the hurricane season comes to a close and gasoline demand sinks into a long winter’s nap.

Additional topics covered in this FundamentalEdge report include seasonal gasoline demand and OPEC+ working to counter underlying bearish concerns, as well as how a surge in global COVID-19 cases is raising the prospect of another spate of lockdowns in Europe.

Members of the media can download a preview of the full report or contact Jon Haubert to schedule an interview with one of Enverus’ expert analysts.

Key takeaways from the report:

  • Crude oil prices recovered steadily over the summer as demand for transportation fuels (except for jet) rebounded from the lows of April-May. Unfortunately, the demand recovery has since lost momentum, and WTI is currently struggling to tread water at $40/bbl. The partial recovery in gasoline demand over the summer driving season in the United States was a critical support for the crude complex, but now demand for gasoline is settling into a long winter’s nap. As winter approaches, middle distillates will increasingly need to drive support for crude, and that appears to be a tall order given the amount of diesel/gasoil that accumulated in inventory over the summer as refiners sought to regrade their jet fuel woes away. As a result, the continued weakening of distillate cracks has ratcheted up pressure on refining margins and has elevated the risk of economic run cuts in the weeks ahead. Meanwhile, OPEC+ is struggling to maintain compliance and Libyan supplies are coming back to the market after being absent since January. With the Saudi energy minister now desperately threatening short sellers, we have taken a more bearish stance on oil prices at the turning of the new year ($35/bbl in 1Q21).
  • With crude oil prices expected to remain depressed in 2021, associated gas is not expected to return next year. To offset the drop in associated gas, higher prices will be required to incentivize production gains from dry plays. Natural gas production growth is necessary to meet peak winter demand in the U.S. as well as the call for LNG exports. Economics for LNG have improved with stronger European prices in the forward market. This could put the natural gas market into an even shorter supply-demand balance scenario (more bullish) than currently anticipated. Enverus expects natural gas prices to average $3.49/MMBtu in 2021 and $3.00/MMBtu starting in 2022 as oil prices recover to $55-$60/bbl.
  • Natural Gas Liquids production is expected to decline into mid-2021 as a result of lower crude oil prices. While Y-grade production fell with shut-ins and since has bounced back, some product demand has remained strong. C2 demand has been resilient throughout the pandemic, with petchems running at high rates. Additional petchem and export facilities will bring additional demand to the ethane market. Weather will play a key role in the coming months for C3, as crop drying and heating season will be the primary demand markets during winter. C4+ economics indicate downside price risk heading into the winter season, as gasoline blending at refineries is down due to reduced refining margins, causing run cuts, and diluent demand for heavy crude is down, as Canadian production remains depressed.
  • The industry is watching E&Ps to determine sentiment and activity. Well costs are at historical lows, while DUC counts are at historical highs — both will allow for a greater capital efficiency and lower capex next year. Hedging activity is also limited, with operators reluctant to lock in the lows. Many will be tuned into 3Q20 earnings calls to gauge how the downturn has influenced the space.

Surviving the Oil Downturn By Outsourcing Business Processes

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About Enverus
Enverus is the leading energy SaaS company delivering highly-technical insights and predictive/prescriptive analytics that empower customers to make decisions that increase profit. Enverus’ innovative technologies drive production and investment strategies, enable best practices for energy and commodity trading and risk management, and reduce costs through automated processes across critical business functions. Enverus is a strategic partner to more than 6,000 customers in 50 countries. Enverus is a portfolio company of Genstar Capital. Learn more at Enverus.com.

State of the Energy Industry Amid COVID-19, Aging Workforce, Electrification

State of the Energy Industry Amid COVID-19, Aging Workforce, Electrification

The energy industry has always had one rock solid foundational belief — worldwide demand for hydrocarbons would rise as more and more nations enlarged their GDP through increased energy demand.

Demand forecasts are still unpredictable due to a number of COVID-19-related factors: a troubling rise in cases in Europe, parity in deaths in U.S. red and blue states, Florida’s full reopening despite a 10% positivity rate, and fears of a second global wave of infections coupled with a cold weather flu season.

China, accounting for 22% of worldwide energy use, has seen economic output and GPD contract, leading to an expected increase in transportation energy use of only 50% from 2017-2040, compared with a 639% increase from 1995-2017. Even starker is the energy demand projection increase for industry consumption — down to only 3% for 2017-2040, compared with an increase of 226% from 1995-2017.

According to the BP Energy Outlook, China’s deployment of renewables increases nearly sixfold for the period of 2017-2040, and will account for 26% of global renewables in 2040.

Electrification of Transportation

While reading the Austin American-Statesman on Saturday, September 26, 2020, was struck by the reporting on electric vehicles in an article published in the Cars section.

Kia

Kia Motors announced last week that it is planning an aggressive push into this market with a goal of offering 11 models by 2025.

Ford

Starting at $35,000 the Fusion Hybrid has incredible fuel efficiency with 109 miles to the gallon in cities.

GM/Nikola

The Nikola Badger is rated for 300 miles of electric-only range plus an additional 300 miles of range using hydrogen.

This assumes, of course, that Nikola remains a concern after the brutal expose published by short seller Hindenburg Research.

BMW

Its aggressive plan involves introducing 25 electric vehicles by 2023.

GM Cadillac

For Cadillac dealers the price tag is estimated to be $200,000 to transition dealerships for coming electric vehicles … GM is investing $20 billion through 2025 on electric and autonomous technologies and pushing to release 20 electric nameplates across multiple brands by 2023.

And … ChargePoint, the world’s largest provider of electric vehicle charging stations, plans go public by the end of the year.

Assuming this march towards the electrification of transportation continues, a primary demand market for oil — gasoline and diesel — will continually erode.

Roll into the equation potential changes in commuting, driven by how large companies determine their in-office real estate needs based on their COVID-19 experiences, and it seems that oil prices will struggle in the near and mid-term, and probably long term, to achieve the levels that will allow our industry to bolster margins.

Big oil with good, or at least decent, balance sheets have the wherewithal and access to capital to work through the transitions that are coming. But smaller companies, especially those that are privately held and heavily invested in unconventional development, are facing an uncertain, maybe grim, future.

The diversity of operators is the greatest strength of the American oil patch. In the past, thousands of operators analyzed subsurface data in different ways to generate thousands of drilling prospects.

A lot of these prospects were disappointing dry holes, but enough of them were huge successes that stimulated more exploration within the known limits of the geological fairways that contained the successful wells.

The net result was a huge amplification of our understanding of basin geology and stratigraphy, along with a massive increase in data points that became the foundation on which today’s unconventional boom has been built.

However, as the unconventional model began acquiring more and more acreage, smaller operators, who either didn’t have the balance sheet to drill and complete expensive horizontal wells or who couldn’t get financing to do so, got tossed to the sidelines.

With the economic returns of unconventional development under pressure from low demand, threats of increasing supply, and financial markets that have decided  “live within your means” financial discipline is preferable to “drill baby, drill” operations, the entire industry — especially the large number of moderately or poorly capitalized companies — is under pressure.

Unfortunately, an industry under pressure — from both internal economic weaknesses and external environmental detractors — will be an industry that will have trouble attracting new generations of students to its ranks. With the exit of thousands of experienced, mature explorationists and engineers from this great industry due to age, this is trouble.

Is there a silver bullet out there for the industry? Can the Lone Ranger make a comeback?

There may be silver bullets, but they will not be .45 cal.

Here are some potential strategies:

Evaluate Your Reservoirs for Storage

As the majors move more and more towards carbon capture and sequestration, and high producing CO2 industries, such as the cement business, become desperate for ways to mitigate their global warming impacts, there will be a growing market for old depleted oil and gas fields — or even still producing fields that need pressure maintenance — to accommodate produced CO2. Fields with the right combination of porosity, permeability, seal integrity, reservoir geochemistry and proximity to client CO2 backlogs, should do well in the race for storage.

There may even be a brokerage opportunity to create a storage marketplace.

Positioning an old field as a carbon capture facility could allow an operator to arbitrage a deal with a client that would exchange storage costs for rights to sell carbon credits in the voluntary emissions reduction market. These credits would be sought by a wide variety of businesses and tapping into that market would diversify income streams beyond boom and bust oil and gas. Think portfolio management.

BTU for Power

A couple of weeks I heard about a novel idea: operators dedicating flare gas to power generation that was consumed onsite by mobile bitcoin miners. Although it’s an image that seems equal parts Mad Max and Matrix, it’s an intriguing out-of-the-box way of converting waste into revenue — with an environmental benefit to boot.

Awhile back I did very quick model on the revenue differences that would result from dedicating prolific natural gas production to gas turbine power generation that would sell power to the grid versus traditional sales to a natural gas gatherer. During just one year of production, revenues from power generation were nearly $6 million higher than the revenues generated from sales to a pipeline. A few years of these kinds of returns would completely amortize the cost of the turbine, assuming it was purchased instead of leased.

If the electric vehicle continues to build market share, gas transporters should entertain the idea of tapping their pipelines at strategically located points on heavily travelled roadways and maybe partner up with Tesla or ChargePoint.

Strategic Petroleum Reserve

No one likes the heavy hand of government — unless it’s doing us a favor. Like most in our industry, I was incensed when the Windfall Profit Tax was rolled out in 1980. Although the tax paid could be deducted against gross revenues to reduce tax liabilities, it was a federal boot on the neck of the industry, taking revenues from the industry in good times while gleefully accepting all the crude we could produce during bad times.

The current Strategic Petroleum Reserve (SPR) stockpile can meet our imported production shortfall needs for about 1,100 days. But if our domestic production output tanks, the SPR would have about 78 days of stockpile to meet our needs. We’re one major conflict in an important overseas producing area — Middle East, North Africa, Vietnam — or one shift in policy from OPEC+1 to put our oil and gas supplies at risk.

It’s clear that the vitality of our domestic oil patch is critical to maintaining our national security. And as the graph below of imported production shows, the shale revolution has consistently reduced our vulnerabilities to imported crude.

Surviving the Oil Downturn By Outsourcing Business Processes

If the government committed to enter the oil market, on occasion, to buy oil for the SPR to boost our emergency reserves to double what we have now, we’d have about a six year cushion if our sources of imported oil all went away.

The benefits would be strategic in two ways. It would obviously give us, as a nation, a better hedge against supply disruptions and it would help stabilize the oil markets around nearly breakeven pricing — which would help preserve our domestic oil patch.

At a price of $45/bbl and a midway estimate of 750 million barrels in current storage, doubling our strategic hedge would cost about $34 billion dollars and would represent about 1.3% of the original COVID-19 stimulus package.

Any political pushback could be answered by an increase in royalties on federal land from the current 12.5% to somewhere around 15% — this would recover almost two-thirds of that expense.

A federal buy of oil that doubles the SPR’s stockpile would require, I believe, new holding areas to be defined and secured. Whether these would also be large salt caverns, or possibly traditional oil and gas reservoirs in depleted fields, is an open question.

Educational Imperatives

As artificial intelligence, machine learning and massive number crunching become the norm in the oil patch, the gap between the older managers, who have may not have the technical chops required to perform and verify the results, and the new hires who are getting more and more comfortable with Python and other coding tools is growing.

Do yourselves a favor and find a way to fund intern positions that leverage the growing demand for geodata scientists. Our experience with the work product, ethics and intellectual honesty of interns has been outstandingly positive, and I can almost guarantee that your intern hires will improve your bottom line and give you positive ROI on your hiring expenses.

 

CourthouseDirect.com Launches LiensDirect™, a Streamlined Lien Research and Lead Generation Solution

CourthouseDirect.com Launches LiensDirect™, a Streamlined Lien Research and Lead Generation Solution

Houston, Texas (October 6, 2020) — CourthouseDirect.com announces the launch of LiensDirect, a streamlined solution to identify individuals and companies who have recently had county or federal liens filed against them. 

LiensDirect offers a comprehensive solution for lien searches and business lead generation. The tool automatically searches and analyzes all lien filings in county clerk offices across Texas and New Mexico, then transforms them into meaningful business leads to be easily imported into any CRM system. Users receive timely, automated lien reports based on the criteria they input, eliminating the need to perform manual searches across multiple sources. What’s more, key data points are extracted and delivered along with each document so that users no longer have to outsource data extraction and entry. Finally, with an all-inclusive, annual billing model, LiensDirect does away with the expenses that accumulate from purchasing multiple reports for each lien search. 

Attorneys, tax professionals, marketers and investors all depend on timely access to county-wide lien filings — but obtaining this information can be expensive and inefficient. Query restrictions and outdated data often lead users to perform the same searches across multiple sites for the latest lien records, each of which must be purchased before they can view the information within. In many cases, users must also pay for third-party services to manually extract key data from the lien records before they can add it to their CRM platforms. All too often, this content yields no relevant information on the people or companies being researched, and the process must begin again. From paralegals and marketers searching for new leads to attorneys seeking new clients, these redundant steps and added expenses can prove costly — particularly as businesses adjust to tightening financial conditions.

According to CourthouseDirect.com Director of Data Acquisition and Enhancement Silas Martin, lien research has long been a pain point for legal professionals, which inspired his team to create an innovative solution: “Finding the liens you needed used to be cumbersome, time-consuming, and above all, expensive. We developed LiensDirect to save our users the time and cost of searching multiple sources for a single lien record. LiensDirect gives people a convenient way to spend less time searching for lien information and more time putting it to work for their business.”

For more than 35 years, CourthouseDirect.com has delivered rapid, accurate access to courthouse information through a searchable database of county records. LiensDirect is the latest in a series of online solutions that save users time and money finding the records they need the first time around.

For more information about LiensDirect, visit CourthouseDirect.com/LiensDirect.

About CourthouseDirect.com
CourthouseDirect.com provides legal record search products and services. Since 1982, we have offered the nation’s largest and most comprehensive repository of courthouse documents online. Our searchable database includes public and real property records for more than 1,000 counties across the United States. We provide easy information access with flexible pricing and extensive data coverage. We also offer research, consulting, training, and GIS mapping services. CourthouseDirect.com makes it easy for any professional to find the exact property information they need. CourthouseDirect.com was acquired by Enverus in 2020. 

About Enverus
Enverus is the leading energy SaaS company delivering highly-technical insights and predictive/prescriptive analytics that empower customers to make decisions that increase profit. Enverus’ innovative technologies drive production and investment strategies, enable best practices for energy and commodity trading and risk management, and reduce costs through automated processes across critical business functions. Enverus is a strategic partner to more than 6,000 customers in 50 countries. Enverus is a portfolio company of Genstar Capital. Learn more at Enverus.com.

When Midstream Shows Its Teeth

When Midstream Shows Its Teeth

Understanding volume risk has become a major concern for midstream operators and their investors as commodity price volatility this year impaired growth expectations among upstream counterparties. Once regarded as relatively safe investments due to contracted volumes and seemingly endless production growth, the midstream industry (loosely defined as the companies that gather, process and transport hydrocarbons) has begun to show its teeth as the overall energy industry has suffered. The S&P Oil & Gas Exploration & Production Index (XOP) dropped by 55% this year and the Alerian U.S. Midstream Energy Index declined by 46%. The selloff in both benchmarks reflects the reality that midstream investments are only as good as the upstream assets they are supported by. Leveraging Enverus’ detailed upstream analysis and midstream-focused products, investors are able to generate a holistic view on the true risks and rewards of midstream assets.

For example, Enverus’ proprietary gatherer algorithm enables users to connect individual well forecasts, drilled uncompleted wells and active rigs across the Lower 48 to gathering systems to generate powerful forecasts for midstream assets (Figure 1). This can help better quantify volume risk and allow for more informed midstream investment decisions.

FIGURE 1 | Wells and Rigs Tagged to Enverus Gatherer

Surviving the Oil Downturn By Outsourcing Business Processes

RS Energy Group Disclosure Statement:

© Copyright 2020 RS Energy Group Canada, Inc. (RSEG). All rights reserved.

All trademarks, service marks and logos used in this document are proprietary to RSEG. This document should not be copied, distributed or reproduced, in whole or in part. The material presented is provided for information purposes only and is not to be used or considered as a recommendation to buy, hold or sell any securities or other financial instruments. Information contained herein has been compiled by RSEG and prepared from various public and industry sources that we believe to be reliable, but no representation or warranty, expressed or implied is made by RSEG, its affiliates or any other person as to the accuracy or completeness of the information. Such information is provided with the expectation that it will be viewed as part of a mosaic of analysis and should not be relied upon on a stand-alone basis. Any opinions expressed herein reflect the judgment of RSEG as of the date of this document and are subject to change at any time as new or additional data and information is received and analyzed. RSEG undertakes no duty to update this information, or to provide supplemental information to anyone viewing this material.  To the full extent provided by law, neither RSEG nor any of its affiliates, nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the information contained herein. The recipient assumes all risks and liability with regard to any use or application of the data included herein.

Caution Regarding Forward-Looking Statements:

This public communication may contain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These statements are based on our current expectations about future events or future financial performance. In this context, forward-looking statements often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” or “target” or other words that convey uncertainty of future events or outcomes.

These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. When evaluating the information included in this communication, you are cautioned not to place undue reliance on these forward-looking statements, which reflect our judgment only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.

Note to UK Persons:

RSEG is not an authorised person as defined in the UK’s Financial Services and Markets Act 2000 (“FSMA”) and the content of this report has not been approved by such an authorised person.  You will accordingly not be able to rely upon most of the rules made under FSMA for the protection of clients of financial services businesses, and you will not have the benefit of the UK’s Financial Services Compensation Scheme. This document is only directed at (a) persons who have professional experience in matters relating to investments (being ‘investment professionals’ within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”)), and (b) High net worth companies, trusts etc of a type described in Article 49(2) of the FPO (all such persons being “relevant persons”).  RSEG’s services are available only to relevant persons and will be engaged in only with relevant persons. This report must not be acted or relied upon by persons who are not relevant persons.  Persons of a type described in Article 49(2) of the FPO comprise (a) any body corporate which has, or which is a member of the same group as an undertaking which has, a called up share capital or net assets of not less than ( i ) in the case of a body corporate which has more than 20 members or is a subsidiary undertaking of an undertaking which has more than 20 members, £500,000 and (ii) in any other case, £5 million, (b) any unincorporated association or partnership which has net assets of not less than £5 million, (c) the trustee of a high value trust within the meaning of Article 49(6) of the FPO and (d) any person (‘A’) whilst acting in the capacity of director, officer or employee of a person (‘B’) falling within any of (a), (b) or (c) above where A’s responsibilities, when acting in that capacity, involve him in B’s engaging in investment activity.

Corporate Mergers Boost 3Q20 Upstream M&A Value Even as the Pace of Deals Slows

Corporate Mergers Boost 3Q20 Upstream M&A Value Even as the Pace of Deals Slows

Austin, Texas (October 5, 2020) — Enverus, the leading oil and gas SaaS and data analytics company, is releasing its summary of 3Q20 U.S. upstream M&A. While the third quarter’s tempo of 28 deals with a disclosed value is tied with 1Q20 for the worst showing in 10 years, a couple of big corporate acquisitions pushed total transaction value to $21 billion. That is a strong quarterly deal total by historical standards.

Surviving the Oil Downturn By Outsourcing Business Processes

The largest deal of the third quarter was Chevron’s $13 billion acquisition of Noble Energy, which targeted assets in the DJ and Permian basins, as well as Eastern Mediterranean gas production. While a fraction of the cost of Chevron’s attempted Anadarko acquisition last year, its purchase of Noble is still tied for the fourth largest global upstream deal since 2014.

The largest pure U.S. shale consolidation move came at the end of the quarter, when Devon Energy and WPX Energy announced a merger that creates a combined company with a $12 billion enterprise value and a concentration in the Delaware Basin. Both Chevron’s acquisition of Noble, and Devon’s merger with WPX, are structured with little premium and all-stock consideration.

“There is a broad consensus that consolidation is a net positive for the industry,” commented Enverus Senior M&A Analyst Andrew Dittmar. “Including the corporate deals from 2019, that process looks to be well underway. There is room for further mergers, but it can be a challenge to find the right asset and balance sheet fits for accretive deals. It may take several more years for consolidation to play out.”

With a deep roster of economic well locations, the Permian Basin is likely to be the epicenter of shale consolidation. However, companies focused on other regions will also benefit from repositioning into fewer, larger producers. There was some modest consolidation in Appalachia recently with Southwestern acquiring Montage Resources for $874 million. Like the deals listed above, that transaction is also structured with little premium and all-stock consideration.

“Regardless of the targeted play, mergers have so far focused on companies with reasonable debt loads,” added Dittmar. “Companies with impaired balance sheets are being left to find their own way, resulting in a spate of Chapter 11 filings.”

During the third quarter, notable Chapter 11 filings included California Resources Corp. ($5.2 billion in debt), Oasis Petroleum ($2.8 billion in debt), and Denbury Resources ($2.5 billion in debt). Nearly all public companies filing Chapter 11 are pursuing a reorganization, while a substantial number of private E&Ps that file Chapter 11 are choosing to exit via sales. The list of selling private companies includes Gulf of Mexico producer Arena Energy ($466 million sale) and Midcontinent-focused Templar Energy ($91 million sale).

For the remainder of 2020, there is the potential for additional corporate deals; however, the market for asset deals is likely to remain sluggish. Gas plays seem poised to draw more attention for asset acquisitions than their oilier counterparts as there is more optimism around the outlook for gas pricing.

A pickup in deal flow likely requires an uplift in commodity prices that boosts cash flow for existing participants, plus an inflow of new capital. Often private equity has deployed capital during down markets but looks less willing to step in currently. One potential source of capital are Special Purpose Acquisitions Companies or SPACs. This model has been used before in oil and gas, most recently by Pure Acquisition Corp. which completed its previously announced deal during 3Q20 to form HighPeak Energy. SPACs currently seem to be gaining broader acceptance in the investment community with rising use across industries.

Members of the media can contact Jon Haubert to request a copy of the full report or to schedule an interview with one of Enverus’ expert analysts.

About Enverus
Enverus is the leading energy SaaS company delivering highly-technical insights and predictive/prescriptive analytics that empower customers to make decisions that increase profit. Enverus’ innovative technologies drive production and investment strategies, enable best practices for energy and commodity trading and risk management, and reduce costs through automated processes across critical business functions. Enverus is a strategic partner to more than 6,000 customers in 50 countries. Enverus is a portfolio company of Genstar Capital. Learn more at Enverus.com.

When Oil Prices Stabilize, Find New Arbitrages with Better Data

When Oil Prices Stabilize, Find New Arbitrages with Better Data

For the oil traders who feed off volatile price movement and market inefficiencies to make profits, the past few months have been a bit of a drag. After the first half of 2020, which was the most volatile period of many crude traders’ careers, the third quarter brought oil merchants a calm, range bound WTI futures market that hovered between $36/bbl and $43/bbl.

Yes, oil prices are higher now than they were in the crude market’s darkest days of 2020 in March and April. But that doesn’t necessarily mean more profits for traders. Price volatility, and the fundamental market mismatches that create it, give oil traders the opportunity to take profits regardless of the price level. The larger the price swing, the bigger the opportunity to maximize returns.

WTI Futures Draw Calm in Q3 2020

Surviving the Oil Downturn By Outsourcing Business Processes

Figure 1 | October 2020 Nymex WTI futures prices displayed in MarketView Desktop.

A Fully Equipped Crude Trading Desk Always Wins

As we enter the fourth quarter of this unforgettable year, it’s a great time to reflect on the ways to gain an edge on the market, especially when price action is calm. Margins are getting thinner and trading liquidity has fallen in oil futures markets. Now’s the time to dig deeper into data and analytics to ensure your view of the market is comprehensive and accurate.

In September, we brought the best of Enverus production forecasting into MarketView, our flagship software for energy and commodity price analysis. It’s now possible to view Enverus base case production forecasts directly in MarketView Desktop. Here are three new ways to uncover new trading ideas by incorporating MarketView Oil & Gas Intelligence data into your workflows.

  1. OPTIMIZE YOUR HEDGING STRATEGY.
    Get a comprehensive view of the market. See your market’s monthly production forecast alongside price forward curves to hedge production volumes.
  2. ENHANCE BASIN-BY-BASIN ANALYTICS.
    Quickly compare the production forecasts in multiple basins to get a better understanding of regional price movements.
  3. GAIN A BETTER UNDERSTANDING OF HISTORICAL PRODUCTION TRENDS.
    Compare new production forecasts against prior assessments to monitor the changing forecast over time.

Surviving the Oil Downturn By Outsourcing Business Processes

The new data in MarketView covers 69 North American basins and is updated every day to reflect the market settlements that impact basin economics. On a monthly basis, our team is also feeding newly collected state wellhead performance data into the oil and gas production forecasts, ensuring timely and comprehensive outlooks.

Now oil traders and analysts can assess fundamentals outlooks and adjust trading strategies with a quick overview, and easily transfer output forecast data to supply and demand models while also assessing market price movements.

Want to see what our data can do? We are happy to help. Learn more here, email us at [email protected] or call us at 1-800-282-4245. We’ll set you up with a two-week trial of our tool.

OPEC + Cuts: Credit Where It’s Due

OPEC + Cuts: Credit Where It’s Due

OPEC’s oil market balancing challenge got tougher and more complex over the past two decades. The organization cut oil production in the face of the 2008 financial crisis, the surge in U.S. liquids growth and most recently the COVID-19 crisis. The scale of OPEC cuts required to balance the market through these crises has risen at the same time the collective capacity to act has diminished, as fewer major producers are able to implement planned cuts.

OPEC’s Gulf Cooperation Council (GCC) core countries Saudi Arabia, Kuwait and the UAE have traditionally formed OPEC’s hard backbone in leading negotiations to deliver output cuts and then rigorously delivering cuts to help rebalance markets and keep prices stable. The cooperation of non-OPEC producers in 2016 to form the OPEC+ grouping is also important. Declining oil production levels in some member countries have unintentionally supported the balancing mission.

But this year was different. After the March flirtation with a price war, OPEC+ agreed to pull an unprecedented 10% of global oil supply in a tapered, multi-year cuts agreement. This time, Russia and other non-OPEC partners not only signed up but largely delivered. OPEC for its part achieved higher-than-usual compliance through additional cuts delivered by Saudi Arabia and other GCC countries as well as hefty political pressure by Riyadh on laggards Iraq, Nigeria and Angola.

The UAE’s breaking of ranks by missing cut targets in July and August therefore is significant. The shift by this core GCC producer undermined Saudi calls for compliance from others and opened fissures in the OPEC+ project. Given Abu Dhabi National Oil Company’s (ADNOC) plans to increase oil production capacity and potentially rising OPEC supply in 2021, ADNOC may have staked out its customer base before other OPEC producers can do so.

UAE leadership may also be reading the runes in Washington. A Biden White House will be much less inclined to twist OPEC arms as Trump did in March. Biden will also establish a more nuanced and balanced approach to both Saudi Arabia and its regional nemesis Iran. Amidst these age-old rivalries, the UAE’s peace deal with Israel has made it a favored regional player, able to play all sides. A more independent oil policy may be part of this transformation.

 

RS Energy Group Disclosure Statement:

© Copyright 2020 RS Energy Group Canada, Inc. (RSEG). All rights reserved.

All trademarks, service marks and logos used in this document are proprietary to RSEG. This document should not be copied, distributed or reproduced, in whole or in part. The material presented is provided for information purposes only and is not to be used or considered as a recommendation to buy, hold or sell any securities or other financial instruments. Information contained herein has been compiled by RSEG and prepared from various public and industry sources that we believe to be reliable, but no representation or warranty, expressed or implied is made by RSEG, its affiliates or any other person as to the accuracy or completeness of the information. Such information is provided with the expectation that it will be viewed as part of a mosaic of analysis and should not be relied upon on a stand-alone basis. Any opinions expressed herein reflect the judgment of RSEG as of the date of this document and are subject to change at any time as new or additional data and information is received and analyzed. RSEG undertakes no duty to update this information, or to provide supplemental information to anyone viewing this material.  To the full extent provided by law, neither RSEG nor any of its affiliates, nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the information contained herein. The recipient assumes all risks and liability with regard to any use or application of the data included herein.

Caution Regarding Forward-Looking Statements:

This public communication may contain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These statements are based on our current expectations about future events or future financial performance. In this context, forward-looking statements often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” or “target” or other words that convey uncertainty of future events or outcomes.

These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. When evaluating the information included in this communication, you are cautioned not to place undue reliance on these forward-looking statements, which reflect our judgment only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.

Note to UK Persons:

RSEG is not an authorised person as defined in the UK’s Financial Services and Markets Act 2000 (“FSMA”) and the content of this report has not been approved by such an authorised person.  You will accordingly not be able to rely upon most of the rules made under FSMA for the protection of clients of financial services businesses, and you will not have the benefit of the UK’s Financial Services Compensation Scheme. This document is only directed at (a) persons who have professional experience in matters relating to investments (being ‘investment professionals’ within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”)), and (b) High net worth companies, trusts etc of a type described in Article 49(2) of the FPO (all such persons being “relevant persons”).  RSEG’s services are available only to relevant persons and will be engaged in only with relevant persons. This report must not be acted or relied upon by persons who are not relevant persons.  Persons of a type described in Article 49(2) of the FPO comprise (a) any body corporate which has, or which is a member of the same group as an undertaking which has, a called up share capital or net assets of not less than ( i ) in the case of a body corporate which has more than 20 members or is a subsidiary undertaking of an undertaking which has more than 20 members, £500,000 and (ii) in any other case, £5 million, (b) any unincorporated association or partnership which has net assets of not less than £5 million, (c) the trustee of a high value trust within the meaning of Article 49(6) of the FPO and (d) any person (‘A’) whilst acting in the capacity of director, officer or employee of a person (‘B’) falling within any of (a), (b) or (c) above where A’s responsibilities, when acting in that capacity, involve him in B’s engaging in investment activity.

DUCs Thin the Bill

DUCs Thin the Bill

During the height of the downturn in May, rigs and completions crews dwindled quickly – completion crews dropped over 85% while the rig count dropped 60% in just three months. That disconnect helped create a large accumulation of drilled uncompleted (DUC) wells as E&Ps waited for higher prices before completing wells and turning them sales. Operator opinions differ on the required price deck to initiate a DUC drawdown, with some alluding to $50/bbl WTI while others were confident at $30/bbl. Enverus analyzed 50 companies and calculated 2019 quarter-cycle breakevens (which exclude drilling costs) to gauge the price required for each operator to choose drawing down DUCs (Figure 1).

Diamondback Energy’s (FANG) average wells break even on completing and turning a DUC well to sales at a WTI price just over $30/bbl (15:1 WTI:HH), much improved from $40/bbl when including the cost of drilling. Using new rig and frac crew tracking technology in Prism, Enverus calculated 175 DUC wells for FANG, while the company has forecast 110-140 DUCs by year-end 2020. Considering breakevens and guidance, we expect to see FANG and others capitalize on the sunk cost of DUCs and continue drawdown programs for the balance of the year and into 2021.

FIGURE 1 | 2019 Average Quarter-Cycle and Half-Cycle Breakevens by Operator (15:1 WTI:HH)

Surviving the Oil Downturn By Outsourcing Business Processes

Source | Enverus

 

RS Energy Group Disclosure Statement:

© Copyright 2020 RS Energy Group Canada, Inc. (RSEG). All rights reserved.

All trademarks, service marks and logos used in this document are proprietary to RSEG. This document should not be copied, distributed or reproduced, in whole or in part. The material presented is provided for information purposes only and is not to be used or considered as a recommendation to buy, hold or sell any securities or other financial instruments. Information contained herein has been compiled by RSEG and prepared from various public and industry sources that we believe to be reliable, but no representation or warranty, expressed or implied is made by RSEG, its affiliates or any other person as to the accuracy or completeness of the information. Such information is provided with the expectation that it will be viewed as part of a mosaic of analysis and should not be relied upon on a stand-alone basis. Any opinions expressed herein reflect the judgment of RSEG as of the date of this document and are subject to change at any time as new or additional data and information is received and analyzed. RSEG undertakes no duty to update this information, or to provide supplemental information to anyone viewing this material.  To the full extent provided by law, neither RSEG nor any of its affiliates, nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the information contained herein. The recipient assumes all risks and liability with regard to any use or application of the data included herein.

Caution Regarding Forward-Looking Statements:

This public communication may contain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These statements are based on our current expectations about future events or future financial performance. In this context, forward-looking statements often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” or “target” or other words that convey uncertainty of future events or outcomes.

These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. When evaluating the information included in this communication, you are cautioned not to place undue reliance on these forward-looking statements, which reflect our judgment only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.

Note to UK Persons:

RSEG is not an authorised person as defined in the UK’s Financial Services and Markets Act 2000 (“FSMA”) and the content of this report has not been approved by such an authorised person.  You will accordingly not be able to rely upon most of the rules made under FSMA for the protection of clients of financial services businesses, and you will not have the benefit of the UK’s Financial Services Compensation Scheme. This document is only directed at (a) persons who have professional experience in matters relating to investments (being ‘investment professionals’ within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”)), and (b) High net worth companies, trusts etc of a type described in Article 49(2) of the FPO (all such persons being “relevant persons”).  RSEG’s services are available only to relevant persons and will be engaged in only with relevant persons. This report must not be acted or relied upon by persons who are not relevant persons.  Persons of a type described in Article 49(2) of the FPO comprise (a) any body corporate which has, or which is a member of the same group as an undertaking which has, a called up share capital or net assets of not less than ( i ) in the case of a body corporate which has more than 20 members or is a subsidiary undertaking of an undertaking which has more than 20 members, £500,000 and (ii) in any other case, £5 million, (b) any unincorporated association or partnership which has net assets of not less than £5 million, (c) the trustee of a high value trust within the meaning of Article 49(6) of the FPO and (d) any person (‘A’) whilst acting in the capacity of director, officer or employee of a person (‘B’) falling within any of (a), (b) or (c) above where A’s responsibilities, when acting in that capacity, involve him in B’s engaging in investment activity.

Net Reservoir Mapping – A Geologist’s Key to Reservoir Definition

Net Reservoir Mapping – A Geologist’s Key to Reservoir Definition

When it comes to prospecting for hydrocarbon-bearing rock formations at the basin level, geologists utilize net reservoir maps to help define fluid-rich intervals within geological units.

To develop an effective net reservoir map, knowledge of what geological properties separate productive rock from non-productive rock is essential. Positive production trends can be associated with geologic parameters to identify characteristics with the most influence on reservoir quality and well results. These relationships can be taken a step further by tying specific well log signature cut-offs to production estimations. These cut-offs, as observed by the dashed lines in Figure 1, provide a benchmark for geologists to use in their attempt to differentiate hydrocarbon-bearing intervals from non-hydrocarbon-bearing intervals. These can be both positive and negative relationships.

The application of these cut-offs to each respective geological property highlights the vertical intervals within a formation that correspond to promising reservoir rock. Net reservoir is defined by observing regions where this reservoir rock, as suggested by each property, overlaps in depth. This interval is represented by the green blocks in the chart.

Mapping the thickness of overlapping cut-offs across all the available data points in the basin provides quick insight into the most promising future drilling locations, with more granularity than your average top-to-bottom averaging exercise.

FIGURE 1 | Net Pay Type Log

Surviving the Oil Downturn By Outsourcing Business Processes

RS Energy Group Disclosure Statement:

© Copyright 2020 RS Energy Group Canada, Inc. (RSEG). All rights reserved.

All trademarks, service marks and logos used in this document are proprietary to RSEG. This document should not be copied, distributed or reproduced, in whole or in part. The material presented is provided for information purposes only and is not to be used or considered as a recommendation to buy, hold or sell any securities or other financial instruments. Information contained herein has been compiled by RSEG and prepared from various public and industry sources that we believe to be reliable, but no representation or warranty, expressed or implied is made by RSEG, its affiliates or any other person as to the accuracy or completeness of the information. Such information is provided with the expectation that it will be viewed as part of a mosaic of analysis and should not be relied upon on a stand-alone basis. Any opinions expressed herein reflect the judgment of RSEG as of the date of this document and are subject to change at any time as new or additional data and information is received and analyzed. RSEG undertakes no duty to update this information, or to provide supplemental information to anyone viewing this material.  To the full extent provided by law, neither RSEG nor any of its affiliates, nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the information contained herein. The recipient assumes all risks and liability with regard to any use or application of the data included herein.

Caution Regarding Forward-Looking Statements:

This public communication may contain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These statements are based on our current expectations about future events or future financial performance. In this context, forward-looking statements often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” or “target” or other words that convey uncertainty of future events or outcomes.

These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. When evaluating the information included in this communication, you are cautioned not to place undue reliance on these forward-looking statements, which reflect our judgment only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.

Note to UK Persons:

RSEG is not an authorised person as defined in the UK’s Financial Services and Markets Act 2000 (“FSMA”) and the content of this report has not been approved by such an authorised person.  You will accordingly not be able to rely upon most of the rules made under FSMA for the protection of clients of financial services businesses, and you will not have the benefit of the UK’s Financial Services Compensation Scheme. This document is only directed at (a) persons who have professional experience in matters relating to investments (being ‘investment professionals’ within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”)), and (b) High net worth companies, trusts etc of a type described in Article 49(2) of the FPO (all such persons being “relevant persons”).  RSEG’s services are available only to relevant persons and will be engaged in only with relevant persons. This report must not be acted or relied upon by persons who are not relevant persons.  Persons of a type described in Article 49(2) of the FPO comprise (a) any body corporate which has, or which is a member of the same group as an undertaking which has, a called up share capital or net assets of not less than ( i ) in the case of a body corporate which has more than 20 members or is a subsidiary undertaking of an undertaking which has more than 20 members, £500,000 and (ii) in any other case, £5 million, (b) any unincorporated association or partnership which has net assets of not less than £5 million, (c) the trustee of a high value trust within the meaning of Article 49(6) of the FPO and (d) any person (‘A’) whilst acting in the capacity of director, officer or employee of a person (‘B’) falling within any of (a), (b) or (c) above where A’s responsibilities, when acting in that capacity, involve him in B’s engaging in investment activity.

Despite Historic Drop in Crude Oil,  Pure Gas Plays Set to Rise

Despite Historic Drop in Crude Oil, Pure Gas Plays Set to Rise

Austin, TX (September 9, 2020) — Enverus, the leading oil and gas SaaS and data analytics company, has released its latest FundamentalEdge report which reviews upstream and midstream activity in two active natural gas basins: the Appalachian, composed of the Marcellus and Utica shales in Pennsylvania and Ohio, and the Haynesville, in Louisiana and Texas.

Along with the overall economy, the energy industry was drastically impacted by the COVID-19 pandemic. Operators were forced to readjust their 2020 plans as prices fell due to oversupply in the market. These revised 2020 activity plans called for reduced rig activity and reduced production outlooks from most operators, particularly those in oil-directed plays.

The oversupply in the crude market and the subsequent price drop have lowered activity in crude-directed plays. While this activity reduction is needed to help balance the crude markets, associated gas in these areas will also be taken off the market as a result. To offset the drop in associated gas, dry gas plays will need to fill the gap — and this will require higher prices to incentivize production.

“While the Saudi-Russian price spat earlier this year, followed by coronavirus pandemic, rocked crude oil demand, gas-reliant industries like heating and power weathered much better,” said Rob McBride, senior director of Strategic Analytics at Enverus.

“For all that happened to oil, to some degree the inverse is true for natural gas, and that’s evident in the Appalachian and Haynesville basins,” McBride said. “Natural gas is well poised for the near future. Since the historic crash a few months ago, gas has slowly crept up, but drilling rigs haven’t yet followed suit.”

Members of the media can download a preview of the full report or contact Jon Haubert to schedule an interview with one of Enverus’ expert analysts.

Key Takeaways:

Appalachian Marcellus and Utica:

  • In terms of production, the Marcellus and Utica plays have held strong through the pandemic. Production dropped at the start of the year, and then dropped further in May as wells were shut-in. However, volumes have recovered to levels higher than the start of 2020.
  • While production in the Marcellus and Utica has battled through the pandemic, rigs have fallen as a result of COVID-19. That yields the question: How can production be up if new wells aren’t being drilled? The answer is DUCs. The DUC inventory in the Appalachian has been drastically decreased as operators have chosen to complete wells that have already been drilled in the past, as opposed to running rigs and drilling new wells.
  • Rigs have fallen off in the Appalachian, but there are still rigs running and new wells being drilled. Production is expected to continue to climb in the Marcellus and Utica. The Mountain Valley Pipeline (MVP) is expected to come online in early 2021, which will add 2 Bcf/d of takeaway capacity to the region and send gas to the Transco Zone 5 region. Should MVP meet the same fate as the Atlantic Coast Pipeline, which was canceled in early July, pipeline bottlenecks could be seen in the region as early as mid-2021. Enverus does not expect this to happen.

Haynesville:

  • In 2020, Haynesville production showed some resiliency by growing through May while the rest of the US started to decline in April. However, since then, production has declined and currently is down 0.6 Bcf/d year to date.
  • With the drop in crude oil prices, higher natural gas prices are needed to make pure gas plays economical. Higher gas-directed production will offset the production losses from associated gas in order to meet demand in the US. As production grows, additional takeaway capacity is needed from the play. At least four pipeline projects have been proposed to transport gas from the Haynesville to demand in the Gulf Coast.

Surviving the Oil Downturn By Outsourcing Business Processes

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About Enverus
Enverus is the leading energy SaaS company delivering highly-technical insights and predictive/prescriptive analytics that empower customers to make decisions that increase profit. Enverus’ innovative technologies drive production and investment strategies, enable best practices for energy and commodity trading and risk management, and reduce costs through automated processes across critical business functions. Enverus is a strategic partner to more than 6,000 customers in 50 countries. Enverus is a portfolio company of Genstar Capital. Learn more at Enverus.com.

A Conventional Approach Could Pay Off for Investors

A Conventional Approach Could Pay Off for Investors

Oil and gas investors are no longer focused on rapid production growth and are placing more importance on a company’s ability to return value to shareholders. Favored companies have low sustaining capital efficiencies and the ability to generate free cash flow.

This pivot by investors makes Canadian conventional plays, such as the Bakken, Shaunavon and Madison (Figure 1), attractive as their low declines translate into competitive capital efficiencies. The high permeability of conventional plays, meaning oil and gas can easily move through reservoir rock, provides operators with the ability to further shallow declines and increase hydrocarbon recoveries through techniques such as water flooding and CO2 gas injection schemes. Some Canadian fields decline as little as 12% per year versus as much as 70% for shale plays.

The variable geology of conventional assets does not provide the same robust, predictable and repeatable inventory as unconventional plays such as the Montney. With investors no longer paying a premium for rapid production growth, operators have slowed drilling and softened concerns around inventory in conventional fields.

FIGURE 1 |  Conventional Oil, Gas Plays in Canada

Surviving the Oil Downturn By Outsourcing Business Processes

RS Energy Group Disclosure Statement:

© Copyright 2020 RS Energy Group Canada, Inc. (RSEG). All rights reserved.

All trademarks, service marks and logos used in this document are proprietary to RSEG. This document should not be copied, distributed or reproduced, in whole or in part. The material presented is provided for information purposes only and is not to be used or considered as a recommendation to buy, hold or sell any securities or other financial instruments. Information contained herein has been compiled by RSEG and prepared from various public and industry sources that we believe to be reliable, but no representation or warranty, expressed or implied is made by RSEG, its affiliates or any other person as to the accuracy or completeness of the information. Such information is provided with the expectation that it will be viewed as part of a mosaic of analysis and should not be relied upon on a stand-alone basis. Any opinions expressed herein reflect the judgment of RSEG as of the date of this document and are subject to change at any time as new or additional data and information is received and analyzed. RSEG undertakes no duty to update this information, or to provide supplemental information to anyone viewing this material.  To the full extent provided by law, neither RSEG nor any of its affiliates, nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the information contained herein. The recipient assumes all risks and liability with regard to any use or application of the data included herein.

Caution Regarding Forward-Looking Statements:

This public communication may contain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These statements are based on our current expectations about future events or future financial performance. In this context, forward-looking statements often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” or “target” or other words that convey uncertainty of future events or outcomes.

These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. When evaluating the information included in this communication, you are cautioned not to place undue reliance on these forward-looking statements, which reflect our judgment only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.

Note to UK Persons:

RSEG is not an authorised person as defined in the UK’s Financial Services and Markets Act 2000 (“FSMA”) and the content of this report has not been approved by such an authorised person.  You will accordingly not be able to rely upon most of the rules made under FSMA for the protection of clients of financial services businesses, and you will not have the benefit of the UK’s Financial Services Compensation Scheme. This document is only directed at (a) persons who have professional experience in matters relating to investments (being ‘investment professionals’ within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”)), and (b) High net worth companies, trusts etc of a type described in Article 49(2) of the FPO (all such persons being “relevant persons”).  RSEG’s services are available only to relevant persons and will be engaged in only with relevant persons. This report must not be acted or relied upon by persons who are not relevant persons.  Persons of a type described in Article 49(2) of the FPO comprise (a) any body corporate which has, or which is a member of the same group as an undertaking which has, a called up share capital or net assets of not less than ( i ) in the case of a body corporate which has more than 20 members or is a subsidiary undertaking of an undertaking which has more than 20 members, £500,000 and (ii) in any other case, £5 million, (b) any unincorporated association or partnership which has net assets of not less than £5 million, (c) the trustee of a high value trust within the meaning of Article 49(6) of the FPO and (d) any person (‘A’) whilst acting in the capacity of director, officer or employee of a person (‘B’) falling within any of (a), (b) or (c) above where A’s responsibilities, when acting in that capacity, involve him in B’s engaging in investment activity.

Tullow — Torn to Pieces or Swallowed Whole?

Tullow — Torn to Pieces or Swallowed Whole?

Sharks in the Water — Part Four

 

Following our recent three-part series highlighting supermajors,  and before we turn your attention to independent “sharks” — companies with solid balance sheets, long-term growth strategies and cash to spend on acquisitions from stressed rivals we want to offer our best guess as to where the remains of struggling Tullow Oil wind up in the feeding frenzy.

If you’re looking to dive deeper into our Sharks in the Water series and see what we have to say about the independent sharks check out Independent’s Day our white paper that looks at what keeps sharks like Woodside, Aker BP, Canadian Natural Resources, and others—swimming.

Whence Tullow?

When your CEO and exploration director both resign “by mutual agreement,” your latest high-profile exploration wells offer heavy sour oil instead of the light sweet crude your neighbors found, high debt and low commodity prices force the suspension of your dividend, you lay off 35% of your staff and your stock drops 20-fold in a 100-day span, all is not well.

Unfortunately, we believe Tullow may not be cut out for this world, at least not as we had grown to know it: a preeminent global exploration firm with special expertise in the Atlantic Conjugate Margin and a resume that included the world-class Jubilee field development in Ghana. Following disappointing results in Guyana where the company is “thinking carefully about how to proceed.” Tullow’s admirable exploration portfolio seems to be unraveling:  write-down of all value in a Jamaican exploration license it is likely to relinquish in July, its Ugandan assets selling to French supermajor Total, a Mauritania exit, dilution or sales of Namibia, Suriname and Kenya assets in the works and declarations of force majeure in Kenya and Côte d’Ivoire.

This is not a game. Real people with kids and spouses, mortgages, and hopes and dreams, will be impacted. We would be sad to see the famed explorer go. It seems only a matter of time before the dreaded announcement that the company has engaged an international investment bank “to assist in evaluating strategic alternatives.” We ask ourselves some questions: Who will buy Tullow? Will it be taken out in one great shark swallow, perhaps by a supermajor or dark horse? Will it be torn to pieces and its portfolio disassembled piecemeal?

Surviving the Oil Downturn By Outsourcing Business Processes

Figure 1

We see ExxonMobil or Total as the most likely and able to execute a corporate takeover of Tullow. Either would have a full appreciation for and understanding of the explorer’s specialized expertise in the Atlantic conjugate margin, and both would be keen to take on great assets as well as great people. Between the two, ExxonMobil and Total have interests in 1,847 contracted blocks, but only eight in which Tullow also has interest. Of those eight, seven in Uganda are already destined for Total’s portfolio in a $575 million deal set to close in the second half of 2020. Beyond Uganda there seems to be little block overlap (and thus synergy) between the potential acquirers and Tullow, but at a country-level things look brighter, with ExxonMobil already in seven and Total in nine of Tullow’s 14 countries (see Figure 2). Total, however, has been the more aggressive buyer in Africa where the bulk of Tullow’s portfolio resides, completing nine deals in the past three years to ExxonMobil’s four. If there will be a corporate transaction, our money’s on Total as even the biggest sharks are looking to focus, not dilute, their efforts now.

Separate asset transactions seem more likely, though. With 91 blocks, 51 are operated in Latin America, the Caribbean and Africa — plus a decommissioning effort at the U.K. Thames gas field and satellites — Tullow is a bit like a buffet line with something for everyone. Its stated goal of raising a billion dollars to reduce net debt, strengthen the balance sheet and secure a more conservative capital structure will be more than halfway met by the sale of its Uganda assets to Total, leaving a route for Tullow to survive by strategically shedding assets. Here’s how we think that would play out.

In Suriname and Guyana, we don’t see a clear buyer. Eni is our favorite, as the Italian supermajor must want to plant a flag in an easier Latin American asset than its Venezuelan Perla oil field. But if the oil price drop has blunted Eni’s appetite, an entry here may not rank high compared to its active exploration and production ventures in Mexico and Trinidad & Tobago and Argentina’s Malvinas Basin. Total, a partner in one operated and one non-operated Tullow block in Guyana, will likely be gun-shy following the disappointing Jethro and Joe exploration results and had already re-focused its efforts on Suriname just ahead of Apache’s Maka-1 discovery. Tullow’s Suriname blocks don’t seem to be prime acreage yet, leaving Equinor or Cairn Energy as long-shot candidates to take on additional interest there.

Surviving the Oil Downturn By Outsourcing Business Processes

Figure 2

Tullow operates three offshore Argentina blocks, two in partnership with Pluspetrol and Wintershall (see Figure 2 – map). Total, ExxonMobil, Eni and Equinor all have assets in the area. Though we’ve already tagged Total as a “great white” in the acquisition waters, our money is on ExxonMobil and Qatar Petroleum, its partner in three adjacent exploration blocks. Qatar Petroleum would be keen to keep close to the supermajor, in the ongoing hope that relationship leads to further investment in its home country. Beyond that, we see Wintershall potentially picking up interest in the two Tullow blocks where it is already a 27% partner, especially this early in the exploration cycle. The German explorer demonstrated its appetite for Latin American exploration opportunities by picking up four blocks in Brazil’s Potiguar and Ceará basins in 2018, marking its debut in the country.

In Peru, Tullow is unlikely to have suitors following operator Karoon’s disappointing dry hole Marina 1 on Block Z-38, which will probably lead to the block being relinquished within a year. Tullow’s other three blocks in the country are caught up in various stages of political football and probably worthless. Offshore Jamaica, we see Eni as a potential buyer for Tullow’s large Walton Morant license and its undrilled Colibri prospect, though a rank exploration asset such as this will get a low valuation.

Moving to Africa, we assume Tullow will strive to keep its highest-yielding projects, mostly producing fields in Gabon and Côte d’Ivoire. In Côte d’Ivoire, Tullow confirmed it is looking to farm out more equity in its seven onshore blocks where it holds 60% (Figure 3). It’s not inconceivable that 30% partner Cairn, with operating experience in Senegal, might take on more equity or even operatorship from Tullow. Since majors are likely to balk at buying onshore assets with an incomplete 2D seismic survey (contracted to Sinopec Geophysical but suspended due to COVID-19), other interested parties will probably have to be deep-pocketed independents or Chinese explorers, potentially making for a small field and a tough sale.

Surviving the Oil Downturn By Outsourcing Business Processes

Figure 3

Tullow always prized its Ghanaian assets, even as it struggled recently to meet production targets. We can’t see the firm pulling out of Ghana completely, but making equity available in any of these countries would help meet the billion-dollar sales target. If so, we would not see Total as a bidder. Despite its apparent interest in Occidental’s assets in Ghana as part of a larger deal that fell apart earlier this year, Total CEO Patrick Pouyanné recently asserted that the explorer was never really that interested in getting involved in the Ghana licenses.

With Total looking to farm out some of its 25% equity in its Kenya licenses with Tullow, it won’t want any more interest. Again, Chinese companies are the best bet for Tullow here, with various ones, including CNOOC, rumored to have been sniffing around the Total opportunity.

In the Comoros, it is anyone’s guess what will happen on Tullow’s three frontier exploration blocks. With its appetite for risk at an all-time low, the firm will choose its strategy here based on the results of 3D seismic acquired in late 2019. The other operators and non-operated participants in the Comoros are all junior companies, none are capable of operating and funding a deepwater well should Tullow decide to withdraw. It will take a new entrant to keep things going here.

Lastly, Tullow’s assets in Namibia will surely be on the block and should garner some interest thanks to the country’s IOC-friendly government and good fiscal terms. The Cormorant 1 well, drilled on Tullow’s Block PEL 37 in 2018, came up dry, prompting India’s ONGC to withdraw from the block, which remains highly exploratory. If Total finds oil in its very large deepwater Venus prospect later this year, there will be plenty of suitors willing to take up Tullow’s interest, likely including ExxonMobil and Portugal’s Galp.

Let us know if you’d like to get on a call and chat about any of this. With our extensive international database and team of 27 international scouts, we’re always game to engage on these and other topics!

Stay tuned for the next several installations of Sharks in the Water, in which we’ll give you our take on some independent E&Ps with potentially large dorsal fins: Aker BP, CNR, Hess, Hunt, Murphy, Suncor, and Woodside.

Sharks in the Water Series:

Part One
Part Two
Part Three

The Oil & Gas Industry Searches for the Truth Amid COVID-19

The Oil & Gas Industry Searches for the Truth Amid COVID-19

These are great times for pundits. We consume so much conflicting data daily; it seems anyone can predict just about anything — proving their point by cherry picking data.

It appears the economy has come roaring back. But has it?

Wage growth has been stellar — at least it seems so when you ignore the fact that recent wage growth is calculated for those still employed, totally discounting  those who have lost their jobs.

Home sales are recovering — but only for those who still have jobs and can take advantage of low mortgage interest rates.

We’ve been told we will have an effective COVID-19 vaccine by the end of the year — but, in the name of expediency, that vaccine may not be backed up by normal, scientifically-sound testing and efficacy studies.

The current truths we’d like to organize our lives around all come with inherent uncertainties — so, they’re not really truths at all.

In the oil and gas world, we’ve clung to the belief that a post-COVID world will resume the consumption patterns and continue to drive demand for oil and gas. Hundreds of millions of people in China and India will be buying cars in the next 10 years and cement factories around the world will ramp up production to meet the construction demand for cement.

Remember infrastructure?

We have been promised that the U.S. will embark on an infrastructure modernization program that will restore demand for everything from steel to cement to gasoline.

We have been promised our industry will heal as demand begins to overtake supply.

Some thoughts on supply

In March 2016, the Obama administration slapped sanctions on Russia for its invasion and annexation of Crimea.

The most critically negative aspect of the sanctions, as far as Russia was concerned, was the stoppage of technology transfer to Russia, especially in the oil and gas sector. Although a temporary waiver allowed the joint venture between Rosneft and ExxonMobil to finish one well in the Kara Sea, further investments by any financial, E&P, oilfield service or cloud computing companies are highly constrained. This is impairing Russia’s ability to modernize its oil and gas industry.

Russia needs western E&P technology.

Forecasted production in Russia is expected to stay stable through 2023 at about 11.5 million barrels of oil a day — but this estimate assumes $60-$70/bbl and a weak ruble trading at around 1 U.S. dollar to 65 rubles.

Surviving the Oil Downturn By Outsourcing Business Processes

Source: Energy Insight:57 Oxford Institute of Energy Studies, September 2019; James Henderson, Director, Natural Gas Research Programme, OIES Ekaterina Grushevenko, Research Fellow, Skolkovo Energy Centre, Moscow

The assumption of a $60-$70 price for Brent is problematic, and current Brent pricing would imply an even more pronounced decline in Russian output. The assumption of a weak ruble seems to be solid, as shown by the chart below from exchangerates.org.uk.

Surviving the Oil Downturn By Outsourcing Business Processes

Russian proven reserves are sufficient to meet domestic consumption needs for nearly 81 years, but since oil exports are a significant component of its GDP — 10% (Russia) vs. 0.38% (U.S) — it will continue to need increased production to finance its domestic and international policy aims.

Surviving the Oil Downturn By Outsourcing Business Processes

Russia’s biggest potential reserve base is in the Arctic, with some estimates of reserves of barrels of oil equivalent pegged north of 240 billion barrels.

Sanctions, however, cripple Russia’s ability to acquire the offshore technology needed to exploit these reserves, and a weak ruble would make the technology expensive, even if sanctions were lifted.

You could make the argument that President Trump has held off on easing or eliminating sanctions against Russia because it would harm his re-election chances, but that he might consider lifting them if he is re-elected, especially if doing so could be messaged as a job creator for oilfield service and large E&P companies.

Easing sanctions could benefit larger oilfield service and some large E&P companies, but it would ultimately add dollars to the Russian Federation’s budget for expansionist aims that would probably collide with America’s national security interests, and would ease the economic pressures on rival China’s demand needs, since China takes 35% of Russia’s exported oil.

Surviving the Oil Downturn By Outsourcing Business Processes

It would also add to world supply and put downward pressure on prices in the future.

Like most folks in the patch, I’ve always thought that rising prices would translate into improvements in public equity prices. However, as I’ve checked oil and gas equity prices against spot prices, I’ve seen a curious inverse relationship when oil prices quoted in the financial markets go up, the public equity values seem to go down. Below is a graph of Energy Information Administration spot prices versus the XLE ETF closing price from late 2019 through today.

Surviving the Oil Downturn By Outsourcing Business Processes

As COVID-19 concerns attributable to the rising death rates from late March to early April 2020 ramped up, the equity values in the XLE ETF seemed to shrug off demand destruction worries, even through the day spot prices blasted into negative territory.

Starting in mid-June, however, there has been a disconnect. As spot prices have risen, the equities in the XLE ETF have lost ground.

Surviving the Oil Downturn By Outsourcing Business Processes

Is the market afraid that improving prices will increase supply and essentially act as a choke on future price moves?

One thing seems certain — the truths we count on today may turn out to be the lies of tomorrow.

Credit Markets Reopen for Levered E&P Refinancing

Credit Markets Reopen for Levered E&P Refinancing

Several exploration and production (E&P) companies in August accessed debt markets to refinance near-term maturities despite carrying higher-than-average debt loads. Antero Resources (AR), Range Resources (RRC), Southwestern Energy (SWN) and Occidental Petroleum (OXY) issued new bonds to repay debt coming due from 2021 to 2023 despite carrying one to three more turns of leverage than peers. Here, we define leverage as the ratio of a producer’s net debt to its earnings before interest, taxes, depreciation and amortization (EBITDA). If Producer A generates $1 billion in EBITDA annually and owes $2 billion in net debt, its leverage could be described as 2x; Producer A would be one turn more levered than Producer B with a leverage ratio of 1x.

The transactions send a positive signal to the E&P industry that even levered producers of size can access capital markets to refinance debt at reasonable rates, below 10% in our opinion. We believe higher commodity prices and the strength of broader high-yield market, the latter largely driven by unprecedented central bank stimulus, are responsible for helping E&Ps access debt capital markets amid these difficult industry conditions.

Figure 1 compares the average implied yield for a basket of E&P issuers to a broader high-yield index before and after the COVID-19 crisis. When E&P yields dropped below 10% in July, producers who needed financing were able to access markets at more reasonable levels than previous months, leading to a strong response from producers to tap debt markets.

FIGURE 1 | E&P Issuer Yields Relative to BofA US High Yield Index

Surviving the Oil Downturn By Outsourcing Business Processes

Source | Enverus, FactSet, FRED Federal Reserve Bank of St. Louisoil

RS Energy Group Disclosure Statement:

© Copyright 2020 RS Energy Group Canada, Inc. (RSEG). All rights reserved.

All trademarks, service marks and logos used in this document are proprietary to RSEG. This document should not be copied, distributed or reproduced, in whole or in part. The material presented is provided for information purposes only and is not to be used or considered as a recommendation to buy, hold or sell any securities or other financial instruments. Information contained herein has been compiled by RSEG and prepared from various public and industry sources that we believe to be reliable, but no representation or warranty, expressed or implied is made by RSEG, its affiliates or any other person as to the accuracy or completeness of the information. Such information is provided with the expectation that it will be viewed as part of a mosaic of analysis and should not be relied upon on a stand-alone basis. Any opinions expressed herein reflect the judgment of RSEG as of the date of this document and are subject to change at any time as new or additional data and information is received and analyzed. RSEG undertakes no duty to update this information, or to provide supplemental information to anyone viewing this material.  To the full extent provided by law, neither RSEG nor any of its affiliates, nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the information contained herein. The recipient assumes all risks and liability with regard to any use or application of the data included herein.

Caution Regarding Forward-Looking Statements:

This public communication may contain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These statements are based on our current expectations about future events or future financial performance. In this context, forward-looking statements often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” or “target” or other words that convey uncertainty of future events or outcomes.

These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. When evaluating the information included in this communication, you are cautioned not to place undue reliance on these forward-looking statements, which reflect our judgment only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.

Note to UK Persons:

RSEG is not an authorised person as defined in the UK’s Financial Services and Markets Act 2000 (“FSMA”) and the content of this report has not been approved by such an authorised person.  You will accordingly not be able to rely upon most of the rules made under FSMA for the protection of clients of financial services businesses, and you will not have the benefit of the UK’s Financial Services Compensation Scheme. This document is only directed at (a) persons who have professional experience in matters relating to investments (being ‘investment professionals’ within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”)), and (b) High net worth companies, trusts etc of a type described in Article 49(2) of the FPO (all such persons being “relevant persons”).  RSEG’s services are available only to relevant persons and will be engaged in only with relevant persons. This report must not be acted or relied upon by persons who are not relevant persons.  Persons of a type described in Article 49(2) of the FPO comprise (a) any body corporate which has, or which is a member of the same group as an undertaking which has, a called up share capital or net assets of not less than ( i ) in the case of a body corporate which has more than 20 members or is a subsidiary undertaking of an undertaking which has more than 20 members, £500,000 and (ii) in any other case, £5 million, (b) any unincorporated association or partnership which has net assets of not less than £5 million, (c) the trustee of a high value trust within the meaning of Article 49(6) of the FPO and (d) any person (‘A’) whilst acting in the capacity of director, officer or employee of a person (‘B’) falling within any of (a), (b) or (c) above where A’s responsibilities, when acting in that capacity, involve him in B’s engaging in investment activity.

Rig and Fracture Activity Response in Real-Time

Rig and Fracture Activity Response in Real-Time

Oilfield activity levels have changed rapidly in response to falling commodity prices this spring. Enverus’ near real-time activity analytics, however, show a stark difference in how completion and drilling activity is responding. This has important implications for operators, oilfield service providers and forecasters.

Figure 1 displays the average monthly Lower 48 horizontal rig count and the average monthly L48 active hydraulic fracture pad count, indexed to January 2018. Additionally, we plotted the ratio of rigs to active fracture pads. The chart shows several interesting trends.

  • Active fracture pads and rigs display a loosely coupled relationship. Rigs and fracture pads exhibit similar macro behaviors over the last 2.5 years. Completion activity tends to be more seasonal, however, falling off later in the year as budgets are exhausted and rising in 1Q as those budgets are reset.
  • The ratio line helps illustrate shifts in rig and fracture activity parity. At current efficiency levels, parity between rigs and fracture activity occurs at a range of 3-3.5 rigs for every fracture crew (see Band of Parity). As we move above that range, we begin to build drilled uncompleted (DUC) well inventory, and as we move below it, we work through the DUC inventory. The significant increase in the ratio this year from March to May indicates that we moved into a much accelerated pace of building DUC inventory.
  • Fracture activity bottomed in May, while rigs are still seeking the bottom. The ratio has transitioned into DUC burn territory as completion activity has bounced back, and we expect completions to continue to outpace drilling for the remainder of the year.

FIGURE 1 | Rig and Fracture Activity

Surviving the Oil Downturn By Outsourcing Business Processes

Source | Enverus

 

RS Energy Group Disclosure Statement:

© Copyright 2020 RS Energy Group Canada, Inc. (RSEG). All rights reserved.

All trademarks, service marks and logos used in this document are proprietary to RSEG. This document should not be copied, distributed or reproduced, in whole or in part. The material presented is provided for information purposes only and is not to be used or considered as a recommendation to buy, hold or sell any securities or other financial instruments. Information contained herein has been compiled by RSEG and prepared from various public and industry sources that we believe to be reliable, but no representation or warranty, expressed or implied is made by RSEG, its affiliates or any other person as to the accuracy or completeness of the information. Such information is provided with the expectation that it will be viewed as part of a mosaic of analysis and should not be relied upon on a stand-alone basis. Any opinions expressed herein reflect the judgment of RSEG as of the date of this document and are subject to change at any time as new or additional data and information is received and analyzed. RSEG undertakes no duty to update this information, or to provide supplemental information to anyone viewing this material.  To the full extent provided by law, neither RSEG nor any of its affiliates, nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the information contained herein. The recipient assumes all risks and liability with regard to any use or application of the data included herein.

Caution Regarding Forward-Looking Statements:

This public communication may contain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These statements are based on our current expectations about future events or future financial performance. In this context, forward-looking statements often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” or “target” or other words that convey uncertainty of future events or outcomes.

These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. When evaluating the information included in this communication, you are cautioned not to place undue reliance on these forward-looking statements, which reflect our judgment only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.

Note to UK Persons:

RSEG is not an authorised person as defined in the UK’s Financial Services and Markets Act 2000 (“FSMA”) and the content of this report has not been approved by such an authorised person.  You will accordingly not be able to rely upon most of the rules made under FSMA for the protection of clients of financial services businesses, and you will not have the benefit of the UK’s Financial Services Compensation Scheme. This document is only directed at (a) persons who have professional experience in matters relating to investments (being ‘investment professionals’ within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”)), and (b) High net worth companies, trusts etc of a type described in Article 49(2) of the FPO (all such persons being “relevant persons”).  RSEG’s services are available only to relevant persons and will be engaged in only with relevant persons. This report must not be acted or relied upon by persons who are not relevant persons.  Persons of a type described in Article 49(2) of the FPO comprise (a) any body corporate which has, or which is a member of the same group as an undertaking which has, a called up share capital or net assets of not less than ( i ) in the case of a body corporate which has more than 20 members or is a subsidiary undertaking of an undertaking which has more than 20 members, £500,000 and (ii) in any other case, £5 million, (b) any unincorporated association or partnership which has net assets of not less than £5 million, (c) the trustee of a high value trust within the meaning of Article 49(6) of the FPO and (d) any person (‘A’) whilst acting in the capacity of director, officer or employee of a person (‘B’) falling within any of (a), (b) or (c) above where A’s responsibilities, when acting in that capacity, involve him in B’s engaging in investment activity.

Surviving the Oil Downturn By Outsourcing Business Processes

Surviving the Oil Downturn By Outsourcing Business Processes

As operators strive to streamline costs and operations, business process outsourcing (BPO) proves effective in meeting these demands. BPO is when one company hires another company to perform some of its essential work processes.

BPO processes typically fall into two major areas — back office and front office processes. Back office processes are the company’s internal operating processes, such as HR, IT and accounting. Front office processes pertain to any situation where the company interacts directly with the customer. Examples include customer support, telemarketing and marketing.

When faced with economic challenges, many companies scrutinize internal processes and operations to identify any opportunities for cost control or increased operational efficiency. Changes to staffing needs are a side effect of a market downturn.

Operators of all sizes outsource both back- and front-office functions. BPO can be especially beneficial to smaller oil and gas operators or private equity-backed operators, like Camino Natural Resources LLC (read case study), that need to run lean operations or do not have the resources to build the staff needed to perform processes in-house. Larger operators might decide to outsource a process that was traditionally done in-house after realizing the service provider can perform the job more efficiently at a lower cost. A recent article by Ernst and Young highlights how the benefits of outsourcing are even more magnified during market downturns when companies offload non-core functions to focus on strategy and survival.

Below are five benefits operators can expect from outsourcing business processes:

1. Cost savings

Many oil and gas companies choose to outsource certain processes because the service provider can perform the work more cost effectively than the operator can in-house. For example, Enverus estimates it costs an operator an average of $3-$5 per JIB mailing in-house, compared to $1.87 with Enverus Print & Mail services. For smaller-sized companies, outsourcing revenue check mailing eliminates the need to purchase and maintain expensive printing equipment along with other overhead expenses. Southwestern Energy reduced its internal support costs by half with Enverus Call Center Services.

2. Increased efficiency and staff productivity

Outsourcing non-core processes, like answering landowner inquiries or processing massive amounts of revenue detail, allow organizations to use their highly-skilled knowledge employees like accountants, division order analysts and land teams to focus on core areas of the business. While monthly check runs are essential to upstream operations, accountants were hired to perform financial reporting and analysis, not stuff and mail envelopes each month. Utah Gas Company’s accounting team gained the equivalent of 24 working days back per year for each of its three team members by outsourcing their print and mail to Enverus. Another operator, Montage Resources Inc., increased its internal efficiency post-merger by outsourcing its print and mail and owner support to Enverus Call Center services.

3. Scalability

Business processes might have seasonal fluctuations. For example, accounting teams must prepare for tax season each year. Depending on the provider, BPO can provide an easy way to scale owner support up or down, avoiding the need to hire additional in-house staff with the right knowledge. Merger and acquisitions are also common in oil and gas. When an operator’s owner count grows literally overnight, the ability to scale support to meet the needs of additional owners is essential.

4. Access to specific expertise and resources

If you choose the right provider, BPO eliminates the need for hiring certain skill sets in-house and provides access to industry experts. With the many nuances specific to oil and gas accounting processes, oil and gas companies would experience more benefits by choosing a service provider that has expertise in the industry. For example, Enverus Owner Relations Services are designed for oil and gas. Our team has years of experience handling revenue data, printing monthly revenue checks and statements, and providing dedicated call support for operators. Also, because we are focused on oil and gas, we can provide additional benefits that other types of providers can’t match. Enverus Print & Mail services are SOC 2, Type II compliant and work with an operator’s bank to administer MICR testing.

5. Maintain business continuity

Outsourcing certain processes can ensure those tasks continue, regardless of the circumstances at your office or situations that might occur with team members. For example, Enverus mail house processes are automated, ensuring your files are routed for printing without the need for direct intervention. Enverus also maintains active relationships with multiple print vendors, in multiple geographies, so there are ready alternatives should any of our primary print vendors go offline. One operator said outsourcing their print and mail made it easier to switch to a virtual working environment when the pandemic arrived.

Conclusion

While BPO provides many compelling benefits for oil and gas operators, it is not a decision to be made lightly. After your company does the work of deciding if it makes sense to outsource, you must choose which service provider to hire. You should analyze vendors based on how it would affect your internal staff, processes and workflows. Some vendors may require more implementation time than others. You should also check for any hidden costs or fees with these services. Enverus Owner Relations Services are designed for oil and gas. Our team has years of experience handling revenue data, printing monthly revenue checks and statements, and providing dedicated call support for operators.

Learn more about Enverus Owner Relations Management Services here, email us at [email protected] or call us at 1-800-282-4245.

Fill out the form for the whitepaper, 3 Ways Operators Can Prepare Now for 1099 Season.

Surviving the Oil Downturn By Outsourcing Business Processes