With January 2023 now in our rearview mirror, we wanted to take a moment to look back at some of the key analyst takes on energy trends published by our Enverus Intelligence® | Research (EIR) team. By evaluating the effects of these factors, you’ll be better equipped to make confident business decisions.
Read on to stay informed and to keep a pulse on upcoming energy opportunities in 2023.
German gas demand falls in 4Q22: No Russian imports anticipated (Jan. 10, 2023)
High gas prices and government policy aimed at restricting consumption reduced German industrial gas demand by 23% in 4Q22 versus the previous four-year average, with residential and commercial consumption down 21% in the same period. Despite supplying more than half of Germany’s gas imports in 2021, Russian imports dropped to zero in September, so for the full year, Russian supply accounted for just 22% of a total 1,449 TWh of imports. Supply was made up by additional imports from Netherlands, Belgium and Norway, according to German energy regulator Bundesnetzagentur. Higher than normal winter temperatures (up 1.1 degrees Celsius versus average), high storage levels (above 90% now) and a 33% decline in gas exports from Germany to its neighbors also helped balance the market in 2022. Following the September 2022 attacks on the Nordstream pipeline system, we assume no Russian imports this year, with the shortfall made up by LNG deliveries to new Baltic receiving terminals and additional pipeline supplies .
Strong outlook for oil market in 2023 (Jan. 11, 2023)
We believe 2023 will be another exciting year for energy markets. Commodity fundamentals for oil look strong, while natural gas prices may weaken given limited expected U.S. export growth. In addition, we expect energy transition-related investments to continue to grow on the back of the Inflation Reduction Act in the U.S. and anticipate other countries will look to compete with accommodative U.S. policy.
CHK’s Brazos Valley sale: A key strategic goal achieved (Jan. 20, 2023)
The sale of CHK’s Brazos Valley (Eastern Eagle Ford) asset for $1.425 billion checks off a key strategic goal the company laid out in 2022 and moves it closer to a simplified gas portfolio. However, it comes at the cost of diluting CHK’s EBITDA multiple and FCF yield as we calculate the asset transacted at 3.2x EBITDA and a 15% FCF yield versus CHK currently trading at 4.1x and 10%, respectively. That cash flow is unlikely to be fully replaced should the proceeds be rolled into a new asset as acquisitions by CHK are likely to target lower production but higher upside gas positions. Next up for CHK will be executing on a sale of their remaining oil-weighted asset in the Eagle Ford. Buyer WildFire Energy I (Warburg Pincus and Kayne Anderson sponsored) is getting the position for less than the value of current production and high grading the quality of their existing Brazos Valley inventory. With hundreds of undeveloped locations economic in today’s oil price environment, WildFire will likely add rigs and grow production after CHK invested little recent capital in the asset .
Shift in M&A: Grabbing assets before they disappear (Jan. 24, 2023)
The biggest shift in recent M&A is the escalating cost of high-quality inventory, and MTDR’s purchase of Advance Energy Partners continues the trend. We calculate the company paid ~$2.7 million each for about 150 core Delaware locations that break even at an average of $37/bbl. The deal is in line with 2H22 M&A in the Midland Basin from FANG ($2.5 million per location average for two deals) and MRO in the Eagle Ford ($2.2 million per location). Despite the high headline price for inventory, MTDR was able to keep the purchase accretive to free cash flow (11% on the deal vs. 9% MTDR pre-deal) assisted by its premium valuation that sits above most SMID-cap peers. The company was wise to grab the assets now as core M&A opportunities are dwindling, and top-tier inventory is likely to continue to appreciate in price. We see Ameredev II, Percussion, Tap Rock and Tall City as among the remaining Delaware Basin privates holding substantial sub-$45/bbl breakeven inventory.
North American drilling and completion spending on the rise in 2023 (Jan. 27, 2023)
Starting Jan. 20 , SLB kicked off earnings season, followed this week by the other major integrated OFS companies (BKR, HAL). Consensus among the Big 3 was that North American (NAM) drilling and completion (D&C) spend would increase ~15% in 2023. Constrained by the tightness of the pressure pumping market, we would agree with a 15% – 20% uplifit in NAM D&C spending. Enverus’ current outlook only calls for ~5% increase in total L48 completion activity in 2023 as compared to a ~20% increase in 2022; we expect well cost inflation to run ~12% E/E in 2023. While the pace of NAM activity growth decelerates, SLB, BKR and HAL agreed that international markets, especially the Middle East and Latin America, are poised to grow significantly in 2023 as countries refocus on energy security — giving rise to the belief that we are in the early stages of a multi-year upcycle in global oil and gas investment.
On the domestic front, HAL, RES and LBRT all stated that the pressure pumping market looks to remain tight in 2023 and into 2024. Demand for high-tech fracture fleets (electric and DGB) continues to grow, particularly as gas prices move lower. Both LBRT and HAL see attrition, supply chain challenges and limited new build capacity with long lead times working to keep the market tight and disciplined. RES stated that lead times on new builds are pushing out past 12 months currently, and they expect their fleet count to remain flat throughout 2023. We currently expect fracture fleet capacity to grow ~5%, net of attrition, in 2023; however, if pressure pumpers fail to retire older fleets as new builds come online, marketed supply of fracture fleets could grow as much as 10%.
Global jet fuel demand: A post-pandemic reality check (Jan. 27, 2023)
Back in 2020, we anticipated global jet fuel demand would not return to pre-COVID levels until 2024. Today, busy airports and being stuck in traffic have some thinking that consumption of transportation fuels must have recovered or exceeded pre-pandemic draws. However, the truth is far from that. Global gasoline, jet fuel/kerosene consumption in 2022 remain roughly 2.5 MMbbl/d below pre-COVID (2019) levels. The composition of oil demand is changing — away from transportation fuels and toward petrochemical feedstocks .
Make better business decisions with EIR’s energy expertise
EIR’s analyst insights are crucial to your business decision-making. Being ahead of the game is vital in this rapidly evolving sector and keeping abreast of new developments is essential for success. To stay informed about the energy industry, follow EIR on LinkedIn where you’ll receive more information on the outlook for 2023 and beyond. We’re excited to offer valuable guidance for navigating the constantly changing energy landscape.
About Enverus Intelligence Research
Enverus Intelligence Research, Inc. is a subsidiary of Enverus and publishes energy-sector research that focuses on the oil and natural gas industries and broader energy topics including publicly traded and privately held oil, gas, midstream and other energy industry companies, basin studies (including characteristics, activity, infrastructure, etc.), commodity pricing forecasts, global macroeconomics and geopolitical matters. Enverus Intelligence Research, Inc. is registered with the U.S. Securities and Exchange Commission as a foreign investment adviser.