As we enter the month of July, it is crucial to evaluate the energy landscape of June and gain a deeper understanding of the trends and advancements that have emerged. Our Enverus Intelligence® | Research (EIR) team has meticulously examined these critical factors and is now ready to provide you with their expert analysis. This valuable information can greatly influence your business decisions and help you capitalize on the upcoming energy opportunities in 2023.
Going green with hydrogen (June 27, 2023)
The Inflation Reduction Act provides a much-needed boost to green hydrogen production economics. Projects claiming the 45V PTC have the potential to yield favorable returns and even outpace gray hydrogen economics in certain situations. Nevertheless, developers and investors continue to wait for additional guidance surrounding the use of grid electricity paired with renewable energy credits to determine eligibility for the incentives.
CIVI’s Permian debut highlights the high cost of remaining M&A opportunities (June 21, 2023)
EIR applauds CIVI’s efforts to build scale and expand beyond a consolidated DJ Basin, which are necessary, in their view, if the company doesn’t want to take the PDCE route and sell. However, the premium paid to capture NGP portfolio companies Hibernia and Tap Rock reflects an escalating scarcity problem for strategic acquisition opportunities in the Permian. On a blended basis, EIR calculates CIVI paid about $2.2 million per location in its $4.7 billion of deals to secure inventory with an average breakeven of just beneath $50/bbl. That screens relatively higher on a price-to-quality metric compared to past M&A like OVV’s purchase from EnCap, which had a similar valuation but on average higher quality inventory. Between the two transactions, EIR is more constructive on the Tap Rock deal both for the quality of the rock and the price paid while the Hibernia deal looks more expensive for less productive acreage. Positively, a large PDP wedge combined with a scaled back drilling program (seven rigs combined going to four post-close) drives FCF accretion for CIVI, and there are at least six years of inventory to maintain cash flow.
PLUG’s plan to power the hydrogen revolution (June 16, 2023)
Plug Power’s (PLUG) shared their vision for participating across the entire hydrogen value chain at its recent analyst day. PLUG has set ambitious growth targets encompassing hydrogen production, electrolyzer manufacturing, fuel cells and their diverse applications. New announcements during the analyst day included a first-of-its-kind portable hydrogen refueler, along with additional contracts for their fuel cell powered forklifts and containerized electrolyzers. EIR likes their use of strategic partnerships and internal capabilities to effectively align supply with demand, as well as address transportation and storage requirements. PLUG’s strategy addressed the prevalent chicken-or-the-egg problem we see within the hydrogen sector. While attempting to address all steps of the hydrogen value is a potential distraction to the company, EIR sees this integrated approach as necessary until more players emerge and can specialize in specific components of the value chain.
ESTE improves inventory life and quality with Novo deal (June 16, 2023)
EIR views ESTE’s equity gains, up about 7% recently, as being largely driven by the improvement of its inventory profile via its purchase of EnCap’s Novo in conjunction with NOG. The companies paid a combined $1.5 billion for 57 Mboe/d and more than 200 gross locations, with most of the undeveloped value in Eddy County, New Mexico. With an average breakeven price of $42/bbl, the roughly 120 net locations added by ESTE are strongly accretive to its inventory quality, and Novo holds a fairly decent proportion of undeveloped DSUs allowing ESTE to optimize development with relatively low child risk. The deal boosts ESTE to more than 300 net locations in the Delaware of high-quality (sub-$50/bbl breakeven) inventory, with the company also having more than 100 net locations in the Midland meeting that threshold. EIR calculates the buyers paid around $1.7 million each for the inventory after adjusting for production value of $1.2 billion, although they will have to absorb Novo’s high-decline production. With no plans to increase its rig count, the deal adds two to three years of inventory life for ESTE with the company not attempting to hold Novo production flat.
IEA moves in step with EIR (June 14, 2023)
The IEA released their Oil 2023 report, an outlook to 2028 on global oil supply and demand dynamics. The IEA forecasts global oil demand to peak in 2028 at 105.7 MMbbl/d and the lion’s share to be driven by Asia Pacific growth, aligning with EIR’s expectation. Jet fuel accounts for the majority of the oil demand growth as long-distance travel rebounds following the alleviation of COVID restrictions. The most notable difference in EIR’s forecast is in their yearly demand call, EIR forecasts 1.9 MMbbl/d growth in 2023 whereas the IEA forecasts 2.5 MMbbl/d in 2023.
2023 hurricane season in the GOM (June 7, 2023)
The first named storm of the 2023 Atlantic hurricane season, Tropical Storm Arlene, formed in the GOM June 2 but soon weakened to a tropical depression. Should a hurricane disrupt oil and gas production in the GOM, EIR’s 50 case estimates 40% of total GOM production would be shut in and take seven days to recover, while their P10 case estimates 90% shut-in and 16 days to recover. Absent a direct hit on energy infrastructure, EIR estimates hurricane-related shut-ins historically have not led to material and durable changes to oil prices. In the past, the U.S. Strategic Petroleum Reserve has responded to the GOM shut-ins with releases to offset supply losses. But depressed SPR stocks could weaken its ability to respond to any supply disruptions this season. (read related blog here)
In the fast-paced energy sector, being informed is essential for making well-informed business decisions. At EIR, we strive to keep you up to date with the latest developments, which is why we invite you to join our LinkedIn community . By following us, you’ll gain valuable insights on the energy outlook for February and beyond and be better equipped to navigate the ever-changing energy landscape with the guidance of EIR.
About Enverus Intelligence Research
Enverus Intelligence Research, Inc. (“EIR”) 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. Energy Transition Research is a research division of EIR focused on topics including Power & Renewables, CCUS, Low-Carbon fuels and Emissions. Enverus Intelligence Research, Inc. is registered with the U.S. Securities and Exchange Commission as a foreign investment adviser. See www.enverus.com/disclosures for additional information.